Do you remember the first time?

In late 2001 I received a call from an investment banker with a clever idea. His proposition was to pull together a team to invest in technology companies in the Thames Valley. The team had never worked in private equity, had never invested before and it was six months after the technology bubble had burst. I politely declined the rather cross banker; clearly I lacked the imagination to recognise a fantastic opportunity.

What’s wrong with this story?

First time funds are the bedrock of the private equity industry; everyone has to start somewhere. But they are also challenging to raise, require far more work and are higher risk. Often, they have no track record, no history and no coherent story. Taking the individual elements, we piece the jigsaw together. In the case of the Thames Valley technology fund, the pieces all belonged to different jigsaws.

So why do we ever say yes? Essentially, because when you come across pieces which do fit, they can be some of the most exciting opportunities to work with. Fitting those pieces together is the same as with any other fund: track record; team; timing and strategy.

Lack of a useable track record is the single biggest hurdle for a first time fund. In the best case, the team has negotiated an agreed track record with their former employer. Even with an amicable split, there are sensitivities – how the story is presented; preparing models where LPs can include and exclude deals as they decide. With the less amicable… well, we’ve all had the pleasure of the more litigious characters in the industry.

Such problems can be overcome. We have re-constructed the cash flows for UK deals and referenced heavily on attribution. But that involved days at Companies House and three months in front of a spread sheet. Not much fun. And when an LP wanted the back-up material, unexpected consequences included our support staff on the verge of revolt and a temp blowing up our photocopier copying 6,000 pages of company reports…

Team issues are also more critical. You may be selling Partner X, the “unknown” who hasn’t left his previous firm. The team may have no job or salary (and therefore take to calling you on your mobile at midnight). It really is a judgement call on the people in a very fundamental way. But then, isn’t that what private equity is all about?

Timing and strategy are key to success. It may be the best fund in its market, but if no-one is investing there right now, it won’t sell. You might be the greatest Zimbabwean real estate investor in the world, but if the timing of the strategy is wrong, investors won’t give you their money. Best to look elsewhere.

So here are a few dos and don’ts for those contemplating a first time or spin-out fund:

DO - Make sure you really like your new team. You’ll be spending a lot of time with them and public disputes over how the firm is run tend to be fatal. Ditto when the partners start suing each other.

DON’T - Try to spin out right after another group of colleagues from the same firm. Disputes over attribution are never confidence-builders and if they span out first, why would investors need you?

DO - Have a thick skin. In the best case scenario, you’ll still be facing a lot of rejection.

DON’T - Have a selective memory over deal attribution. LPs like you to have learnt with other people’s money. And there’s nothing more embarrassing than sitting in a meeting as an investor asks, “So why isn’t that bad deal from 1985 in your track record…?” (And they will find it).

DO - Get advice. There’s a reason why the placement industry exists and it isn’t because we’re good at conning GPs.

DON’T - Criticise your former employer to investors. They probably invested with them.

Miss Wood co-founded Amala in 2008, having previously been a managing director at Helix Associates.

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• UK / Ireland