The use of placement agents for Emerging fund managers

  • The opacity of the Limited Partner (LP) landscape. Although transparency has improved through efforts such as the #OpenLP efforts, it remains challenging for fund managers to assess which investors are genuinely active, the authenticity of LP interest, and the continuous shifting of investing mindsets due to variables external to the fund manager (because of this, GP’s regulars compare notes with one another on specific LP’s)
  • Reliance on family offices. From our report in late 2018, nearly 70% of capital going into Fund 1 offerings are from family offices or high net worth individuals. Active family offices are hard to find, as they rarely market their venture investing activities. Additionally, each family office operates very distinctly (unlike institutional LPs that have more predictable decision-making frameworks).
  • Limited Partners generally prefer to invest in proven managers, placing much more weight on access than discovery. The appetite for untested entrants is typically lukewarm at best, and managers must cast a vast net to successfully raise a fund (generally 200–500+ LPs during a Fund 1 process). This process can be time-consuming with many false positives.
  • The amount of competition for LP capital is high. The number of emerging managers currently in existence (or looking to form) is 1,200+ in the US and growing. Additionally, the time between established managers coming back with fund offerings is two years (or less). It’s no surprise that the average fundraise typically spans 18–24 months.
  • The current environment. The pandemic has halted travel, leaving pitch meetings with LP’s limited solely to video and phone conversations. While this does result in a more efficient process, there are many LP’s (particularly institutional ones) that still place high weight on meeting a partnership or individual before allocating. It’s not apparent to me if the lift from efficiency has overcome the practical challenges of not having in-person meetings.

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