RAISE REPLAY: Fund Formation in 2020 - A Legal Perspective
March 21, 2021
At RAISE 2020, Cooley fund formation attorneys—Joanna Drake, John Dado, Eric Doherty and Jimmy Matteucci—hosted an informative discussion about the impact the global pandemic was having on fundraising and new fund formation.
The pace and structure of fund formation activity in 2020
The pipeline for additional formation activity
Terms being offered to anchor investors and more
The pace of fundraising in 2020 was expected to fall but instead was "record-breaking." In 2019, Cooley worked with 300 VC firms that closed funds. By August 2020, 225 funds had already closed. Unlike other years, there was lots of liquidity in the market and firms may have been trying to get a transaction done before the presidential election.
Regarding fundraising duration in general, the “won and done” close was less prevalent than the “rolling closing” (multiple closings) fund formation—possibly due to market dynamics (again) and LPs taking longer to commit.
LPs were more reticent to move largely in part to the market dip in early 2020 with the wider outbreak of the pandemic. Closings that were 6-12 months on average may now take closer to 18 months to final closing
LPs are making sure pricing is as good as they can get which may extend time to close. On the other hand, other LPs jumped in quickly and more aggressively to get a more favorable position in an emerging fund.
While many funds have raised recently and capital has come through, but the industry has gotten larger. One reason is some fund managers are breaking out on their own in new areas.
Watch the entire discussion on Cooley’s website here.
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