Fund Flow

On this episode of Fund Flow from McGuireWoods, host Jon Finger sits down with William [Billy] Prather, founding partner and Chief Investment Officer of Cypress Creek Partners, to discuss market opportunities for emerging managers, what makes the Cypress Creek team successful, and building bridges with LPs. Billy had his first taste of the emerging market space at Blackrock and UTIMCO. These early experiences shaped his vision when founding Cypress Creek Partners. He intended it to be a firm focused on building long-term relationships. “Nobody has a crystal ball. Nobody knows that they're going to get to that ultimate vision. But having that shared vision directionally is important,” Billy says, describing one of the most important factors in choosing a partner. The other important quality in a partner is a clear willingness to listen and learn. After all, you can't teach someone who already thinks they know everything.Billy provides advice to GPs looking to fundraise in today's environment. He likes to see partners who are on the same page and who have a shared agreement of what runway is acceptable. When vetting partners, it's important to not lose sight of what matters — finding great LPs and great new investments. More experienced GPs can market themselves based on their current LPs and their rapport in the industry. During this episode, Billy shares his views on how Cypress Creek finds success, what he looks for in strong emerging managers, and trends he sees for upcoming partnerships. With a focus on the long-term, Billy also provides his outlook on the five to 10 year forecast for emerging managers, including increased expenses to run a firm and new opportunities for spin-outs.

Is there a world where investors can incorporate climate data in their investment mandates? Owen Woolcock and Rajeev Ranade, the co-founders of Climate Core Capital certainly think so. Combining traditional climate risk factors including flood, heat, fire, hurricane, and storm with unconventional readiness indicators to find low-risk and high-readiness markets shapes Climate Core Capital's investment strategy. By thinking incongrously about environmental impacts such as tree canopy ratios and urban imperviousness, Climate Core Capital captures unique investment opportunities. “I'll give LPs a lot of credit in terms of how many of them have turned onto this notion of climate risk. It's kind of percolating around their institutions or their families. It may not be primetime, but it's sort of sitting in the back of their head,” Rajeev says.In this episode, Owen and Rajeev discuss their evaluation of different characteristics for climate readiness, share insights on the ranking of various regions in America, and provide details about their selection process for development and operations partners in their investments.When climate changes, everything changes. Other investors may commonly default their highest priorities to include economic factors first, but by doing so they miss an entire market of investment. By making their stand to bring climate factors to the forefront, Climate Core Capital not only assists in directing a struggling climate, but also discovers unique investment opportunities that would otherwise be overlooked.

According to Neil Keegan, co-founder and CEO of disruptive technology fund Marlinspike, it was his background in the Navy that shaped the mission-driven ethos of his firm. The fund focuses on innovative companies that are solving challenges around national security while also exploring creative commercial applications. Finding a company that is making the world a better place is what gets Neil and his partners really excited. The fund focuses on five key growth and innovation sectors — AI and analytics, autonomy, robotics, aerospace, and cyber. In this episode of Fund Flow, Neil and host Jon Finger discuss how he and his partners apply their previous military training to push for success, and channel their excitement into investments where the opportunity to have a huge impact across multiple sectors is evident. During this episode, Neil shares his views on where investment in privately-held companies in the space industry will be focused, citing SpaceX as an example of how space exploration is changing to be faster and more efficient. Neil also has advice for building relationships with LPs, overcoming hesitations that newer funds might encounter, and how to position your team for success. For someone looking to raise their first fund, Neil reminds them they need to be ready for a long haul. “It's not for the faint of heart,” he says. “You've got to really commit and fully understand why you're doing it. You've got to have that fire in your belly to do it.”

