The last several years has seen an amazing increase in the number of folks breaking into the world of venture investing. These newer fund managers or deal makers are often reared to as “emerging managers”, and they are paving a path to be the major GPs of the next decade or starting solo GP funds that will also be a common theme of the next decade.
Venture investing is the business of putting capital to work in new ideas and companies growing at the earliest of stages in return for equity in the growing business.
Investing in startups is more than just capital. We often hear the joke about being a “value-add” investor but for young and emerging managers, to win allocation in early deals, it often is your ability to show up and help support founders beyond simply the money that you invest.
So how do aspiring and emerging managers build their brand and portfolio? Especially without the resources that funds have at their disposal?
Well the first thing is if you have a strong network of potential LPs, utilizing SPVs are a great way to build a track record. SPVs are a great way to give investors access to deal flow on a deal by deal basis without needing to commit to a long term fund. It gives those an investor the opportunity to “see what you’ve got” as a manager and your ability to source deals and win allocation.
For you, the SPV is great as well because you can set yourself up as the manager and write deal terms into the SPV that mirror a VC Fund (carried interested and management fees) so that you are compensated for your time. Think of each SPV like a portfolio company in your fund, you can even setup a simple LLC to be your management company and have that entity be responsible for each SPV entity.
Using SPVs for emerging managers and deal makers is a great way to build out your portfolio SPV by SPV. Over time you can amass your “AUM” that becomes your resume for LPs that may want to back your own fund someday, or an existing fund looking to bring on a new partner.
For many those are the two paths, both having pros and cons. Over the next decade we believe there will be a major rise in new solo GP funds that are sub $100M. For many looking to break into VC, this is a great way to get yourself to that point while not having the overhead of being part of a massive fund that comes with much more managerial overhead.
For these folks, using SPV to start building your portfolio is a great way to turn those investors into LPs in your fund.