Over the past years, Embracing Emergence has given me the opportunity to sit down with people who have dedicated themselves to finding and backing exceptional Emerging Managers. These conversations have shaped my convictions, introduced me to people I now call friends, and helped me think through where I want to contribute myself.

My conversations with Felix Staeritz and Michael Ströck have been part of that journey. And today, I want to invite you into one of them.

I sat down with Felix and Michael to document and explore what made them start Allocator One, what they look for in the people they back, and what we are building with Infra One. I wanted you to get to know the people I am joining, hear their convictions in their own words, and understand why this work matters to them.

There is a lot I am looking forward to sharing as we build. For now, I thought the best place to begin was by sitting down together and letting you into the conversation.

Best,

Benedikt

Benedikt: What did you both see that made you feel Allocator One needed to exist? Was there a specific experience or event that led you to that conviction? Starting a Fund of Funds takes a lot of conviction, sacrifice, building, etc. What gave you that level of conviction?

Michael: I think the main point we saw was that the world is getting more complex and, at the same time, more complicated to deploy capital in.

The market is really bifurcating into smaller managers doing very highly specialized things that, on the face of it, seem hard to judge, and the large brands who, for different reasons, are also hard to judge because they basically claim to be able to do anything and deploy capital anywhere.

To us, that was an opportunity to find a model where Felix and I can work on the things that are interesting to us, that we think are important and true, and at the same time work with people who, when it comes to the details of the industries, sectors, or branches of science they’re in, are much better at it than we are.

We thought that was the best way to deal with this rising complexity in 2023, when we started Allocator One.

Benedikt: The life cycle of a fund can be very long. Venture is oftentimes the last thing someone does. What made you excited enough to do something for decades to come?

Michael: I wouldn’t call it excited. Excitement is something that’s very short-lived. If you think you can be excited all the time, I think you’re deluding yourself.

I just think it’s an important thing to exist, because there’s always the opportunity for societies to go wrong and go off into dead ends when it comes to technology, when it comes to social progress.

Some people are always at the edge of what will happen. And I think having a vote there is very valuable. It’s also a very intellectually stimulating thing to work on.

That’s the way I see it. Then I get excited here and there about specific things. That’s how it works for me.

But overall, this is just what I should be doing.

Benedikt: Felix, what about you?

Felix: Michael and I have known each other almost 15 years now, and we started doing it for the same reasons. We had long discussions on all the principles and ethics and decided that, when we do something, we’re not looking at building a fund. We’re looking at building something that is here to stay, that we want to build over the next decades to come, and that is really solving a problem.

Having transparency on the other end of the market, the specialized fund managers, the Emerging Managers, for private investors, family offices, and institutions just makes a lot of sense.

Backing the people who are the outliers, backing the ones who really contribute positively with insights on that change, just makes a ton of sense.

We believe we’re probably going through one of the fastest transformations in human history. That just makes it more relevant.

The timing was also a bit lucky, that we had the chance to build it from 2023 onwards, the year when I would say we had the breakthrough moment in AI.

Benedikt: Let’s clarify for everyone: what does “emerging specialists” mean to you? What are the categories you are thinking about? You’ve picked first- and second-time managers, specialist managers, and you’re writing anchor checks. There are a lot of convictions layered on top of each other. “Emerging” means different things to different people. “Specialist” might mean geography, operators, or technology specialists. What is included in that term?

Michael: When you really get right down to it, it’s about biography, really. It’s about the people we’re working with.

They’ve been banging their heads against the same problems for 10, 15, 20 years. They really understand something very deeply about the world and about themselves and how they want to show up in the world. They understand some problems very deeply.

That leads to them being usually very well known, very well respected in their specific fields.

That’s the thing they’re specialists in, and it could be almost anything in practice. Very often it’s tied to specific technologies, specific geographies, specific regulatory environments. Those are the typical things.

But it is definitely something you can see in their track record. You can see them starting out 10, 15 years ago and then escalating from there when it comes to their skills, their network, how well they are known.

At some point they decide to go into capital allocation. That’s when we want to start working with them.

Benedikt: You’re mentioning a traceable history here for the people you back. How important is the track record?

Michael: I think it’s everything. I just said, essentially, that we’re looking at the last 10, 15 years of people, right? So in practice, it’s incredibly important.

That doesn’t mean they have to have been running funds. But the track record of what’s been going on in their life is incredibly important, because that’s where you can get a sense of what will happen. There is momentum, and there is reliability, and there’s integrity when you see something like that.

It’s very hard to judge people’s reliability and integrity when they’re basically turning their life around 180 degrees. You can’t really do it. You’re taking a potshot at that point.

That we obviously can’t do with other people’s money.

And when it comes to investment track record, again, in practice right now, very important. We have to make sure we deploy capital with people who know how to get onto the right cap tables so that our clients’ money and our own money can get deployed effectively.

There’s both a science and an art to that. Starting from scratch is also very hard.

In practice, everybody we work with has a pretty extensive angel portfolio at least.

Benedikt: I remember one of our early conversations 3 years ago really well. I asked you what makes the top 1–3% so special, and one thing you said stood out to me: GPs who are commercially minded.