For Sara Zulkosky, diversity is key to the strategy when it comes to investing in emerging managers. When she and her partner Courtney McCrea founded their LP, Recast Capital, they knew they wanted to center diverse emerging managers to give both LPs and diverse GPs better access to that market.Recast Capital is not just an LP; its enablement program teaches emerging managers about fundraising, allowing Recast to support more of the emerging manager community than just those funds they can invest in. Not only has it serviced 65 funds — 82 percent of which are female-led, with 57 percent including at least one GP of color — it has also reaped benefits for Recast as an LP.“It's turned out to be, obviously, a very strong complement to our fund investment strategy,” Sara says. “The opportunity to support so many managers in market and really help accelerate their success has really been transformational for us too.”Of course, smart investing is not just about diversity. Matching investors with general managers who hold similar values and can follow through on their promises are factors that can make or break the success of an emerging manager fund, Sara says.In this episode of Fund Flow, host Jon Finger sits down with Sara for a conversation on why diversity is so important in the emerging manager space. They also discuss important factors that both LPs and GPs need to consider when entering partnerships, and expected trends for emerging managers in 2023.

On this episode of Fund Flow, host Jon Finger sits down with Brom Rector, founder of Empath Ventures, to break down misconceptions about psychedelic medicine and first-time management. Brom worked in venture capital as a quantitative researcher and portfolio manager for several years until he realized something was missing. As he describes it, “I didn't like this idea of just reducing everything down to pure numbers. It kind of felt like you lose a lot when you do that. And I wanted to try getting involved with businesses on the private side where there's a bit more of a human element.”In 2020, he took the plunge and began The Brom Podcast, where his guests continue to educate him on the diverse and evolving market of psychedelic medicine startups. The podcast garnered a lot of attention and became a natural crossroads for new startups and LPs to intersect.As the founder of Empath Ventures, Brom continues to bring LPs into the psychedelic venture capital community. During this episode, he discusses misconceptions regarding investing in psychedelics, what Empath Ventures looks for in an LP, and the lessons he's learned in his first year of operation.

Starting a fund is a challenging task on its own, but the pandemic added another layer of difficulty for emerging managers looking for limited partners. Having lost the ability to network and fundraise in person, many LPs played it safe and stayed with the funds they already had relationships with, leading to an upward trend in “re-ups.”“LPs in 2020 and 2021 — you could kind of hear the anguish in their voice. They wanted so badly to be able to take the time to do diligence and vet and underwrite new managers. But […] there's only so much capital to go around,” says Beth Rahn, Principal and Head of Family Capital at McNally Capital.Thankfully for emerging managers, we're starting to see a reversal of that trend in 2022 as LPs continue to show interest in the growing emerging manager market. The best thing emerging managers can do to seize that opportunity, Beth says, is to take their time building relationships and establishing a reputation.“It's human nature to want to build a relationship with a manager before making a commitment,” says Beth.”So take the time to go out, meet investors before you actually need their capital.”Tune in to this episode of Fund Flow as host John Finger talks with Beth about the future of the emerging manager market, diversity initiatives within private equity, and where emerging managers should improve.

On this episode of Fund Flow, Sheryl Mejia, Managing Partner at Steward Asset Management, joins host Jon Finger to discuss what spurred the creation of her own firm, how to establish differentiation, and why maintaining empathy for founders is key.  Sheryl built a depth of knowledge working in asset management for large and small private funds before launching Steward Asset Management and fulfilling her desire to create a wider deal pipeline for the industry.  She says Steward chooses to operate so they can win the deals they want. Choosing core pillars of differentiation allows the team to competitively position their relationship with emerging managers based on their unique value add.  Sheryl also shares her advice for emerging managers raising their first fund and GPs who have recently closed their first committed fund. She believes that emerging managers need to understand what need they are filling for the investor — then listen, learn, and iterate the pitch. GPs should use the questions investors ask to refine their pitch and improve.  For those who have recently closed their first fund, the best advice Sheryl can give is to learn to balance leadership time properly. She shares tips on how to avoid underestimating the effort that this balance takes.   

