Why is it difficult to establish a new fund? Why is track record so important in fund raising? The main concern is to convince the investors to invest their money in Gobi. Therefore, it is necessary to raise a rational-sized fund. To raise a new fund is not an easy thing to do as everything including the fund structure, team, approach, LP base, and amount of capital have to be defined appropriately. The general partners also need to contribute their own money in order to convince the investors to invest together with them.
The track record is very important in fund raising because if Gobi has a good track record, more investors will be interested to invest in it. Q2. Prepare a SWOT analysis for Gobi Fund II proposal in the context of venture capital fundraising. Gobi operates in an area where there is a lot of pent up demand (IT and digital media). * Gobi can acts like a bridge for western LPs to invest in Chinese companies. It is difficult to raise a new fund and if Gobi do not really have a good track record, it will become harder to gain the investors trust in order to raise the new funds. May have the advantage in acquiring a higher return from investment in the IT and media market since they already invest in that industry during the early stage. Meaning that they already have the experiences in investing in IT industry, therefore, may not become a problem to earn a high return.
What are the keys to raising the second fund and how large should it be? There is no definite answer in this question as they could be changing depends on the situations. The planning horizons may take between 7 to 10 years or maybe longer than that because of a lack of infrastructure and development in the industry. The fund size may be between $100 million to $200 million allowing around $2 million to $5 million for each company. The subsequent funds should be of similar size or larger as the industry grows. Gobi wants the first close at $75 million. The key is whether to include more financial LPs or not. Q4.
From the perspective of a potential LP, what are your choices when funding international focused VC funds? Would you fund Gobi? Gobi has never exited from an investment before, and there is high level of risks involved in the development of early stage IT companies as well as huge risks that may impede company development and growth. However, Gobi operates in an area where there is a lot of pent up demand (IT and digital media) and Gobi can acts like a bridge for western LPs to invest in Chinese companies. It may be a good choice to invest in it if it offers a rational return considerate with the level of high risks involved.