Learn how to start a fund with our founder's playbook. Get actionable advice on legal setup, fundraising, and investor relations for your new venture.
Every fund starts the same way: with a solid idea and a plan to back it up. Before you ever get into the weeds of legal structures or start chasing capital, you need to lay the groundwork. This means nailing down your unique investment thesis, doing the hard work of market research, and putting together a team that can actually execute. Get this part right, and everything that follows becomes infinitely easier.
Let's be clear: before a single legal document is drafted or you pitch your first potential investor, you have to build the bedrock of your fund. This is where you define your "why," figure out your unique edge, and prove your strategy has legs in the real world. I've seen too many new managers rush this part, and it's a critical mistake. A strong foundation makes every later step—from legal setup to fundraising—run so much more smoothly.
You're stepping into a massive arena. As of 2025, the global investment industry was managing over $145.4 trillion across some 150,000 different funds. It's not just a U.S. game, either. The Asia-Pacific region has exploded, accounting for 45% of new fund launches, which just goes to show how global the competition for capital really is. You can dig into more of these investment fund statistics to see how the market is shaping up for new managers.
Your investment thesis is more than just a strategy—it's the very soul of your fund. It’s the story that answers the most important question: why should your fund even exist? This narrative has to be crystal clear about what you invest in, how you create value, and what makes your approach genuinely different from the thousands of other funds out there.
A great thesis is both specific and defensible. For example, "investing in tech startups" is far too generic. A focused, compelling thesis sounds more like, "investing in seed-stage B2B SaaS companies in the Midwest that use AI to automate legacy industry workflows." That level of detail shows you have real expertise and have identified a clear, untapped market opportunity.
Key Takeaway: Think of your investment thesis as your north star. It guides every single decision, from how you source deals to how you talk to your investors. It needs to be clear, concise, and compelling enough to stop sophisticated Limited Partners (LPs) in their tracks.
Before you can really sell your vision, you need to have it down cold. A well-defined thesis is your roadmap, and it’s what will convince LPs that you have a coherent, repeatable process for generating returns.
Here's a breakdown of what a winning investment thesis needs.
| Component | Description | Key Questions to Answer |
|---|---|---|
| Target Market/Sector | The specific industry, geography, or technology you'll focus on. | Which sectors do you know inside and out? Where do you have an unfair advantage? |
| Investment Stage | The maturity of the companies you'll back (e.g., Pre-Seed, Series A, Growth). | What stage aligns with your team's expertise and network? What's your target check size? |
| Unique Angle | Your "secret sauce" or differentiated approach to sourcing, selecting, or adding value. | Do you have a proprietary deal flow source? A unique data-driven model? |
| Value Creation Plan | How you'll actively help your portfolio companies succeed beyond just capital. | Will you provide operational support, strategic guidance, or key introductions? |
| Exit Strategy | Your anticipated path to generating returns for your LPs (e.g., M&A, IPO). | What are the typical exit scenarios in your target market? |
Getting these components right isn't just an exercise; it's about building a narrative that is both ambitious and credible.
An idea is one thing; a viable investment opportunity is another. Now it's time to put your thesis to the test with rigorous, data-driven research. You need to confirm that the opportunity you've spotted is real, big enough to matter, and not already crawling with competitors.
Your research needs to answer a few critical questions:
This phase is all about getting an honest, unflinching look at your fund's viability. If you find out the market is too crowded or the opportunity is smaller than you thought, it’s far better to tweak your thesis now than to find out the hard way after you've already launched.
Trust me, starting a fund is almost never a solo mission. The skillset required is just too broad—you need someone who can manage investments, someone to handle the operations, another to navigate compliance, and of course, someone to manage investor relations. Putting together a founding team with complementary skills is one of the strongest signals you can send to LPs that you’re running a professional, well-rounded operation.
Ideally, your team covers the key bases: finance, operations, and legal/compliance. A classic setup might be a seasoned investor with a killer track record, an operations guru who can build scalable back-office systems, and an advisor who lives and breathes regulatory complexity. This kind of structure shows you’re not just good at picking winners—you’re capable of building and running a sustainable business.