On this episode of Fund Flow, host Jon Finger is joined by Casey Peters, a managing partner at boutique placement agency Pacenote Capital. They discuss the mandates that formed Pacenote and how maintaining a high touch and selective lens has shaped the company.   Casey founded Pacenote Capital in response to market feedback that there was a desire for value-added through high-performing, young, and hungry sponsors. This was the kicking-off point for his firm. For Casey and his partners, adding value to relationships went beyond bringing on LPs. He explains how they work to be active with independent sponsors on pre-fund deals. This includes providing coaching on how to view deal attribution and relationship building, along with the functional benefits of applying their expertise to catch errors before the launch of a fund.   “We're boutique — we try to be super hands-on. We have WhatsApp chats with all of our GPs, even our GPs that aren't in market right now. Every day we're talking to each of our GPs. And definitely if we're in market with them, it's all day, eight until eight, just messages firing back and forth. We try to look, feel, and act like we are truly an extension of our GPs, rather than them just being another name on our list,” Casey says. Throughout this episode, Casey provides insights that emerging managers can use to formulate and improve upon their strategy and pitch. He uses his unique approach with Pacenote to provide tangible examples of why relationships are king and how emerging managers can differentiate themselves in an increasingly competitive marketplace. 

The pandemic era has not been an easy time for any industry, including private equity. In today's volatile market, funds are facing increased competition while continuing to adapt to the challenges of remote deal-making. Now imagine being an emerging manager in the lower-to-middle-market investing space — and building your firm in the middle of the pandemic. That's the situation Suzanne Yoon found herself in, having started https://www.kinziecp.com/ (Kinzie Capital Partners) just three years before the pandemic began. “It was essentially crisis management, every day, the first three months of COVID,” Suzanne said. “But that is the life of a fund manager [...] You have to be on all the time.” But crises like COVID-19 also show the importance of having a good team prepared for anything — one that has been established based on your company's culture and values rather than just on impressive resumes. Knowing this, Suzanne was able to double Kinzie's team during the pandemic. In this episode of Fund Flow, Suzanne joins host Jon Finger to share her secrets to success as an emerging manager in the lower-to-middle-market investing environment, from team-building to establishing long-term investor relationships. She also shares a wealth of resources for women interested in a career in private equity investing.   

The blockchain sector is perhaps one of the riskiest to invest in today. Not only is it a new and constantly evolving space, but it's also often riddled with scams. Many large investors remain skeptical, but it's likely that the future lies in blockchain and crypto. So how can funds do it safer and smarter, especially as emerging managers? We bring in leading tech entrepreneur and blockchain investor Aly Madhavji to tell us how. Recognized as a “Blockchain 100” global leader by LATTICE80, Aly is an internationally recognized author, speaker, and managing partner at https://blockchainff.com/ (Blockchain Founders Fund), which he launched in 2017. His success is linked to Blockchain Founders Fund's goal to be “the most transparent fund in the world.” In fact, all of the fund's LPs have real-time access to every deal the fund makes. That might sound terrifying, but in the blockchain world, transparency is crucial. “We think that this is incredibly important when you think about how important partnerships and collaborations are in this space, and being able to tap into world-class expertise to work with our companies,” said Aly.  That type of differentiation — and the associated risks — are necessary for success. “The way that this industry is evolving and changing, oftentimes, some people don't just don't get it right away — what this shift could mean and how it could actually change the landscape of the way a sector could work,” said Aly. “And so we want to be part of being at the cutting edge of driving that change with companies.” In this episode of Fund Flow, Aly joins host Jon Finger as he shares his secrets and best tips for emerging managers in the blockchain or crypto world.   

There's a lot to consider when starting a venture firm: timing, experience with other firms that can support your journey, and a mission that differentiates you from other investment firms. These are all factors that Kate Beardsley and her partner Jessica Peltz-Zatulove had to consider when they made plans to kickstart their venture fund, Hannah Grey. But being women in a male-dominated industry and beginning their emerging manager journey during the pandemic, they had to think beyond the basics if they wanted to stand out. Planning was critical. Kate says that at the height of the pandemic, she and Jessica took the time to do their research, learn from mentors, and craft a story that could be clear and convincing to LPs when those discussions were happening on Zoom. Even their firm's name is part of the firm's greater story, taking inspiration from Kate's and Jessica's daughters. “Immediately we knew that it was an emotional connection, which is really one of the keys to being memorable,” Kate says. “There's a story there, and it has meaning for us, and I think deeply keeps us centered on what's important and how we actually tie our importance to venture capital.” In this episode of Fund Flow, Kate joins host Jon Finger to share what it took to start the firm and share insights from her emerging fund manager journey. She also talks about relationships with LPs — from first meeting to marriage — and diversifying the emerging manager ecosystem.  

