Embracing Emergence Is Partnering With Sydecar 🤝
Live AMA on fee structures and LP communication
In keeping with this issue’s focus on showing LPs your work, Sydecar is hosting a live AMA with Michael Axman on fee structures and LP communication. As Co-Founder of The Nucleus Netowrk, Michael works closely with family offices, VCs, and founders, curating deal flow and helping structure and syndicate SPVs, giving him extensive firsthand experience communicating fees and economics to LPs
On December 9 at Noon ET, hear how Michael evaluates management fees and carry and how he suggests managers to walk LPs through their terms. Attendees will have the opportunity to ask questions live.
Volume #39:
If you are a Limited Partner, go find your peers. Stress test your frameworks and theories with them and learn as much as possible from how they are thinking.
If you are a General Partner, do not simply pitch your conclusions to the LP. Share the how and the why you landed with your convictions.
As Limited Partners we face a very unique challenge:
We have to be so involved in the reality and grass roots of Venture Capital, so we understand the industry by being it (participatory).
But we also have to create enough distance to the industry, where we can look at it with enough visibility to analyze it while also noticing all the other things that are affecting the little world of Venture (representational).
Table of Contents
How To Get The Honey
When I first started investing in Venture as a Limited Partner five years ago (I still have my whole life to go), the thing that I was missing the most was the ability to learn how other people were thinking about our industry.
I had to “think, think, think” how to get to the honey. And just like for Pooh, this honey, the insights into frameworks and processes, was the key to how I lived in my job as an allocator.
In our era of Twitter and LinkedIn, we oftentimes are more confronted with the conclusions of others vs. the process of how they landed at those conclusions. As an investor, you have to ask yourself: what is more valuable to me, the conclusion in and of itself, or learning how to get there?
The “right” answer is obviously that the process matters. We need to learn and come to conclusions ourselves. Our investment track record ultimately relies on us making the decisions. We can’t just intake conclusions from other people and apply them to future decisions. That does not mean that we should not digest conclusions from other people, but it does mean that we should challenge ourselves to the highest degree of curiosity in order to actually learn from other frameworks. We need to dive deep enough ourselves.
Venture does not reward shortcuts. Especially not when it comes to learning.
What I want to conclude is:
If you are a Limited Partner, go find your peers. Stress test your frameworks and theories with them and learn as much as possible from how they are thinking.
If you are a General Partner, do not simply pitch your conclusions to the LP. Share the how and the why you landed with your convictions. The LP will be just as compelled by being able to trace your learning process towards conclusions as by the conclusions themselves. Your thesis is not just about the WHAT, it’s also about the WHY. (Side note: this is why you are seeing long-format podcasts by GPs be so successful at the moment)
Participatory Knowing For Limited Partners
The philosophers Michael Polanyi and Owen Barfield (who was part of the Inklings with C.S. Lewis and J.R.R. Tolkien) described two ways of knowing: participatory and representational. One sees reality from within. As something we belong to. The other sees it from without. As something we stand over.
More ancient cultures experienced the world participatorily. They participated in meaning, rather than merely perceiving it.
Modern humans, for better or for worse, rather developed representational consciousness, which treats the world as an object “out there” to be pictured, analyzed, and explained.
In our post-modern society, we have moved towards observing reality from a distance. In participatory knowing, you know by being part of it. Or as Polanzi’s phrase goes:
“We can know more than we can tell.”
As Limited Partners we face a very unique challenge:
We have to be so involved in the reality and grass roots of Venture Capital, so we understand the industry by being it (participatory).
But we also have to create enough distance to the industry, where we can look at it with enough visibility to analyze it while also noticing all the other things that are affecting the little world of Venture (representational).
Join the EE LP community!
I would like to make one suggestion that might add something to solving for both of these things: finding a transparent community of likeminded Limited Partners.
As I mentioned earlier, what I was desperately craving in the beginning was to learn from other Limited Partners, how they were thinking, why they were thinking, and how they practically executed those thoughts as an investor.
As LPs, our feedback loop on our frameworks is EXTREMELY long. Sometimes we don’t know if we are right for a very long time. So, we have to find a way to learn faster. One of the best way to do that is to stress test your ideas with peers.
Embracing Emergence has been running a simple WhatsApp group for actively deploying Limited Partners (it frankly is the most active LP group chat I am a part of). I personally take calls with every single person that wants to join and protect the integrity of the group over everything else. Please reach out to me if you want to join!
Short note: I have added an optional subscription to Embracing Emergence, if you want to support the journey of building out EE!
I am currently working on launching a podcast + developing a 3 month cohort for 15 Emerging Managers.
All subscription support for EE goes into building out the platform and it’s impact on how we do Venture Capital.
Conclusions vs. Process for General Partners
Take the LP on a journey!
As the title of the newsletter issue already gave away, my encouragement to General Partners is to find a way to integrate your learning processes that lead you to your conclusions more into your conversations with Limited Partners.
This also can involve how you are positioning your fund online. This might mean more long format podcasts, sharing more transparent thinking frameworks online, or writing in long format.
Generally, when you interact with Limited Partners, it’s helpful to share in such a way that let’s the LP look over your shoulder.
This overflows into various aspects of the “spectrum” of pitching to LPs. Let’s take “What do you look for in founders?” for example. Limited Partners will want to know what type of founders you back and why.
Instead of listing 3 character traits (i.e. resilience, grit, humility), share how you define those traits and how you actually measure them. You will immediately start to invite the Limited Partner into the process of how you came to the convictions around valuing these traits in the founders and then also how you formed a process around measuring these characteristics.
Now, as a Limited Partner, I can start to imagine what your 30min introductory call with a founder is like. By the way, I can’t even tell you how often GPs just give me a list of 3-5 character traits of people vs. expanding on them. They often say, I look for grit or humility, but the moment I ask why and how, the answers start thin out quickly.
Or let’s take your thesis. Oftentimes this is presented in one or two sentences on the second or third slide of a pitch deck, with 3-5 slides to follow to expand on the thesis. Obviously Limited Partners need to understand your thesis. But we also need to understand what it took for you to get to get there.
Why this industry (and I don’t mean the market size and that it’s “ripe for AI”), why invest at this stage (what makes you better at early stage vs. Series A and beyond), why even become a General Partner in the first place?
There are so many Emerging Managers at this point, that we have taken for granted that someone starts a fund in the first place. This is an incredibly hard job. Why would you do that? What compelled you so much to take this bet? You probably took a pay cut. You probably had to convince your family. You probably left other job opportunities behind for something that will take 10-20, ideally the rest of your career, to refine.
Tell me the process, so I can measure the level of you convictions. If you just tell me the essentials, I won’t know how to contextualize them into your life.
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