“Rolling funds, the rise of solo capitalists, crowd syndicates and team-based seed funds all scream one thing in unison: venture capital is growing and getting unbundled at the same time.” TechCrunch
Emerging Managers are Venture Capital Fund Managers whose assets under management (AUM) range from $25 – $100M and have typically raised less than three funds. These types of managers are playing an important role in the ‘growing and unbundling’ of the Venture Capital landscape as they oftentimes focus on previously overlooked founders and markets. Emerging managers bring unique perspectives and experiences to the world of Venture Capital which is why startups should have a solid understanding of this type of investor as they start their fundraising journey.
How are Emerging Managers Different Than More Established VCs
If we compare established fund managers to emerging fund managers, a known investment claimer holds very true, “past results are not an indicator of future success,”– According to Pitchbook research “Nearly 18% of first-time funds nab an internal rate of return (IRR) of 25% while later funds only exceed that number about 12% of the time”.
Many respected LPs have also reported that emerging managers tend to outperform more established funds that are larger scale.
Other distinguishing attributes of Emerging Managers include:
- They generally write smaller checks
- They’re more hands-on with their fewer number of investments
- They’re focused on brand building
- They’re agile and less organizationally bureaucratic
There has historically been a high-risk bias on emerging managers because of some constraints that they faced in the past with regards to limited partners, but as they “consistently outperform industry benchmarks” you can see that isn’t holding Emerging Managers back from growing rapidly year over year.
Why Would You Want Emerging Managers On Your Cap Table Instead
Emerging Managers usually come with years of experience from larger funds where they had the chance to learn and work with the big players. Since the IRR of their new funds are the key indicator of success for LPs, they are highly motivated to make their investments successful.
As they are also more agile, they are able to bring more innovation and ideas to the table which allows them to recognize and jump on new trends which takes more time for established VCs to react to.
The number of Micro VCs, which are also considered emerging managers, jumped 9x from 2012 to 2019, “The underpinning insight was that the “generalist” approach by legacy VC created an opportunity for bespoke firms that could better support founders at the early stage in their respective markets and that this would lead to improved outcomes.” Kaufman Fellows
Other benefits of emerging managers include:
- They have more real-life experience that’s recent and relevant
- They’re more engaged investors and are more motivated to help you out as they’re establishing their brand
- “At the end of the day, LPs look for evidence that an emerging manager can, and will, identify the best companies in their area of focus, and be able to win those deals based on their approach, skills, and expertise. The best early-stage VCs bring tremendous value to their portfolio, creating a flywheel of entrepreneur referrals which in turn, fosters that GPs’ success, so they can build the next industry-leading franchise.” Crunchbase Ventures
- They have more specialized knowledge pertaining to the focus of your startup.
- “LPs typically look to avoid overfished ponds and overplayed deal channels, so you should make a compelling case for why they should follow you off the beaten path. The best EMs have a unique perspective within their area of focus. The prospective LPs you’re targeting need to agree that the approach and space you’re betting on is an exciting place to spend time.” Crunchbase Ventures
- They serve as a pathway that enables more diversity in venture.
- Emerging Managers include more women and racial minorities than in established VCs, which operate with “predominantly homogenous teams” that have been proven to yield poorer outcomes than in diverse teams.
“Emerging managers are grinders, hungry for success the way a young underdog is against a perennial winner in the sports world. This tightly aligns their goals with LPs – a strong return means both the manager and their partners win.” Gridline
How to Find Emerging Managers
Emerging Managers to Check-out
True Wealth Ventures
- Location: Austin, Texas, United States
- About: We see value in the impact of women. True Wealth Ventures invests in smart female entrepreneurs, from health innovators to sustainable solution pioneers. Women-led companies have proven they deliver higher returns. It’s time to invest in new perspectives.
- Thesis: Women-led companies improving either human health or environmental health
- Investment Stages: Seed, Pre-Seed
- Recent Investments:
- De Oro Devices
- Reharvest Provisions
- About: We support founders who operate early-stage technology companies that are historically overlooked and provide them capital, resources, and connections to scale their business. We’ve been in your shoes. We’re tech founders with 10+ years of experience running companies and making deals. Now we’re authentically supporting entrepreneurs with capital and a founder-friendly focus.
- Recent Investments:
- Location: Chicago, Illinois, United States
- About: Chingona Ventures invests in founders from backgrounds and industries that are not well understood by the traditional investor.
- Thesis: Focus on industries that are massively changing and founders whose backgrounds uniquely position them to create businesses in growth markets that are often overlooked. Focus areas are in financial technology, female technology, food technology, health/wellness, and future of learning.
- Investment Stages: Pre-Seed, Seed
- Recent Investments:
- Sigo Seguros
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