No, you shouldn't raise a fund

thoughts on a better path for emerging managers & solo GPs

Feb 09, 2025

Hi there, Paddy here from Odin - the seamless way to raise and deploy capital in private companies, used by over 10,000 VCs, angels and founders globally.

Note: a shorter version of this article appeared Friday in Sifted. If you’ve already read it, feel free to skip to the “Best of the Internet” section at the bottom for some thoughts and laughs.

It has never been harder to raise money as a solo GP.

With the IPO market closed and returns for more recent fund vintages looking very poor, investors have fled to “safety”. In 2024 just nine US firms (including names you will probably recognise, like a16z, General Catalyst, Thrive, Tiger Global and Kleiner Perkins) secured well over half of all new capital raised in the US.

Emerging managers raised about 20% of all capital in VC last year - compare this to a peak of ~50% in 2017 (Pitchbook (1), (2))

In Europe, the number of VCs announcing new, first-time fund closings plummeted to 34 in 2024; down ~50% in two years, from 42 in 2023, and 66 in 2022, according to Sifted.

This bifurcation of fortunes is not unique to venture. According to McKinsey, the largest vehicles on record were raised in buyout, real estate, infrastructure, and private debt in 2023, but smaller and newer funds struggled. Fewer than 1,700 funds of less than $1 billion were closed in 2023 across all private markets assets - the lowest number since 2012. New manager formation also fell to its lowest levels since 2012, with just 651 new firms launched.

The environment out there is brutal.

The median time to final close across the entire Venture Capital industry currently sits at 15 months (down from 9.3 months in late 2021), and that data includes established managers.

One solo GP I spoke to recently spent 2 full years raising their $12.5m fund 1, with four separate closes. They interacted with ~1,200 prospective LPs and 58 people eventually invested - about a 5% conversion rate. Their lawyer, who focuses on micro-funds, said only ~15% of her clients even make it to final close.

But it doesn’t need to be that way.

In fact, in my opinion, most solo GPs should just never raise a fund at all.

It is also possible to build a successful career investing purely on a deal-by-deal (DBD) basis. You can do this as a side-hustle, or even full-time as you scale.

An aside for the less VC-savvy:
In DBD investing, a “lead” investor (eg. an emerging fund manager) builds a founder relationship and presents the opportunity to invest in a company to their network of LPs (investors). Each LP then decides themselves whether they want to invest in the company, on the basis of their own due diligence. An SPV (a “special purpose vehicle”) is used to pool the investors’ money and take care of legal arrangements like governance of the investment, deal fees and carried interest. It’s a bit like a fund set up for one investment. Many angel syndicates invest this way and, increasingly, larger VC and PE firms are also taking this approach.

Last year at Odin we helped over 3,000 investors (primarily angels, high net worths and family offices) deploy capital into hundreds of SPVs led by emerging managers, backing both later-stage companies like SpaceX, Groq, OpenAI and Anduril, and very early-stage startups in incredibly exciting sectors like AI chips (Vaire), clean energy (Rivan), biological computing (Apoha) and much more. Often these investments were alongside the “tier 1” firms named above.

Many of the best paid and best performing solo GPs on our platform invest exclusively this way. They don’t plan to raise a fund any time soon — and their approach is, in my opinion, smarter and more flexible:

They build a large portfolio at pre-seed, seed and Series A. They charge deal carry to investors, with no or minimal cash fees.
To pay the bills, they work a job that gives them excellent deal access and network anyway (the two key things VCs claim as their USPs). For example, they might:
1. Have an operator role at a Series A plus company that's performing well;
2. Do corporate finance work (fundraising for other funds, capital intros to their portfolio breakouts and other later-stage businesses via their network of Series B plus investors, family offices, etc.);
3. Work at a family office.

The benefits of deal-by-deal investing

Sticking to investing DBD has a host of advantages:

