I participated in a Raise LP Only Conference today as a speaker. It was a lot of fun and I hope it will be useful to the participants. I don’t know if they’ll share the recording but I thought it might be worth sharing my own notes here. My designated topic was how to support emerging managers once you’re invested. I love our Partner Fund group and only wish that we could have more slots to engage and support beyond our bandwidth and capital limitations. I’m hoping more LPs will figure out what we’ve seen first-hand, emerging managers drive returns and they’re more fun to invest with too! LE
Raise LP Conference Notes –
I’m Lindel Eakman, partner at Foundry Group. We invest in early stage tech companies across the U.S. and Canada. We’re known as a series A firm but we’ve also built out a pretty unique network of Partner Funds that we use as a filter (not a funnel) to guide our own direct investing.
So at this point today, we’ve covered:
- Alan making the case for emerging managers, both returns and network benefits
- Winter helping define what the emerging manager opportunity set looks like today
- Courtney laying out some of the challenges and ways to find those managers in a crowded, noisy market
- Erin guided us in how to vet these managers and acknowledged that sometimes it’s a bit more work
- Alright, so now you’re invested! I get to close with how you need to engage and support these managers more, but I’d also like to make the case that it’s not only worth it from a returns perspective, it’s a lot more FUN!
In my previous role at UTIMCO and now here at Foundry, I’ve been fortunate enough to invest in many emerging managers going back almost 20 years. It was always the most rewarding and most engaging part of the LP role. Now, as a GP and LP, I get to share some of that experience with these new managers. We structurally invest as a regular LP but we try to serve as a “senior GP that doesn’t take all the economics”.
We try to support emerging managers in the same way that we support companies. What does that mean?
- EMs are start-ups too. LPs can and should engage more frequently and actively. Recognize that they are building a business from the ground up, sometimes that means thinking more like a GP than an LP in your input. Make sure to recognize that you’ll be successful when they are too.
- EMs have LOTS of questions about:
- GP Ownership and structure
- LPA structures, service providers, capital call timing/capital call lines
- portfolio construction, ownership and pricing
- Early liquidity and recycling
- Building a team, compensation,
- Future funds and what, exactly, are all those OTHER LPs thinking?
- Fundraising and reporting/meetings are probably the most asked questions
- What should you do as an LP?
- Our goal is to provide mentorship from both a GP and LP perspective but the most important thing you can do is create a real relationship/partnership that provides an authentic open space to ask the “dumb” questions; let them know that you made a bet on them as a person and you’re there to support them.
- Be willing to lead.
- Participate/anchor the first close
- Do the work on the legals, they have no clue when their attorney (G*&!&$SON) is giving them “middle of the road” advice that looks more like the Sequoia terms.
- In fact, get involved even earlier and help them pick the right service providers. Help them structure GP ownership, management companies, vesting periods, etc.
- I have a text message relationship with most of my GPs, be willing to take that call/text.
- At least have a more frequent interaction early on, maybe monthly/bi-monthly but keep it short and casual. Have an email beforehand to establish the agenda and encourage their questions
- Create community and mentorship – Can you help pair them with a more experienced manager in your portfolio? Are there best practices you can pull from across your group?
- Helping them build networks for deal flow and follow-on investments should be part of your job. You actually want your GPs sharing ideas if you trust their judgement, you’ll get more exposure to the best companies and you’re probably overdiversified anyway!
I’d also like to make the case that, even though EMs are more work – it’s way more fun to help someone build their business! You get to have more influence and you’ll often find that you build real relationships that are rewarding and may be transformational.
- I was lucky enough to invest in a bunch of great funds that were formed in the 2000s, Think of names like: USV, True, IA, Spark and not least of which, Foundry. USV led me to these other great managers when I took a bet on them.
- Here at Foundry, we’re lucky enough to invest in a bunch of funds from the 2010s,
- A few of the managers such as: Founder Collective, Freestyle, Homebrew, Resolute, Forerunner
- Now, we’re investing in firms from the 2020s. Not only do I think these returns will be great, but I also love that these firms are naturally more diverse.
- Our job as investors, whether GP or LP, is to put capital behind talent. And I love that a more diverse network opens up new talent to back. That’s exciting!
I hope we’ve made the case for EMs, helped demystify some of the landscape and process but also emphasized that it’s more fun too. You’re MISSING OUT on both returns, network, relationships, and FUN – I hope that you’ll join this group of LPs in backing more emerging managers.