Introduction

I am excited to introduce a new format to Embracing Emergence where I will share insights from fellow Limited Partners in a more journalistic style. I will be sitting down with active and respected LPs, most of whom I have great personal relationships with, and share a transcript of our conversation. The hope is to add new and transparent perspectives to the current GP-LP dynamic and to host conversations that address topics/questions that can only be answered with nuance, thoughtfulness, and in long-format. The goal is not to provide recipes, but resources to refine our own frameworks and approaches. 

My first LP guest is my dear friend David Zhou, who has been a great companion to me personally and in my Venture journey. 

I know many others, who value his relentlessly curious approach to people and VC. He is somebody who deeply cares about people’s stories, making meaningful connections, and providing insights to other people who are looking for them. He was the first LP I wanted to do this with.

Table of Contents

• Human Connection as a Core Investment Lens

• Redesigning the LP Meeting

• Why LPs Should Invest Time in Relationships

• The Honest Truth About Differentiation

• Storytelling: Plausible, Possible, Preposterous Fu …

• Why LPs Must Develop Taste

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Human Connection as a Core Investment Lens

Benedikt: I always admire people who can weave different themes and insights together to a holistic latticework, and you are one of the people in Venture that does this really well. The best examples are your podcast and blog for which you have different thematic categories that span from creativity to food to mental health and a spectrum of all different types of topics.

How does this broad spectrum of curiosity and interests that you have outside of Venture manifests itself for you into being a Limited Partner and how does it influence what you look for in the funds you invest in?

David: So—I love human connection. It is one of the things I realized pretty early on in my life. We live in the largest human society in history with roughly eight billion people in the world right now. But despite all of that—plus social media and everything that’s designed to connect us—we feel more lonely than ever before.

And so a large part of what I’ve done over the years is to bring people together. Even in high school I loved bringing people together and creating places that were a “third place” for everyone. I’ll give you an example:

Back in high school I had a couple friends who couldn’t go to prom because they were either rejected, didn’t have a partner, or were too shy to ask someone. They said: “Hey, everyone’s going to prom, but I don’t know where to go.” So I proposed to come up with an alternative and brought together a couple of friends.Started with five people. Then it grew to eight. Then it grew to twenty. And for some reason, someone in our friend group branded it as “anti-prom.” The school got wind of this. They actually called me into the principal’s office who told me: “You can’t do this. You can’t start an event that’s the antithesis of the school event. This is anarchy.”

Ever since, I kept pursuing this desire to help people come together. But in situations where it’s not transactional. Usually, you go to an event and the first thing someone asks is, “What’s your name? How do you know the host? What do you do for a living?” It’s typically a preset list of questions—and you don’t actually connect with someone deeply..

So I started hosting these social experiments right after college. We’d host events at a restaurant where we brought in two or three Michelin-star chefs, and everyone learned how to cook. We had an eight-course meal. Then we did a three-day, two-night escape room in a mansion. Then we did a full-on battle royale on a beach—with Nerf guns and balloons. We did a bunch of crazy stuff—but all of that was designed to help people really connect. I’ve continued doing these “social experiment” types of things. 

As an angel investor, I primarily invest in industries like Consumer—because human psychology fascinates me. That also translates to how I invest in fund managers.

There’s a phrase we use in venture: pre-spreadsheet and post-spreadsheet. I’m a far better investor pre-spreadsheet.

In the world of fund managers—Fund 1s and Fund 2s—it’s way more interesting to me to get to know someone before the data is obvious. There is available data that says Emerging Managers outperform. Fund 1s and 2s often have the hustle—because things are less obvious. They have a chip on their shoulder. They work harder for their LPs. 

That’s what I look for. I look for people who have their eyes on the target. We talked about this before: aim for the stars, land on the moon. There’s a saying—I forget the attribution—which states: “I don’t have a problem if you aim high and miss. But I do have a problem if you aim low and hit.”

A lot of Emerging Managers have their eye on the prize. I look for the kind of people for whom venture has to be the last career they ever take. I don’t want them to have a Plan B. Not “If it doesn’t work out, I’ll go back to operating.” No. This has to be the last career. That’s the mindset. 

Understanding this part of Emerging Managers requires me to connect with them deeply, foster a meaningful relationship, and understand who they are as a person.

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Redesigning the LP Meeting

Benedikt: It sounds like the ability to connect with people is something you value not only for yourself nut is also a key-quality you look for in the people that you invest in. How do you think about the inefficiency that can come with fostering these connections? One thing I get asked often is how GPs should manage the inefficient relational process with potential LPs. How would you encourage Emerging Managers to connect deeply but also know when to move on?

David: So, start by saying—and don’t quote me on this number—but 99% of emerging managers are not good at pitching and connecting deeply with LPs..

What typically happens—and Benedikt, you and I both know this—is you start a meeting, usually a 30-minute Zoom. You do your pleasantries: what did you do over the weekend, how’s your family, whatever. Pleasantries for 5-10 minutes. Then they say: “Do you mind if I share my screen and tell you what I’m working on?” And for the next 15-20 minutes, all they talk about is their fund. A one-sided monologue. They say “Feel free to interrupt me,” but no one does. It’s like going on a date, doing small talk, and then sitting in silence while the other person talks at you for 20 minutes. That’s not how relationships are built.

At the base level, I don’t think emerging managers are actually connecting with folks. They’re thinking transactionally: “You have money, I need money. What’s the fastest way I can get you to give me money?”

