Friday Letter: Five things emerging managers should do now

Even in the best of times, emerging managers have a hard slog when raising their debut funds.

It can take on average more than 100 meetings with LPs and 17 months to wrap up. Add in a pandemic and social distancing requirements, and the path from launch to fund close can take longer. Sure, there is Zoom, but this is a relationship business and LPs want to meet with their GPs, especially if they have no prior connection.

Recognizing this, Level Ventures, in partnership with Signature Bank’s Venture Banking Group, Runway Innovation Hub, StartOut and the Alliance for Community Development, recently hosted a virtual panel discussion to provide insights for emerging fund managers. More than 540 people registered for the event, a big turnout for an online seminar.

Interest in how to raise a fund is partly attributable to a strong economy and liquidity aspirations for start-ups and founders, as well as the rise in influence of the VC community, according to Signature Bank’s Venture Banking Group.

“We’ve seen a healthy crop of new funds that have entered the market in recent years, so it’s no surprise this would resonate with so many,” said Ian Foley of Level Ventures. Foley moderated the discussion, which featured as speakers two LPs (Thorsten Claus of Northgate Capital and Evan Darr of Invesco) and two GPs (Vincent Diallo of Interlace Ventures and Shruti Gandhi of ArrayVC).

Among the takeaways was that there are five things investors can do now if they are interested in fundraising in the next 12 months:

1. Establish an investment thesis and strategy
2. Identify target LPs
3. Network
4. Create content
5. Plan for additional hurdles if you aren’t already in VC

When targeting LPs, the GPs noted that finding a lead LP or identifying the right mix of LPs for your fund are the two most challenging steps when launching.

Gandhi of Array VC, a San Francisco-based firm that is investing from its second fund, told Venture Capital Journal that fundraising is hard to get right, especially since emerging managers have to deal with rejection from LPs that they repeatedly bump into at events.

“It is very awkward to be around people who reject you,” she said. “It’s hard to not take it personally, but you can’t because it’s not about you. It’s about many other things. That’s something you should be prepared for.”

Although fund themes are on the rise, LPs generally do not view them as a differentiator, Foley told me. He added that one thing that came out of the discussion was how LPs are seeing more impact funds.

For more information, see the report Insights for Emerging Fund Managers.

Let me know what you think. What are your thoughts on emerging managers and the climate for raising new venture funds? If you have news or views you’d like to share with me, I’d love to hear from you. You can reach me at agoldfisher@buyoutsinsider.com and I’m open to voice and video calls.