You can charge deal carry on investments, rather than fund carry.
If you’re confident you’ll perform, your unit economics on exits actually look much, much better — we're talking up to 5x more cash out in exit events on a typical 20 deal VC portfolio (see data from a sample portfolio below on this, and this blog post for more info).
Despite the obvious structural disadvantage and potential for incentive misalignment from their perspective, LPs are often happier with a deal by deal arrangement, at least initially. There are two reasons for this:
1. They don’t usually pay management fees on DBD SPVs. Remember, most VCs get paid well to lose money. LPs are often stuck paying the salaries of poorly performing managers in their portfolio for 10+ years. Investing DBD allows them to test the water without risking all their capital at once.
2. They like picking deals. Simple as that.
  This is basic human psychology. Although the odds are stacked against us, many of us like to think we can beat the market. Choosing between opportunities presented to me is fun. Other investment sectors show very similar psychology: despite the fact you should probably just buy a couple of ETFs and sit on them, you’ve probably bought some individual public stocks in the past. If you’re an emerging manager, you’re likely to be dealing with non-institutional LPs, from smaller angels all the way up to UHNWIs and family offices. They might not have the time to go find opportunities themselves (that’s your job), but they’ll enjoy picking from your deals.
You build better direct relationships for value-add between LPs and companies.
If you’re smart and thoughtful, you can turn the preference for deal picking into a competitive advantage. We’ve recently started working with a VC firm launched by two successful, exited founders. They invest from their own holding in every company. Some LPs in their network have bought in at the level of this holding (making it, effectively, a “fund” of sorts). But they also structure an SPV for every investment, and bring in specific, value-add LPs to the SPV. They then work to build close, trusting relationships between these LPs and the founders of the company early on, so that the LPs can genuinely help the company with intros for things like sales and hiring. We see this all the time. In fact, some of the stronger angel syndicates in our network are able to outcompete funds for deal access at pre-seed and seed, because their LPs are so value-add. This is particularly the case in very niche sectors with dense professional networks, like cyber security and biotechnology.
You can write more flexible cheque sizes, and get access to better deals.
If you’re not after a specific ownership percentage and not seen as a competitor to other funds, it’s easier to squeeze onto the cap table in competitive deals. We structured an SPV for Clay VC as part of their investment in the ElevenLabs pre-seed that was only £70k. That’s a tiny SPV and meant they were able to squeeze onto the cap table. It has already delivered over £4m in cash (the IRR was over 1,200%), and the SPV still holds 30% of their original equity in the company (which has tripled in value again since the initial liquidity event).
Later-stage funds are noticing this trend. We are also now working with a growth-stage firm with over $3B in AUM, who are launching a DBD strategy for late Seed - Series B companies. This strategy allows them to flexibly build optionality and relationships for investments from their growth fund, and their non-institutional LPs enjoy doing it (which strengthens the LP relationship too). For them, it’s a bit like a scout program on steroids, with 15 or 20 value-add LPs in every SPV.
You can invest outside of a strict fund mandate. This can be very impactful in a dynamic, rapidly changing market. Imagine you raised a fund to invest in crypto/Web3 in 2021. It’s hard to pivot. Change is only going to happen faster in the coming years. DBD keeps you nimble and able to take advantage of opportunities as they arise. That growth fund mentioned in (3) above thought about raising an earlier stage fund, but felt that in the current environment DBD made more sense, and the speed of change driven by AI was a key factor in their decision making.

Even if you do later hope to raise a fund, DBD helps you to fine-tune your fundraising skills (remember raising money is basically sales), build LP trust, grow your co-investor network and build out your track record on a part-time basis. This makes raising a fund in the future much, much easier.

We saw some incredible exits last year, the best delivering 70x cash on cash returns in 18 months (that ElevenLabs deal led by Clay) and 10x in 6 months (Praktika AI, led by Namat Bahram). Both emerging managers who led these DBD investments are now well subscribed for their first funds.

Want to set up an SPV and make a DBD investment?
Get in touch with Odin

New to this? Want to learn more about launching an angel syndicate? Sign up for our 3-part masterclass, in partnership with AngelSchool (video also shared by email so you can learn async)

The downsides of deal-by-deal investing

There are, of course, disadvantages to this approach:

The best investments often look like bad investments initially, so they’re hard to raise money for DBD.
Excellent performance in venture (as is the case in all investing) is about being non-consensus and right (see Paul Graham’s famous post “Black Swan Farming”). You have to see opportunity where others do not. For emerging managers, it’s hard to raise money DBD for non-consensus investments (Clay’s undersubscribed ElevenLabs pre-seed SPV is actually a good example - they didn’t even manage to fill their allocation!).
It can be slow and time-consuming.
At the worst of times, raising DBD is like herding cats - chasing people urgently for wire transfers to help the founder get the round closed on time. This can also make it trickier getting into competitive rounds, since you can’t deploy as quickly as funds. At Odin we have built tooling to help smooth over this specific problem, but it still doesn’t give you the decision-making control that a fund does.
It can be more faff (and $) for LPs.
For LPs, DBD means more admin (more wire transfers, signatures, etc.) and potentially higher fees overall (due to deal carry - see this article for a detailed explanation of the economics of DBD vs fund carry). If they really back you, over the long-term LPs are better off giving you committed capital and paying management fees, but benefitting from fund-level carry, which drives better alignment of their interests and yours;
It can put founders off.
For startups, a commitment from a fund is much more of a certainty than a commitment from a syndicate (which might fail to raise as much capital as they had hoped). As above, funds can also move faster. They’ll also tend to make fewer, higher-conviction bets, and they’re more likely to follow their money in future rounds. This can make funds more attractive as investors.

Beyond the pros and cons above, I simply don’t think running a VC firm is for most people.

Not only is raising money incredibly tough, each fund is a 10+ year commitment, and comes with significant fiduciary responsibility. On Fund 1, it usually isn't glamorous, and it certainly doesn't pay well.

Doing another job is often more fun, and a better financial decision.

Deal by deal is the right way to test the water - and it may well pay better long-term too.

Best of the internet

About damn time

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Jolly good show gents

The Lessons of History

It’s well worth reading. Short too. This Spotify audio version is only 5 1/2 hours long and has interviews with Will Durant between each chapter. I enjoyed it.

Don’t listen to the naysayers

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That’s all for today. Take care and have a lovely Sunday!