Last month I hosted two LP roundtables at RAISE GP Day at the Golden Gate Club in the Presidio, the day before the eleventh RAISE Global Summit. The format was simple: one to three LPs, about nine emerging managers per table, no slides. The organizers asked me to cover four things: how I find managers, how I underwrite them, how long it takes me to get to a yes, and what quietly kills a fund in my process. They also asked me to say the things LPs usually only say privately. Here is what I told the eighteen or so GPs across the two tables.
How I find managers
Most of my time goes to emerging and breakout managers raising Funds I through VII. GEX screens roughly 60 new VC funds each quarter, and the sourcing has never really changed: it is relationship-led. The best introductions come from managers we already back, from LP peers in the VC community, and from founders our managers have funded. Events like RAISE are useful less for finding new names than for seeing how a GP behaves in a room full of peers.
We run two allocation cycles a year, at the end of Q1 and the end of Q3. In a typical quarter we shortlist about ten, and commit to a few. Right now I am building the shortlist for the end-of-Q1 cycle.
How I underwrite
For an emerging manager, the firm is the person, so the underwriting starts there. I try to separate the individual’s investment skill and access from the brand and platform of wherever they came from. A great logo on a prior firm does not tell me who sourced the deal, who led it, who sat on the board, or what came back in cash.
From there, the work falls into a few questions:
Attribution. Which marks belong to the fund being raised, and which are angel checks, syndicate deals, or prior-firm positions? Borrowed attribution is my first question, not a footnote.
Construction. Fund size, check size, ownership, reserves, and which outcomes actually return the fund. Across the emerging-manager decks in our CRM, the median target portfolio is 25 companies, with most between 20 and 32. I do not have a strong view on the right number, but I do want to see the arithmetic behind it.
Sourcing denominators. How many companies did you see, how many did you want, how many did you win, and through which channels? “Proprietary network” is a claim; a win rate is evidence.
Liquidity posture. How the GP talks about DPI, secondary sales, and unrealized marks tells me a lot, even when the fund is too young to have any distributions.
Alignment. The GP commitment relative to personal net worth, not just the headline percentage. Fees of 2 to 2.5 percent are normal for a Fund I; recurring fund expenses above roughly half a percent of commitments are not. Premium carry should trigger on DPI, not TVPI.
How long it takes
Four to five meetings over three to four months. I ask for the data room between the second and third meeting, and by the fourth meeting I give a verbal indication of fit, either way. Because decisions land at our two cycles, a manager I meet for the first time in November is realistically in the end-of-Q1 cycle, not before.
Our emerging-manager checks have historically hovered around $500K. We are moving toward selectively anchoring Fund I and Fund II managers below $100M, particularly Fund IIs that do not yet have a single large anchor.
What quietly kills a fund in my process
The usual reasons for a no are obvious: a weak track record, a strategy we cannot underwrite, or a fund that does not fit our construction.
A track record slide that cannot be unbundled. If I cannot work out who led what at what ownership, I assume the answer is not flattering.
Construction math that lists the inputs but never shows the output. A slide with fund size, check size and portfolio count that stops short of showing which outcomes return the fund.
A deck built for the target, not for the first close. A $100M strategy with $15M soft-circled is a different fund, and I want to see that the GP has thought about the version that actually gets raised.
Carry or fee terms that reward marks rather than cash. TVPI-triggered carry escalators, or fund expenses that grow every year without a hard cap on organizational costs.
Slow or vague answers to data-room questions. A GP who takes two weeks to answer a question during the fundraise will take two months to tell LPs about a problem after the close. I keep telling managers that over communication during the fundraise is definitely better than not doing it!
None of these is fatal on its own, and a weak deck can hide a strong GP. But each one adds friction to a process that is already long, and friction is usually what ends it.
If you are raising a Fund I or Fund II, the fastest route to a yes from me is to make your track record easy to verify, your math easy to check, and your process easy to run. The rest is relationship, and that takes the natural time it takes.
Thanks to the RAISE team for having me, and to the eighteen or so managers who asked great questions.
This is an educational post about GEX Ventures investments. It is for informational purposes only and may not be relied on as legal, tax, securities or investment advice and does not constitute an offer to buy or sell interest in any products offered by us or others. Email me at mk@gex.vc or leave a comment if you’d like to exchange ideas.