Embracing Emergence Is Partnering With Sydecar 🤝

I am very excited to be partnering with Sydecar to provide further resources to Emerging Managers and Limited Partners with Embracing Emergence!

Sydecar is the go-to platform for emerging VCs to manage both their SPVs and funds. Their powerful software allows you to launch SPVs and funds instantly, track funding in real-time, and offer early liquidity opportunities.

Sydecar acts as your silent operating partner, handling all back-office functions seamlessly. Say goodbye to chasing subscription docs, lost wires, or late K-1s. And for LPs, being on the LP-side myself, I know how important it is to have an easy onboarding process, quarterly capital calls, or tax docs, handled by a trusted platform.

Click on the button below to find the dedicated space Sydecar provided to Embracing Emergence readers!

Volume #14 TL;DR:

• Emerging Managers lack direct feedback from LPs on what they look for in Quarterly Updates, how it informs their decision-making, and their thoughts after reading an Update.

• LPs don’t always get what they are looking for in a Quarterly Update. Additionally, LPs lack insights into what peers look for in updates and how they inform their decision-making.

• Emerging Managers will only bring top quartile - top decile returns when they manage to constantly align themselves to their strategy and the current market conditions.

• The quarterly cadence of updates and capital calls is a significant element of the EM-LP relationship. And how Emerging Managers navigate this quarterly cadence can differentiate them from others. Customer service to Limited Partners matters.

Table of Contents

• The Problem With Quarterly Updates

• Some Direct Feedback from LPs & GPs

• What I Look For In Quarterly Updates

• Why Quarterly Updates Differentiate Emerging Manag …

• Limited Partner Spotlight

The Problem With Quarterly Updates

Quarterly Updates from Emerging Managers to current or prospective Limited Partners are one of the “things” that seem to simply exist and are a part of the “this is just how things work” foundation for the EM-LP relationship. However, there seems to be little to none direct communication between LPs and GPs on what both want from Quarterly Updates.

I would describe the current problem with Quarterly Updates as two-fold:

1. Emerging Managers lack direct feedback from LPs on what they look for in Quarterly Updates, how it informs their decision-making, and their thoughts after reading an Update.

2. Limited Partners don’t always get what they are looking for in a Quarterly Update. Additionally, LPs lack insights into what other LPs look for in Updates and how it informs the decision-making of their peers.

In my opinion, Quarterly Updates have a unique potential to be a powerful resource and element to strengthen the convergence between Limited Partners and Emerging Managers. But this element of the EM-LP relationship unfortunately lacks direct feedback between both sides. I want to dedicate the next weeks to this problem by teaming up with my friends Andreas and David from EU VC to create a report specifically to LPs who are actively investing in Emerging Managers. I will be sharing more insights in this newsletter and online as we progress!

I want to find out what LPs actually care about reading in Quarterly Updates, what data they care most about, what is currently missing in Quarterly Updates, and if it informs their decision-making for a potential investment in a fund.

Some Direct Feedback from LPs & GPs

Over the last weeks, Embracing Emergence has grown into a community of 40+ Limited Partners who are actively investing in Emerging Managers (if you’re an LP and want to join, just respond to this email). We recently were conversing about Quarterly Updates, and what makes some stand out from others. I wanted to share some quotes from our conversation to shed some light into this element of the EM-LP relationship that unnecessarily feels like smoke & mirrors:

“I’m always looking for quick, visual ways for people to explain what companies are working / driving the majority of portfolio value.”

[we were discussing included metrics on detailed reports on portfolio companies] “This gets even better when they start to include revenue metrics, ARR, and other fundamentals growth outside of the FMV, MMOIC and invested capital metrics.”

“Question to the group: How much time do you spend reviewing the past reports of a fund before committing and how much does it influence your decision, if at all?”

“We’re trying to do more co-invests with our funds, and I think reporting detail and style is becoming more and more important for us also as a means to help us achieve our objectives in doing LP tickets.”

