Building a VC Fund from the Ground Up: What It Really Takes
- Stephanie Roulic
- 6 hours ago
- 5 min read
Venture capital is often viewed from the outside.
Founders pitch. Investors decide. Deals close.
But behind every fund is a process that is far less visible and far more complex than most people realize.
At Startup Boston Week, Alex Benik (Encoded Ventures), Rumika Sharma (BankTech Ventures), William Lehman (Step Function) and Lily Lyman (Underscore VC) pulled back the curtain on what it actually takes to launch and operate a venture capital fund. The conversation moved beyond headlines and into the realities of raising capital, defining strategy, building trust, and sustaining long-term performance.
Their message was consistent: building a venture fund is not just about picking great companies. It’s about building a durable institution.
Venture Capital Is a Business, Not Just Investing
From the outside, venture capital can look like a series of bets.
Inside a fund, it’s a business with customers, operations, and long-term obligations.
Limited partners (LPs) - pension funds, endowments, family offices, and high-net-worth individuals - commit capital with the expectation of long-term returns.
That relationship shapes everything from strategy to reporting cadence. As Lily Lyman explained, LPs ultimately care about one thing: returns. “At the end of the day, they care about distribution. I gave you a dollar, are you giving me three dollars back?”
Fund managers must balance two commitments:
Supporting portfolio companies
Delivering performance for LPs
Success requires managing both.
Strategy Comes Before Capital
Before raising a fund, managers must answer a deceptively simple question: why this fund, and why now? That includes defining:
Stage focus
Sector expertise
Geographic reach
Check size and ownership targets
Value-add beyond capital
As Lily Lyman explained during the panel, “there are a lot of investors out there, and there’s a lot of early-stage capital. So what is the white space you see in the ecosystem? Why will founders choose you?”
Differentiation may come from operator experience, sector specialization, proprietary deal flow, or deep community relationships.
Without it, a new fund risks blending into a crowded landscape.
Fundraising Is Relationship Building at Scale
Raising a venture fund is often compared to raising a startup round, but the timeline and expectations differ dramatically.
Funds can take 12–24 months to raise, requiring hundreds of conversations and persistent follow-up.
Alex Benik described the process as deeply relationship-driven: “It is a relationship business…it can never hurt to get to know people who could potentially be your investors down the road.”
Many emerging managers begin cultivating relationships with potential LPs years before launching a fund.
Will Lehman emphasized that the strongest early support often comes from people who already know your work. “Start with the people that know you well and are willing to back the horse, so to speak.”
For first-time managers, early commitments often come from individuals and founders before institutional investors join the round.
Track Record Isn’t Always a Spreadsheet
Institutional investors prefer measurable performance data.
But emerging managers often need to prove their judgment before they have a formal track record.
That proof can come from:
Angel investing results
Operator experience scaling companies
Deep sector expertise
Access to differentiated deal flow
Community leadership and ecosystem trust
Early funds are often raised on promise rather than proof, “you’re raising on mostly promise…because it takes a very long time to realize results in venture,” Lyman explained.
Meaningful performance signals can take 10–12 years to fully emerge.
Building Trust With Founders Matters Just as Much
While LPs supply capital, founders choose their investors. Emerging managers often compete with established firms, making trust and accessibility key differentiators.
Alex Benik pointed out that founders should treat investor selection seriously, “it’s shocking how many founders don’t reference VCs. I would definitely do that.”
Founders are increasingly building intentional investor syndicates, choosing investors for specific strengths - domain expertise, networks, or geographic reach.
“Founders might pick a couple different investors that bring different things - domain expertise, community access, or different networks,” Lyman explained. The best founders treat investor selection like building a team.
Portfolio Construction Is a Discipline
Great outcomes in venture capital depend on portfolio construction, not just individual investments. Managers must balance:
Number of investments
Ownership targets
Follow-on reserves
Risk diversification
Time horizon
Even experienced investors emphasize that early-stage investing requires disciplined thinking. “At the end of the day, you’re really investing in people and ideas,” Will Lehman explained. At the earliest stages, conviction in founders often matters more than spreadsheets.
Fund Operations: The Work No One Sees
Launching a fund requires more than sourcing deals. Managers must build operational infrastructure including:
Legal formation and compliance
Reporting and transparency systems
Capital calls and distributions
Audit and tax processes
Investor communications
Many new managers underestimate this side of the job. “There’s a whole piece around firm management and LP management. There’s a lot more operational work than people anticipate,” said Lily Lyman.
In reality, venture capital is as much company building as it is investing.
The Emotional Reality of Fund Management
Fund management can also be psychologically demanding. Managers navigate:
Long fundraising cycles
Uncertain outcomes
The responsibility of stewarding other people’s capital
And the feedback loop is slow. Returns from early investments may take a decade or more to fully materialize. “It takes a very, very long time to make money in venture,” Lily Lyman noted. Patience and conviction are essential.
Why Emerging Managers Matter
New funds play a critical role in expanding access and innovation within the venture ecosystem.
Emerging managers often:
Back overlooked founders
Invest in emerging sectors
Support regional ecosystems
Build more inclusive networks
In regions like Greater Boston and across New England, new funds help strengthen the pipeline between early-stage innovation and growth capital.
And they help bring new perspectives into the venture ecosystem.
Advice for Aspiring Fund Managers
For those considering launching a venture fund, panelists shared grounded advice.
Build your network early - relationships drive both fundraising and deal flow
Develop a clear point of view - differentiation is essential
Start investing before you raise - angel investing builds judgment and credibility
Understand the commitment - fund management is a decade-long journey
Prioritize integrity and transparency - reputation compounds over time
Building More Than a Fund
Launching a venture fund isn’t simply about investing in startups, it’s about building trust with LPs, credibility with founders, and discipline within a portfolio. It requires patience, conviction, and a long-term view of value creation and when done well, it does more than generate returns.
It helps shape industries, expand access to capital, and strengthen the ecosystems where innovation takes root.
Because behind every great startup is an investor who believed early.
And behind every great fund is the discipline to keep believing, over the long arc of time.
Want to dive deeper? Watch the full recording from Startup Boston Week right here.
