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Volume #15 TL;DR:

• Not every Emerging Manager will bring the same type of track record to their fundraising process.

• If we can endure the complexity and fight our tendency to reductionism, I believe a more holistic understanding of the “Track Record” can unlock a new wave of efficiency in the relationship-building between Emerging Managers and Limited Partners.

• The danger of having too narrow of a lens when it comes to assessing the track record of an aspiring GP is to not account for how their journey could enable them to build a top-decile fund if that part of their journey does not fit within your framework.

• But here is one thing that all the highlighted traveled tracks of Emerging Managers have in common: a unique proximity to the best founders that was repeated across several investments.

Table of Contents

• “Track Record”, A Definition

• The “Track” Traveled

• The “Record” Built

“Track Record”, A Definition

What typically is associated with the term “Track Record” is a list of prior investments, either as an angel investor and /or as an investor at a established firm. My goal with this volume today, is to highlight a much broader framework to think through the track record of Emerging Managers.

Why does this matter? I believe that the fundraising process and general relationship between Emerging Managers and Limited Partners is shaped by a lot of unnecessary inefficiencies. Most of these inefficiencies are shaped by a lack of understanding of the complexities the other party of the relationship is “dealing” with.

I believe we have a very limited understanding of what a track record entails and what decision-making it should inform. Here is my general suggestion: not every Emerging Manager will bring the same type of track record to their fundraising process. If we can endure the complexity and fight our tendency to reductionism, I believe a more holistic understanding of the “Track Record” can unlock a new wave of efficiency in the relationship-building between Emerging Managers and Limited Partners.

Before I officially get cast out of the Venture Empire into the wilderness as a heretic, let me give you my definition of the “Track Record” for Emerging Managers:

A couple of things to consider about this “set of information”:

• The events have occurred in the past and/or very recently.

• The information does not guarantee future success, but it can be indicative (it also might not be).

• The information signals a unique ability to source, pick, and win investment opportunities.

• The information is much more predictable and accurate if it contains more than a list of investments the GP has completed.

• The information signals that the ability to make such investments is repeatable. Repeating a random “shot on goal” is not indicative of a future top-decile fund.

• This information contains a variety of data.

• This set of information is different for Emerging Managers raising Fund 1, Fund 2, Fund 3, or Fund 4.

The “Track” Traveled

As I had mentioned in the introduction, not every Emerging Manager will have the same type of track record that supports their fundraising process. That is simply due to the fact that many GPs travel different paths that lead them to the conviction to start their own fund.

I also want to mention that the track traveled looks different for each fund (Fund 1, Fund 2, Fund 3, or Fund 4) the Emerging Manager is raising. Let’s focus on the pathways that lead Emerging Managers to their first fund.

Myrto Lalacos (also part of our exclusive LP group chat) made a post this week that perfectly ties into today’s volume, highlighting 6 different career paths that tend to be fruitful soil for Managers to raise their first fund:

1. VC Firm Veteran: You spent 5+ years at a VC firm, growing your network, and sourcing portfolio companies that saw significant markups or successful exits. You've built a stellar reputation in your ecosystem by going above and beyond for founders.

2. Ecosystem Builder: You’ve built your local startup ecosystem from the ground up. You organized events, made introductions, and became the go-to person for anyone thinking about starting a company. As a super connector, everyone building anything comes to you.

3. Accelerator Operator: You ran a top accelerator in your focus area. Cohort after cohort, you sifted through thousands of applications, selecting and accelerating the best founders. Your ‘cohort-folio’ is filled with impressive logos and success stories.

4. Venture Studio Operator: You mastered the art of identifying lucrative market gaps and rapidly building products and stellar teams to address them. Your consistent success in spotting early winners has become your trademark.

5. Startup Operator: You founded and sold a company or were an early employee at a startup that became wildly successful. Now, the new generation of founders seeks your advice on how to scale their ventures from zero to 100.

6. Angel Investor: You’ve managed your own money with the precision of a VC managing others' capital. You created strong deal flow, picked winners, and offered them all the tools they needed to succeed. After generating impressive returns for yourself, you’re ready to scale your operation and do the same for others.

Just these 6 paths should get the point across that most all Emerging Managers who are raising their first fund will have travelled a different path that lead to where they are today. The danger of having too narrow of a lens when it comes to assessing the track record of an aspiring GP is to not account for how their journey could enable them to build a top-decile fund if that part of their journey does not fit within your framework.

And here is the obvious tension: Too narrow of a framework could cause the LP to overlook the best non-consensus Emerging Managers, too loose of a framework could cause an investment in a GP, who will not produce the needed returns.

I chose the word tension intentionally, because as with everything in life, the means to flourishing is not balance, but correctly set tension points. Our physical bodies only function through tension points between body parts, our different aspects of life only work well together if we keep them in the right tension to each other, etc. The “Frame Work” of Emerging Managers challenges us as Limited Partners to choose our tension points correctly and to resist the temptation of not wanting to endure that tension.

But here is one thing that all the highlighted traveled tracks of Emerging Managers have in common: a unique proximity to the best founders that was repeated across several investments. And this proximity of course includes making actual investments, but it also includes much more than that. This leads us to the “Record” part of our “Track Record”

The “Record” Built

Again, the track record of the Emerging Manager is a set of information which indicates the ability to repeatedly make investments that produce outlier returns.

We have now covered the fact that many Emerging Managers are shaped by a unique journey and pathway, which requires the Limited Partner to have a wide enough and narrow enough scope to assess the track record of those Emerging Managers who will produce the outlier returns that make you invest in Venture Capital in the first place.

And each of these “Tracks” will result in Emerging Managers building different “Records” over time. The bottom line of this outline will be that not every Emerging Manager who is raising their first fund will have a list of 10-20 angel investments that are mature enough to indicate a potential top-decile Fund 1 portfolio. Some Emerging Managers will raise more on their philosophy than on their history.

Below is a graphic I have used repeatedly to communicate how I assess Emerging Managers: “Humanness” and “Profession”.

This graphic also gives a good idea of what the “Track” built can include. It becomes apparent that the track record is more than investments on paper and their current MOIC.

If the track record is supposed to be an indication of the ability to repeatedly source, win, and pick the best deals, then you will need to look at much more than investments only.

You need to understand the intellectual capacity of the Emerging Manager, their typical decision-making process, their emotional and behavioral patterns, their values and convictions, their ability to form close relationships with founders, etc.

You of course also need to assess if they are operating in their zone/industry of genius, if their previously written check sizes are repeatable in their new fund strategy, if their access to founders will change with their fund size, etc.

I do believe that aspiring Emerging Managers need to show a certain set of investments they have completed. Either as angels, Syndicate leads (shout out to Sydecar, who are launching a new syndicate management product next month...sign-up for their newsletter to be notified of the official announcement), as an investor at an established firm, etc. But assessing a track record should give you a holistic picture of the Emerging Manager’s ability to do their job exceptionally well over and over and over and over and over again.

Being an Emerging Manager that fits this criteria is impossible, but believe me, they exist.