A guide to raising your fund in public

We're seeing more fund managers do a community raise. Here's why and how to do it.

LPs can be a source of more than just capital. The best LPs offer access and expertise for you and your portfolio. They can also be a strong source of deal flow.

Historically most fund managers were limited to their network and warm intros, raising their funds in the shadows. But regulations have changed. Funds classified as a 506(c) fund can publicly solicit to attract a much wider pool of LPs and open up access to those outside of their network.

We did this at Weekend Fund. As we (Ryan Hoover) wrote in our 1,000 True LPs post:

Many funds view LPs as simply capital and raise from as few as possible. Rather than limiting our raise to a small group of people in our existing network, we sought to onboard “1,000 true LPs” that are genuinely excited to support with skin in the game.

We raised our latest fund from over 350 LPs. It’s been very helpful having some of the world’s most talented marketers, engineers, designers, salespeople, and founders financially invested in our, and the portfolio’s success. Our Community Raise was one of the best decisions we made.

Other funds have done the same:

Sahil Lavingia raised $5M from 8,962 investors
Arlan Hamilton’s Backstage Capital raised $5M from 7,065 investors
Sophia Amoruso’s Trust Fund received several million in commitments from 750+ LP

This post goes deep into the details of community raises, including:

The pros vs cons and tips
Why other fund managers decided to pursue this path
The process, materials and tools used

Shoutout to Cindy Bi (CapitalX), Lolita Taub (Ganas Ventures), Sahil Lavingia (Sahil Lavingia Rolling Fund), Shaan Puri, Sophia Amoruso (Trust Fund) and Tyler Tringas (Calm Fund) for contributing to this post.

Pros vs cons of doing a community raise

As with many decisions you’ll make as a fund manager, there are tradeoffs to doing a community raise vs. taking the more traditional private route.

Pros

Expand the funds’ network

Venture is inherently relationship-driven. We all share deal flow, help one another with diligence, and support portfolio companies together.

A few of the benefits of bringing on well-connected and experienced people from other networks:

LPs can expand your deal flow, and are incentivized to do so. If all your LPs are within your existing bubble, you may be missing introductions to promising founders from other networks.
LPs bring their own expertise and (hopefully) willingness to help portfolio founders. No fund manager is an expert in everything, so having an army of financially invested partners willing to help with their domain experience can be a value-add to founders.

At Weekend Fund we view our LPs as an extension of our small team.

Increase access to capital and reduce time fundraising

Raising publicly can expand access to capital and reduce the time you spend fundraising. It increases the pool of potential LPs at the top of the funnel but also creates momentum, and some urgency, for those considering investing.

Within days of our community raise announcement, we had 1,000+ accredited investors apply to invest in Weekend Fund representing $13M+ in investment interest.

Diversify your LP base

Raising from a broader audience can diversify your LP base and increase representation across different backgrounds, geographies, communities, and professions, and outside your immediate network.

By accepting check sizes as low as $2K, we wanted to make Weekend Fund more accessible to people that may be less networked and outside our immediate community, even if we were their first LP investment.

Cons

Every LP will need to provide proof of accreditation

Most funds are structured as 506(b) which doesn't allow for general solicitation. In others words, these funds are not allowed to publicly fundraise per SEC guidelines. To publicize your raise, your fund will need to be a 506(c) fund and every LP in a 506(c) fund needs to provide proof of accreditation (vs. verbal approval).

For Weekend Fund, AngelList handled the onboarding of accredited investors, dramatically simplifying this process. Another benefit of running a fund on AngelList comes from their network effect — many of our LPs had previously proven their accreditation status, decreasing their friction to participate.

It can be operationally heavy

While AngelList or a similar platform can handle verifying LP accreditation, raising from hundreds of investors can be operationally intensive to manage.

See our “How to run a community raise” section for a deep dive into the process.

There’s always risk in taking on a bad partner

Investing and raising is a long-term commitment. LPs need to trust fund managers with their capital and shouldn’t expect to see their money return for several years. It’s critical that LPs and fund managers have aligned expectations.