And that regulatory piece is no joke. You have to navigate a complex web of laws right from day one, many of which are outlined in resources from the SEC.
This page on the Securities and Exchange Commission website is your starting point for understanding the foundational acts—like the Investment Company Act of 1940—that dictate exactly how funds must operate, register, and report. Knowing these inside and out isn't optional.
Let's be honest: the legal side of starting a fund is where many aspiring managers hit a wall. It’s a world of intimidating acronyms, dense documents, and very high stakes.
But you can get through it. The trick is to break this maze into manageable pieces. Getting your legal and regulatory house in order isn’t just about checking boxes; it’s about building a solid foundation that protects you, your investors, and the future of your fund.
This all starts with choosing the right legal entity. It's a foundational decision that will dictate everything from liability and taxes to how you operate daily. For most new funds, the choice usually comes down to two common structures.
In the United States, the most well-trodden path for private funds is the Limited Partnership (LP). In this setup, you, the manager, become the General Partner (GP). This gives you full operational control but also full liability. Your investors enter as Limited Partners, and their liability is capped at the amount they invest. LPs love this clear separation of roles.
The other mainstream option is a Limited Liability Company (LLC). An LLC gives liability protection to everyone involved and can be more flexible in how it's managed. Despite this, the LP model is still the gold standard in venture capital and private equity simply because it’s what institutional investors know and trust.
Here’s a quick breakdown of how they stack up:
| Feature | Limited Partnership (LP) | Limited Liability Company (LLC) |
|---|---|---|
| Management | Run by the General Partner (GP), who has total control. | Can be managed by members or a designated manager, offering more flexibility. |
| Liability | GPs have unlimited liability; LPs' liability is limited to their capital. | All members have limited liability, shielding their personal assets. |
| Investor Familiarity | The standard. Highly familiar and preferred by institutional investors. | Common for smaller or single-asset funds; less traditional for VC/PE. |
| Taxation | Pass-through taxation. Profits and losses flow directly to the partners. | Pass-through taxation, much like an LP. |
For most emerging managers trying to attract traditional LPs, the Limited Partnership is the path of least resistance. Its familiarity just makes fundraising conversations that much easier.
Once you've settled on a structure, it’s time to work with your lawyers to draft the core documents that will govern your fund. These aren't just formalities—they are the binding contracts that define your relationship with investors and set the rules for the next decade.
The two most important documents you’ll create are the Private Placement Memorandum and the Limited Partnership Agreement.
Private Placement Memorandum (PPM): Think of the PPM as your fund’s official disclosure document or prospectus. It lays out everything an investor needs to know: your investment thesis, the team's background, all potential risks, and the specific terms of the deal. It’s part sales pitch, part legal shield.
Limited Partnership Agreement (LPA): This is the legal backbone of your fund. The LPA gets into the nitty-gritty, detailing the rights and duties of both the GP and the LPs. It covers everything from capital calls and distributions to governance and the fund's lifespan.
Expert Insight: Do not try to save money on legal counsel. A great fund formation attorney is worth every penny. They do more than just draft documents; they provide strategic advice that will save you from incredibly expensive mistakes down the road. This is one of the most critical investments you'll make.
Finally, you have to figure out where you stand with the Securities and Exchange Commission (SEC). The Investment Advisers Act of 1940 is the law of the land here, and whether you must register as an Investment Adviser mostly depends on your Assets Under Management (AUM).
Thankfully, most new managers can operate under specific exemptions, which lets you avoid the painful and costly process of full SEC registration.
The two most common exemptions are:
Navigating these rules can be tricky, especially since you also have to deal with state-level "blue sky" laws. It’s critical to get this right from day one to stay out of regulatory hot water. For a much deeper dive into the specifics, our guide to navigating private fund rules can walk you through the details. A solid legal and regulatory framework is ultimately the foundation of your investors' trust.
