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Fund I fundraising was about conviction.
Your story. Your thesis. Your background. LPs were betting on potential.
Fund II is different. Now they want evidence. And the evidence is your Fund I.
Here's the problem: Fund I wasn't built for this level of scrutiny. Most emerging managers launched Fund I as quickly as possible, often with minimal infrastructure, cheap service providers, and a "figure it out later" mentality.
That worked for Fund I. It will kill your Fund II.
The Institutional Scrutiny Gap
When you raised Fund I, your LPs were probably some combination of friends, family, angels, and a few high-net-worth individuals who believed in you personally. Their diligence process was a few conversations and a handshake.
Institutional LPs operate differently.
They have compliance teams. Investment committees. Standardized due diligence questionnaires with hundreds of questions. They're going to look at everything: your legal structure, your fund admin, your valuations, your data room, your portfolio company tracking, your reserves, your fee calculations, your K-1 timing, your LP communications.
And they're going to find every shortcut you took in Fund I.
The question isn't whether your Fund I has problems. It does. Every Fund I does. The question is whether you've fixed them before you start fundraising.
The Common Fund I Problems
After working with hundreds of Fund II managers through Emerging Institute, we've seen the same problems over and over. These aren't edge cases. They're the norm. And if you don't address them proactively, they will surface during LP diligence at the worst possible time.
Missing Documentation
This is the most common one. Managers who launched quickly often skipped documentation that seemed optional at the time but is mandatory for institutional diligence.
Statement of investments. Side letter tracker. Board observer rights documentation. Pro-rata rights tracking. Valuation methodology documentation. Investment committee minutes.
We had managers come through our program who had done Fund I with a well-known fund admin and discovered they didn't have a statement of investments. A basic document that tracks what you've invested in. It wasn't that the fund admin refused to do it. It's that no one asked, and the fund admin didn't proactively create it.
When an institutional LP opens your data room and this document is missing, they're not going to ask you to create it. They're going to pass.
Inconsistent Valuations
Most Fund I managers mark their portfolio companies based on their most recent round. That's fine for internal tracking. It's not fine for institutional diligence.
LPs want to understand your valuation methodology:
- How do you value companies that haven't raised in 18 months?
- How do you handle bridge notes and SAFEs?
- What triggers a write-down?
- Who reviews your valuations?
If your answer to these questions is "I mark them at last round" with no additional methodology, you're going to get pushback.
One manager in our program had marked a portfolio company at its Series A valuation from two years prior. The company had since laid off half its team and was struggling to close a bridge. The manager's response when we asked about it: "I don't want to write it down until I have to."
This isn't a valuation philosophy. It's avoidance. And institutional LPs will see right through it.
Data Room Chaos
Your data room is your back office in document form. If it's disorganized, missing documents, or full of outdated materials, you're telling LPs that your fund operations are the same way.
Common data room problems we see:
- Documents with track changes still visible
- Outdated versions mixed with current versions
- Missing signed copies (only drafts)
- Inconsistent naming conventions
- No clear organization structure
- Portfolio company materials scattered across multiple folders
We worked with a manager who had a data room with 47 documents in a single folder, no subfolders, no naming convention, and three different versions of the LPA. The LP who reviewed it said it took him 45 minutes just to find the current cap table.
That LP passed. Not because of the fund's performance. Because of the data room.
Compliance and KYC/AML Gaps
Many Fund I managers cut corners on compliance, and this is becoming an increasingly serious problem.
Starting in 2026, emerging VCs face new regulatory requirements around anti-money laundering (AML) compliance. You'll be required to assess the AML risk of your LP base, adopt policies and procedures to manage that risk, and run regular checks on each LP.
But even before these new rules, institutional LPs have been asking about compliance. They want to see:
- Documented KYC/AML procedures for LP onboarding
- Evidence that you've run checks on existing LPs
- A compliance manual that covers your fund's policies
- Clear processes for handling conflicts of interest
If you self-administered Fund I or used a fund admin that didn't handle compliance, you probably don't have any of this. And institutional LPs will ask.
The fix isn't complicated, but it takes time. You need documented procedures, evidence of implementation, and often a compliance review of your existing LP base. Start this early.
Fund Admin Problems
This is where cheap decisions in Fund I become expensive problems in Fund II.
Common fund admin issues:
- K-1s delivered late (or wrong)
- No third-party fund admin at all (self-administered)
- Fund admin that doesn't specialize in venture
- Missing quarterly reports
- No capital call or distribution documentation
- Inconsistent reporting formats
- Reporting mistakes that create inconsistencies across documents
- Missing statement of investments
- No documented valuation policy
The fix here isn't complicated, but it is time-consuming. If your Fund I fund admin isn't institutional-grade, you have two options: work with them to level up, or switch providers before you start fundraising.
Either way, this takes months. Not weeks. Plan accordingly.
Structural Issues
Some Fund I structures create ongoing problems:
- Single entity structure instead of the standard three-entity model
- Manager domiciled outside Delaware
- Non-standard fee arrangements that are hard to explain
- Unusual carry structures
- Side letters that create conflicts
If your Fund I structure is non-standard, you need a clear explanation for why, and a plan for how Fund II will be different.
The Track Record Narrative Problem
Here's the hard truth about Fund II: your returns probably aren't realized yet.
Most Fund I portfolios at the Fund II stage look something like this: a few companies doing well, a few struggling, a few in the middle, and no exits. TVPI might look okay. DPI is zero or close to it.
