What is a "Fund Close"

In this piece, you learn what "Fund Close" is. This article is part of a comprehensive series designed to help you navigate the VC world and its terms and concepts. Whether you're an entrepreneur seeking funding, a student learning about the industry or you’re thinking about becoming an investor, this series is your gateway to VC clarity.
January 29, 2024
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What is a "Fund Close"

Closing a venture capital fund is a phased process, and the terms "first close," "second close," and so on, refer to distinct stages in this process. Let's delve into each stage:

  • First Close:
  • Definition: The first close occurs when a venture capital (VC) fund has secured a sufficient amount of commitments from investors to start making investments. It is the initial closing of the fund.
  • Purpose: The VC firm can begin deploying capital into promising startups even though the fund's total size might not have reached its target yet.
  • Investor Commitments: Investors who commit funds at the first close are usually referred to as the "anchor investors" or "first close investors."
  • Interim Closes (Second, Third, etc.):
  • Definition: Subsequent closes, often referred to as interim closes or additional closes, happen as the VC firm secures more commitments over time.
  • Purpose: These additional closes allow the VC firm to continue raising capital and expanding the fund's size. They may occur at intervals, giving the firm flexibility to accommodate additional investors who join the fund later in the fundraising process.
  • Investor Participation: New investors may participate in these interim closes, joining the fund alongside existing investors.
  • Final Close:
  • Definition: The final close occurs when the VC firm has reached its target fund size or decides to close the fund, even if it falls short of the target.
  • Purpose: At the final close, fundraising efforts officially conclude, and the VC firm has a clear picture of the total committed capital available for investments.
  • Investor Commitments: All committed investors, including those from the first close and subsequent interim closes, are considered part of the fund.

Key Considerations:

  • Flexibility: The staged closing process provides flexibility for VC firms to start investing while continuing to raise capital.
  • Market Conditions: Interim closes allow VC firms to adapt to changing market conditions and investor interest.
  • Timing: The time between closes can vary, and the fundraising process might take several months or even years.

In summary, the first, second, and subsequent closes in venture capital fundraising represent distinct milestones in securing commitments from investors. These staged closings enable VC firms to initiate investments early on and progressively build the fund's size based on ongoing investor interest. The final close marks the conclusion of the fundraising process.