#38 VC Resource Wednesday: Fund Models

Hi Everyone! đź‘‹

Welcome to the VC Resource Wednesday. Each week on Wednesday, we’ll highlight some of our favorite resources for #VC CFOs and fund managers, #LP investors, and general industry enthusiasts/ people who want to learn. We’ll also reference past posts and resources so you have everything you need in one place!

Our recent post “#31 VC Fund Model & Budget - Free Download” was a huge hit - widely shared and downloaded. Check it out and please share your feedback!

Fund Models: Go From a Beautiful Disaster to a Return Driver

For VC/PE/hedge fund managers and investors of all types, fund models matter! A lot! Sure, every investor needs to be able to access and pick great investments.

A great fund model is a game changer - it can help a fund go from good to great, driving millions of dollars of additional returns for funds of all sizes and strategies.

Even though most investors learn this early on, fund models are often overlooked and can go quickly from “beautiful” to “beautiful disaster.” Below, we share details and insights to take your fund model to a return driver as you grow!

Portfolio Construction and How to Model

Recently, we featured Signature Block in one of our VC Resource Wednesday posts. They’re leading the way once again as we dive in today! From their recent post on portfolio construction (linked here):

“One of the most important topics to study as a fund manager is portfolio construction. The [fund] model will determine your check size, volume of investments, and other factors that ultimately lead to returns (or lack-thereof if poorly constructed).” Here’s Semil Shah on the importance of this topic: 

Portfolio Construction is what we, as GPs, are in the business to ultimately produce — it is our core job. The job involves other cool things, like hearing pitches, helping founders when we can, etc., etc… but at the end of the day, or at the end of the particular fund, what is built is a portfolio of (hopefully) uncorrelated assets.

What are the “the major drivers of portfolio construction, how they impact each other, and [what] trade-offs to consider?” If you want a version to compare to the one linked at the top of this post, here’s a Basic Venture Fund Model template you can use to forecast scenarios for your fund and better understand the levers at your disposal.

Stepping back, we also recommend starting with the back of the napkin, then Excel (the language most investors understand). Once you have your initial fund model ready, you can go deeper for a better understanding and to facilitate better investor conversations. To do this, we recommend checking out more detailed Excel models (shout out to Eniac Ventures), Tactyc, and/or Causal.

Happy modeling!

Additional Resources

  1. #2 VC Fund Model (Back to Basics)

  2. #3 VC Fund Budget (ASAP)

  3. #17 RTF (Return The Fund) Math: this post unpacks the math behind “RTF” and includes a simple calculator for VC fund managers. It takes into account concepts such as ownership, dilution, and ultimate enterprise value required for one investment to RTF.

  4. #31 VC Fund Model & Budget - Free Download: most widely shared and downloaded post of all-time :)

  5. #33 VC Resource Wednesday: Signature Block

  6. #35 VC Resource Wednesday: #OpenLP

That’s all for today folks! Thanks for your support and for spreading the word! Share this on Twitter or LinkedIn to help grow “the crew!”