Defining the Right Size for Your Venture Capital Fund

Choosing the optimal size for your venture capital fund is one of the most critical decisions you will make as a fund manager. Beyond reflecting your investment thesis, fund size determines how you operate, the types of investments you pursue, and your team’s ability to sustain the fund over its lifespan. In today's resource-intensive, competitive fundraising environment, these considerations are more important than ever.

As such, I am refreshing and expanding on the article How to Determine Your Venture Capital Fund Size by VC Lab from 2020. The VC fund capital-raising landscape has become increasingly difficult with funds raising ~$105B in 2024, down from $200B+ in 2021 (Venture Capital Journal) leaving few standards unchanged. General Partners (GPs) are feeling the pressure of this shift, including heightened standards around track record and operational sophistication. This article includes a more in-depth look at team size, GP track records, and back office requirements but does not seek to capture all considerations for GPs seeking to raise a fund.

Why Does Fund Size Matter?

Fund size dictates every aspect of your fund’s strategy, from the stage and volume of investments to the resources available for operations and team salaries. Larger funds typically target later-stage investments or a higher number of deals, while smaller funds often focus on earlier stages. Importantly, fund size directly impacts the management fee—a standard 2% annually—which is used to cover operating costs, as well as GP and team compensation. 

Aligning Fund Sizes with Investment Stage and LP Implications

Venture capital funds are often grouped by size, which influences their focus and strategy. Early-stage funds—those targeting Pre-Seed, Seed, or Series A rounds—tend to be smaller, typically ranging from $10M to $50M. Larger funds may deploy capital at later stages but require a significantly broader LP base to achieve scale.

When deciding on fund size, consider your target stage and geography. Smaller funds often align with niche or regional strategies, while larger funds tend to require a more diversified approach.

Another important consideration is the types of Limited Partners (LPs) you can raise from capital from based on your fund size. Institutional LPs that do not have specific emerging manager programs are often unable to write checks <$5M. They also frequently have limitations that do not allow them to commit more than 10% of the fund. Therefore, they lean toward investing in funds that are >$50M. If you are raising a <$50M fund, make sure you have a strong network of High Net Worth Individuals (HNWIs), Family Offices, and Fund of Funds. If you are raising a >$50M fund, having a similar network in addition to institutional LP connections will be important. 

It is important to remember that institutional investors require much more sophisticated processes, policies, and documentation. A robust institutional-grade data room (i.e. firm policies, DDQ, fund model, operational process documentation, etc.) will assist in meeting stringent diligence requirements. 

Setting the Right Fund Size for First-Time Managers

For new managers, fund size should reflect your realistic fundraising capacity and operational goals. In this difficult fundraising environment, a general guideline is to aim for a fund size no greater than 5 times (down from 10 times in 2021, according to VC Lab) the amount you can confidently raise from your immediate network. For example, if you estimate your network can commit $3M, you should likely aim for a $15M fund. This will allow you to get to a successful first close quickly and enhance your ability to attract new LP prospects for later closes.

Minimum Viable Fund Size

Before committing to a fund, it’s crucial to determine the minimum viable size that aligns with your portfolio construction and budget. Portfolio construction typically involves targeting a specific number of investments, maintaining reserves for follow-on funding, and ensuring sufficient diversification to reduce risk. For example, a fund aiming for 20 investments with an average initial check size of $250K would require at least $5M of investable capital. This amount does not account for management fees, fund service provider costs, and organizational costs.

You can help account for this by doing a budgeting exercise. A smaller fund may seem feasible in theory but could fail in practice if costs are underestimated. GPs must carefully assess whether their management company and fund can function sustainably under the proposed economics. 

Moreover, once a fund executes a first close, GPs are legally obligated to operate under the terms of the Limited Partnership Agreement (LPA). For instance, a first close at $3M may not provide enough capital to execute the investment strategy or cover costs, potentially leading to a fund that is neither profitable nor impactful. Before finalizing your first close, consider: if no additional capital is raised, will this fund still be worth pursuing?

Team Size Considerations

Team size should scale appropriately with your fund size to balance operational efficiency and cost management. Over-hiring can lead to unnecessary payroll burdens, while under-hiring may result in a lack of bandwidth to manage fund responsibilities effectively. You will notice that team size has changed significantly since the original article was published in 2020. Rising salaries and payroll costs account for much of the difference – your management fee does not go as far as it used to. Therefore, making strategic hiring decisions is critical.

In today’s market, rising costs and a challenging fundraising environment mean that smaller funds may struggle to maintain full-time teams. For example, with a $20M fund, the annual management fee of $400K must cover payroll, tech stack, office space, marketing and branding, management company tax, and more. This is rarely sufficient for more than one full-time Partner, particularly in cities with high operating costs. 