I haven’t forgotten that. Personal branding, storytelling online, being “clippable”, being able to create hype, all of that has become more important. But what you were talking about was people building a business and a firm. People who know how to network and understand the art of horse trading with other people.

One of the things that excited me about A1 was the amount of access you have to the Emerging Manager ecosystem. You see roughly 80% of the 1,000 new managers forming every year. There are already roughly 10,000 funds below $500M. About 20% advance to interviews, and you only back roughly 1% of the pool.

There’s a clear process and clear qualities you’re looking for. What makes the GPs you back special? Walk us through some of the things you’re looking for.

Michael: All of the things you mentioned are extremely important.

What I would add is a high degree of self-awareness about where you’re not that strong. That’s very important because you will have to get stronger at that as well. If you want to compete, it has to be a continuous process of making sure you’re up to scratch in all of these areas.

Then it comes back to consistency again. In all these things, there needs to be a visible cadence, and they need to speak about that cadence: How do I improve things?

At least most people we work with, that’s how they think. They have a day-one mentality where, yeah, they’re raising a fund now, and it’s going to be $20 million, and it’s going to be a great success. But for them, that’s just the proof of concept. They need to get this out of the way because they have important things to do. They realize there’s a long way to go.

And they’re eloquent in speaking about that in ways that don’t make it sound like a slog, but make it exciting.

Because in the end, raising a venture fund is one of the most grueling things you can do. If that shines through too much, that’s not a good sign. There needs to be excitement around that project, because otherwise they won’t be good at it. It’s too hard. It’s so difficult.

Also, what I noticed is that all the things you said you took away from the conversation three years ago haven’t changed one bit.

Benedikt: How come that you had that conviction so early?

Michael: When we spoke, we had already spoken to 500 managers. We had made our first commitments.

I had been in venture for ten years at that point. Felix and I started working together 15 years ago, and I think we have a sense of what it takes to stay in it and get better at it.

There was a lot of alignment there, and then reality happened to conform with that, so we doubled down.

Another thing I want to mention: it’s interesting that that stood out to you, because it’s obvious that if you raise a fund, you need to be commercially minded, right? You need to want to make money.

But when I had this conversation with LPs, I got side-eyes very often. It sounded weird.

Benedikt: It’s not a sexy thing to say in venture.

Michael: That’s nuts.

Felix: Besides data consistency, which we obviously check and which makes someone very reliable or very fast out of the processI think we look for people who are very authentic.

They’re very self-reflective and authentic about who they are, what they want, where they want to go. They’re also very clear on things they have mismanaged or not done well.

Michael: I wanted to say that as well, yeah.

Felix: That is very human. It’s very normal. If you build up a career over 15, 20 years, maybe ten years, being at the forefront of something, it’s unavoidable that you also make mistakes. That’s part of the journey to get there.

Michael: Interestingly, I wanted to say the same thing Felix said there.

When we point out one of these inconsistencies: “Hey, you’re overselling this exit by about 3x. What’s going on there?” and the reaction isn’t, “Well, shit, I guess you’re right,” that’s a really bad signal.

If you point out obvious factual errors in people’s presentations and they can’t handle that, and they don’t handle it with high integrity very quickly, that’s a problem.

Why do both Felix and I come to that point? Because the data available isn’t super hard data. You’re trying to make decisions on very fast-moving data. Something is 50x right now, on paper.

You need to figure out a way to judge all these hundreds and thousands of data points. If you’re not, at the same time, being very consistent and honest about how you handle all of it, it becomes Fantasyland very, very quickly.

And a lot of venture is stuck in that, frankly.

We need to keep out of Fantasyland.

Benedikt: I’ve heard you talk about consistency, looking back at a person’s life, integrity, self-awareness, data, and track record. For some people, data and people assessment seem to be in tension. For others, they seem to be in harmony.

Anybody who gets backed by A1 has gone through your application forms where you collect a lot of information. So, data analysis is clearly important to you. After that, the best get selected for personal interviews. How do both parts play together when backing managers? Where does data help you see what others miss, and where must human judgment take over?

Michael: One way I think about data is that it saves you from the more dangerous relationship-based biases.

Some people are just incredibly charming and enticing and fun to work with and intellectually stimulating. But that doesn’t mean they’re going to be good managers of people’s money.

It’s a second lens on the same relationship.

It’s still a relationship business because you’re going on, as you say, a ten-, twelve-, fifteen-year journey with somebody.

But you can figure out: What was this person saying ten years ago? Five? Two years ago? Eighteen months ago? In the last meeting? How has their thinking changed? How has your opinion on their thinking changed?

If there are disagreements, how do we resolve them? Do we find a new viewpoint from which we can make decisions?

If you want to make a decision, you have to have something to ground it in. Something more than just gut feel.

Sometimes we see a GP application with a story that sounds unbelievable on the face of it. They’re saying there’s a gap in seed funding for a certain area, and basically no rounds are happening in this space.

When you listen to the news, you’d think, “Wow, this is a hot area.” But it’s not yet.

