VC 102: Overcoming Early Obstacles

You’re a new venture capitalist. Congratulations!

But just like with anything, there are bound to be bumps in the road, especially in the early days. This applies to VCs coming out of bigger firms and VCs who come from an operator background. 

Winter Mead of Coolwater Capital coaches emerging VCs through the early stages, from getting off the ground to navigating initial challenges. We covered the who and how of breaking into venture capital in part one (hint: it takes actually doing some investing yourself).

But where do you turn when you hit those inevitable bumps? Go back to the basics.

“How much you are going to raise probably depends on how focused you are and how tight your thesis is,” he says. 

In other words, if you have a strong foundation for what you’re funding and why, investors will be asking to sign on the dotted line and get those routing numbers. 

On an episode of the How I Raised It podcast, Winter shares his tips for troubleshooting the common challenges facing emerging VC managers. Strap in for part two of his recommendations for beginner VCs.

Build your story

Fund management isn’t just picking a category and moving money around. You have to have a firm why. 

“The thesis is your understanding of where the market opportunity is now,” Winter explains. 

But it’s not just the market opportunity. That opportunity has to be substantial enough to flow into a fund and be repeatable. One-offs need not apply. 

And you need to be the right person to make it a reality. 

He gives the example of someone who was pre-med in undergrad, went to medical school, and got a concurrent PhD in biotechnology. Then that person started a biotech company, growing it to the point of being able to exit. That person has the educational background and the practical experience of what biotech companies need to succeed. Therefore, they’d have a strong story to back up their fund. 

Winter also points out that there’s a difference between what’s fundable and what’s helpful for founders. While someone leaving a top 20 firm might be fundable just by their resume, they might not be able to truly help founders. 

Someone who founded and exited three companies is far more likely to be helpful to founders in that field and able to coach them to success. 

Play to your strengths

Being a venture capitalist is all about adding value for your investors. Winter suggests considering what strengths you bring to the table. What are you good at, and what do you love doing? What credentials would make you jump off the page to a potential investor as fundable? 

“Deliberate on that for a while. Figure out what that is, and if it’s strong enough,” he advises.

For example, if you started and sold your own CPG company, you’d be well-suited to starting a fund in the CPG space. You have the expertise and the experience, allowing you to help investors understand it and help founders through their early struggles. 

Likewise, if you’re coming from a large firm that dealt in a certain flavor of investments, it would be wise to fund something within your category at the firm. 

Interested in a field where you don’t have experience or expertise? Invest some of your own money in the space and pay attention. The best way to gain credibility is to put your money where your mouth is. 

When it’s not working

You have your thesis, but you’re not getting the funds you’re after. What should you do next?

Winter notes this as a time to do some soul-searching. He gives the example of a VC seeking funding for biotech meets AI, and who had sought investments by tapping doctors and other friends in the healthcare space. 

If you’re putting out the line and they’re not biting, you need to explore why. 

Do they not have faith that your strengths and expertise play to that niche? Or are the people who work in healthcare not necessarily the ones who invest in healthcare? In short, you could be barking up the wrong tree. 

When to take on a partner

It’s common to not want to fly solo forever. However, Winter encourages you not to run to the altar too soon. It’s important to hold any potential partner to the same standards you hold yourself. 

“Usually, if you're a solo GP, you have a shortlist of people that you sat on the board with, that you've invested with as an angel,” Winter explains. “You’re thinking about being a partner for a number of years. If you don't have that shortlist person, I'd say do it as a solo GP.” 

And if you’re wondering whether you should get into the field at all, Winter says it’s not a matter of should or should not. It’s whether you can build a case for yourself as a person to be trusted with the funds. 

Want more insider intel? Winter’s book, How to Raise a Venture Capital Fund: The Essential Guide on Fundraising and Understanding Limited Partners, sends you on a deeper dive of the nitty gritty of breaking into venture capital.

FAQs

1. How do I know if I’m ready to start a venture capital fund?

Before raising a fund, you should have investing experience—whether through angel investments, personal investments, or managing a phantom portfolio. You should also have a clear thesis on the market opportunity you want to pursue.

2. What makes a VC fund attractive to investors?

Investors look for a strong and well-defined thesis, a demonstrated ability to source and support great founders, and a track record (even a small one) that shows you understand investing. If you have deep industry expertise or prior entrepreneurial success, that can make your fund more compelling.

3. What should I do if I’m struggling to raise funds?

If investors aren’t biting, it’s time to reevaluate. Are you targeting the right backers? Does your expertise align with your investment thesis? Sometimes, adjusting your focus or seeking a partner with complementary strengths can make the difference.

4. When is the right time to bring on a partner?

If you’re considering a partner, make sure you have a history of working together, whether through board seats, angel investments, or past collaborations. A partnership is a long-term commitment, so be sure it’s the right fit.

5. How long does it take to raise a VC fund?

Most first-time fund managers take between 6 to 24 months to close their fund. The process depends on market conditions, your network, and how well you articulate your value proposition to investors.