Below is a general guide to team composition based on fund size:

Rather than hiring full-time employees, many funds have benefitted from leveraging outsourced support. Fractional resources across finance, investor relations, marketing, and operations can help lower costs while maximizing resources as you scale your fund size. When making your service provider selection, it is highly recommended that you work with professionals with deep venture capital expertise rather than generalists.

While these guidelines provide a baseline, your specific team structure will depend on your investment strategy and fund goals. It’s crucial to ensure that each team member has clear responsibilities and the necessary expertise to execute the fund’s strategy. Additionally, as team size increases, so do coordination challenges and operational costs, which must be factored into your management company’s budget.

Back Office Requirements by Fund Size

The operational complexity of a venture capital fund grows significantly with its size, requiring robust back-office support. Funds exceeding $30M or those with institutional LPs typically require an annual audit, which is a costly but necessary process to meet LP expectations. Smaller funds may avoid this expense, but the tradeoff could be reduced credibility with potential investors.

A fund administrator is another critical service provider. While fund admins are invaluable for managing day-to-day operations like investments, capital calls, distributions, and financial reporting, they need active oversight to ensure timely and accurate deliverables. It’s essential to understand their limitations; fund admins typically do not handle capital call planning, portfolio construction, or fund modeling. These responsibilities remain with the GPs or require additional external support.

Tax compliance is another area that demands attention. Every year, you’ll need a tax team to file fund taxes and issue K-1s to LPs. Delays in these processes can damage LP relationships, so managing your tax team effectively is crucial to meeting deadlines and maintaining credibility. 

Finally, recent changes to SEC rules and regulations require exempt reporting advisors (ERAs) to implement a comprehensive AML program that requires most funds without a Compliance Officer to bring on a vendor who can implement this for them.

You will want to work with reputable service providers with extensive VC experience to avoid LP concerns throughout the fundraising process. It’s important to note that the costs of these service providers—auditors, fund admins, and tax professionals—can be substantial and are likely to increase each year due to inflation and rising service demands. These expenses reduce the fund’s investable capital, meaning less money is available for making investments. Portfolio construction must account for these costs to ensure the fund’s financial viability and ability to meet return targets.

GP Experience and Track Record

The ability to raise a certain fund size is closely tied to the GPs experience and track record. LPs typically evaluate GPs on their prior investment success, including their ability to get substantial allocations and build ownership. In 2021, a strong professional network and clear investment thesis were enough for a GP to raise a $20M fund. In 2025, a GP needs to meet that criteria and also demonstrate a successful track record. Larger funds have consistently required a proven successful track record and demonstrable experience managing capital at scale.

First-time managers with limited track records often find it challenging to raise funds exceeding $30M without significant existing LP relationships or co-GPs with established credentials. Conversely, GPs with multiple successful exits and deep sector expertise can more easily justify larger fund sizes. LPs also expect that GPs of larger funds have experience managing operational complexity, including team oversight, fund operations, and investor reporting.

Preferred performance will also vary with investment stage experience. Larger return multiples are expected at earlier stages due to increased ownership for less capital, risk-reward dynamics, and longer growth trajectories. Later-stage investments generally involve less risk and have lower return expectations. 

When determining your fund size, assess whether your track record and experience align with LP expectations for that scale. A misalignment can lead to prolonged fundraising cycles or challenges in closing capital commitments.

General Partner Commitments

LPs expect GPs to have “skin in the game” through personal commitments, often around 1% to 2% of the total fund size. This contribution is typically made over time through capital calls. For instance, with a $20M fund, GPs might collectively need to commit $200K to $400K, spread across the investment period of the fund. Ensure that your team’s financial capacity aligns with your proposed fund size.

Four Steps to Define Your Ideal Fund Size

1. Assess Your Network’s Fundraising Potential
Start by mapping out your network of potential LPs. Estimate each contact’s likely contribution and their probability of investing. Multiply the potential contribution by the probability to calculate a weighted estimate for your total fundraising potential. This “network valuation” forms the foundation for determining your fund size.

2. Align Fund Size with Strategy
Match your fundraising potential to a realistic investment strategy. A smaller fund may suit an early-stage or regional focus, while a larger fund could support a diversified, later-stage approach. Evaluate whether your target fund size enables you to deliver the returns LPs expect while maintaining operational efficiency.

3. Validate Your Budget and Team Structure
Calculate whether your management fees will cover operational costs, deal-related expenses, and team salaries. Rising costs and a tight labor market mean that many funds under $20M may require lean operations or part-time GPs. Ensure your chosen size is sustainable for your team.

4. Test Your Commitment Readiness
Consider your team’s ability to contribute the required GP commitment and the time investment needed to raise and operate the fund. Fundraising often takes 18 to 24 months, with larger funds requiring a full-time effort from multiple GPs.

