What Emerging Fund Managers Need to Know About Running a VC Fund
Venture capital looks straightforward from the outside: raise money, invest in startups, wait for returns. The operational reality is considerably more demanding. In Episode 159 of the Sophie Alcorn Podcast, Strut Consulting's Kristen Ostro and Nicole Fuller walk through what emerging fund managers are rarely told before they launch, and what founders should know about the funds they choose to work with.
As Featured In: Sophie Alcorn Podcast, Episode 159, November 2023
Key Takeaways
The 2% management fee is the entire operating budget for a VC fund, covering all service providers, staff, and overhead for the life of the fund.
Emerging managers consistently underestimate how much operational work runs parallel to investing.
Founders should conduct due diligence on their investors, not just the other way around.
Fund size does not determine the quality of portfolio support. Accountability below the GP level does.
LP relationships require years of cultivation before capital commitments become realistic.
Table of Contents
What does running a VC fund actually look like day-to-day?
How does the 2-and-20 fee structure define what is operationally possible?
What should founders look for when choosing a VC partner?
Do larger funds offer better portfolio support than smaller ones?
What trends are shaping the VC market for emerging fund managers?
What should aspiring fund managers do before launching Fund I?
What does running a VC fund actually look like day-to-day?
Running a VC fund involves significantly more operational complexity than most aspiring managers expect. Beyond investment decisions, GPs must manage relationships with fund administrators, auditors, legal counsel, and banking partners, all of whom depend on timely inputs to execute their deliverables. The investing piece is one part of a much larger operational system.
Kristen Ostro, founder and CEO of Strut Consulting, described the common reality for managers entering the space: "There's finances that you need to think about. You need to get your core service providers together: fund admin, tax, audit, legal, banking. They all have things they need from you. They can't operate without your input. They need a lot of support from you on a day-to-day basis."
The expectation that investors simply write checks and wait for outcomes collides quickly with this reality. Solo GPs in particular absorb a disproportionate share of operational load: investor reporting, LP communications, compliance filings, and vendor coordination all land on a very small team. For managers raising their first fund in the $30M to $70M range, the budget rarely allows for dedicated operational hires from day one, which means founders and GPs carry these functions themselves, often while simultaneously evaluating deals.
Strut Consulting was built around exactly this gap. The firm works with emerging and established fund managers on the operational and administrative infrastructure that keeps a fund functioning, from service provider selection and onboarding through investor relations and reporting. The Let's Talk Ops (LTO) community, founded alongside Strut, brings together roughly 200 professionals working in VC back-office and platform roles, giving managers access to a collective knowledge base on how top funds handle the operational elements of the business.
How does the 2-and-20 fee structure define what is operationally possible?
The 2% management fee is the entire operating budget for the fund. On a $100M fund, that is $2M to cover salaries, service providers, marketing, events, travel, and all other overhead for the life of the fund. On a $50M fund, the math becomes considerably tighter. The fee structure that looks generous in the abstract places hard constraints on what a fund can actually afford to do operationally.
Ostro explained the arithmetic plainly in the episode: "If you raise a $100 million fund and you have 2%, you have $2 million. All of your operations." For managers raising smaller funds in the $30M to $70M range, which is common for Fund I emerging managers, the operating budget can be well under $1M per year when amortized across the fund's life. That number has to cover everything.
The practical consequence is that emerging managers operate with significant resource constraints that institutional-scale funds do not face. Full-time hires for finance, marketing, events, talent, and portfolio services are not realistic at this budget level. Instead, many managers work with fractional or contract specialists, use shared-services models, or rely on platforms like LTO to access peer knowledge and vetted vendor recommendations.
Per ILPA guidance on emerging manager support, LPs investing in smaller funds are increasingly aware of this constraint and evaluate managers in part on how well they have structured their operational model relative to their budget. An emerging manager who has mapped their service provider stack, established clear processes, and demonstrated operational discipline signals LP-readiness in a way that pure track record cannot fully substitute.
What should founders look for when choosing a VC partner?
Founders spend significant energy preparing to pitch investors. Less attention goes to evaluating whether the investor would actually be a good partner after the check is written. The selection should run in both directions. A VC firm's sector expertise, network depth, and support infrastructure vary significantly, and those differences affect the value a fund can deliver beyond capital.
