Sheel Mohnot: How I Raised My First VC Fund

Fund One Strategy and Execution

• Raised an initial $15 million "Fund Zero" before launching a $75 million "Fund One."
• First Close Composition: Reached $18 million, driven primarily by fintech ecosystem contacts and a single institutional anchor, Sendana, which provided critical credibility.
• Acceleration Driver: The first close was expedited to honor a commitment to lead a seed round for Unit (a banking-as-a-service company) in September; the manager noted Unit became a "super successful" winner in its sector.
• Investment Timing: The initial capital call for Unit represented approximately 10% of the raised capital, which enabled the firm to secure a line of credit to accelerate further deployments.

2020 Market Volatility and Fund One Pivot

• March 2020 Disruption: A planned second close scheduled for March 2020 collapsed due to the onset of COVID-19; a road trip to the East Coast yielded zero commitments as the NBA shut down and markets crashed.
• Investor Attrition: Committed investors who signed prior to the pandemic withdrew their commitments.
• Strategic Recalibration: The firm reduced its target from $60 million to a $30–$40 million range, incorrectly anticipating a valuation downturn.
• Market Reversal: By May 2020, as interest rates dropped and liquidity increased, former "no" investors returned, contributing to a final $75 million raise.
• Closing Dynamics: Momentum increased after crossing the halfway mark and securing institutional anchor names; a university endowment and several fund-of-funds participated.

Fund Two (Dec 2021) Efficiency and Demand

• Timeline: The entire fundraising process for Fund Two was completed in one month, closing in December 2021.
• Reputation Leverage: LPs, including fund-of-funds and direct investors, committed large sums (double-digit millions) based on prior knowledge of the firm's portfolio and reputation.
• Key Relationship: Identified Sapphire's Beezer as a standout LP who demonstrated granular understanding of the firm's fintech thesis; her team moved from initial consideration in Fund One to commitment in Fund Two after a six-month relationship-building period.

Fundraising Tactics and LP Management

• Urgency Calibration:
  • Fund One: Attempted to create urgency, but the process dragged on for nearly a year as LPs ignored artificial deadlines.
  • Fund Two: High demand forced a tight close, causing the firm to surprise its own LPs; a specific instruction given to university endowments to commit by March was overridden by their faster December commitments.
• Capital Concentration:
  • Enforced a hard cap where no single LP exceeds 10% of the fund to mitigate concentration risk.
  • In Fund Two, the firm proactively pushed back investors requesting larger allocations, whereas Fund One would have accepted larger checks due to capital needs.
• LP Advisory Council (LPAC): Established a five-member council comprising the firm's largest investors, including one family office and fund-of-funds.

Forward-Looking Observations and Decisions

• Decision to Close Early: Advises managers to close as soon as possible to signal seriousness to Limited Partners (LPs) and validate the fund's operational status.
• Institutional Credibility: Highlights that securing a single reputable institution in the first close significantly accelerates subsequent fundraising by providing third-party validation.
• Network Effect: Emphasizes that LPs rely heavily on peer networks, board connections, and portfolio verification, often requiring months to move from introduction to commitment.