The venture space is saturated with emerging funds and venture brands— this trend is likely to continue for the foreseeable future. However, as a result, it has become challenging for LPs to differentiate one venture fund from another. Furthermore, it is increasingly challenging for founders to find and partner with smaller, value-add funds, especially if so many other smaller funds sound like they are promising and saying the same thing.
Therefore, without clear differentiation, it will be an uphill battle for first-time emerging fund managers to:
Secure meetings with LPs who can provide the capital for your deployment.
Attract top founders and their companies to invest in and grow.
There are several ways funds differentiate themselves. Typically, this involves a unique combination of one or more of the following (but not limited to):
Founder Niche: are you empowering female founders, an underserved group, or a group with clearly defined traits? For example, Unshackled Ventures serves visionary immigrant founders, and Neotribe nurtures rebels.
Industry: Are you focusing on agricultural technology? Fashion technology? Food supply chain? Financial technology, such as with Fin VC?
Unique Market Trend: are you focused specifically on how emerging science and technology are providing opportunities for consumers to improve personal health and happiness? Joyance Partners and Social Starts is a great example of this.
Unique Perspective: do you see something within a trend that others don’t? Most would agree that investing in The Future of Work is a wise thing to do given market trends, hence the presence of funds such as Bloomberg Beta and Work Life VC. However, does your experience and insight lead to more informed and high-performing investments than your competitors/peers?
Funding Structure: clear protocols regarding what stage of investment and whether you lead rounds or not. For example, Precursor Ventures focuses on providing the very first round of funding for founders, regardless if they are proven or not.
Operational Structure: Is it a startup studio where fund managers and their teams provide daily, hands-on support, such as with Expa? Do you offer closed membership and access to specialized knowledge and training that isn’t found publicly?
Portfolio Support: what is your value-add beyond capital? For example, do you provide deep operational expertise in sales, marketing, go-to-market, and strategic partnerships— a16z is an exemplary fund.
Track Record: Are you famous for identifying, supporting, and growing unicorns? Do you have a great story behind the founding of your firm? Pejman Nozad @Pear Ventures is a fantastic example of this.
However, don’t seek differentiation for differentiation's sake— this comes across as you trying to be something you are not. A thesis isn’t solid unless it is clear how the GP and the team align with the thesis. The best way to clarify and build your thesis is to audit you (and your team’s):
Individual strengths.
Unique interpersonal synergies.
Relevant investing experience and expertise.
Passions and interests.
Networks and relationship intelligence.
A pattern will reveal itself. We recommend reverse-engineering a thesis based on the people who are going to be executing upon it. Every emerging manager brings something unique to the table and sees something others do not— reflect, identify, and amplify those points of difference. It is also beneficial for you to engage some trusted advisors to help provide you a 360-degree perspective.
Once you are clear about your differentiation, be hyper-aware that you don’t mix your distinct value propositions to founders and LPs. Emerging fund managers must communicate their differentiated thesis differently to founders and LPs because they have distinct criteria for what they want to see in venture funds.
For example, LPs will want to know:
Why should we act now and not later?
What’s the opportunity cost of delaying a commitment to your fund?
How do you secure ongoing deal flow?
In comparison, founders might want to know:
How can you help me with sales and go-to-market?
Have you built a startup company yourself?
How do you treat founders when times are tough?
Unshackled Ventures leaned in on the fact that amazing founder talent is locked up with visa issues. As such, instead of starting and building new innovative companies, those founders were working in larger organizations to be able to stay in the country. For founders, they unlock their founder potential by helping them solve the visa challenge, allowing founders to focus on building their startup, but furthermore, help them quickly monetize their product. For LPs, they release untapped deal flow and accessibility to founder talent so that capital can be put to work and returned at a higher multiple.