Year One Reflections and Strategies for Emerging Fund Managers

Alex McIsaac here!

Last month I celebrated the one year anniversary of Northside Ventures. Over the last few months, a number of friends and colleagues starting their own funds have asked for advice and if there are any lessons worth sharing. Though it’s only the beginning of my journey, I’ve accomplished a lot and learned even more in one year, and I’m excited to share my biggest learnings and strategies for those embarking on a similar path.

Lesson 1: Dedicate more time than anticipated to developing a differentiated fund narrative.

After one year of engaging with hundreds of LPs I’ve learned the importance of a compelling and differentiated narrative. Many people considering launching a new fund assume a continuation of their previous fund’s strategy or doubling down on past investment successes will suffice, and while these elements are important they alone are not sufficient.

Differentiation and a strong fund narrative are more crucial for standing out than ever with the number of emerging managers increasing. Developing this narrative early in the preparation phase is critical, as altering a narrative mid-process can imply a lack of strategy, confuse investors, and diminish credibility.

My advice to other emerging managers is to prepare a version of your narrative for various lengths: 1, 3, 20, and 45 minutes, adaptable with or without visuals. Think of the 45-minute version as your detailed story, akin to a podcast narrative, then scale it down to shorter formats. Practice by recording these versions over zoom with other managers to gauge feedback with a focus on clarity, memorability, and engagement. Practice shorter versions at events or in informal settings, seeking feedback along the way with questions like what is memorable, what was clear, what was unclear, at any point did I lose your attention? Follow up days or weeks later to see what was stuck out and was memorable.

Lesson 2: Choose Your Fundraising Strategy Realistically: Anchor vs. Diffuse Round

There are two main strategies for fund-raising: 1) securing an anchor investor and leveraging their commitment to attract others, or 2) raising a diffuse round by gathering numerous smaller investments, each typically less than 10% of your target.

Raising with an anchor is typically the preferred strategy but only if you can secure the anchor in your pre-marketing process before you formally start raising. An anchor is generally preferred as they conduct thorough diligence, help establish LPA terms, and their commitment can ‘de-risk’ the fund for other LPs, leading to quicker commitments and a higher chance of meeting your target. However, I’ve typically only seen this approach succeed for emerging managers spinning out of brand name funds or successful founders with significant personal commitment.

The anchor strategy often fails when GPs attempt to secure an anchor commitment through new relationships with institutional LPs who typically take 2–4+ years to build a relationship with a manager. This challenge is more pronounced in Canada compared to the US where there is a broader base of LPs focusing on new managers and first time funds. Pursuing an anchor through newly formed relationships can lead to prolonged fundraising processes during which GPs are unable to earn management fees and subsequently a living wage, and risk missing investment opportunities being out of market. I advise most potential managers to be financially prepared to go 6–12 months without a meaningful salary.

If you lack a pre-existing relationship to a large institutional LP willing to make an early commitment or a personal anchor relationship it’s worth considering the diffuse round strategy. Though less glamorous and more labor-intensive, it offers significant advantages such as a more distributed LP base for Fund 2 and fewer sweetheart deals to LPs. This strategy also enables you to write your own LPA generally set on your terms — for this I recommend having strong fund formation counsel with a high volume fund formation practice in your market. I advise using documents that are as close to the NVCA template documents as possible to avoid raising questions (and legal costs) with LPs down the road. In Canada, I used Osler, Hoskin and Harcourt LLP who I would highly recommend. Raising without an anchor typically allows you to reach a first close sooner, enabling you to stay in market and start investing immediately.

For a diffuse round approach, I recommend a fundraising strategy defined by a series of expanding concentric circles. Starting with your inner circle, this group includes contacts like founders, high net worth individuals, family offices, or VC funds within your immediate network who trust and believe in you and will often commit over a single Zoom call or coffee meeting. Typically, this inner circle forms your first close, offering the quickest way to launch a fund and enter the market.

The second concentric circle includes direct contacts who need persuasion or reacquaintance, such as co-investors or LinkedIn connections you’ve met occasionally but don’t interact with regularly. The third circle consists of second-degree connections accessible through warm introductions, people you don’t know personally but share a mutual contact with. The fourth and outermost circle comprises known LPs you lack a direct connection to, requiring cold outreach and typically resulting in the lowest conversion rate.

Lesson 3: Compound progress to boost your probability of success.

Regardless of choosing an anchor or a diffuse round strategy, it’s crucial to continuously build upon your successes, demonstrating growth and improvement. Since fundraising is a long term game and most LPs don’t commit on the first interaction, every communication with an LP should introduce new progress or information, justifying the outreach.

There are a number of ways to show progress and reconnect with an LP. The best reason is an active deal to showcase your sourcing, picking, and winning strategy in action. A co-invest opportunity that fits that LP’s direct investment thesis is even more attractive and an opportunity to work together. One of the best ways to get to know someone is by working together on a deal.

Other ways to showcase your progress include:

• Sharing quarterly investor letters;
• Organizing ecosystem events;
• Webinars showcasing portfolio founders;
• Highlighting new LP commitments on social platforms; and
• Hosting LP dinners.

It’s important to show prospective LPs you are executing on your strategy to establish credibility and what you are building is in fact differentiated.

While these three lessons are not the only lessons I’ve learned they are some of the most important and transferrable. If you have any lessons of your own or fundraising strategies you’d like to share with me or other emerging managers I’d love to hear them or add to the comments section, and don’t hesitate to reach out.

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