What’s your target fund size?

Determining the right number helps set your strategy.

You have many factors to consider when answering the question about your target fund size.

What did you raise last time?
How much interest did you turn away?
At what pace have you been committing capital?
What size allows you to stick to your strategy?
What is your team’s capacity?
Will you offer co-investment?
How much can you raise without seeming greedy?

LPs expect fund sizes to grow as GP teams mature. In fact, some of the current demand for small funds is driven by LP desire to invest in three or four consecutive funds before a GP grows too large. However, with the unprecedented amount of dry powder available to private markets fund managers, LPs pay particular attention to your target fund size relative to your prior fund. Here are some guidelines:

• More than anything, LPs care whether you can execute the strategy that has been successful in the past. Be ready with analysis of historic deal size, deal pace, partners per deal, and performance breakdown by deal size.
• Targeting the same amount as your prior fund size is perceived to be disciplined and raises the fewest questions.
• A 20-30% increase seems acceptable to many LPs, whereas a 50% increase raises concerns.
• Doubling your last fund size is unseemly. The exception is if your prior fund was $150MM or less. In that case, LPs may be open to doubling the fund size, provided your staffing and investment pacing supports it.
• Targeting less than your prior fund is not necessarily negative. If you raised more than was optimal (i.e., did you need to extend your investment period or do larger deals?), raising less this time will signal that you are focused on your proven
  strategy.
• Choosing a target fund size should include determining a hard cap. Use the two numbers strategically, but recognize that some LPs focus on only the higher (hard cap) number.

Above all else, make sure to test your target fund size with key existing LPs and trusted consultants during pre-marketing. Those conversations should be combined with assessing LP interest in your next fund and timing. A strong first closing will be critical to reaching whatever fund size you ultimately target.