Some best practices for emerging fund managers to secure Limited Partners (LPs)

Diverse emerging fund managers are key to diversifying venture capital. So how can we help them approach potential limited partners (LPs) and what exactly are they looking for?

First off, I wanted to thank Abel + Imray, the patent and trademark attorneys. We’re delighted by our partnership with them and their commitment to support diversity at the fund manager level.

At Ada Ventures, we apply an inclusive lens to every step of our investment process; we call it Inclusive Alpha®. Part of that is diversifying our own team and how we source deals, and we’ve tried to be as transparent as possible about this in our 2024 Impact Report.

Signs are that a more diverse fund management team leads to more diversity in deals (see this research from BCG); the Ada Ventures portfolio is 12x more diverse in terms of gender and race/ethnicity than that of the average UK venture firm.1 It’s more nuanced than that. While a fairly compensated team fund management team is necessary, it’s not sufficient. You need to pair the structure of a diverse team with an inclusive approach to sourcing, strategy, selection, support more generally.

Ada Ventures is also looking to have a positive impact on the whole industry. By 2030, as part of our impact goals stated in our report, we aim to catalyse VC to make it more inclusive and help diversify the checkwriters in UK VC. One of our initiatives is a series of dinners to nurture conversations and relationships between some amazing diverse emerging fund managers and established LPs in our network. Some of these LPs have invested in Ada Ventures; some of these emerging fund managers are part of the Ada Ventures network.

Diverse emerging fund manager and LP dinner location #2

One of the fund managers I’d like to mention is Rupa Ganatra Popat. Two months ago, she announced the $10.9 million first close of the Araya Ventures Super Angel Fund. This solo GP fund will invest in 50–60 early-stage start-ups across health-tech, fin-tech, commerce and work. She’s exactly the type of fund manager we’re looking to support because of her her sectors of interest and her impressive track record.

“There were great takeaways at the diverse emerging manager and LP dinner and an unique opportunity for managers and LPs to have honest conversations. We don’t have an immediate need for capital in our current £20mm fund but it’s great to have these conversations and make these connections ahead of our future funds.”

Rupa Ganatra Popat, Founder & Managing Partner at Araya Ventures

Diverse backgrounds also mean incredible experience in other sectors. Vera Baker is a fund manager at 4P Capital, a next-generation asset manager investing in climate, health, and education. She has an impressive track record in politics, raising money for Barack Obama’s campaign and acting as a deputy chief of staff for a US Senator, before moving to Paris and immersing herself in the start-up scene there. She has incredible experience and a formidable network.

“With a first close under our belt, we are actively deploying while raising, so having face time with some of the most sought-after LPs in Europe is invaluable. And, it speaks volumes about Ada Ventures’ commitment to ensuring that Inclusive Alpha® takes place throughout the entire European tech ecosystem.”

Vera Baker, Partner at 4P Capital

The night was a winning combination of talent, expertise, and potential. I’ve included everyone’s LinkedIn profiles so you can look them up and see what they’re doing.

Limited Partners:

1. Dave Neumann, Molten Ventures
2. Michael Joyce, Isomer Capital
3. Sergio Ung, Guy’s & St. Thomas’ Foundation
4. Scott Mackin, Emerging Manager LP, PE Partner.

Fund managers:

1. Vera Baker, 4P Capital
2. Rupa Ganatra Popat, Araya
3. Gosbert Chagula MBE,
4. Rebecca Hunt,
5. Andy Davis, 10x10
6. Joy Jack, Nexterra Capital

To widen this impact of the conversation, we decided to open source it (I haven’t identified who said what so we could keep it real!)

Working with emerging fund managers rather than someone with whom they have an established relationship undoubtedly presents more risks for LPs. That means they really have to stand out. I started off by asking: what do LPs look for in emerging fund managers?

