Raising a fund changes the manager's business as well as the investment vehicle. Investors commit to a programme, the manager takes on a continuing mandate, and the firm's costs begin to depend on a pool that may take years to invest and realise.
Deal-by-deal investing asks investors to opt into named opportunities. It can offer flexibility, but every transaction creates another capital-raising task. Choosing between them requires a realistic operating budget and a view of how the investment strategy uses committed capital.
Compare the next three years of the business
Begin with cash income that is reasonably predictable. Treat carry separately: it depends on outcomes and distribution terms, and may arrive much later than the bills.
The following is an illustrative model, not a description of market-standard fees. It assumes the stated fees are provided for in the relevant arrangements, collected in full, and remain unchanged throughout the three years.
| Assumption | £15m fund | Repeated SPVs |
|---|---|---|
| Capital raised | £15m committed | Four £1m deals each year |
| Manager fee | 2% annually on commitments | 2% once on each deal |
| Annual fee revenue | £300,000 | £80,000 |
| Annual manager operating costs | £220,000 | £120,000 |
| Initial setup and fundraising cost | £120,000 | £30,000 |
| Three-year cash surplus or shortfall | £120,000 | −£150,000 |
The fund calculation is three years of £80,000 operating surplus, less £120,000 upfront. The SPV calculation is three years of £40,000 operating shortfall, plus £30,000 upfront expenditure. Both exclude carry, tax, the manager's own investment commitments and costs charged separately to vehicles.
Different assumptions can reverse the result. The purpose is to expose whether the proposed business can support the work it promises.
Stress-test the money before relying on it
If the fund closes at £10m rather than £15m, a 2% annual fee produces £200,000. With the same £220,000 cost base, the apparent annual surplus becomes a £20,000 deficit before setup costs.
If only two SPVs close in a year, the example's revenue falls to £40,000. The workload spent on unsuccessful deals may remain substantial.
Build a minimum viable case: the smallest fund you would accept, the fewest deals likely to complete and the cash needed to operate through delays. A target raise is not revenue until the contractual fee base and collection timetable exist.
Value capital certainty where the strategy needs it
A committed fund can give a manager greater confidence about available investment capital, subject to its documents, capital-call process and investor-default risk. That can matter when a company needs a reliable lead or a time-sensitive follow-on.
With repeated SPVs, investors generally make a fresh decision on each offered deal. Prior enthusiasm does not guarantee the next close. The manager must therefore distinguish an allocation they would like to fill from one they can credibly underwrite.
Assess how often your strategy needs certainty before you can show investors a finished transaction. If that need is frequent, the ability to opt into each deal comes with an operational cost.
Count fundraising hours alongside investment hours
A fundraise can demand a long, concentrated period of LP work. Deal-by-deal fundraising distributes that work across transactions, sometimes indefinitely.
Track actual hours spent on investor conversations, diligence requests, onboarding, closing and updates. Then ask which model leaves enough capacity for sourcing and supporting investments.
The relevant comparison is not “fundraising versus no fundraising”. It is when the work happens, how predictable it is and whether the same team can deliver it without weakening the investment process.
Recognise what becomes harder to change
A fund's mandate, governance and economics constrain later choices. Investors relied on those terms when committing. A change in sector, ticket size or allocation policy may need a process set out in the documents.
SPVs offer more transaction-level choice, but a portfolio of vehicles still creates long-term records, reporting and corporate-action obligations. Stopping new deals does not close existing holdings.
Model the tail of both businesses: the people and money needed after the active investment period. Then choose the structure whose income, commitments and workload support the strategy you can actually deliver. For a particular transaction, our SPV-versus-fund guide examines the separate vehicle-design questions.
FAQ
What is the difference between deal-by-deal investing and a fund?
Deal-by-deal investors select identified opportunities individually. Fund LPs commit to a manager and mandate under which investments are subsequently selected. The difference affects capital certainty, fundraising workload and decision rights, as well as the legal and operational arrangements needed to deliver the strategy.
When does raising a fund make commercial sense?
When the strategy benefits enough from committed capital and the business can support the resulting obligations. Model a smaller or delayed close, the full operating period and the years needed to realise holdings. Management-fee revenue at the target size is insufficient evidence by itself.
Can you invest deal by deal and later raise a fund?
Yes. A documented record can help investors assess your decisions and execution. Explain how a fund would change portfolio construction, discretion and costs. Also plan to administer existing SPVs alongside the new fund; raising it does not end the earlier relationships.
Does staying deal by deal avoid long-term costs?
No. Each completed investment creates records, reporting and corporate actions that may continue for years. Include the cost of that tail even if you stop launching new deals. A one-off revenue model needs a credible way to finance continuing service.
