Fundraising Tips for Emerging Managers in 2026

Emerging Managers

REO Capital has put together some very good Tips for Emerging Managers to Follow.

1. Have Sufficient Resources for a Lengthy Fundraise.

Raising a fund takes lots of determination, time and money.  Some people rush into raising a fund without considering whether they have the resources to successfully raise a fund.  Raising a first-time fund can take a long time, in some cases 18 to 24 months (or more), and can cost over $1 million, which the partners of the emerging manager must pay out of their pockets until the fund has its initial closing, at which time fundraising expenses (excluding placement agent fees, see below) are reimbursed by the fund.  The partners must have sufficient resources to finance the costs of fundraising as well as the costs of opening and maintaining an office (with staff).  In addition, each partner of the emerging manager must have enough resources to finance that partner’s personal household expenses during the fundraising.  Having the resources to fundraise for an extended period of time is critical to the success of raising a fund.

2. Be Ready.

It sometimes surprises me that emerging managers will launch fundraising before they are ready.  When an emerging manager launches their fundraising effort, the following materials should be completed and available in a virtual data room: an executive summary, marketing presentation, private placement memorandum (known as a “PPM”)[1], completed ILPA due diligence questionnaire (ILPA is the Institutional Limited Partners Association, and the due diligence questionnaire can be found on the ILPA website at www.ilpa.org), track record spreadsheet, track record attribution letters (more on this later), detailed CVs for each team member, and references. 

Emerging managers also should gather as much competitive intelligence as possible before the fundraising starts.  Emerging managers should talk to fund formation attorneys, placement agents, accountants, banks, etc., to learn about the fundraising environment, current market terms for funds, the competitive landscape, and to obtain feedback on their marketing presentation.  Most are be happy to meet with emerging managers. 

3. Consider using a placement agent.

A placement agent can be an amazing resource for fund managers.  A good placement agent will work with the emerging manager to make sure that prior to launching the fundraising, the fund’s marketing and data room materials are complete and ready to go, and the pitch is well-rehearsed and polished.  The placement agent will handle the logistics of identifying potential LPs, scheduling meetings and following up with potential LPs.  Placement agents have relationships with LPs that invest in emerging managers.  Yes, placement agents are well compensated for their efforts, but they offer a lot of value.  Finally, using a well-known and highly-regarded placement agent can add a level of credibility with LPs

A note on placement agent fees.  Placement agents are typically paid based on a percentage of the funds raised (a "success fee"), and may also require an up-front and/or monthly retainer.  Note that placement agent fees are not fund expenses - these fees are paid by the fund manager.  The success fee is often paid over a few quarters after the fund’s closing.  Note that there are some banks that will finance placement agent fees, which can help an emerging manager manage cash flow.

4. The Strategy Must Be Convincing

Have you heard the term “JAMMBOG”?  A JAMMBOG is a term LPs use that means “Just Another Middle-Market Buyout Group.”  This term highlights the challenge that emerging managers face when raising a fund.  How does an emerging manager stand out from the hordes of other funds in the market?  It starts with the fund’s strategy. 

Emerging managers must be able to articulate to potential LPs a convincing strategy that is clearly stated, differentiated, and consistent with the team members’ investment experience and skills.  What are the fund’s investment objectives: stage, sector(s), geography(ies), etc.?  How is this strategy consistent with the team’s prior investment experience and other skills (operations, etc.)?  How is this strategy different from the other funds investing in the space?  How is this strategy unique?  Is the strategy repeatable?  How will the fund fare in an economic downturn?  

Another important part of the strategy is fund size.  The target fund size must be appropriate for the strategy.  Given the fund’s strategy, the number of investing partners, the pipeline of investment opportunities, the investment pace, the size of the investments, etc., does the size of the fund make sense?  Also, there should be a hard “cap” on the size of the fund, which must also be appropriate for the strategy.  Two points on the hard cap: first, LPs want the emerging manager to spend its time investing, not fundraising; and second, without a hard cap on the fund size, the emerging manager could raise too much money which doesn’t work for the fund’s stated strategy and leads to “strategy shift” (also known as "strategy drift") which can lead to poor performance.

9. Offer LP-Friendly Terms

Emerging managers should offer fund terms that are “LP friendly.”  What are “LP-friendly” terms?  Here’s my view:

• Management Fee.  The standard management fee in the industry is 2% per year, but this can be more for sub-$100 million funds, and is often less for funds exceeding $500 million.  The management fee should “step down” after the fund’s investment period, which should be no more than 5 years from the date of the fund’s initial closing.  No management fees should be paid after the initial term of the fund.  For more on management fees, please see my post "LP Corner: Fund Terms - Management Fee".

• Carried Interest.  Carried interest should be the standard 20%, and should be on a “whole fund basis” (also known as “European carry”).  Whole fund carry means that the manager will only receive carry after LPs have received as distributions all of their contributed capital plus a preferred return (discussed below).  “Deal-by-deal” carry, also known as “American carry”, is very GP-favorable, as are hybrid carry structures.  An emerging manager should not charge premium carry (such as 25% carry).  For more on this, please see my post "LP Corner: Fund Terms - Carried Interest Overview".

• Preferred Return Hurdle.  The preferred return hurdle should be 8% per year for buyout and growth funds.  While a preferred return hurdle isn’t as common in venture capital funds, I believe that venture capital funds should also have a preferred return hurdle to better align the manager’s interest with that of the LPs.  For more on this, please see my posts "LP Corner: Fund Terms - Preferred Return and GP Catchup" and "LP Corner: Should Venture Capital Funds Have a Preferred Return Hurdle?"

Finally, what is the fund’s “plus” factor – the special sauce that will enable this fund to have exceptional performance?