“Quarterly Reports can’t be all things to all people. The report should be built in a way that is “enough” for most people, and then depending on the LP and its goals, it might be worth a separate call or putting together custom materials. Hopefully, some of that is scalable across LPs, but at the end of the day, transparency and investor/customer service are real differentiators”

“I lean heavily on reports, memos, and communication and expect potential GPs to include these in data rooms.”

I share these thoughts from LPs, because these are Limited Partners I know personally and I know they take their investments and relationships very seriously. This is no feedback that comes from a place of expecting customer service without wanting to add value in return.

When I asked Emerging Managers about what their desired innsights from LPs on their Quartlery Updates are, many confirmed that a report on what LPs care most about in Updates would be highly informative. Additionally, I received the same feedback from several Emerging Managers independently:

“Just a response to the Quarterly Update would be helpful.”

I want to encourage us Limited Partners to send a quick response to Quarterly Updates we receive. Why should you? Well, being a good investor requires you to be a good companion - knowing how to journey in the appropriate proximity with those you are walking together is of significant value in the EM-LP space. Responding to Quarterly Updates is a great way to support Emerging Managers with a level of proximity that is equally guiding as it is giving the freedom that is required to get the job done.

What I Look For In Quarterly Updates

What I look for in a Quarterly Update is shaped by several facets and depends on the telos of the LP-investment (i.e. co-investments, etc.).

But if I had to break it down, here is how I would describe what I look for in a Quarterly Update: Is the Emerging Manager doing the right dance?

Let me paint the picture: When you go on a date for a dance with a potential romantic partner, this partner will be assessing you for several things:

• Can you listen to the rhythm of the music, without being so overtaken by it that you are unable to focus on the necessary steps you have to take?

• Can you be so focused on yourself and leading your partner in the dance, while also perceiving the dance of others and not bumping into them?

• Can you lead them as a partner in the dance, handling the steps, posture, the focus of your vision, etc. appropriately?

In summary: The partner assesses how you can conduct yourself in the world. Are you overcome by the world, can can you hold things in tension, how do you perceive others, etc?

Emerging Managers have to manage somewhat of a similar dance, even though I would describe what I assess in this dance as such: Emerging Managers are in a constant dance with their strategy, their story that relates to their strategy, and the market / industry / founders their strategy is focused on.

Emerging Managers will only bring top quartile - top decile returns when they manage to constantly align themselves to their strategy and the current market conditions.

The purpose of a Quarterly Update is to inform the reader of how the dance went for the last quarter and what music you believe the DJ will play in the next quarter.

A Limited Partner who masters to read Quarterly Updates with this lens will be able to extract information on the performance of the Emerging Manager that will enable them to pick & support the best Emerging Managers.

Why Quarterly Updates Differentiate Emerging Managers

Based on my experience and the feedback from other Limited Partners:

1. Limited Partners value communication - more than most would think.

2. Limited Partners assess how you think. With a lack of track record, the ability to assess an Emerging Manager’s thoughtfulness is key to get comfortable with an investment. With a good Quarterly Update you can document your thoughts at a period of time on macro and micro topics.

3. Quarterly Updates can elevate your customer service to LPs from good to excellent.

The quarterly cadence of updates and capital calls is a significant element of the EM-LP relationship. And how Emerging Managers navigate this quarterly cadence can differentiate them from others. Customer service to Limited Partners matters.

It’s as simple as having quarterly capital calls, and quarterly updates all in one place for LPs, distributing them consistently, having an overview of the called capital to date, and making wiring funds easy, that makes for a good customer experience for LPs. This is one of the many reasons I wanted to partner up with Sydecar. Managing an LP portfolio will have you live on different platforms, gather docs and data from different platforms, etc. Having a trusted platform like Sydecar manage this experience for both EMs and GPs is an easy way to provide excellent customer service to your LPs. They dedicated an exclusive space on their website to our readers, so I highly recommend checking their value for fund operations out!

Limited Partner Spotlight

EU VC

I’m excited to have David and Andreas with EU VC in the LP spotlight. EU VC champions and connects the European venture community like no other and they have a specific focus on partnering with the best Emerging Managers.

You can reach out to them via the button below: