VC/PE Fund: Capital Calls, Cadence, & Communication

How to Help Rising Nano-LPs allocate on a schedule with Capital Calls

Normally as an angel investor, you invest $20–50k into a startup and then you’re done. Hopefully you are happy with the multiple return that you see over time. Investing in funds as a nano-LP is a completely different approach. Smaller emerging venture funds are an exciting and emerging sector for angels to invest in. Nano funds are really smaller funds that are under $15M or less. These funds really are too small to take any money from institutions, so the greatest LPs are angels or operators. Cendana Capital who is one of the most prominent fund of funds who will be investing in nano VCs ($15Million or lower), because they know that founders/operators love backing other operators. Cendana is even open to part time fund managers because being part of the ecosystem of these top tech companies gives them proprietary dealflow & access that typical fund managers might not have. This is a great post from Marvin Lao where we reference this excerpt. “It started off with the Side angel funds as exemplified by Sriram Krishnan of Kearny Jackson & Ryan Hoover’s Weekend Fund. Both strong operating executives/ entrepreneurs who have gone through the scaling phase of their companies and running their funds alongside their day jobs. This was capped off by $8.3M usd 20Min VC Fund of Harry Stebbings and $7M usd “Todd and Rahul Angel Fund”. Rahul, in case you don’t know, is the Founder & CEO of Superhuman. (I love the name by the way for its simplicity!) Something I wrote about earlier and will explore a bit more here. “ MicroVCs are defined to be under $100M.

Here’s an exhaustive list of micro VCs for reference (screenshot below)

As we mentioned earlier, the opportunity to invest in these nano and micro funds shows more benefits for the right type of nano-LP. When it comes to the angels becoming the new Nano-LPs, the benefits are supporting a fund manager, being part of an ecosystem of emerging other fund managers, and having the rights to coinvest in those deals. The Rockies Venture Club had a great post explaining that the funds should essentially be designed to maximize investor returns with an investment period of 4–5 years. The LPs don’t have to allocate all at once. The fund can ask for those funds periodically by making a capital call. So if you are an LP in a tiny nano fund, even if you are only investing 20–100k, you can do it in quarterly installments.

In our emerging fund manager accelerator, this was a hott topic that was discussed among the fund managers and students. Depending on what is stated in the LPA and how specific it is stated, something to think through is what that specific investment period is. There may be benefits to investing over a period of 3 years vs. 4, but the capital call schedule should be integrated into this. Some other variables to add to the mix are your sector focus, your velocity to access and close deals, and economics on your fee structure. Fees are usually structured to be higher in the earlier periods of the fund and hopefully some of the liquidity from the exits can be recycled (see our past post on this) to redeploy into the fund. A good rule of thumb as recommended by some mentors who are LPs & Mature fund managers is to be sure to have good communications with LPs if the pacing is slightly inconsistent from what was messaged due to some great opportunities to deploy into deals earlier. Some LPs might be ok with this who are flexible to responding to those earlier capital calls, while others might not due to the additional budgetary constraints or liquidity limitations. In general, our LP / GP mentors advised that it could be more beneficial and easier to message 4 years, but if needed to make capital calls to deploy in 3, leverage good communication & buy-in from LPs to do so.