You Want to Launch a Fund. Does It Have to Be a Venture Fund?

The Default Path and Its Limitations

You are an exceptional mentor. You have a network of founders. You have a thesis about where value gets created. You want to raise a fund.

The default path leads to venture capital. You structure a 2-and-20 fund with a 10-year term. You target companies that can return 10x. You build a portfolio expecting most investments to fail while a few winners drive fund performance.

This structure works well for investors focused on venture-backable companies. But many emerging managers who are focused on building up their regional entrepreneurial ecosystem see opportunity in a different segment: growth companies that create substantial value without fitting the venture model. For these managers, the venture structure is not just suboptimal. It is fundamentally misaligned with the value they want to create.

The Growth Company Opportunity

Growth companies sit between small businesses and venture-backable startups. They are too ambitious for traditional bank financing and too capital-intensive for bootstrapping. But they are not pursuing the massive markets and rapid scaling that venture funds require.

These companies include high-growth technology businesses expanding into new markets. Software companies scaling from $2 million to $20 million in revenue. Technical services firms landing enterprise contracts. Deep tech companies commercializing specialized applications. They are growing fast, but their markets or exit profiles do not match what venture funds need to see.

The founders are often experienced operators who know their industries. They do not need the mentorship that early-stage VCs provide. They need capital partners who understand their businesses and offer structures that fit their goals.

Traditional venture funds pass on these companies because the return profile does not fit. The companies are too likely to succeed modestly and too unlikely to succeed massively. This creates opportunity for funds designed differently.

What Growth-Oriented Funds Look Like

Funds designed for growth companies differ from venture funds in several important ways.

Investment Instruments: Growth funds use multiple tools beyond equity. Revenue-based financing generates returns tied to company performance without requiring exits. Structured equity with defined return thresholds provides downside protection and upside participation. Convertible instruments with flexible terms accommodate companies at different stages. The fund selects instruments based on company characteristics rather than applying a single structure universally.

Return Expectations: Top quartile venture funds deliver median DPI of 1.5x to LPs, often with no distributions until years 7 through 10. Growth funds targeting 2x to 2.5x net returns through diversified performance can match or exceed venture economics while generating distributions starting in years 2 and 3. The earlier liquidity improves effective returns even when headline multiples are comparable.

Portfolio Construction: Growth funds often make more investments with smaller initial checks, reserving capital for follow-on in companies that perform. The portfolio is more diversified than typical venture. Individual position sizes are smaller. The fund depends less on outlier outcomes.

Timeline and Liquidity: Growth funds can generate returns earlier than venture through revenue-based instruments and structured exits. More than three out of five venture funds from the 2019 vintage had not distributed any capital to LPs after five years. Growth funds using alternative structures avoid this liquidity problem by design.

LP Appetite for Alternative Structures

The first question emerging managers ask about non-venture structures is whether LPs will invest. The answer depends on which LPs you target.

Traditional venture LPs often require venture structures. Endowments, foundations, and fund-of-funds with venture allocations have mandates that specify equity investment, return expectations, and fund terms. These LPs may not be your audience.

Family offices often have more flexibility. They care about returns and alignment but are less constrained by asset class definitions. A growth fund generating 2x to 2.5x net returns with earlier distributions may fit their portfolio better than a venture fund targeting 3x net over a longer period with uncertain timing.

Economic development organizations, university systems, and regional development authorities often prefer growth-oriented structures. They want investment programs that serve companies in their ecosystems, not just the subset that fits venture criteria. These LPs may value job creation and regional retention alongside financial returns.

High-net-worth individuals investing from personal networks often appreciate flexible structures that match how they think about business building. They understand that great companies do not all follow the venture path.

Your LP strategy should target investors whose goals align with your fund structure rather than trying to fit a growth fund into venture LP expectations.

The Operational Requirements

Growth-oriented funds require operational capabilities that differ from venture in important ways.

Underwriting Complexity: Evaluating revenue-based deals requires different analysis than equity investment. You need to model cash flows, assess revenue quality, and structure terms that work for companies with different growth rates. This is more complex than standard venture due diligence.

Portfolio Monitoring: Revenue-based instruments require ongoing monitoring of company performance to manage distributions. You cannot invest and wait for exit events. You need systems to track portfolio company financials and calculate payments.

Legal Structures: Multiple investment types require multiple document sets. Revenue-based financing agreements differ from equity term sheets. Your legal infrastructure must accommodate this variety.

Fund Administration: Non-standard instruments create accounting complexity. Your fund administrator needs experience with alternative structures, not just traditional venture accounting.

These requirements do not make growth funds harder than venture funds. They make them different. You need partners and infrastructure designed for the strategy you want to pursue.

Building Your Fund

If you want to launch a growth-oriented fund, the process differs from traditional venture fundraising in several ways.

Thesis Development: Your thesis must explain why growth companies represent attractive investment opportunities and why your structure captures that opportunity better than alternatives. LPs need to understand both the market you serve and why your approach fits it.

Structure Design: Work with legal counsel experienced in alternative fund structures. Define the investment instruments you will use, the terms you will offer, and how returns flow to LPs. Get this right before you start fundraising.

LP Targeting: Identify investors who value what you offer. Family offices, economic development organizations, and regional investors often appreciate growth-oriented funds. Build your LP list around alignment rather than fund size.

Operational Infrastructure: Partner with fund administrators and service providers who understand non-venture structures. GP-as-a-Service providers who specialize in flexible fund strategies can provide infrastructure without requiring you to build everything internally.

Proof Points: If possible, demonstrate your approach with angel investments or SPV structures before raising a fund. LPs gain confidence from seeing your investment judgment and operational execution in practice.

The Path Forward

You want to launch a fund. The opportunity you see may or may not fit venture structures.

If you want to invest in growth companies that create real value without pursuing venture-scale outcomes, you have options beyond traditional venture funds. Alternative structures can generate competitive LP returns while serving companies that venture funds pass over.

Building these funds requires different skills, different LPs, and different infrastructure than venture. But the opportunity is real. Growth companies need capital partners who understand them. Emerging managers who build funds designed for growth companies can serve a market that traditional venture ignores.

The question is not whether you can launch a fund. The question is whether you will design it around the opportunity you actually want to pursue