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Cash Flow Management for Emerging Managers
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Best practices for emerging managers as they approach capital calls and distributions.
You may have heard the lifecycle of a venture fund compared to a farmer tending a crop cycle — a period of seeding, a period of watering and a period of harvesting the fruits of their labor. In this analogy, strong cash management lays a foundation for a fund manager to plan and predict from seed to harvest.
The questions a fund manager asks are similar:
But LPs aren’t only focused on when funds deploy the uncalled capital on their balance sheets. They also typically want to know how best to manage capital that they’ve committed but has yet to be called. Because they typically want that capital to continue to appreciate while staying liquid, GPs tend to prefer a holistic cash flow strategy that encompasses both capital call strategies and distribution strategies designed to show LPs exactly how they intend to deliver the best possible results.
The questions a fund manager asks are similar:
- How much should I invest per crop (startup)?
- How can I prepare to weather future storms (market cycles)?
- How and when can I yield a large enough harvest (return) for the entire partnership to share?
But LPs aren’t only focused on when funds deploy the uncalled capital on their balance sheets. They also typically want to know how best to manage capital that they’ve committed but has yet to be called. Because they typically want that capital to continue to appreciate while staying liquid, GPs tend to prefer a holistic cash flow strategy that encompasses both capital call strategies and distribution strategies designed to show LPs exactly how they intend to deliver the best possible results.
Resources
Review these Capital Call and Distribution templates
- Capital Call & Distribution Notice Sample Cover Letter and Description by Institutional Limited Partners Association (ILPA)
- VC Portfolio Construction Model and Cash Flows Template by Dan Clayton, SVB Capital
Click on each topic below for a deeper dive into how fund managers should think of cash flow management, as well as strategies for balancing the needs of GPs and LPs alike when mapping out plans for capital calls and distributions.
Cash Flow Management Considerations
Considerations for managing cash flow throughout the fund cycle.
Capital Calls
Things to consider when generating a fund’s capital call strategy.
Capital Call Lines of Credit
The pros and cons of capital call lines of credit.
Fund Distributions
Considerations for managing a fund’s distribution strategy.
Read the other articles in this Emerging Manager article series
Building a Comprehensive Data Room
When the time comes for emerging managers to raise funds, a comprehensive data room can be essential. Your data room can provide limited partners (LPs) with a one-stop shop to understand your team, your strategy, and your track record. The stronger your data room, the more likely prospective LPs may be able to entrust you with their capital. Learn about the 9 key data room components that LPs need from emerging managers.
Establishing, Navigating and Maintaining LP Relationships
Learn about the different types of LPs and determine the right mix of LPs for your firm. You’ll get tips for how to interact with prospective LPs throughout an active first fund fundraise and understand the LP’s expectations once you’ve secured funding to be ready to deploy capital.
Pitch Your Fund by Highlighting What Makes You Noteworthy
Because the venture capital space continues to be very competitive, it’s important that first time fund managers communicate how they stand out from the rest of the crowd. Learn some best practices for making a first-time fund stand out helping to reduce the risk LPs take when investing in these new funds.
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