Ostro offered direct guidance: "I would encourage founders to be as particular about who you choose to take on your cap table as they are being about you. It's a marriage. Having VC firms that really understand your space, that are experts in your particular industry, who have connections and customer networks they can introduce you to, who will be an active participant in your success versus just capital for your success, can be an incredible differentiator."
Practical diligence on a potential VC partner can start with the fund's website: which companies have they backed, in what sectors, and at what stage? Checking LinkedIn for founders at portfolio companies, then requesting a brief conversation, is both appropriate and standard practice. Understanding who is responsible for portfolio services below the GP level often matters more than understanding the GP itself.
Nicole Fuller, COO of Strut Consulting, elaborated on this point: if a fund describes its portfolio services offering but has no dedicated person accountable for delivering it, founders can expect the offering to be inconsistent in practice. "If there's no one, no system, no process driving this below the GP level, you can expect to get lost." Many funds also offer an introductory call with their head of platform or head of operations, which gives founders a concrete sense of the support they would actually receive.
Do larger funds offer better portfolio support than smaller ones?
The relationship between fund size and portfolio support quality is not linear. Larger funds have more capital to invest in platform services, but smaller funds with GPs who are deeply expert in a specific vertical can offer more focused and more valuable support for the right company. The right question is which fund best matches where the company is and what it needs.
Ostro framed the tradeoff clearly: "We see smaller funds with GPs who are hyperfocused in a particular vertical and just have the connections, experience, expertise, and background to be infinitely more impactful for a company they're investing in within that category. On the flip side, the big shops have the capital to put to work, not only check writing, but also providing a level of platform or portfolio service to their founders that smaller shops can't really compete with."
The determinative variable, regardless of fund size, is whether there is someone whose specific job is founder support. Funds that have a head of platform, head of talent, or head of portfolio services who can be responsive, work across multiple portfolio companies simultaneously, and build partnerships with service providers for founders have a structural advantage over funds that offer support informally through GP bandwidth. A GP sitting on 20 boards does not have the time to provide operational support to individual founders the way a dedicated platform person does.
For founders comparing offers, the question to ask is: who specifically would I be working with after the investment closes, what is their role, and what can I expect from them? A fund that can answer that question with a specific person, a defined role, and concrete examples of past founder support is demonstrating that its portfolio services function is real and not aspirational.
What trends are shaping the VC market for emerging fund managers?
The market for emerging fund managers in 2023 and into 2024 has been shaped by several compounding shifts. Fundraising has become harder on both sides of the table. Established GPs are cutting fund targets. Deal flow remains strong, but LP capital is constrained, and the hesitation upstream creates a trickle-down problem for managers at every stage.
Fuller summarized the dynamic from Strut's vantage point: "Very experienced GPs and established funds are struggling to raise, cutting back their targets significantly, because upstream there's hesitation. There's also a funnel issue with the cash they're raising to deploy into the venture asset class. It's a tough time. Deal flow isn't the issue. Capital is."
Crypto-focused funds, which expanded rapidly through 2021 and 2022, have contracted sharply. Institutional LPs have reduced exposure to the space following high-profile collapses, and new crypto-focused vehicles are raising at a fraction of the pace seen in prior years. AI-focused investing has filled some of that attention, though both Ostro and Fuller noted the risk of AI becoming a marketing layer rather than a genuine product component: "You really want to take a step back and think through whether that is really what is going to add value. If it's not, it's just a distraction."
Specialized funds, organized around tight theses in areas like climate tech, water, food supply chains, construction technology, and deep tech hardware, are seeing meaningful activity. These funds are often built around GPs with direct operating experience in the sector, creating what Fuller described as "personal brand GP" dynamics, where the fund thesis is inseparable from the GP's specific background and network. NVCA data on emerging manager activity has tracked the growth of sector-specific vehicles as a share of new fund launches, a trend that reflects both LP demand for differentiation and GP recognition that specialized knowledge carries structural advantages in competitive deal processes.
What should aspiring fund managers do before launching Fund I?
