On Zoom, it’s difficult to tell someone’s height. So Courtney McCrea clears that up right away. “She’s taller than me,” McCrea says of her colleague on the Zoom screen, Sara Zulkosky.

The two LPs in November came together on a virtual call and spoke with Venture Capital Journal about their educational services, investing in emerging managers and general trends in venture. The pair are co-founders and managing partners of Recast Capital, which invests in fund partnerships and provides education via what they call their Enablement Program for emerging managers, which they define as firms raising first, second or third funds.

McCrea, who is based on the West Coast, spent 10 years with fund of funds Weathergage Capital, where she invested in more than 100 fund managers. Zulkosky, based on the East Coast, was a venture partner at Greenspring Associates, where she managed the early-stage venture fund evaluation committee.

Recast Capital, which has a preference for diverse-led partnerships, has backed three undisclosed venture funds and is raising its own fund of funds. It aims to differentiate itself by supporting fund managers with its tuition-free Enablement Program, which is supported by Pivotal Ventures, an investment and incubation company created by Melinda French Gates.

The 12-week program includes group sessions and one-on-one training with venture professionals, LPs and service providers. Emerging managers learn best practices, gain insights on the nuances of launching a fund, and network with peers.

The two have known each other for years, crossing paths as LPs in the venture community before formally launching Recast in the summer of 2020. Living on different coasts, they spend a lot of time on Zoom. During our call, they also shared that they have the same shoe size. “I have never professionally been able to travel with somebody where, in a bind, I could wear her shoes,” McCrea says.

This seems to be a good time for diverse emerging managers in venture.

Sara Zulkosky: You’re right. There are more and more funds that are either launched by diverse individuals or are focused on diverse founders.

Why has Recast focused on that?

SZ: Foundations and high-net-worth individuals are excited about what we’re building, and it’s because of the diversity angle. We’re also a 100 percent women-owned firm, which is rare in this space, and we focus on diverse managers. This is a returns-first strategy. We’re doing it because we believe this diverse focus is the best way to generate returns.

Courtney McCrea: We are looking at the data that shows diversity of experiences, networks and perspectives produces superior returns. This is why we have the Enablement Program. It’s to allow emerging managers in venture to benefit from our expertise and help them advance their success in fundraising.
You focus only on the US. Do we know how many diverse fund managers there are nationwide?

“If there is a
contraction in
the number of
emerging managers
being backed, we
believe there will
be a portion of
the new managers
who will then go to
established firms”
Courtney McCrea
Recast Capital

SZ: When we started Recast, Courtney and I went through almost 800 managers that were either micro or emerging venture fund managers. We found that 52 percent of them had at least one general partner who identified as a woman, was Black or Hispanic. That number is astonishing in comparison to the established venture industry. Now we’re tracking over 1,500 managers and capturing the data, but not all of them are diverse. We feel this field is large and we’re not constraining ourselves by looking just for diverse teams.

How many firms have you worked with through the Enablement Program?

SZ: We have worked with 40 funds, and 80 percent have at least one general partner who identifies as a woman, and over 50 percent include at least one general partner of color. We’re very proud of our stats.

Why are there so many emerging managers?

CM: The barriers to entry are low. If you have access to capital, you can be a venture capitalist. And it’s become known that being a venture capitalist is a really fun job. It is fun to meet with entrepreneurs, look at innovations and add value to help companies. We are seeing people come from a variety of backgrounds.

Is there a way to pick the best?

CM: The ones who tend to be the best positioned to be successful either spin out from an established venture fund and want to plant their own flag or they are rock-star operators with an angel track record and are looking to institutionalize. But I met with a manager recently who is really great with data analytics, and they don’t have an angel track record, but they are busy creating it. So we’re seeing a host of backgrounds.

You say being a VC is fun. What about being an LP?

SZ: It’s fun the way we do it. And the educational component of what we do is extremely exciting. They’re all trying to build foundations for their firms, and some are further along than others, depending on whether they’re at Fund I, II or III. So not everyone needs the same level of support. Courtney and I have done this for ages and it’s fun now to deliver this formally to a greater selection of folks.

CM: The fun parts of being an LP include meeting with really interesting general partners and getting exposure to their portfolio companies. We’re learning a lot about different industries. Also, the educational program is personally very fulfilling.

What’s your outlook on how things will shake out?

CM: Our educational program has given us insight into what’s happening behind the curtain. And one of the things we’re hearing about is consolidation. Emerging fund managers are deciding to come together to make their fundraising easier, and raise double the money. At some point in this market, certain fund managers are going to realize that they will have a hard time raising their next fund. And it’s due to their performance. They may go back to running a company or merge with another fund manager.

SZ: It’s the numbers. They can’t all be successful. To Courtney’s point, if they do raise their first fund, many aren’t going to raise their next. Or they might not raise their first. It’s highly competitive. They key for emerging managers is to be differentiated. They need to stand out. It’s never been a more exciting time in venture and to see all this innovation taking place. But we see some consolidation taking place in the next year.

I would hate for the narrative to be, ‘Look at these diverse fund managers who had to fold shop or merge with another firm.’ Would you says it’s almost a no-win situation?

SZ: Totally agree. There’s a lot of factors in play. Established funds are coming back quickly for re-ups and LPs are inundated with their current portfolios and don’t have the capacity for new managers. But LPs recognize the value of investing in first-time funds because of the return potential. What this does absolutely justifies our existence. We can help emerging managers do this.

CM: I’m also cautiously optimistic. There’s interest from established firms in increasing the diversity in their ranks. So, if there is a contraction in the number of emerging managers being backed, we believe there will be a portion of the new managers who will then go to established firms.