A typical fund is structured as in Figure 1.
In order to successfully raise investment capital from potential Limited Partners (LPs), the fund management team, led by a General Partner (GP), must design a fund strategy and implementation plan. A well-designed fund strategy is, perhaps, not itself sufficient to attract potential LPs, but no amount of marketing skill can help a poorly designed fund secure investment capital.
An effective fund design comprises three key elements: (1) an investment and impact thesis; (2) fund foundation and structure; and (3) coherent economics. Though often initially tackled sequentially, beginning with the crafting of a compelling thesis and ending by ensuring sound fund economics, these elements are highly interdependent and require iteration. As a fund manager develops a more sophisticated understanding of potential investor interest, each element should be revisited and revised to create a coherent overall approach. For example, a fund’s initial thesis and size may require revision once the team develops a detailed operating budget.