A few weeks ago, I put out this tweet…which kind of blew up. Since then, I’ve received 200+ inbound leads (and counting).
Have backed close to 20 emerging GP's over the past 5 yrs & looking to add 3-4 more to the portfolio this year.
Areas of interest: crypto, climate, deep tech, India (& any truly unique/differentiated strategy)
Must focus on pre-seed/seed, ideally < $20m fund size.
— Boris Wertz (@bwertz) January 11, 2024
While I was aware of many emerging GPs raising right now, I didn’t realize just how many were in the market. As one fellow VC said to me, “Raising a fund for an emerging manager in 2024 might be one of the hardest things you can do”.
Having looked at close to 200 decks and spoken to two dozen GPs in the past two weeks, here are a few pieces of fundraising advice for emerging GPs:
You need clear differentiation
By some estimates there are over 5000 GPs out there right now…probably way more than the market needs. If you start a new fund, you need to be clearly differentiated: what’s your unique insight into a specific opportunity, your unique network that generates deal flow, your unique value proposition that gets you into deals? Too many funds are still pitching themes that aren’t fresh (e.g. generalist focus, operator background). This was the exact pitch that worked well for me when raising Version One’s first fund, but that was twelve years ago in a significantly less mature and competitive VC environment. Things are much different now.
Focus on your minimum viable fund
There is an ideal fund size and then there is a minimum viable fund size. The first is the fund that you would ideally raise if LP capital was not a constraining factor. The latter is the absolute smallest fund you need to raise to prove out your strategy. In this market, emerging managers should be more focused on the minimum viable fund rather than their ideal fund. Think hard about the minimum amount of capital needed to prove out your strategy.
Address your investing experience
Becoming a successful fund manager doesn’t happen overnight. You need to make many investments and get feedback from their outcomes to train your filter and start pattern matching. Lots of emerging managers without previous investing experience learned this the hard way during the ZIRP era. Investing felt very easy during that time; investment pacing, portfolio construction and follow-on decisions didn’t seem to matter. Given this, LPs today are focused on the depth of the investing experience of a new GP and any emerging manager should address this heads-on in their deck and LP communications.
Leverage warm intros and your networks
Entrepreneurs are typically advised to seek out a warm introduction to increase their chances of getting a meeting with a target investor. In my opinion, a warm intro is even more important for emerging managers. A really good cold email from a founder that clearly showcases a unique approach, an interesting and fast growing market, and/or some impressive traction can spark the interest of a VC. But as an emerging manager, it is much harder to create a differentiated pitch as capital is much more of a commodity than a start-up is.
Avoid one-way doors of the bad kind
If you’re out raising a fund as an emerging manager, you might get offers that look attractive at first glance. For example, another GP with long-term investing experience wants to join the partnership and help fundraise. Or an LP wants to anchor the fund, but asks for a large piece of the carry. Perhaps these opportunities make sense to help boost your chances of raising your first fund, but be careful not to make compromises that will structurally damage your fund’s future. Don’t take on another GP who looks great on paper, but isn’t someone you want to build a long-term partnership with. Don’t set a precedent that the LP will take a piece of the carry in every subsequent fund.
Amidst the flurry of conversations and decks over these past weeks, I’m incredibly encouraged by all the talent and passion in today’s emerging GP community. I think back to 2012, when Version One was an emerging manager and raised our first fund. We’re now on our fourth fund with the same excitement and energy that we had back then, investing in mission-driven founders that are early to new sectors.
We believe in our founder’s ability to positively impact the world and there’s nothing better than helping today’s innovators make a difference. I hope that many other emerging GPs get this same privilege.