Starting a venture firm begins with setting up a legal entity. The legal entity chosen will fundamentally guide how the business is operated and decide on limitations for stockholder agreements, liabilities, tax rates, procedures regarding bankruptcy, and the required capital.

Access to Financial Support Measures

The implications of selecting the legal entity for your business are vast. Be sure to properly research the various legal entity types before deciding. The ideal legal entity supports your existing plans but doesn't inhibit any future ones. It's highly recommended to seek the assistance of an attorney to offer support in the selection.

It's important to consider all of the potential financing options that are available to your company before accepting a loan. There are many government agencies that offer financial support packages to help entrepreneurs grow their businesses. Be sure to verify with these agencies to see if your business is eligible for any additional support. Always read the fine print before accepting any support measures because there may be some strings attached.

Raising Private Equity Capital

The process of raising private equity capital can be challenging and confusing. Much of the information regarding the process on the internet is inconsistent.

Hiring Employees

A new company will most likely need to hire employees. The first step in hiring employees is to figure out exactly what tasks they should accomplish. What will be their goals?

Once the tasks have been developed, the employer should begin creating a formal job description or employee profile that highlights the attitude and skills that they're seeking. Examine the current job market to see if the employee profile you're looking to hire is a popular one. If not, then the job description may need to be updated. A professional recruitment firm may assist in finding the ideal candidate for the position. Keep in mind that it can be expensive to work with a professional recruiter, but it may save the owners a lot of much needed time.

Contracting with Investors

Investor contracting can be an extremely complex and context-specific issue. Generally, it's recommended to try and keep equity and operating control of the business as separate as possible. Equity consists of having ownership in the business and a right to future profits, while control is the right to dictate how the business operates. Based on their portion of the total equity, investors will vary on how much they're looking to control the decision-making process of the business.

To prevent future disputes, entrepreneurs should make sure they find investors that complement their own aspirations and expectations for the business. It's highly recommended that a written contract is created between the entrepreneur and investor to address each party's role and duties. Remember, if you're working with a professional investor and have limited contract exposure, it's highly recommended to seek the assistance of a qualified attorney to assist in the matter.

How to Start Your Own Fund

The first step in starting your own fund should be to talk with other people that have done it before. Remember, it can be extremely challenging to be profitable. There are plenty of investors looking for the next big startup. In other words, it's easy to be an investor, but it's not easy to supply the return in which investors are looking to achieve. With that in mind, entrepreneurship can still be a lucrative venture if you're willing to put in the effort and time to generate respectable returns.

It is highly beneficial to develop forecasting models that realistically address:

  • How much capital will be raised
  • How many deals will be made
  • The level of reserves to keep for future investment opportunities
  • The number of follow-ons that will be completed, along with the amount

Forecasting models will also illustrate how much capital the fund will need in order to generate a reasonable return for investors.

The more companies that are added to a portfolio, the more likelihood of funding a “unicorn,” or a business that's valued at over $1 billion. Diversification should also lead to:

  • Better brand image
  • Increased brand returns
  • Improved deal flow

As an entrepreneur, it's important for you to define exactly what you expect your compensation package to include, making sure to keep your expectations realistic. Also, define your value propositions and thesis. A thesis describes what you're investing in and why.

If you need help with starting a venture, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.