Imagine you are planning to summit Mount Everest, or participate in the Paris-Dakar rally, or run your first Ironman competition. Naturally, you would want to spend years preparing, training, researching and building your own mastery. The alternative would likely be gambling for luck or facing a harsh and brutal reality check.

The same goes for emerging fund managers. We are on a mission to help future-, first-time and emerging fund managers be as prepared as possible for the journey ahead. We are on a mission to fundamentally alter the odds for emerging managers, notably in the gender- and climate space.

In our work with 100’s and 100’s of emerging managers around the world we have noticed a pattern in terms of ‘setting yourself up for success’. While we never question the intelligence, dedication and persistence, we have found there are very different profiles trying to set up a first-time fund. Some are naturally more successful than others. In this post we try to map out, identify these profiles. We call them “the Tourist”, “The Fund Expert”, “The Networker” and “The High Performer”. In our day to day, we see them all. We have also written a short outline, a challenge and some possible solutions for each of the four.

Our hope is that this short guide will help future emerging managers set themselves up for success in the best possible way, reduce the time it takes to set up a first-time fund and overall increase the odds for future gender- and climate fund managers.

The Tourist

The Tourist is “looking around, want to do something exciting”. Got some names, but very limited market knowledge and LP relationship.

The Tourist is frequently deeply passionate around the theme (climate, gender, tech, equality, etc), but may have only patchy professional experience in the theme.

Often, the Tourist  has seen certain elements of private market investing (like angel or SPV deals), but never appreciated the full complexity of raising LP funding and operating one or multiple fund vehicles.

While extra challenging, Tourists do raise funds and eventually grow into experienced fund managers, but the probability to raise the first fund is low and the workload to get there will be excessive.

Challenge

Significant challenges to reach successful close within a reasonable (18 months) timeframe. May get a lot of meetings, but clearly not hitting GP-LP fit. The process may drag on – possibly for years-  without really making any fundamental progress. May be able to raise the fund, eventually, but limited understanding of the work required to operate the fund.

Solution

Reflect deeply whether you have the drive, motivation and grit to raise this fund. Recruit people with proven experience, possibly even more senior than yourself. Recruit experienced talent into roles as mentor, LPAC, advisory board, board and venture partners. Find a really good fund administrator, legal advisor, accountant and auditor. Consider joining a GP accelerator program like VC Lab, 2X Ignite, DFDF Fellows, Coolwater or Dream VC. Seek out more education. Consider taking a full-time job in the industry for another 1-5 years to build your expertise, network and long-term chances of success.

Four Types of Tourists

Quick departure:
Wow, this is really hard. Goodbye! Goes back to consulting, banking or C-level job.

Optimistic beginner:
Not learning, not developing, but remaining very (overly) optimistic, struggles to raise the fund. Not sure why.

Emerging realist:
Slowly recognizing this is hard, will be hard. Was not ready for the level of difficulty and amount of rejection. Sours on all things early-stage investing. Push through?

Strong learner:
Learning the ropes quickly. Able to grow into an Expert role and engage well with LPs. Will evolve into any of the other categories over time.

The Fund Expert

The Fund Expert will usually have had a long and successful career in fund management, often at a large bank, a DFI or a fund-of-fund. She has often been on the other side of the table from emerging managers.

Challenge

Limited LP network. Limited experience with the networking, the sales work and the hustle required to get a new fund of the ground.

Solution

Reflect on the partnership as a group. Consider adding dedicated resources on fundraising, including Partners with more LP access. Consider using a placement agent. Consider working a few years in a different firm to build more LP relationships. Consider staying in the current job longer to allow more time to develop LP networks before branching out to start a fund.

The Networker

The Networker has most likely worked in an investment bank, BD role in a fund-of-fund, built angel networks, structured SPV deals or similar outward facing role.
Trusted name in the ecosystem.
May run a widely read newsletter.
Excellent stakeholder relationship skills.

Challenge

Limited professional experience from a VC/PE/SME/Debt fund. Unlikely to have much experience with the key building blocks of a fund, deal sourcing, legal setup, LP search, portfolio value creation, follow-on, exit strategies and LP returns, fund management and operations. Will most likely underestimate the challenges of operating a fund over a decade.

Solution

Consider bringing in partners with a different profile and skillset. Consider outsourcing all key aspects of fund admin and operations. Seek more education and training on all aspects of fund management. Notably, learn key elements around deal terms, investment memos, value creation and exits.

The High Performer

The High Performer has extensive, proven experience building, raising, running and operating funds. Most likely held multiple partner or senior leadership positions with previous funds. Proven ability to source deals, structure deal terms, make investments, support founders, and realize attractive returns for LPs. Has wide networks and deep relationships with possible LPs. High probability of finding GP-LP fit early on.

Challenge

Likely the first time setting up a new fund and firm. May underestimate the time required to get to first and final close.  May underestimate the time and commitment required to get a full team up and running.

Solution

Bring in more experienced GPs as mentors, board members, advisory board members and team members. Set up a system for coaching and onboarding new team members faster. Be realistic on all timelines, from LPs, team members and deals.

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By identifying and addressing the distinct characteristics and hurdles faced by “The Tourist,” “The Fund Expert,” “The Networker,” and “The High Performer,” this guide offers essential insights and practical solutions to help future managers navigate the complexities of fund management. Our goal is to streamline their journey, increase their chances of success, and foster the development of impactful funds, particularly in areas like gender and climate. With the right preparation and understanding, emerging managers can turn their vision into a successful, sustainable reality.