Questions to Ask When Joining a Venture Fund

(Authored by David Shen, LaunchCapital's West Coast Director)

Before I joined Launch Capital, I spent some time with my future manager on how we would work together.  Joining a fund in many ways is like joining a typical company, but in many ways it is definitely not.  I asked him a battery of questions which are unique to working for a fund versus any other company.  Since many people are looking at venture capital as a career, I thought I'd post some of the questions I posed to Launch Capital before joining.  Here they are:

Fund Strategy and Philosophy

1. What is the fund term?  When does the fund go raising more money? How will I be involved in that process?

2. How is the return to me calculated? Is it a carry on the profits?  How are returns distributed to the LPs, and eventually to me?

3. What kind of deal terms do you present when leading?  How is it different at early stage and your later stage investments?

4. What is your message to entrepreneurs?  The deal terms will reflect part of that.

5. How much money would I be responsible for deploying as a goal and in how much time?

6. Are you ok with deploying money into exploratory startups or would you rather not? Or do you only want to look for big opportunities (or as big as they seem at the time)?

7. What kinds of startups do like investing in and why?  What kinds do you want to stay away from and why?  Are there any investment theses I should be aware of? Can I invest with my own investment theses?

8. What is your typical due diligence process?  Can you send me a list of docs you ask for?  Do you have a documented process i can take a look at?  Am i personally responsible for due diligence for all my sourced deals?  Do you send all of this to your lawyer for review?

9. What research resources are there?  Do I have to do all research myself?

10. Would I be signing docs on behalf of the fund or would someone else?

11. How much autonomy do I have? How fast can i really pull the trigger? Is there any approval process necessary at all, however small?  Is there a partnership and partnership approval process to work with?

12. Once we determine "yes we will invest", what is the typical process from that point forward and how fast can it be?  Who has control of wire transfers of money?  Is there a control system there (ie. someone still must approve all wires)?  I also assume that early stage is going to be faster than later stage?

13. Are there any co-investment rights and if so, how would that work?

14. What are the expectations on failure rate?  Early stage failure rate can be higher than the typical VC failure rate.  If we're going to go full bore starting with early stage and with larger checks, I don't want to have some sort of $$ shock if expectations are not set right.

15. On the other end of the spectrum, are expectations set correctly regarding return of capital timeframe?  If we are playing more long term and with bigger checks, the timeframe could be 10 years or more.  Or do you have a timeframe as to when you'd like funds to return?

16. Do you have a detailed strategy statement and mode of operation for the fund?

17. What is the current theses that the fund invests in?  What are the philosophies that are used to determine investments?  Are there any areas that you focus on or stay away from?
18. Is your intention for me to go for board seats at early stage whenever the opportunity comes up or should I be less aggressive? For later stage, will this be different/same?19. Do you have any restrictions on me taking on advisorships?  If I take one on, in whose name do I put in under?  Can I put it in my personal name?  Is it ok to take on advisorships of companies we do not invest in?

20. Does the fund want my pro-rata investments?

21. Is there any notion of vesting of the carry at all, based on my time of service with the fund?

22. Are there any kind of common VC-like fund terms i would be operating under, like clawback provisions and the like?
23. What are the terms if I leave the fund?

24. What kind of accounting type reporting do you do to your investor?  Early stage reporting can be challenging to get specific and accurate info.  What is the resource we can use to do that or would I be responsible for that myself?

25. How often do you present to your LPs? Quarterly? Other? How involved will I be in this presentation?

Management and Operations

1. Can i get an intro to your other team members?  I'd love to chat with them about their experience working for the fund, if they are willing.  it would also seem good that they get to know me also and make sure they are ok with me joining the team...?

2. I am pretty much self managed these days. but who would i officially be reporting to? If so, will there be any kind of performance metrics I would have?
3. Are we indemnified when we work for you?

4. I see you have a blog up.  Can i cross post some entries from my blog to yours?

5. Can I get an office somewhere?  What is the price range?

6. How often do you get the team together to strategize and update?  Do you have any regular update calls/mtgs now and if so, how often?

7. What is expensable and what is not?  Is there an expenses budget I work within?
8. How does the group work together?  What is the interaction style? How does collaboration work?
Benefits
I included questions on Benefits as benefits in a small company are often much different than joining a large firm with a lot of resources to pay for employee benefits.  I think a detailed look into what kind of health insurance and other benefits is important here.
1. What are the benefits?
2. What are the details of the health insurance?
3. Is there a 401K?

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