You look at what you can actually find out. How many seed rounds are happening there? And you see, actually, no, it’s just lots of good PR. It obviously makes sense, but not a lot of capital is actually moving there yet.

Finding things out about the world at large is very data-driven, I would say.

Felix: We’re sorting out approximately 70–80% before we go to an interview. That’s done through this inbound application process.

That helps us value the time on both sides, for the manager as well as ourselves.

It doesn’t only identify the ones we believe it makes sense to talk to. It also allows us to be very specific in interviews, in the questions we need to look at. We’re very well prepared and can take the conversations forward in a meaningful way.

In the end, some of the people in the process we can anchor, and we’re very grateful that we can go on a journey with them for a very long time.

But there are also amazing other people. This is what we call our community. Even if we don’t select them, they become part of the community, and our job is to amplify them.

Benedikt: You recently shared your thoughts with me on what you call “The Great Divergence,” or “The Death of the Middle.” On one side, you have the big mega funds. On the other, you have specialist Emerging Managers. In the middle, you find the generalists with awkward fund sizes.

Some are neither small and nimble nor big and mega. They can also be generalists in their approach.

Walk us through this perspective on the ecosystem. What does this divergence mean? Why is it important for people to understand? What are the repercussions for returns and where they will happen?

Felix: Because of the rising complexity, we have a bifurcation of the market.

On the one hand, the mega funds are growing in size. You have to have the numbers in mind. We’re talking about $100 billion of AUM. That’s huge market power.

Because of the size of the funds, there are certain expectations on the outcome, and that is all absolutely clear and fantastic.

But on the other hand, the complexity is leading to the death of the middle, because being very specialized, as we just discussed, helps you take better decisions, more informed decisions, calculated bets in the very early stages.

For an allocator, there’s the opportunity to participate in the transformation of companies that might not be $100 billion companies, but are going through a transformation no matter what. Specialist managers are probably the ones identifying those business models and opportunities.

In other cases, some of those Emerging Managers are just in the right communities. They’re at the right place. They’re coming from the right firms. They have an opportunity to be first in some of those absolutely crazy opportunities. Emerging Managers are not only playing in very specialized areas. They’re also part of the Anthropics and Thinking Machines of this world. They have special access to what we internally call “DPI engines”.

A third pool of Emerging Managers might come from communities around the larger firms. They have special access and information to buy secondaries.

Benedikt: One of the things I am most excited about with what we’re building is Infra One.

It’s the fund administration platform you’ve been building and rolling out. Why start that when you’re already solving the capital issue? What made you start it, and what becomes possible through Infra One that capital alone cannot unlock?

Felix: An Emerging Manager has three problems to solve.

There are deals, and creating value in those deals. The second is the investment, which is what we’re solving with the anchor check and Allocator One.

The third element is that they need a regulated vehicle.

The stack GPs are running on is fragmented and absolutely legacy. It’s not fit for purpose today.

We expect fast decisions, transparent decisions, and ideally the ability to get to liquidity better and faster. Infra One is solving that third element.

We looked into many providers in the market. We had lengthy discussions. We weren’t just like, “Let’s do it.”

But in the end, we decided that what we’d seen in the market didn’t make sense. With the experience and knowledge we have, and with the timing of 2023, we thought it was the perfect moment to create something that gives the manager a pain-free solution.

Something that gives them hundreds of hours back that they can invest in creating more value in the deals.

And a completely different level of insights. More insights help the LP and the GP take better decisions.

If you really want to achieve that, we’re talking about disintermediating the current market.

Michael: I think it comes down to several things we’ve said before.

On one hand, you quoted somebody as saying that lots of people haven’t understood that venture is global. That’s true. You have to think way more globally.

But you also have to think across the value stack, and in terms of vertical integration.

The fact is that somebody is going to do it, because human attention and human thinking are not as limited as they used to be. Certain companies will be able to do things that, in the past, would have seemed like overreaching.

If you think very broadly about the area you’re trying to shape, what’s actually going on there, and how things could be better, you automatically land at lots of issues you could solve.

I think Allocator One as a group is an outcome of that type of thinking.

Something many people underestimate is the crazy compounding effects of making things slightly more efficient over years and decades. It’s insane.

When you think about some of the things we can already do, and think that forward a couple of years, it’s going to be very different.

I would rather have control over that process than be trying to play in a marketplace where I basically have to keep reacting.

Another thing, which is also about compounding effects: you can’t really build any company anymore without building your own software.

The difference between half-assing it and doing a really good job of it is actually not that large, so you might as well. Especially now.

Building great software is still very hard. Building great processes is just as hard as it ever was. But getting from zero to one is ridiculously easy, and you need to be interested in trying that wherever you can.

Otherwise, you’ll have a problem competing with people who are.

I hope this conversation gave you a closer look at the people and convictions behind Allocator One, and what we are building with Infra One.

If you are raising a specialist fund and recognize yourself in the managers Felix and Michael described, I would love for you to apply to Allocator One. And if you are looking for support with the infrastructure of running your fund, get in touch with us at Infra One.

I am grateful to bring this community along as we build, and look forward to finding more ways to work together.