Long Term Considerations

Launching a fund is a decade-long commitment, often extending to 12 or 15 years. Choose a fund size that aligns with your long-term goals and ensures the ability to deliver consistent returns. Smaller funds may offer greater agility and alignment with niche markets, while larger funds demand broader resources and networks.

In today’s fundraising climate, it’s essential to approach fund sizing with a balance of ambition and practicality. By carefully evaluating your network, strategy, and team needs, you can define a fund size that sets the foundation for success.

Strut Consulting partners with venture capital firms to deliver tailored solutions for fractional finance, fund operations, investor relations, marketing, and events. Our experienced team is committed to empowering GPs to achieve their goals and excel at every stage. To learn how we can support the management and growth of your fund. Reach out to to book a complimentary strategy call.

Navigating the Use of Placement Agents in Venture Capital Fundraising: Tips, Tricks, and What to Look Out For

The most recent Global Fundraising Report by Venture Capital Journal shows that capital raised in Q3 2024 surpassed previous quarters, but optimism remains limited due to increased market consolidation. While the average fund size has hit an all-time high, many fund managers are grappling with challenges in the market and are turning to placement agents (PAs) for the first time to secure commitments.

This article offers practical advice on what to consider when selecting a PA, including tips and potential pitfalls to avoid.

Key Considerations When Seeking a Placement Agent

• Professionalism and Reputation: Assess the agent’s track record and industry reputation by conducting thorough diligence. It’s essential that their approach aligns with your fund's goals and image. Look for agents with a solid history of successful placements, not just impressive resumes.

• Fund Size and PA Effectiveness: Effectiveness often correlates with fund size. Placement agents generally prioritize larger funds because their commission-based payment model incentivizes them to pursue big checks. If you manage a smaller fund, you may find that a PA's efforts are less effective or focused, as smaller commitments reduce their overall payout. Consider if your fund’s size warrants working with a PA at all.

Matching with the Right Placement Agent

• Interview Extensively: Don't let the PA just interview you—flip the script. Ask why they believe they can be successful with your particular fund. How many clients do they work with at the same time? How much focus will they dedicate to your fund? Crucially, how much of your target raise do they realistically believe they can help you secure? Interview multiple agents and compare their answers.

• Assess Their Network: A PA's value is rooted in their connections. Make sure their network aligns with the type of LPs you’re targeting. For example, if you're raising a $25M fund, a PA whose main connections are sovereign wealth funds or large endowments may not be the best fit based on the check size those institutions typically write. Ensure the PA’s relationships are suited to the size and focus of your fund.

• Ask for References: Request references from funds that share similar characteristics to yours—same fund size, stage, industry, and target LPs. Speak to GPs who’ve worked with the PA to understand how the agent performed in comparable situations.

Key Contract Considerations

• Retainers: While retainers might feel like a risk, data shows that PAs often perform better with one in place. Consider whether paying a small monthly retainer could ultimately help secure the capital you need faster.

• Commission Rates: As a general rule, PAs charge 2%-3% for funds under $500M and 1%-2% for larger funds. Some contracts may have sliding scales that lower the commission rate after the PA hits certain thresholds. Be cautious of clauses that obligate you to pay a commission on future LP commitments for subsequent funds—they’re negotiable and should be pushed back on if possible.

• Exclusivity Clauses: Many PAs prefer exclusivity, but if you plan to work with multiple agents, ensure you define clear lanes to avoid duplicate outreach to the same LPs, which could appear disorganized. You can segment responsibilities by:

• Time: Work with one PA for a set period (e.g., 6 months) and another afterward.

• Region: Allocate LP contacts by geography based on the PA’s strengths.

• Type of LP: Assign different LP types to different PAs, such as family offices for one and institutional investors for another.

Milestones: Incorporate performance-based milestones into the contract. For instance, you could tie retainer payments to specific achievements, such as raising the first $10M, to incentivize progress.

How to Work Effectively with Your Placement Agent

• Regular Meetings: Set up weekly or bi-weekly check-ins to help maintain transparency, align strategies, and provide the opportunity to adjust tactics if needed. Use these meetings to ensure everyone has the necessary materials (e.g., one-pagers, ODD documents) and to evaluate which approaches are yielding results.

• Clear Processes: Clarify roles and responsibilities from the start. Who is taking the first call with an interested LP? Who sends the deck and follows up with access to the data room? A well-defined process can eliminate confusion and keep the fundraising effort on track.

• Avoid Audience Overlap: If you’re doing LP outreach concurrently with the PA, ensure the audience is clearly segmented (same as if you’re working with multiple PAs). Crossing wires risks looking disorganized and could diminish the professionalism of your outreach.

