The venture capital (VC) industry is at a critical juncture. With subpar returns affecting many LPs’ confidence and large pools of locked-in capital becoming less appealing, innovative solutions are needed to maintain relevance and optimize investment outcomes. The Fund+ structure offers a solution, blending traditional VC investment with a dynamic network of external investors who can participate deal-by-deal. This hybrid model bridges the gap between the stability of committed capital and the flexibility LPs seek.
Overview of the Fund+ Structure
The Fund+ structure is built around two core components: a dedicated pool of capital managed by the fund and a flexible network of external investors (the “+”) who participate via SPVs (Special Purpose Vehicles). The core fund invests directly, ensuring that every deal brought to the broader network has been vetted and capital-committed. Meanwhile, the network—comprising LPs such as family offices, institutional capital, high-net-worth individuals (HNIs), and subject matter experts—can co-invest in deals selectively. The economics of the SPVs follow a standard 2% management fee and 20% carry structure, making it familiar to traditional investors.
Addressing Key LP Pain Points
Recent conversations with LPs have revealed critical concerns. Many VC funds have underperformed, leading LPs to seek alternatives where they are not obligated to lock in large sums of capital for long periods. They prefer flexible, deal-specific access, yet often lack direct pipelines to startups. The Fund+ structure remedies this by offering vetted, curated deals from a trusted VC with “skin in the game,” thus aligning incentives and addressing diligence concerns.
Benefits of the Fund+ Model
1. Lean and Focused VC Teams: The core fund can operate with a leaner team, focusing on quality deal sourcing, due diligence, and portfolio management without the heavy burden of prolonged fundraising cycles. This efficiency enables the VC to spend more time supporting startups and less time chasing capital.
2. Reduced Fundraising Pressure: Traditional VCs often spend months or even years raising capital. With the Fund+ structure, core capital is supplemented by the external network, reducing reliance on large upfront commitments and enabling continuous funding as deals arise.
3. Commitment-Based Participation: While LPs have flexibility, there is an implicit expectation of commitment. LPs within the network should have a strong likelihood of investing when brought into a deal. This balance ensures that the network remains robust and reliable.
4. Expanded Deal Flow: One of the key strengths of the Fund+ model is its ability to create a wider net for discovering deal flow. LPs and SMEs within the network are encouraged to bring startups to the fund for review, expanding access to opportunities that may not be visible through traditional sourcing methods. This increases the fund’s ability to identify high-potential startups early.
Operationalizing the Network
An effective Fund+ model requires a well-organized and actively managed investor network. LPs in this network should not be passive participants; instead, they should be strategically engaged through tailored interactions and opportunities for involvement.
1. Mapping LP Preferences and Capabilities: Each LP in the network should be mapped according to their sector preferences, check sizes, and potential value adds. For example, a large family office with expertise in defense manufacturing would be a strategic fit for a defense-focused drone startup. By matching LPs with deals where they can provide both capital and strategic support, the fund maximizes value creation.
2. Gaining Access to Competitive Funding Rounds: By properly mapping and leveraging the network, the fund can gain access to more competitive and oversubscribed funding rounds. Unlike traditional VCs that primarily offer capital, the Fund+ structure provides startups with access to SMEs, strategic partnerships with corporations that are also LPs, and an actively managed network of contacts for introductions and growth opportunities. This value proposition can give the fund a competitive edge when negotiating deals with high-potential startups.
3. Maintaining Active Engagement: The network must be nurtured continuously to avoid becoming a static list of contacts. Active engagement can be achieved through:
- Tracking Contact History: Maintain logs of interactions, including WhatsApp chats, emails, and in-person meetings, to identify under-engaged LPs.
- Quarterly Portfolio Updates: Regular updates on the fund’s performance and portfolio progress keep LPs informed and engaged.
- Founding Team Meetings: LPs should be invited to meet startup founders post-investment, creating opportunities for strategic involvement.
- Deal Circulation: New investment opportunities should be shared through dedicated channels, ensuring timely and organized communication.
- Personal Touchpoints: Birthdays and other key events should be tracked to foster a sense of community.
- Branded Merchandise: Providing LPs with branded merchandise reinforces their involvement in the Fund+ ecosystem.
4. Synergy Identification: The network should leverage synergies between LPs and portfolio companies. For example, if one LP is a strategic investor in a supply chain startup, their portfolio may complement another startup being considered by the fund, enabling collaboration.
Incorporating Subject Matter Experts
The Fund+ structure extends beyond traditional LPs to include subject matter experts (SMEs) who can provide non-capital value. SMEs, such as early employees from Stripe, Airbnb, Notion, and other unicorns, can offer guidance on scaling, product development, and operations. These experts should meet the following criteria:
- Growth: Experience scaling high-growth startups.
- Product: Background in building defensible, scalable products.
- Operations: Expertise in forming and managing operationally strong teams.
- Leadership: Experience in leading large, impactful teams.
While SMEs may invest smaller checks (e.g., $25k), their primary contribution is their expertise. If they work directly with portfolio startups as advisors, they can earn carry on the deals they support.
Venture Scout Potential: In future iterations, SMEs could be granted permission to invest small checks into promising startups they identify and introduce to the Fund+ network, creating a dynamic flow of opportunities akin to a venture scout program.
The Fund+ structure is a forward-thinking model designed to address the evolving needs of LPs and the operational challenges faced by traditional VCs. By combining a dedicated capital pool with a flexible, engaged network of external investors and SMEs, the model ensures that capital, expertise, and strategic value flow seamlessly to startups. With built-in mechanisms for active engagement, expanded deal flow, and synergy identification, Fund+ has the potential to outperform traditional VC structures while fostering a vibrant investment community.
George Payne 