Benedikt: It’s very utilitarian.

David: Exactly. And that’s not how connection works.

What I often tell emerging managers—especially the ones I work with—is if you assume you have a 30-minute meeting, sure, you can spend the first five minutes on small talk. But do it well. Ask about things you wouldn’t find out otherwise. 

The minimum you can do to connect with someone is Google their background or review a podcast or blog post. Listen to the first five minutes and the last five minutes. That’s how you understand someone’s “why” and their personality. Then you have a chance to connect on something real.

Small talk is useful. It can be: “I saw your favorite book was ‘Setting the Table’” Having this information and not talking about it would be a miss.

After that, spend the next 15-20 minutes understanding the LP. What do they like investing in? What’s their track record? But more importantly, ask them about their scar tissue. What have they been burned by in the last 12 months? Where have they had remorse? Their emotional experiences will tell you more than their thesis.

Then in the last five to ten minutes, you pitch. If they’re not a fit, fire the LP before they fire you. Say: “We’re not a fit, but it was great to meet you. Do you know anyone who might be a better fit for what I’m building?”

If they are a fit, then you align on two things: 1) Strategy—are they aligned with what you’re building? and 2) Timeline—are you six months out or two weeks from a close? Be honest. Don’t waste time if they aren’t on your cadence.

Why LPs Should Invest Time in Relationships

Benedikt: Why would you suggest LPs should also care about spending time in the first call to connect deeply with the manager? 

David: A couple things. First, LPs need to understand the market—and the best way to learn the market is by talking to people actually building and existing in it. That includes founders, fund managers, service providers. You can't understand emerging managers or the edge of innovation by looking at a spreadsheet.

This is an industry of trust, right? Even if you don't invest, the thing is, you're probably going to learn something from these people. They have something really insightful to share, especially if you as an LP have to operate as a generalist, which most LPs do. And if you only take meetings when you're ready to deploy, you're more likely to invest in the first decent manager you meet, rather than the best fit.

So, taking a long-term view on people and the importance of connecting with the manager deeply is critical for Limited Partners, no matter if they end up investing or not.

The Honest Truth About Differentiation

Benedikt: How can Emerging Managers balance the importance of connecting deeply with the LP while feeling the pressure to communicate differentiation quickly and within the first call?

David: First off, most funds are not differentiated. Even if they think they are. We often have seen 30 funds pitching the same thing. One way to stand out is to call out the elephant in the room.

If you’re young, say so. If you're pre-track record, say so. If you're not spun out of a big-name firm, call it out. That honesty builds trust. LPs are looking for red flags, and trying to hide your gaps makes you less credible.

Also, know your weaknesses. Pitching isn't about deception, it's about empowering someone to make a decision. That means full transparency. Acknowledge what you don't have yet—but explain why your strategy, your insight, your obsession still make you a worthy bet. And so I'm going to call out a couple things that might be less desirable and if you can get over the activation energy of these risks then I'm happy to chat about all the things I'm really excited about. Of course, it takes a level of confidence, to be able to admit that you're less than perfect. The truth is, like everyone else, an Emerging Manager is not perfect, but that's how I recommend people to build that relationship.

This is a long-term relationship. Longer than most marriages. It’s better to build it on honesty.

Storytelling: Plausible, Possible, Preposterous Futures

Benedikt: This ties into another question I would like to discuss with you, which addresses the tension between storytelling and substance when pitching. Stories without substance leads to exactly what you just talked about: the LP sensing a need to detect dishonesty. While substance without the right story makes for an uncompelling pitch. How do you think about that for Emerging Managers?

David: I think GPs need to tell a story about the future. Especially at pre-seed or seed, you’re investing in what the world could look like. That’s where the concept of three futures comes in:

• Plausible: Your grandma understands it. It’s obvious. It’s basically already happening.

• Possible: Insiders understand it. Outsiders might not. That’s where most GPs should pitch.

• Preposterous: It sounds crazy. Founders can pitch this, but GPs usually shouldn’t. You’re not building the future—you’re backing the builders.

The truth is most fun managers should not be pitching a preposterous future. It is not their job to pitch a preposterous feature. It is the job of a founder to pitch a preposter's future, like a startup founder, because they are actively building this and they can actually design that world to be what it is. The job of an investor is to pitch a possible future.

You're the equivalent of the product manager in the tech world. Product managers straddle the world between software and engineers as well as the customers and the marketing, right?

Your job as a GP is to straddle both the capital ecosystem world, as well as the innovation ecosystem world and tell a story that fits both the narratives. That’s how I think about the story GPs need to be pitching in general.

Why LPs Must Develop Taste

Benedikt: I want to end with one last question, which you have addressed in several of your writings. Why is it important for LPs to develop taste—and what even is taste?

David: I spend a lot of time thinking about this question. My first memory as a child was eating a lime. I hated it. I decided all citrus was bad. Years later I had to try grapefruit and pomelos, and oranges, and limes, and lemons. And every kind of citrus out there to understand what kind of citruses I like, and what kind of citruses I don't like. But if you don't do that and you only listen to others, you're never going to develop taste. You can only imagine what citrus tastes like, but you don't actually know what it tasted like..

Same with venture. New LPs get in because someone at dinner or a friend says it's exciting. They invest in one manager. That’s not taste—that’s imitation.

Taste comes from writing small, exploratory checks. See what resonates. Who you enjoy working with. What strategies you believe in. You have to explore the different avenues and Managers you can invest in to know what suits you.

You can’t outsource taste.