Fund modeling? It’s one of those things everyone claims to understand, but the reality is: most people are just nodding along. And here’s the kicker: nailing it is absolutely essential. Why? Because fund modeling is the backbone of any VC fund.
Building a fund can be just like building a house: if the foundation isn’t solid and the blocks aren’t placed just right, the entire structure is at risk of falling over- and you best believe you’re falling with it.
The minority of the funds earn the majority of VC profits. Most of the funds are average or mediocre.
Fewer than 12.5% of first-time VC funds successfully raise follow-on funds. Harsh, but true - without a well-crafted fund model, the odds aren’t in your favor.
While perfecting individual parts of your strategy is important, the real gem lies in the foundation. A staggering 98% of funds remain average or mediocre because, in part, they fail to establish the essential building blocks needed to create a strong, scalable structure.
Your fund model needs these 6 essential blocks
Assumption Sheet – Here’s where the magic truly happens! This sheet is the beating heart of your model, interacting with every other block. It’s not about how much you have- it’s about your core assumptions and your ability to analyze and adapt them.
Portfolio Construction – The big question: how are you building your portfolio? Your approach here sets the tone for your entire fund strategy.
Portfolio Decomposition – Equally crucial: how are you selling your portfolio? Your exits define your returns, and understanding this process is non-negotiable.
Distribution Waterfall – This is where Points 2 and 3 collide. How will you distribute your proceeds? Nail this, and you’ll have LPs feeling confident about your execution.
Fund Summary & GP – Transparency is the name of the game. As your fund grows, fees, disclosures, and full transparency become non-negotiable essentials to earn and retain trust.
The Fund Dashboard – This is your pitch-perfect summary. It’s how you visually and succinctly convey your message and key metrics. Think of it as the first impression that needs to stick.
We can’t stress this enough: it’s not a one-size-fits-all approach. This is exactly why we do not share templates for people to use blindly; every fund is different, and applying generic assumptions without deep customization can lead to misleading conclusions.
Tailoring your assumptions to reflect your unique fund strategy is critical, so make sure you truly use your time to perfect the assumptions sheet.
Don’t be afraid to get creative here! Use charts, visuals, and any other tools that help clarify your assumptions and make them easier to digest. It’s all about making sure you have a clear, accurate picture of your fund’s potential.