Although we haven’t had a single issue at Weekend Fund, there’s always a risk of onboarding an LP that causes problems or unnecessary work. This risk is higher when opening access to a broader network and a larger pool of LPs.

Why fund managers did a community raise

Despite the cons, the following fund managers decided to run a community raise. Here’s why.

Why Sahil Lavingia did a community raise

I think I was the first person to fundraise publicly. This was because AngelList defaulted funds to 506(b) and only mentioned 506(c) in passing–the benefit was that I could fundraise publicly, but the downside was that every investor would have to be verified as accredited, which was unusual for the industry.

But AngelList said they’d absorb the burden, and I had a large audience I had built over the last couple years of writing, so it made sense to do.

In hindsight it was a good idea, and the fund eclipsed my initial plans by 10x. After launching, AngelList made 506c the default for rolling funds.

— Sahil Lavingia (Sahil Lavingia Rolling Fund)

Why Sophia Amoruso @ Trust Fund did a community raise

I shouldn't be here. With the community raise, I'm able to share access to investing for people who aren't otherwise invited to invest in funds, or into the startups that Trust Fund will. I'm selecting LPs who bring strategic advantage to the portfolio, through deal flow, and to our portfolio companies through sharing their expertise and relationships, as well as amplifying the companies to their broader networks.

— Sophia Amoruso (Trust Fund)

Why Lolita Taub @ Ganas Ventures did a community raise

At Ganas Ventures, we chose to raise in public because we believe that the money we raise and use to invest in our community's founders will be most effective if it comes from firms and individuals who represent our population of underestimated and underrepresented founders and allies. These investors believe in our thesis, the power of community, and know that we can achieve outsized returns by punching above our weight with their support while also challenging the status quo. These are the limited partners we want to work hard for!

— Lolita Taub (Ganas Ventures)

Why Tyler Tringas @ Calm Fund did a community raise

At Calm Company Fund we've been default public from day one: building our Shared Earnings Agreement via an open sourced doc, raising our last 3 funds with 506(c) public fundraising from 200+ LPs, and in 2020 we did a Reg CF crowdfunding round with 700+ individual investors. The biggest upside has been creating a huge network of supporters who have skin in the game and want to help us succeed.

— Tyler Tringas (Calm Fund)

Why Shaan Puri did a community raise

I raised publicly for two reasons:

SPEED - It let me go “inbound” rather than “outbound”. have a big audience, so I was able to talk about the fund, and get inbound interest. I closed my whole fund without having to do a roadshow.
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ACCESS - By opening it up to a broader audience, I was able to bring in people who would otherwise not have the access or skill to successfully angel invest in tech companies.

— Shaan Puri (All Access Fund).

Why Cindy Bi did a community raise

Timing, and lack of a warm network of LPs.

When I started CapitalX, AngelList just publicly launched Rolling Funds for public raise.

I didn't intentionally build a network of LPs over the years, so the idea of attracting LPs from all over the world was very promising - most of my LPs were "strangers" when they first invested in my fund.

— Cindy Bi (CapitalX)

How to run a community raise

Here is an overview of the process to run a community raise:

Setting up the fund and preparing to announce
Announcing the community raise
Following up and closing LPs

Preparing to announce

It’s important to be prepared before announcing your raise to run an efficient process. Your fund setup and fundraising materials should be pre-prepared and well-organized.

Make key decisions

Before announcing your raise, you’ll also need to decide:

Your fundraising timeline
Community raise size/allocation
How many LPs you’d like to accept
What you’re looking for in LPs

Set up your fund

You will need to set up your fund with your fund admin as a 506(c) fund to be able to solicit investments publicly.

The average check size from a community raise may be lower than what’s offered from HNW individuals, family offices, or fund of funds. As a result, it’s increasingly important to account for the SEC’s limitations on the number LPs you can accept.

Funds that are less than $10M can accept up to 250 LPs; however, funds of greater size are limited to 99 LPs. One way to expand upon this limit is to set up a parallel QP fund that can accept up to 2,000 QPs. Qualified Purchasers (QPs) are individuals or family-owned business that owns $5M or more in investments, excluding one's primary residence (more details here).

