First close is the initial closing of a fund's fundraising period when the fund accepts its first group of investor commitments and begins its operational life. At first close, the fund becomes legally formed, committed capital is available for investment and the fund's lifecycle officially begins. First close typically occurs once a fund has secured commitments representing 30-50% of its target size. The management fee calculation typically starts at first close, and the fund can begin making investments whilst continuing to raise additional capital.
Timing and implications
First close partners often negotiate economic advantages in exchange for their early commitment, such as reduced management fees for the period before final close. The timing of first close is strategically important: closing too early with insufficient capital limits the fund's ability to execute its strategy, whilst waiting too long delays the investment period and can cause managers to miss attractive opportunities.