The path to a first fund begins well before the fundraise. Track record, LP relationships, and operational readiness are all built incrementally, and starting that process late typically means spending the fundraise compensating for gaps that take years to develop. The managers who close their first fund efficiently are almost always the ones who began the groundwork two to four years earlier.
On track record: Ostro recommended angel investing or a proof-of-concept fund as the starting point. "Just doing your work as an angel investor is a good place to start building that track record so that you have something to show. You can do a really small friends-and-family or proof-of-concept fund where you have a small pool of capital and you're doing some light investing over a couple of years. Again, building up your track record. That's what investors want to see."
On LP relationships: the lead time is long by design. LPs who invest in fund managers view the process as a multi-year relationship arc. They are often willing to take early meetings with aspiring GPs precisely because they expect the relationship to mature over time. Ostro's guidance was specific: "One warm outreach is better than a million ice cold. The more they know you, the more they trust you. When you go out to raise your first or second fund, they are infinitely more likely to commit if it's an established relationship."
Practical preparation also includes maintaining a running list of potential LPs, organized by name, firm, contact information, and stage of relationship. Building that list before the fundraise rather than during it is the difference between starting with a warm network and starting from zero. The same applies to service providers: fund managers who have identified and vetted their fund admin, auditor, legal counsel, and banking partners before closing their first fund avoid the learning curve that consumes significant time and management fee budget in the early months.
Ostro's closing words on the episode applied as much to aspiring GPs as to any other audience: "VC looks sexy from the outside, but most of the day-to-day is not. It's a slog. If you're getting into this, really understand the why behind it. Find your North Star. Figure out what makes you unique and differentiated and what you want to accomplish. Aligning all of the different facets toward that goal is what is going to drive your success."
The Operating Reality Behind the Raise
The gap between what venture capital looks like and what it requires operationally is where most emerging managers encounter their steepest learning curve. Service providers need inputs. LP reporting needs to go out on time. The management fee needs to stretch across functions that institutional funds staff with full teams. Founders choosing investors need to see past the check and understand what support actually exists below the GP level.
Strut Consulting works with emerging and established fund managers on the operational and administrative infrastructure that makes a fund viable: from service provider selection and fund launch through LP relations, reporting, and portfolio company support. For a full overview of Strut's fund operations services, see our Services page.
To discuss your fund's specific situation, contact Strut Consulting.
FAQ
Q: What is an emerging fund manager?
A: An emerging fund manager is typically a GP raising their first, second, or third institutional fund, often with a fund size below $100M. Emerging managers frequently have less operational infrastructure than established funds, and often work with external consultants and fractional specialists to cover the administrative and investor relations functions that larger funds staff internally.
Q: How much of a VC fund's capital goes toward operations?
A: The management fee, typically 2% of committed capital annually, is the fund's operating budget. On a $50M fund, that is $1M per year on average to cover all salaries, service providers, reporting, events, travel, and other overhead. In practice, emerging managers with smaller funds operate on significantly constrained budgets and rely on fractional resources and shared-services models to manage costs.
Q: What is a proof-of-concept fund?
A: A proof-of-concept fund is a small, often self-funded or friends-and-family vehicle that an aspiring GP uses to begin building an investment track record before raising an institutional fund. The goal is to demonstrate deal selection and portfolio management over a meaningful period, giving future LPs objective evidence of the GP's judgment rather than relying solely on prior operating experience or advisory roles.
Q: What should founders ask a VC about their portfolio services?
A: Founders should ask who specifically is responsible for portfolio services below the GP level, what their role and mandate includes, and what concrete support they have provided to other portfolio companies. A fund that can answer with a named person, a defined scope, and specific examples is demonstrating that its platform function is operational. Requesting a brief call with that person before closing is appropriate and widely accepted.
Q: How early should aspiring fund managers start building LP relationships?
A: LP relationships have the longest lead time of any in the venture ecosystem. Most experienced LPs view the process as a multi-year arc and are receptive to early introductory meetings precisely because they expect the relationship to develop over time. Aspiring GPs should begin cultivating LP relationships two to four years before their target first close, starting with warm network introductions and maintaining a running list of contacts organized by firm, stage of relationship, and likely fit.