Placement agents can play a critical role in your fundraising success, but choosing and working with the right one requires careful consideration. From aligning their network with your target LPs to negotiating key contract terms like retainers and exclusivity, navigating this relationship thoughtfully can make all the difference. By following these tips, you can increase the odds of a smooth and successful capital raise while avoiding common pitfalls that may arise when partnering with a placement agent.

In a challenging fundraising environment, having the right PA on your side can unlock doors. But as always, it’s about finding the right fit for your fund’s unique goals and needs.

At Strut Consulting, our white glove Investor Relations service focuses on assisting VCs in refining their pitch, targeting LPs, creating data room materials, setting up LP onboarding processes, and ensuring our clients have the right tech stack for a successful raise. Ready to get started? Reach out to us here.

Navigating Unusual LP Requests: What’s Normal in Due Diligence and What’s Not

GPs are experiencing more than ever, a new wave of sensitive, and at times, intrusive requests from LPs during due diligence. While it’s standard to provide background information, track records, and compliance documents during the due diligence process, some recent asks are raising eyebrows and making GPs uncomfortable. These requests are not just intrusive—they could be a sign of deeper, strategic motives that GPs need to be aware of.

What’s Normal to Provide During Due Diligence?

In any fundraising process, there are certain pieces of information that GPs can expect to share with potential LPs:

• Background Information: This includes the history of the firm, its investment strategy, and bios of key team members. LPs need this to understand who they’re investing in and the firm’s approach to managing investments.

• Track Record: Performance metrics such as gross and net internal rates of return (IRRs), multiple on invested capital (MOIC), and distributions to paid-in capital (DPI) are standard fare. These metrics provide LPs with a clear view of the firm’s past success and future potential.

• Portfolio Overview: High-level data on portfolio companies, including sector allocation and a breakdown of unrealized versus realized investments, helps LPs assess diversification and risk.

• Compliance Documents: Providing documents like the private placement memorandum (PPM), limited partnership agreement (LPA), due diligence questionnaire (DDQ), and annual reports are a necessary part of the legal and regulatory process.

When Requests Cross the Line

However, in recent months, my clients (GPs of a diverse array of VC funds) have reported a surge in requests that push the boundaries of what’s typical—and acceptable:

• LP Contact Information: Some GPs have been asked to provide the contact details of all existing LPs in the firm. Sharing a full list of LPs, especially with their contact information, not only breaches privacy but also raises concerns about the LP’s intentions. Many have been wondering whether these requests are linked to an effort to raise their own outside capital or to bolster their ability to spin out placement agent services. Although providing contact information for one to three LPs to serve as references is normal and acceptable, asking for the entire list is simply not.  

• Portfolio Company CEO Information: Another troubling request I have been seeing is asking for highly specific and all-encompassing valuation data alongside contact information of portfolio company CEOs. This kind of ask can be an attempt to gather data to fuel an LP’s own deal flow or investment strategy. Providing such detailed and direct contact information can expose portfolio companies to unsolicited communication and even competitive risks.

Why These Requests Are Problematic

These requests are more than just intrusive—they signal potential conflicts of interest and a breach of trust:

• Competitive Concerns: LPs might have their own investment arms, or they could be connected to competitors. Sharing sensitive information could inadvertently benefit a competitor or undermine the GP’s position in the market.

• Data Strategy: some LPs may use the data they collect to build their own investment strategies, leveraging the information GPs provide to their advantage.

• Privacy and Trust: GPs have a duty to protect the privacy of their LPs and the executives within their portfolio companies. Sharing overly sensitive information can damage relationships and breach the trust that underpins successful partnerships.

Setting Boundaries: What GPs Should Never Provide

While GPs should be transparent and cooperative during due diligence, it’s crucial to set boundaries on what information is shared:

• LP Contact Information: This should be kept confidential. Instead of providing a full list, GPs can offer references from a few LPs who are willing to speak with potential investors.

• Portfolio Company CEO Details: Similarly, find a few founders who are willing to be your advocate and add their contact information to a list of references. Think strategically about who to include in order to create a holistic view of your ability to source, diligence, negotiate, and provide value.

• Granular Valuation Data: While sharing valuation methodologies may be necessary, GPs should resist providing highly detailed or company-specific valuation information (e.g., cap tables) that could be misused.

In this difficult fundraising climate, it’s understandable that LPs are seeking more information to mitigate their risks. However, GPs must remain vigilant about the boundaries of what’s appropriate to share. By setting clear limits and understanding the motives behind unusual requests, GPs can protect their firms, their LPs, and their portfolio companies from potential risks. Transparency is key, but so is safeguarding sensitive information in an environment where trust is increasingly valuable.

At Strut Consulting, our white glove Investor Relations service focuses on assisting VCs in refining their pitch, targeting LPs, creating data room materials, setting up LP onboarding processes, and ensuring our clients have the right tech stack for a successful raise. Ready to get started? Reach out to us here.