A killer investment thesis is a great start, but it’s just an idea without a solid economic and operational engine to bring it to life. This is where the rubber meets the road—where you turn your strategy into a real business model that aligns your interests with your investors' and builds the machinery to execute flawlessly.
Frankly, getting the numbers and the back office right is what separates a great idea from a great fund.
The financial mechanics of your fund all boil down to its fee structure. This is how you, the General Partner (GP), get paid for your expertise and, hopefully, your outperformance. It's a delicate balancing act. You need to structure your fees to be attractive enough to compensate you and your team, but they also have to be fair and compelling to the Limited Partners (LPs) you’re asking to write the checks.
The most famous model in the private funds world is the classic "2 and 20" structure. It’s been the industry standard for decades and breaks down into two core components:
Management Fee (the "2"): Think of this as the cost of keeping the lights on. It’s typically a 2% annual fee based on the total capital investors commit to the fund. This fee covers your operational costs—salaries, rent, legal bills, software, and all the other overhead needed to run the business day-to-day.
Carried Interest (the "20"): This is the prize. "Carry" is your performance fee, a 20% share of the fund's profits. The crucial detail here is that carry is only paid out after your LPs have received their initial investment back in full. It’s the ultimate incentive to generate exceptional returns.
While "2 and 20" is the benchmark, the market has gotten a lot more crowded. We're seeing more and more emerging managers use their fee structures to stand out. It’s not uncommon to see a 1.5% management fee or a tiered carry that ratchets up as returns hit certain benchmarks. Your job is to land on a structure that makes sense for your specific strategy and your position in the market.
Sophisticated LPs will look right past a standard fee structure. They want to see that your interests are truly, deeply aligned with theirs. This is where hurdle rates and clawback provisions become non-negotiable. They are fundamental tools for building investor trust.
A hurdle rate sets a minimum return the fund must achieve before the GP can start taking any carried interest. For example, if you set an 8% hurdle, it means your LPs must get all their original capital back plus an 8% annualized return before you see a single dollar of carry. This proves you’re not just getting paid for mediocre performance; you're rewarded for generating real alpha.
A clawback provision is an essential safety net for your LPs. It’s a contractual clause that forces the GP to return any carried interest they’ve already been paid if later losses drag the fund's overall performance below the agreed-upon threshold. It protects investors from the nightmare scenario where a manager gets paid big on a few early wins, only for the fund to tank later on.
These terms aren't just legal jargon; they signal that you have skin in the game and are focused on long-term, sustainable success, not just quick hits. If you want to dive deeper into how these pieces fit together, check out our guide that offers a complete private equity fund structure explained.
Once you've locked in your fund’s economics, it’s time to build the operational infrastructure to support it. Let me be clear: you cannot do this alone. Assembling a team of trusted third-party service providers is one of the most critical decisions you'll make. These are the partners who deliver the transparency, compliance, and efficiency you'll depend on.
Your core operational team will almost always include these key players:
Choosing the right partners is everything. You need to look for firms with a proven track record working with funds of your size and strategy. Don't just shop on price—that’s a rookie mistake. Prioritize expertise and reputation. In a market moving this fast, you also want partners who understand modern tools; for instance, leveraging AI for financial analysis can give you a real edge in sourcing and portfolio management.
Ultimately, your operational partners build the framework that frees you up to focus on what you actually do best: finding and making great investments.
You've laid the foundation and defined the structure. Now comes the moment of truth: raising the capital. This is where your vision, strategy, and all the legal groundwork get put to the ultimate test.
Fundraising is the lifeblood of your venture. It's a demanding, often grueling process that requires relentless persistence, a story that connects, and a methodical approach to finding the right investors. Success isn't just about a great idea; it's about inspiring deep conviction in others. It truly is a blend of art and science.
First things first, you need to move beyond a vague idea of "investors" and build a specific, curated list of potential Limited Partners (LPs). One of the biggest rookie mistakes is casting a wide, generic net—it’s a surefire way to waste time and burn through your credibility.