This is what we did for Weekend Fund’s latest fund, but it’s wise to assume that most people that apply through a community raise won’t be QPs and budget accordingly.

Get your fundraising materials ready

Create an Invest landing page

Your Invest landing page is the primary asset used to gather interest from potential LPs.

While each fund story is unique, most LPs want to know more about:

The GP(s) and team
Amount being raised
Investment track record
Reasons to invest
What the fund is looking for in an LP
Link to application form and/or next steps
FAQs and anything else that is important for LPs to know

Here are some examples of Invest landing pages:

Get your content funnel ready

In addition to the invest landing page, you’ll need to prepare your announcement for various channels and communities. This might include:

Twitter, LinkedIn, and other social platforms
Private group chats
Email newsletters
Press

Announce the community raise

When you’re ready to announce, it’s best to do it across all channels at once in an effort to break through the noise. It can also be helpful to follow up with progress updates in the coming hours and days to illustrate momentum and serve as a reminder to those that are interested but haven’t taken action yet.

Here are some examples of tweets announcing community raises:

Following up and closing LPs

Once a potential LP shows interest, it’s critical to follow up soon after.

We’re all busy and even interested parties can get distracted or less motivated to follow through as time passes. We recommend following up within a few days of their application with a personal, 1:1 email. It’s important to send 1:1 emails not only to increase conversion to wire but also to open a line of communication to your future LP. As mentioned earlier, this is a long-term commitment between both the investor and LP, so treat it as such.

Of course, personal emails for dozens or hundreds of people can be time-consuming and messy, so it’s important to remain organized. At Weekend Fund we set up a Zapier zap to send LP applications from Typeform to an Airtable to manage the process and status of each applicant.

Tips

Hear tips directly from fund managers who did successful community raises.

Build an audience

It helps a lot if you have a sizable social media following so your content can reach far. For me, it's Twitter as I share on a daily basis what may be helpful to founders or other investors. It's also important to build trust, consistently, as you build and invest in the public. Most of my LPs never talked to me when they invested in my fund, including very well-known founders and investors, because they've already built conviction based on what I share everyday.

— Cindy Bi (CapitalX)

Wait to launch your community raise till a majority of the fund is closed

The community fundraise made a lot of noise, both through my network of entrepreneurs, the VC community, and beyond — founders and top executives at companies like Ring, Calendly, Tile, and Meta all applied. In retrospect, I would have upped the minimum check size and waited until the majority of the fund was closed to announce as Weekend Fund did. Concurrently doing a community fundraise and raising from traditional LPs is a ton of work, and has been complex to manage.

— Sophia Amoruso (Trust Fund)

Transparency is key

Transparency is key, at least for me. It’s how I’ve always run my company and it’s how I run my fund. Investing in someone’s fund or company is a large risk and the more I put out there, the more comfortable I felt that they could understand the risks they were taking.

— Sahil Lavingia (Sahil Lavingia Rolling Fund)

Educate potential investors about the investment process

My tips for fund managers who are raising funds publicly or from their communities are:

Educate potential investors about the investment process.

Keep investors updated on the progress of the fund.

Provide opportunities for investors to invest smaller amounts (angel checks) of less than $50K.

Create pathways for non-accredited investors to participate.

At Ganas, we’re doing this by writing posts on Medium, sharing updates in my newsletter, holding events, accepting as many angel LP checks as possible, and launching the Ganas Deal Partner (scout) program. This program allows our non-accredited investors to help us with deal flow, build their track record, and earn carry.

— Lolita Taub (Ganas Ventures)

Create a content funnel

Our best tips are: (1) Create a proper content "funnel" with detailed essays, FAQs, Twitter threads, onboarding sequences and calls to action just like you would with any other product pitch (2) send lots and lots of polite reminders (with an easy way to opt out of course).

The biggest lesson we've learned is that for even your most die hard supporters, your fundraise is not anywhere near the top of their priorities and if you're not careful many won't get to the finish line of investing.

— Tyler Tringas (Calm Fund)

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Until next time,
‍Ryan and Vedika :)