E72: Investing in Top Emerging Managers with Jamie Rhode
Jun 18, 2024
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Jamie Rhode discusses investing in emerging managers, friction points between LPs and managers, leveraging insights in manager selection, and diligence of first time funds. They explore importance of grit in founders, underwriting first time funds, expanding beyond, and portfolio construction as a venture LP.
Success in early-stage venture investing relies on backing non-consensus founders with grit and endurance.
LPs must establish efficient processes and partnerships to invest in emerging managers effectively.
Deep dives
Investing in Venture Funds with a Differentiated Mindset
To achieve significant returns in early-stage venture investing, it is crucial to back founders with unlimited self-belief and a differentiated mindset. Success often lies in supporting non-consensus teams that create new sectors, rather than relying on big brand names. By investing in emerging managers like ScreenDoor who focus on the new and unique opportunities, investors gain exposure to potential high returns in the parallel-driven early-stage venture landscape.
Challenges Faced by Emerging Managers in Fundraising
Emerging venture managers confront challenges in finding suitable LPs due to factors such as LPs' fund size restrictions, track record requirements, and operational considerations, creating friction in the fundraising process. The complexities of transitioning from an investor to a fund manager highlight the need for understanding the institutional aspects of successfully running a venture fund and navigating the two-sided marketplace effectively.
Role of LPs in Supporting Emerging Managers
LPs play a critical role in supporting emerging managers by providing both capital and guidance. Establishing efficient processes for LPs to invest in emerging managers is essential, requiring LPs to assess their capabilities and team resources for diligence among the vast number of emerging manager funds available. Building partnerships and networks with experienced GPs like those at ScreenDoor can enhance due diligence processes and support successful investments.
Portfolio Construction and Sector Focus in Venture Capital
Strategic portfolio construction in venture capital involves a power law-driven approach that focuses on capturing outlier returns. Diversifying investments across different sectors, limiting reserves, and ensuring a high probability of being in the top quartile or decile are key considerations. Balancing sector focus with flexibility to seize unique opportunities beyond defined boundaries enhances the potential for success in early-stage venture investments.
Jamie Rhode sits down with David Weisburd to discuss Screendoor’s strategy of backing emerging managers. In addition, they discuss friction points between LPs and emerging managers, leveraging insights from GPs and LPs in manager selection, and how to diligence a first time fund.
(0:00) Episode preview
(0:43) Jamie joining Screendoor
(2:35) Friction between LPs and emerging managers
(4:38) Fragmentation at the seed stage
(6:44) Importance of grit and endurance in founders
(8:17) Underwriting first time funds
(12:39) Expanding beyond first time funds
(24:36) 10X Capital Podcast Newsletter
(26:17) Portfolio construction as a venture LP
(34:35) Final thoughts
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