Your goal is to pinpoint individuals and institutions whose investment mandates and risk appetites are a perfect match for your fund's thesis. Think of it as building a high-quality pipeline, not just a long list.
Different types of LPs operate on different scales and have vastly different priorities. Understanding these nuances is crucial before you even think about outreach. Tailoring your approach to each group will dramatically increase your chances of success.
| LP Type | Typical Check Size | Key Motivations & Concerns | Due Diligence Focus |
|---|---|---|---|
| High-Net-Worth Individuals & Angels | $50K - $250K+ | Access to unique deals, personal connection with the GP, speed of deployment. Concerns about liquidity and manager risk. | Your personal track record, the "story" behind the fund, and your network. |
| Family Offices | $1M - $10M+ | Long-term capital appreciation, diversification, direct co-investment opportunities. Can be very discerning and relationship-driven. | Alignment of values, GP's operational expertise, and long-term vision. |
| Institutional Investors | $10M - $100M+ | Meeting allocation targets, fiduciary duty, proven track records, institutional-grade operations. High bar for first-time funds. | Rigorous financial modeling, operational due diligence, legal structure, and team pedigree. |
As you can see, the investor who writes a $100K check is playing a completely different game than the institution writing a $10M one. Your pitch, your data room, and even your follow-up cadence need to reflect that reality.
To get a leg up, spend time exploring dedicated resources for Limited Partners. Getting inside their heads and understanding exactly what they look for is a massive advantage.
This visual really drives home the differences in check size and investment horizons, reinforcing why a one-size-fits-all strategy just won't cut it.
Your pitch deck is your number one marketing tool. It’s so much more than a collection of slides; it’s the narrative that brings your fund to life. A common pitfall is cramming it with jargon and overly complex financial models. The best decks I've seen are clean, concise, and tell a story that builds both trust and genuine excitement.
Your narrative needs a logical flow, guiding the potential LP from the market opportunity to your unique solution and, finally, to your team’s undeniable ability to execute. It must answer not just the what but the why—why this team, why this strategy, and why now.
Your pitch should generate more questions than it answers. The goal of the deck isn't to get a "yes" on the spot; it's to secure the next meeting. Leave them wanting more.
Brace yourself: fundraising is a marathon, not a sprint. We're talking hundreds of emails, dozens of meetings, and developing a thick skin for rejection. The keys to survival are staying organized and maintaining momentum.
Every piece of outreach should be personalized. A generic email blast is a dead end. Reference a mutual connection, mention a shared interest from their LinkedIn, or comment on a recent investment they made. Show them you've done your homework.
Be prepared for an exhaustive due diligence process. LPs will pick apart your track record, your legal docs, your operational setup, and your character. Complete transparency and quick, honest responses are your best friends during this phase.
Securing those first few commitments is a game-changer. It provides powerful social proof and creates a sense of urgency for other LPs sitting on the fence. Leverage that momentum to drive toward your first close, which officially gets your fund off the ground and allows you to start making investments. The road is tough, but with the right strategy and sheer persistence, you can turn your vision into a capitalized reality.
The fundraising marathon is over. Now, the real work begins. With capital secured, your focus pivots from raising money to putting it to work. This is where you deliver on the promises made in your pitch deck, deploying capital based on your thesis and actively managing your portfolio.
More than that, you're shifting from being a fundraiser to a full-time fiduciary and relationship manager. Building a world-class fund isn't just about the returns you generate; it's about building unbreakable trust with your Limited Partners (LPs). Every decision, from sourcing a deal to reporting on its performance, shapes your reputation—and in this business, your reputation is everything.
The heart of your day-to-day is now deal flow management. You need a systematic, repeatable process for finding, vetting, and closing investments that fit the strategy you sold to your investors. This isn't about chasing every shiny object that comes across your desk. It’s about discipline.
A well-oiled deal pipeline needs a few key components:
This operational rhythm is what separates the pros from the amateurs. Your ability to consistently find and execute quality deals is the engine that drives your fund's performance.