As a woman in a male-dominated industry, Mary Hunt says it was because of the help of her mentors and managers' support that she was able to succeed in the private equity investing world. Her current role as Principal at https://www.rcpadvisors.com/ (RCP Advisors) and the director of RCP's Diversity, Equity, and Inclusion (DE&I) Funds Investment Strategy is her way of helping open the door to other underrepresented people who “don't naturally have that network of support, particularly in the business community.” As DE&I strategy director, Mary has helped lead RCP's investment focus toward more diverse GPs and emerging managers through the firm's new program: Elevate.  And she's proven, through https://www.globenewswire.com/news-release/2022/03/16/2404620/0/en/RCP-s-Research-Finds-Diverse-Managers-Have-Historically-Generated-Attractive-Adjusted-Risk-Return-Profiles-Within-Middle-Market-Private-Equity.html (RCP's report on diverse private equity investing), that diverse market managers in lower and middle-market equity investments consistently generated more alpha and performed on par with or better than the broader market. Diversity “shouldn't be just to satisfy a mandate or a ‘check the box' situation,” Mary says. “We are seeing significant alpha generated from diversity, therefore, it should have a spot in every portfolio.” Mary joins Jon in this episode of Fund Flow to talk about how a firm like RCP crafts a DE&I-focused investing strategy. As an experienced LP, Mary also tells all about what LPs want to see when considering working with GPs and her biggest pieces of advice for emerging managers in a changing environment.  

On this premiere episode of Fund Flow, a new show from McGuireWoods for emerging managers, host Jon Finger sits down with John Huhn, founder and managing partner of Compass Group Equity Partners, to discuss independent sponsorships, committed funds, and overall business practices.  John began his professional life as an engineer, but he's more than made up for his lack of financial degree with his entrepreneurial spirit, willingness to always face a new challenge, and 30 years of experience.  “We like to say that we're operating engineers more than financial engineers. We really partner with our portfolio companies and help build and grow great businesses, and take them to the next level of success,” John says. John discusses the early challenges he and his team faced following the independent sponsor model. While they were still meeting their clients' needs, the work became difficult on the administrative end with so many different investors, which led to their switching to a fixed pool of committed funds.  During this episode, John breaks down his company's successful business strategies while offering ways for emerging managers to make it in a competitive market. What he believes makes the Compass Group Equity Partners unique is the combination of a geographic focus, a sector focus, a founder focus, and a target profile — and, of course, doing all four things well. Everyone, and every company, thinks they're special, but John provides pointed direction for how to actually stand out.    

Fund Flow is a podcast for Emerging Managers offering insights into the journey of new and aspiring fund managers seeking to have success in a crowded market. Tune in as McGuireWoods partner and host, Jon Finger, is joined by guests ranging from first-time fund managers to proven emerging managers, experienced LPs poised to back emerging managers, and other key participants in the emerging manager ecosystem. Hear their real-world perspectives and gain actionable tips to help inform your strategy and position yourself for a successful fund closing. McGuireWoods is a full-service firm providing legal and public affairs solutions to corporate, individual, and nonprofit clients worldwide for more than 200 years collectively. Our commitment to excellence in everything we do gives our clients a competitive edge in everything they do. Our law firm, over its 186-year history, has earned the loyalty of our many long-standing clients with a deep understanding of their businesses, and broad skills in corporate transactions, high-stakes disputes, and complex regulatory and compliance matters. To learn more about McGuireWoods or to contact us, please visit our website at mcguirewoods.com. This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.