Peter Lawrence and Dianna Frazier formed the Fox Venture Partners planned to form a private equity investment pool. They estimated they would be able to pool $100 million from private equity investors each contributing about 5% to 10% of the total fund value. They plan to invest the accumulated fund of $100 million in to 20 separate investments with $5 million in each investment.

Issues and problems faced by FVP
 Lawrence and Dianna conceptualized the formation of “funds of funds” to garner funds from wealthy families and redirect those funds to invest into Venture Capitalist and private equity firms. They have discussed this idea with a number of Venture capitalist firms as well. These firms supported the concept also. On the other hand, their discussions with potential investors were also fruitful. As investors they selected only the HNIs. Being convinced with the merit of their concept, they set out to raise fund for their endeavor. They sent 172 private placement memorandums to 172 selected families. However, they got a very lukewarm response: 1% of the potential investors showed further interest.  They cannot wait longer as it’s been 6 months already since they sent their proposal. Dianna foresees disbursement upto 7 years. Hence they need to hurry in fund raising. So what might be the problem?

Analysis:
First let’s understand the structure and the stakeholders associated with a “fund of fund” concept.
So a fund of fund has got two side: 1. Investor: The side from where investment/funds come. In FVP’s case this side is the high net worth families. However, this side may consist of institutional investors as well such as pension funds or endowment funds. 2. Investment funds: The side where the funds shored up from investors is invested/redirected. In this case this side consists of VCs and PE firms. Mostly...
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