While deal-making gets the spotlight, your relationship with your LPs is the foundation of your long-term success. The best fund managers I know are masters of communication. They establish a regular cadence of updates that are transparent, insightful, and professional. It’s how you keep your current investors happy and ensure they’ll be there for your next fund.
This is so much more than just emailing a performance number once a quarter. True investor relations means providing context, sharing what you're learning from the portfolio, and being upfront about both the wins and the losses. To get this right, check out our detailed guide to investor relations for fund managers and start building a strategy that fosters real trust.
My Two Cents: Never, ever hide from bad news. Your LPs are sophisticated professionals; they know that not every investment will be a home run. Addressing challenges head-on—explaining what went wrong, the lessons learned, and how you're adapting—builds far more credibility than a flawless-looking track record ever could.
The market you're operating in is massive and growing. PwC projects that global Assets under Management (AuM) will climb to a staggering $145.4 trillion by 2025. This explosive growth is largely driven by investors looking for diversification in alternative assets like private equity and private credit. For new managers who can build a reputation for transparency and performance, this trend presents a huge opportunity.
A predictable, professional reporting schedule is non-negotiable. It’s a sign of respect for your investors' capital and a clear demonstration of your commitment to transparency. This isn't an afterthought; it should be a core part of your operational workflow from day one.
A solid communication plan should hit several key touchpoints throughout the year:
Ultimately, running a successful fund comes down to excelling at two things: flawlessly executing your investment strategy and managing your investor relationships with unwavering integrity. Get both right, and you're not just building a fund—you're building a firm that can last for decades.
Once you get past the high-level strategy and legal structures, the real, practical questions start to surface. I see it all the time with first-time managers. They’ve read the books and drafted the deck, but they’re wrestling with the tangible, day-to-day realities of actually getting a fund off the ground.
Getting straight answers to these nuts-and-bolts questions can make the entire process feel less intimidating. It’s about building the confidence you need to take that next big step.
A common shock for many new managers is the sheer cost of getting started. It's not just about paying the lawyers. You have to think about the entire operational stack you’ll need from day one: your fund administrator, auditor, data providers, and even professional insurance. These aren't luxuries; they're table stakes for running a fund that serious investors will even consider.
Let’s talk real numbers. The cost to launch a fund can swing wildly depending on how complex your strategy is and which service providers you choose, but going in with a realistic budget is non-negotiable. Don’t underestimate these foundational expenses.
Here’s a look at what you should probably plan for:
And that’s before you even think about paying yourself a salary or covering basic overhead. All said and done, it’s smart to have at least $100,000 to $250,000 in the bank just for the launch phase, well before management fees start kicking in.
Patience isn't just a virtue in this business; it's a requirement. From the moment you have your big idea to the day you hold your first close, you should plan for a 12 to 18-month journey. Sometimes, it takes even longer.
The fundraising part of the equation is almost always the long pole in the tent. You're not just pitching an idea; you're building relationships and guiding potential LPs through their own rigorous due diligence. That just takes time.
A Word of Advice: Fight the temptation to rush your first close. It's easy to get excited and take the first checks that come your way, but locking in a strong, respected anchor investor creates a ripple effect. Their commitment gives you momentum and makes every other LP conversation easier. A patient, strategic approach here will pay dividends for years to come.
Your first LPs will almost certainly come from your own network. We're talking about the people who already know you, trust your judgment, and have seen your track record up close. Start with your former colleagues, mentors, and successful founders you've worked with.
These initial "friends and family" investors are everything. They provide the social proof and validation you need to convince larger, more institutional LPs that you're a bet worth making. Landing those first few commitments is the hardest part of the entire fundraise, but they create a powerful snowball effect that will carry you forward.
Ready to stop wrestling with spreadsheets and run your fund like a professional? Fundpilot gives emerging managers the institutional-grade tools they need for polished reporting, streamlined operations, and audit-ready compliance. See how you can accelerate your growth and build investor trust by checking out Fundpilot.