1. Trusted introduction: particularly from another fund manager in the LP’s network. It might take a couple of meetings to confirm your initial instincts. Everyone agreed that cold outreach isn’t usually successful.
2. An informative pitch deck: mostly important for securing a meeting. Resist from running the LPs through your deck on the initial phone call, they can consult it in their own time. Often LPs will turn your deck into a memo to get past the slick sales format. Use the time in that initial call or meeting to get to know your potential LP. Ask what they like to invest in, their insights on trends, how they got into VC and what motivates their investment decisions regards impact. The relationship between an LP and GP lasts longer than many marriages.
3. An “edge”: this could be a track record in terms of previous career, access to the industry, or as a founder. You should be seen as the go-to person for your thesis and, when the LP is looking at a deal in a specific sector, they will always consult you. It helps to have a “weird” view, in some niche sector, that’s not replicated elsewhere. But the biggest edge is determining which start-ups are winners and seeing past the hype. One of LPs talked about “discernment”; they are as interested in the deals the fund manager passed on as the opportunities they grabbed.
4. This led to the question: should the fund manager set up a specialist or generalist fund? Does one give them an edge? It depends on the person’s background; if the fund is specialist, they need experience in that sector. If you go niche, you will be expected to lead rounds from pre-seed to pre-IPO. If you are generalist, you should know where you fit in; you might not be leading rounds in specific companies.

A track record:

Fund managers should show track records by having experience in various parts of the life cycle of a company and by showing that they can take the company from beginning to end through sourcing and winning deals; managing the portfolio (do founders come to the fund manager for advice? Do founders know their names and vice versa?); and finally exiting (are they experienced in a specific sector?)

Another way to demonstrate a track record would be to launch a special-purpose vehicle (SPV) before raising a traditional venture capital fund. A SPV allows multiple investors to pool capital to invest in a company.

A track record could also mean general experience in the sector. One LP talked about a GP they work with who is raising a fund with a specific impact goal in mind. The fund manager does not have an institutional background but was an activist, lawyer and consultant for philanthropic foundations in that particular sector. Thus, she has a solid understanding of procurement and can assemble impressive board members.

Ability to build trust:

Trust is very important and cascades through the different levels. The fund manager has fiduciary duty to LPs (just as LPs have a duty to their GPs). If the fund manager realises that something is going badly, they need to be transparent with their LP, sooner rather than later.

And that trust goes both ways — if a LP indicates strong interest, it’s likely they will sign on the dotted line. They will have already spent considerable time on it. LPs want to be a good partner and hit those deadlines; their reputation matters too. And on that note, it’s important for LPs to offer value back too. This can range from a newsletter with important insights on data or trends; to introductions to other LPs; or support if funds do break up.

What are the returns and expectations?

On an anecdotal level, LPs noted that Fund I is often the best performer. This is backed up by some data (see the Preqin report on first-time VC funds). It is smaller so easier to create higher returns and often fund managers feel the need to prove themselves. Fund II is about stability. While in Fund III, fund managers realise people are watching and they up their game.

LPs agreed that it takes a fund about seven years to “settle” into its final quartile ranking. A fund’s quartile ranking is a way to assess its performance compared to peer fund metrics, TVPI, DPI, and IRR. Qualitative factors are also important: the portfolio’s user growth and the quality of co-investors. Institutional investors are often a good sign as they reduce the risk of glitches in limited partnership agreements. And, of course, the impact side is very important.

When is it good to get started on Fund II? Fund II is typically bigger but it is not simply about assets under management. Their advice? Go to your current LPs, see where they are, and if they are ready for you to approach them for Fund II. The consensus is it’s time to start raising money again three years after Fund I, and you can start preparing existing LPs two years in.

Is social media a positive?

Social media is potentially useful for getting deals, rather than attracting LPs. It also could work on the recruitment side (this holds true for start-ups too). But there are risks: social media usually only comes up when someone does or says the wrong thing. And it’s inevitably a time sucker.

Three pet peeves for LPs:
1. Over communication: face-to-face time is precious (GPs can understand this as they manage founders). Sending a monthly newsletter can be a good way to stay in touch without being overbearing.
2. Any sign of arrogance or hubris when it comes to raising money: this also means overselling or telling the market that their fund has secured an LP before anything has been agreed.
3. Poor disclosure and minimal reports: obfuscation erodes a fund manager’s most precious asset — trust.

Three red flags for LPs:
1. Lack of long-lasting relationships with their fellow managers in the funds.
2. Dodgy structure and lack of transparency (for example if the fund is registered in a tax haven).
3. Misunderstanding of their position in the ecosystem and promising to lead rounds when this is unlikely.

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1 Ada Ventures internal analysis reviewed 29 reports looking at gender and race/ethnicity benchmarks across UK Venture Funds, all of which published between 2021–2024. Looking at benchmarks of gender and race/ethnicity in these reports, Ada Ventures aggregated these benchmarks and compared them against data provided by portfolio company founders.