EVCA has recently launched its Workshop series, dedicated to helping emerging VCs gain more insight from seasoned industry professionals and thought leaders. In this virtual discussion, Dan Stolar, Principal at Colibri Equity Ventures, and Dave Mullen, Partner at SVB Capital, gave their perspectives on fundraising and LP networking. Moderated by Halle Kaplan-Allen, Director of Growth at Sydecar, the three contributors covered strategies and tactics to succeed in fundraising, including effective communication and building strong relationships with LPs.
Investing in Emerging Managers
The investment market has changed and VC is approached differently when it comes to the macroeconomic environment on portfolio construction. Stolar highlighted that his firm started investing as the market began to decline, which turned out to be advantageous since they sold the majority of their real estate at the market's peak in November 2021, capitalizing on high multifamily pricing. They could take advantage of opportunities without the constraints that slowed down other LPs acting quickly in the favorable market environment. He also noted that the current environment has created a rich pipeline of new managers, making it an opportune time for his LP team. Mullen echoed similarly, sharing that some of their best investments have come during down markets. Now, the market offers a clearer perspective, enabling better decision-making by allowing investors to identify genuine value and avoid overinflated assets. Dan Stolar emphasized that understanding track records and having a clear view of the market help emerging managers to assess potential investments more accurately, spot true growth potential, and make informed choices based on current economic conditions. This approach reduces the risk of investing in overhyped ventures and focuses on sustainable, long-term returns.
Building on the importance of track records, when asked if both panelists would consider investing in emerging managers, they both echoed the same sentiment: first-time managers are all different, and a solid track record, whether in angel investing or other relevant experience, is important. Mullen specifically emphasized the need for differentiation, especially in competitive spaces like AI or enterprise software. He also touched on the fact that they seek managers who can secure significant ownership stakes (10%+).
Building Diverse and Flexible Portfolios with SPVs
In the context of fundraising and LP networking, understanding the strategic use of Special Purpose Vehicles (SPVs) is crucial and the panelists discussed how SPVs can enhance portfolio flexibility and support effective fundraising. Mullen wanted emerging managers to start thinking like long-time investors, asking themselves questions such as, “Why am I getting a co-investment?” and being adaptable while maintaining adherence to their core investment strategy. This flexibility is vital for building strong relationships with LPs, as it shows an ability to navigate market fluctuations and capitalize on emerging opportunities. Rodgers highlighted the benefit of using SPVs to spread investments across early-stage startups rather than reserving a large portion of the fund for follow-on rounds. This approach diversifies risk and boosts potential returns, appealing to LPs seeking innovation. Emerging managers should maintain a disciplined yet flexible strategy to avoid complicating their capital-raising efforts and improve their ability to attract LPs and build strong portfolios.
Best Practices and Standard Terms for Co-Investments
Stolar and Mullen then diverged into the industry standard on economics for co-investments. Stolar explained that for fundamental investments (a method of selecting stocks for long-term investments), he doesn’t want to see more than a 1% management fee and a 10% carry. He noted that working with LPs requires prioritizing time efficiently, and a two-in-twenty SPV, while potentially profitable, must justify the extra work involved. Mullen agreed, adding that while one-on-one co-investments were initially appealing to many LPs, the significant administrative work involved has shifted the preference towards commingled separately managed accounts. This approach allows for direct exposure without the intensive labor, making it more attractive and manageable for LPs.
In summary, this workshop session, provided valuable insights into effective fundraising and LP networking strategies for emerging VCs. Dan Stolar and Dave Mullen, with moderation by Halle Kaplan-Allen, shared their experiences and perspectives on navigating the evolving investment landscape. They highlighted the advantages of investing in emerging managers, leveraging SPVs for flexible and diversified portfolios, and the importance of a solid track record. Stolar and Mullen also emphasized the need for disciplined yet adaptable strategies to build strong LP relationships and avoid complications in capital raising and co-investments. By adhering to these best practices and understanding industry standards, emerging managers can enhance their appeal to LPs, achieve sustainable returns, and thrive in the competitive venture capital arena.
With a global network of over 1,350 members from 500+ venture firms, Emerging Venture Capitalists Association (EVCA) stands as a significant force in the venture capital community. Known for its comprehensive industry research, influential summits, and community-building events, EVCA has become a hub for emerging venture capitalists. We believe in the power of collaboration to elevate the careers of emerging venture capitalists. We are committed to building a community that supports each other’s growth, shares knowledge, and actively engages in driving progressive changes within the industry for the greater good. Join us today.
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