Setting up a venture fund, or a PE, credit, or specialist private capital vehicle, looks deceptively simple from the outside. Decide on a thesis, pick a jurisdiction, sign an LPA, raise some commitments, and start investing. In practice, the structural and operational decisions made in the first ninety days govern the next decade of how the fund runs.
This guide walks through what actually happens, in the order it actually happens, and where modern fund setup software has changed the playbook.
1. Decide on the strategy and target fund size
Strategy comes before structure, always. The most common first-time-fund mistake is reverse-engineering a thesis from a fund vehicle that was suggested by counsel or a placement agent. The right order is: pick the strategy you can credibly run, decide what fund size that strategy requires, then choose the structure.
Get specific. "Pre-seed B2B SaaS in ANZ writing $250K-$500K cheques" is a strategy. "Tech investing" is not. Specificity drives every downstream decision: cheque size determines portfolio construction, portfolio construction determines fund size, fund size determines fee economics, fee economics determine whether the fund can support a team.
Sizing the fund correctly
A fund that is too small cannot support its own operating costs. A fund that is too large forces capital deployment outside the strategy. The right number is usually: average cheque × target portfolio size × (1 + reserves ratio) ÷ initial deployment percentage. For a 25-company pre-seed strategy with $500K average initial cheques and 1.5x reserves, that lands around $35-40M.
2. Select the right jurisdiction and fund structure
Jurisdiction selection is driven by three things: where your LPs are, where you will invest, and what tax and regulatory treatment you and your investors need. Get this wrong and you spend the life of the fund explaining things to LPs and counsel.
The most common structures
- Delaware Limited Partnership, default for US-focused funds with US LPs. Familiar to every LP, lowest friction.
- Cayman Exempted LP, default for funds with international LP bases or non-US underlying investments.
- Luxembourg SCSp / RAIF, preferred for European institutional LPs and AIFMD-regulated activity.
- Singapore VCC, increasingly chosen for Asia-Pacific funds; setup grant eligibility for qualifying managers.
- Australian VCLP / ESVCLP, tax-advantaged but with strict eligibility (sub-$250M, qualifying investments).
- Hong Kong LPF, newer regime, growing adoption among Asia-focused funds.
Many modern funds use parallel or master-feeder structures to support multiple LP profiles in a single strategy, for example, a Delaware feeder for US LPs and a Cayman master for everyone else. This adds complexity but is often the difference between accessing institutional capital and not.
Reuben AI's global jurisdictional coverage page details native support across these structures, including the regulator-aware fields each jurisdiction expects.
3. Model the economics: fees, hurdle, catch-up, GP commit
Fund economics are where most first-time managers underestimate the importance of structured modelling. The terms in your LPA, management fee schedule, hurdle rate, catch-up mechanic, carry split, GP commit, recycling, distribution policy, interact in non-obvious ways across the life of the fund.
The variables that actually matter
- Management fee structure, typically 2% during the investment period stepping down to 1.5% or lower thereafter. Calculate cash drag against fund size.
- Hurdle rate, usually 8% for venture, sometimes higher for PE/credit. Decide whether it's a soft or hard hurdle.
- Catch-up, 100% catch-up is GP-friendly, 50/50 catch-up is more LP-friendly. Major economic implication.
- Carry split, 20% standard. Premium funds (proven managers) command 25-30%.
- GP commit, typically 1-2% of fund size. Source matters, cash, management fee offset, or note.
- Waterfall type, European (whole-of-fund) is LP-friendly; American (deal-by-deal) is GP-friendly with clawback.
- Recycling, what proportion of distributions can be recycled and within what window.
Model these together, not separately. A 2/20 fund with American waterfall and aggressive recycling is economically very different from a 2/20 fund with European waterfall and no recycling, even though the headline numbers look identical.
4. Engage counsel and draft the LPA and side letters
Once strategy, structure, and economics are settled, fund counsel drafts the Limited Partnership Agreement and supporting documents. This is the most cited cost in fund formation, and the one where prepared managers save the most.
Counsel charges by the hour. Every back-and-forth on economics, every late change to fee mechanics, every "actually, what if we…" adds cost. Managers who arrive at counsel with a structured, modelled, pressure-tested fund design typically pay a fraction of what unprepared managers do, and produce better LPAs.
Side letters
Anchor LPs and large commitments will negotiate side letters, bespoke economic and reporting terms layered on top of the LPA. Common asks include MFN clauses, fee discounts, reduced carry, co-invest rights, and bespoke reporting. Each side letter must be encoded into the operating system so the waterfall, fees, and reports apply correctly for the life of the fund.
This is the second-biggest area where operational debt accumulates. A side letter signed but not properly encoded is a problem in year seven that no one remembers signing in year one.
5. Set up the operating stack and reporting cadence
Operations used to mean stitching together five tools: a CRM for deals, a spreadsheet for portfolio, a separate spreadsheet for LP commitments, a fund admin for accounting, and a reporting tool for LP statements. Modern funds increasingly run an integrated front-office platform that handles deal flow, diligence, IC, portfolio monitoring, and LP reporting on one operational layer.
What needs to be live before first close
- LP roster with commitment amounts, side letter terms, and contact details.
- Capital call calendar and policy.
- Distribution policy and waterfall configuration.
- Banking, signatories, and approval workflows.
- Investor portal for sub-doc collection, KYC, and ongoing reporting.
- Pipeline tracking and IC workflows for deal evaluation.
- Decision provenance and audit trail for every investment decision.
A fund that closes commitments without these in place is a fund that spends its first six months building infrastructure instead of investing. Worse, it builds those systems under time pressure and ends up with the same fragmented stack that emerging managers spend years escaping.
6. Open to LPs and run the first close
First close is where preparation meets reality. LPs evaluate not just the strategy and the GP, but the operational maturity on display through the fundraise itself. A deck-and-Excel pitch communicates a different signal from an integrated workspace where prospective LPs can see structured deal flow, IC examples, and reporting templates.
Operational due diligence
Institutional LPs run formal ODD on emerging managers. They look for documented investment processes, evidence of audit trails, structured reporting capability, and signals that the fund can scale operations without proportionally scaling headcount. A platform-native fund passes ODD; a spreadsheet-and-email fund flags risk.
Sub-doc collection and onboarding
The administrative work of first close, sub-docs, KYC, AML, tax forms, banking details for each LP, is where many fund formations stall. A fund setup workflow that handles this end-to-end through an investor portal compresses what used to be a multi-week process into days.
From thesis to first close on one platform
Reuben AI handles every step of fund setup, strategy, jurisdiction, economics, operations, and LP onboarding, in a single guided workflow.
See fund setup softwareWhat changes after first close
After first close the fund is operating. Deals enter the pipeline, diligence runs, IC meets, portfolio companies report, capital is called, and LPs receive statements. The structured fund object built during setup becomes the operating manual for everything that follows, every distribution flows through the waterfall you modelled, every LP statement reflects the side letters you encoded, every audit trail builds on the provenance you set up.
This is why fund setup is the highest-LTV moment in any fund. The decisions made, and the operational architecture chosen, compound over the entire life of the fund and into Fund II.