Building institutional readiness: a guide for first-time fund managers

Fundraising is like an iceberg. The first close, the fund announcement and the press release are the moments everyone sees. Beneath the surface lies everything that made them possible. 

Long before the first investor meeting, emerging fund managers are refining their investment thesis, building governance structures, testing fund economics and laying the foundations for their fund. These activities may seem like separate workstreams, but together they answer one question every institutional investor is trying to resolve:

Is this a fund manager we trust to steward our capital?

Many emerging managers devote significant time and effort to proving that the investment opportunity is attractive. The more important question is whether the institution behind the opportunity is ready to steward capital.

That distinction may appear subtle, but it sets a considerably higher bar. Every decision made by a manager before the first investor meeting contributes to that answer.

Drawing on our experience supporting first-time fund managers, the sections below explore six areas that can strengthen investment readiness before fundraising begins.

Raising institutional capital almost always takes longer than first-time fund managers anticipate. Between preparing fund documentation, engaging prospective LPs, navigating due diligence, legal reviews and investment committee cycles, it can take well over a year to achieve a first close.

One implication is frequently underestimated: building a fund requires capital long before it generates revenue. Legal counsel, regulatory filings, fund administration, fundraising materials and the salaries of the management team all need to be financed before management fees become a reliable source of income.

One of the most common planning missteps we see is assuming the first close will happen quickly enough to absorb those costs. When it doesn’t, managers are forced to raise a fund while simultaneously financing the management company, often leading to delayed hiring, reactive fundraising and engagement with investors who aren’t the right long-term fit.

Instead, managers should think about fundraising runway the same way founders think about startup runway and ask themselves:

If our first close takes twice as long as expected, do we still have the resources to build the fund properly?

Answering “yes” often requires planning for pre-first-close financing.

Depending on the manager and the market, that may mean setting aside working capital, securing grant funding or accessing catalytic capital and technical assistance. The growing number of these initiatives across Sub-Saharan Africa reflects increasing recognition that first-time fund managers need funding well before they reach a first close.

As conversations with prospective LPs progress, you’ll encounter feedback that challenges your assumptions. Investors may question the proposed fund size, recommend a different domiciliation structure, suggest changes to governance arrangements, or encourage a more focused investment strategy. Your impact objectives may evolve depending on the priorities of early backers, and the type of anchor investor you secure can significantly influence how the rest of the fund is positioned.

Not every piece of feedback should change the strategy. The challenge is distinguishing between feedback that strengthens the fund and feedback that pulls it away from its core investment thesis.

Sometimes, however, the right response is more fundamental. The strategy itself may need to evolve. Some managers raise capital on a deal-by-deal basis to build a track record before launching a fund. Others begin with a smaller vehicle before returning to market with a larger institutional fund once credibility has been established.

Fundraising is as much about refining the strategy as it is about raising capital. Few first-time funds look exactly as they did when fundraising began.

A compelling investment thesis is rarely enough to secure institutional capital. Investors also need confidence that the team has the experience, judgment and institutional capability to execute it over the life of the fund.

One of the most valuable things an emerging manager can do before formally reaching out to LPs is to pressure-test the strategy with a small group of aligned investors, experienced fund managers and trusted advisors. These conversations help surface weaknesses while they remain inexpensive to address.

Questions worth testing include:

• Does the proposed fund size make sense?
• Is the investment thesis sufficiently differentiated?
• Do the fund economics align with the target LP base?
• Is the value proposition immediately clear?

These conversations often expose weaknesses that would almost certainly surface during LP due diligence, whether the strategy is too broad, the positioning lacks differentiation or the investment case lacks clarity. Better to discover those issues before formal fundraising begins.

First-time fund managers should engage a small group of investors whose experience and mandates closely resemble the LPs they are targeting. By the time fundraising formally begins, the strategy should already have been rigorously challenged and refined.

For LPs, governance isn’t something to finalize before first close. It’s part of the investment case from the outset.

Every governance provision signals how the fund will operate once capital has been entrusted to the manager. Who makes investment decisions? How are conflicts managed? What happens when partners disagree? How are investors kept informed? These are all indicators that shape an LP’s assessment of whether a manager can steward capital responsibly.

In our advisory work, governance reviews frequently uncover inconsistencies between fund documents, governance arrangements and the fund’s stated strategy. Individually, these issues may appear minor. Together, they can undermine confidence in a manager’s ability to execute.

Strong governance demonstrates institutional discipline, extending well beyond regulatory compliance. As the FSD Africa Governance Framework for Early-Stage Fund Managers and Investment Companies argues, governance underpins sound decision-making, operational effectiveness and investor confidence. For first-time managers, governance is not simply a legal requirement; it is a critical component of the investment proposition.

Many first-time fundraises are slowed by pursuing the wrong investors. LPs do not evaluate a fund through the same lens; development finance institutions, family offices, corporates, pension funds and fund-of-funds each have distinct mandates, return expectations and risk appetites. A compelling investment proposition for one investor may hold little relevance for another. This is why LP mapping is important.

First-time fund managers often assume that DFIs should be among their earliest fundraising targets. While DFIs remain critical participants in Africa’s private capital ecosystem, many have governance requirements, minimum fund sizes and track record expectations that make them more likely to invest once a fund manager has already established credibility with other investors.

For many emerging managers, family offices, foundations, high-net-worth individuals and corporate investors may represent more realistic early partners. An anchor investor contributes more than capital; it provides external validation that often unlocks conversations with larger institutional LPs.

Understanding who you’re raising from should shape how you position your fund, tailor your messaging and prioritize your fundraising efforts.

A lack of experience managing a previous fund is often viewed as the greatest disadvantage facing first-time fund managers. However, the real question is whether you’ve already demonstrated the investment judgment needed to execute the strategy you’re presenting.

For some fund managers, that evidence comes from an attributed track record like investments they sourced, led or managed while working at another firm. For others, it comes from operating businesses, investing through syndicates or SPVs, advising companies, or cultivating deep sector expertise. Investors want to understand which decisions were yours, what role you played in creating value, and why those experiences suggest you can successfully execute the strategy you’re presenting today.

Managers without an institutional track record should also think creatively about how to build that evidence. Deal-by-deal fundraising or co-investment opportunities can demonstrate sourcing capability, execution discipline and investment judgment before asking LPs to commit capital to a blind-pool vehicle.

The goal here is to demonstrate why investors should trust your judgment to manage their capital, regardless of whether you’ve previously managed a fund. That, in the end, is the question every institutional investor is trying to answer long before they ever see your pitch deck.

Institutional investors rarely make decisions based on a single meeting. By the time a fund reaches an investment committee, months of preparation have already shaped how the opportunity is perceived. Every governance decision, financial assumption, investor conversation and operating process contributes to a broader assessment of whether the manager is ready to steward institutional capital.

There is no universal blueprint for raising a first fund. Every manager, strategy and investor is different. What remains consistent is that institutional investors are evaluating more than the investment opportunity. They’re also assessing the institution that will steward their capital.

For first-time fund managers, that distinction changes everything. Raising institutional capital isn’t simply about convincing investors that the opportunity is attractive. It’s about demonstrating that the institution behind it is ready to steward capital responsibly. That work begins long before the first LP meeting.