Fund formation and first-time fund managers
How much capital do I need for a first close?
Short answer
There is no single number. Many sponsors talk to a securities attorney about what fits their structure. In my experience, a first close often rests on one or two committed investors, not a crowd. So the better question is who your first investor is and whether your structure lets them say yes.
No standard number sets a first close
Each manager decides the amount for their own fund. People often use first close to mean the point where a manager accepts the first commitments and starts operating, before the fund is fully raised. Some managers set a minimum so the fund can cover its costs. Others set it low and keep raising after. I can't give you a legal figure. Many sponsors talk to a securities attorney about how a first close works for their situation.
What I can share is what I see at Family Office Club. The size of the first close matters less than who writes the first check and how fast they decide.
One investor can change the math
"And I've seen many times here in the club that one investor contact can sometimes fill all your capital needs for the next two to four years."
That is more likely if you stay open on structure. I see managers insist that everyone must be an LP in their fund. No direct investments. No joint ventures. No co-GP deals. Then the one person who could have filled the raise gets turned away because the manager spent so much on one legal structure.
In this talk I explain why a rigid structure can cost you the biggest investor in the room.
Summary and key takeaways from this video
Investors have preferences. Some want debt, some want equity, some want a preferred return, and some want a royalty. If your offering is the only offering, you may lose most of the people you talk to before they get to the numbers.
A fast first yes usually comes from fit
On one raise, we thought of one family that would be strategic. We sent them the offering. It was a creative gross revenue royalty deal with a little collateral. The first investor took it and the deal was done in about three minutes. That was a deal raise and not a fund, but the lesson carries over.
That family saw it first because I knew what they wanted. They had told me their needs. I had met them in person recently, so they were top of mind. Other investors never knew the deal existed. Many deals close that way.
This clip shows how that first investor got the deal and why nobody else saw it.
Summary and key takeaways from this video
Plan to put in some of your own capital
Many partners want to see that you have skin in the game. In my co-GP deals, we usually put in capital, though it was not the largest share. Your own commitment shows investors you believe in the fund.
Here I walk through my first co-GP deal and how the capital and the partner were set up.
Summary and key takeaways from this video
Build a short list of likely first investors before you launch. Learn what each one wants, then see whether your structure can flex to fit. A first close is easier when the first investor is already waiting.
From the Family Office Club stage
If a manager can't take every investor into the fund on day one, I tell them to be ready with other ways to say yes. At the very least it helps to be open to side letters and to think about co-GP structures. Some managers also talk with an investor about a one-off transaction if they put money in the fund first. That gives a first investor a reason to commit now, and it keeps a good prospect from walking away over structure.
"At the very least, you need to be able to do side letters. You need to be able to think about co-GP structures. And you'll be able to do a one-off transaction, or give them rights to do a one-off transaction, if they put money in your fund first."
Facts and figures
- One investor contact can sometimes fill a manager's capital needs for the next two to four years.
- A gross revenue royalty deal with a little collateral was accepted by the first investor shown it, in about three minutes.
- In co-GP deals, Richard's team usually put in some capital, though not as much as the capital partner.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Mastering Deals & Engaging Investors: Insights from Richard C. Wilson at a Family Office Club even, Strategic Choke Points: Billionaire Deal Flow & Capital Raising | Richard C. Wilson, Joint Venture & Co-GP Webinar - How to Close Deals with Peers & Partners in the Family Office Club. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around first close terms, offering documents and side letter structures. Do not use AI to write your own legal agreements.
Where to start
- 1Consider talking to a securities attorney about how a first close might work for you.
- 2Decide what minimum you need to cover launch costs and start operating.
- 3List the five investors most likely to commit first and what each one wants.
- 4Decide ahead of time which alternative structures you will consider, such as direct deals or co-GP.
- 5Plan your own capital commitment so you can state it up front.
More questions on this
Is a first close the same as a final close?
No. A first close is when you accept the first commitments and begin operating. A final close comes later, once the fund is fully raised. Many sponsors talk to a securities attorney about the timing and limits.
Should I turn down investors who want a different structure?
I would not do it by reflex. I have seen one investor with a different preference fill years of capital needs. Many sponsors talk it through with an attorney first and then decide.
How many investors do I need for a first close?
There is no magic count. Sometimes one or two investors are enough, depending on how much each investor commits.
Related questions
- How much should a GP commit to their own fund?There is no single number that fits every fund.
- What is a fund of one and who uses it?A fund of one is a private fund set up for a single investor, usually a large family office or institution that wants its own terms.
- How do I write a fund term sheet for LPs?Write the term sheet as a short, plain summary of the economics and rules of your fund.
- How much does it cost to set up a private fund?It depends on the structure, the number of investors and the law firm, so I won't give you one number.
Work through it with the ready to raise checklist. See all fund formation and first-time fund managers resources.