This is normal. But it creates a narrative challenge.
You can't walk into an LP meeting and just show unrealized markups. That's not a track record. That's paper gains.
What you need is a coherent story about what's happening in your portfolio and why it supports your thesis for Fund II.
How to Build the Narrative
Start with your thesis. What were you trying to prove in Fund I?
Then show how the portfolio validates (or refines) that thesis:
- Which investments are working? Why?
- Which investments support your thesis vs. were opportunistic deviations?
- What patterns are you seeing across your winners?
- What would you do differently in Fund II based on what you've learned?
One of our Cohort 2 managers, The Council, had a portfolio company that received a 55x markup. Incredible outcome. But when they came into the program, they had no plan for how to talk about it.
We worked with them on framing it not just as "we have a 55x," but as a validation of their thesis. Here's what led us to this company. Here's why we invested at the stage we did. Here's how we supported them. Here's why this approach will continue to work in Fund II.
Within weeks of rolling out that narrative, they had 6 new LP commitments and 3 existing LPs doubling their allocations.
The markup didn't change. The story did.
How to Talk About Losses
You have losses. Every fund does. LPs know this.
The worst thing you can do is avoid the topic. The second worst thing is to get defensive about it.
The best approach is direct and reflective:
- What was your thesis when you invested?
- What happened that you didn't anticipate?
- What would you do differently?
- How has this shaped your approach for Fund II?
LPs aren't looking for perfection. They're looking for intellectual honesty and the ability to learn.
One manager in our program had a complete write-off in his Fund I. Instead of hiding it, he led with it in his Fund II pitch: "Here's what went wrong, here's what I missed, and here's how I've changed my diligence process as a result."
Two LPs told him that slide was what convinced them to commit.
The Learnings from Fund I Slide
Here's a stat that surprised us: maybe 1 in 100 Fund II decks has a "learnings from Fund I" slide.
One in a hundred.
LPs want to know you evolved. That you learned something from deploying capital for the first time. That Fund II isn't just "Fund I but bigger."
The managers who address this directly stand out. The managers who skip it look like they're hiding something.
What should this slide include?
- What surprised you about Fund I?
- What would you do differently?
- How have you refined your thesis?
- What operational changes have you made?
- Why is Fund II going to be better?
This isn't about admitting failure. It's about demonstrating growth. LPs back managers who learn, not managers who pretend to have all the answers.
The Cleanup Checklist
Before you take your first Fund II LP meeting, make sure you've addressed all of this:
Documentation
- [ ] Statement of investments is complete and current
- [ ] All side letters are tracked and documented
- [ ] Investment committee minutes exist for every investment
- [ ] Valuation methodology is documented
- [ ] All legal documents have signed final versions
Data Room
- [ ] Clear folder structure with logical organization
- [ ] Consistent naming conventions across all documents
- [ ] No draft versions mixed with final versions
- [ ] All documents are current (reviewed in last 30 days)
- [ ] Portfolio company materials are organized by company
Fund Admin
- [ ] Using a third-party fund admin (not self-administered)
- [ ] K-1s have been delivered on time
- [ ] Quarterly reports are consistent and professional
- [ ] Capital call and distribution documentation is complete
- [ ] Fund admin can handle institutional LP requests
Valuations
- [ ] Valuation methodology is documented and consistent
- [ ] All portfolio companies have been reviewed recently
- [ ] Write-downs are reflected where appropriate
- [ ] Valuation approach can withstand LP scrutiny
Track Record
- [ ] Clear narrative connecting thesis to portfolio outcomes
- [ ] Sourcing breakdown with specific percentages
- [ ] Story for each major portfolio company (winners and losses)
- [ ] "Learnings from Fund I" narrative is developed
- [ ] DPI/TVPI/IRR calculations are accurate and defensible
Structure
- [ ] Fund structure is clean and explainable
- [ ] Any non-standard elements have clear rationale
- [ ] Fund II structure addresses any Fund I issues
The Timeline
Cleaning up Fund I for institutional diligence isn't a weekend project. It takes months.
Here's a realistic timeline:
Months 1-2: Audit and assessment. Go through everything. Document what's missing, what's wrong, and what needs to change.
Months 2-4: Fix the problems. Update documentation, rebuild your data room, resolve fund admin issues, update valuations.
Months 4-5: Build your narrative. Develop your Fund II pitch, your "learnings from Fund I" story, your track record narrative.
Month 6: Test it. Get feedback from friendly LPs, advisors, or programs like Emerging Institute before you start your real fundraise.
The managers who close institutional capital don't start fundraising until this work is done. The managers who rush it end up in 18-month fundraises that go nowhere.
If the cleanup feels overwhelming, or if you're realizing your Fund I infrastructure needs more than minor fixes, it might be worth evaluating whether to migrate your fund administration entirely. Decile Partners works with emerging managers on exactly this kind of transition, helping you move from a patchwork Fund I setup to institutional-grade infrastructure that scales through Fund II and beyond. Sometimes the fastest path forward is starting fresh with the right foundation.
The Real Standard
Here's the standard to hold yourself to:
An institutional LP should be able to open your data room on a Monday morning and by Friday have everything they need to take you to their investment committee, without a single follow-up email asking for missing documents.
If you can't meet that standard, you're not ready.
The good news: this is all fixable. Fund I problems don't have to become Fund II failures. But you have to do the work before you start fundraising, not during.
Emerging Institute is the 8-week program by VC Lab for Fund II, III, and IV managers preparing to r