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.

💡 Featured Guest 💡

Name: Sara Zulkosky

What he does: Sara is a co-founder and managing partner at Recast Capital, an LP fund emphasizing core values to empower and support the emerging manager community.

Organization: Recast Capital

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You're listening to Fund Flow, a podcast for emerging managers offering insights into the journey of new and aspiring fund managers seeking to have access 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 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.

Welcome to Fund Flow. I'm Jon Finger, and today's guest is Sara Zulkosky, who is the co-founder and managing partner of Recast Capital. Sara previously spent time at Greenspring Associates, now StepStone Group, as a venture partner before eventually co-founding Recast Capital, with a heavy emphasis on core values in order to empower the emerging manager community. We are very excited because of that and her expertise to have Sara on the podcast today, so thank you so much, Sara.

Thanks for having me, Jon.

I'd love to start. Talk about your history in investing at various places and how those tied in and ultimately led to the launch of Recast Capital.

Sure, happy to. I often joke that I'm a bit of an unlikely LP given a nontraditional background of sorts. I am actually an engineer by background. I have a bachelor's and master's in engineering and spent the first almost eight years of my career working as an engineer for a venture backed startup. It wasn't until I was partway through my MBA where I was awarded a fellowship from Foundation Capital to essentially serve as an early stage scout in my local area alongside a handful of other graduate students across the country. And I was bit by the bug, fell in love with the idea of a career in venture as a way to support multiple companies as opposed to just one as operator.

From there, I worked with a family office in the DC area, one of a four-person team focused exclusively on venture and private equity opportunities on behalf of the family, investing in both funds and companies, sector and stage agnostic. Phenomenal families to support, really exciting investment strategy given all the room to run. But unfortunately while I was there, the patriarch of the family passed, which set off a bit of a strategic shift within the organization towards philanthropy, and given the long tail of our venture private equity portfolio, we essentially started managing it out. As a principal at the time, as you can imagine, that was not an exciting prospect for me. So really wanted to continue investing, understandably, and with my managing director's blessing, started looking for new opportunities. That's what actually brought me to my most recent role, which was with Greenspring Associates.

Green Spring Associates is a large, at the time when I joined, largest venture only platform in the world, now StepStone Group. I had the pleasure of serving on multiple products that the firm had, spent a great deal of my time on the fund side of the house supporting some of our early stage fund-to-fund strategies, micro strategies and impact initiatives. Had a really interesting time and had a really interesting seat to all the dynamics that were taking place within the venture industry.

Throughout my career though, I've always been passionate about a number of things, first of which being diversity. I mean, I was the only woman in the room many times in my career and felt very strongly about finding ways to help move the needle there. Also, given the various vantage points I had of the venture industry over the years, I also became increasingly interested in what was happening in the emerging manager space, not only because it was some of these smaller fund sizes or, said differently, right-size funds for their strategies, earlier fund iterations and kind of more diverse partnerships that were really generating the alpha that one would expect from their venture portfolio.

Because that part of the market is also so much more diverse than the industry at large, I became increasingly interested in focusing my efforts there, finding ways to devote 100% of my time, 100% of my career to the emerging manager space because I could not only continue to invest in what I believe to be some of the industry leading franchises of the future, but also continue to move the needle for diversity, because many of these more diverse general partners are backing more diverse founders. So I felt like we were really enabling a pathway to greater diversity within venture by focusing there, as well.

And tell me a little bit more about how you met your co-founder.

Sure. Yeah. So my co-founder is another institutionally trained LP by background. Very complimentary to me, though very different, she's spent her entire career on the investor's side of the table. We had a few different circles in which we overlapped. We're both Kauffman Fellows, both very involved in women in private equity and venture capital industry, but worked admittedly for somewhat competitive shops and had a very healthy respect for her and market reputation with managers. Interestingly, it was another LP who was a mutual friend of ours who kind of encouraged us to have a conversation about where we both wanted to take our careers, because she had heard us both talk about the opportunities within venture in the same way and would've never known that given our respective roles within the industry. So luck that we were put together in that way and really had the opportunity to have a heart-to-heart and build our relationship over time. We both saw the opportunity within the venture capital industry in the same way, and we're excited to pursue it together.

That's great. I think for our audience, we certainly will spend some time and talk about Recast as an LP and a true value-add LP, and we'll talk more about strategy and those sorts of things. One of the really exciting things that you all are doing is your Enablement Program. And I think for us and for you, the tie-in to what you're doing there and what it means to the emerging manager community, I'd love to spend a little bit of time speaking about that program, what its goals are, how it ultimately is driving the success that it is, and how it operates. So I'd love for you to share more about that program before we really dive into the investing side.

Sure. Yeah, happy to. Recast, as you mentioned, as a whole is really a platform, so there are the two parts of the business. There's the fund investment strategy and the Enablement Program. Our Enablement Program is a tuition-free, virtual, cohort-based educational program for emerging managers in venture. We work with roughly 12 to 15 managers at a time for 12 weeks, and we run cohorts twice a year. We bring in our friends from the LP and GP community to help these emerging managers address hot button issues that they're facing, largely in and around fundraising, since that's where my and my co-founder's experiences can kind of move the needle the most for them. To date, we actually have serviced 65 funds through that program with the recent launch of our fifth cohort. So of those 65 funds, I'm proud to say that 82% of them have included at least one general partner that identifies as a woman or non-binary, and 57% have included at least one general partner of color.

The Enablement Program was actually something that we launched first as a way for us to build relationships with more in the community, build our brand equity, and support more of the ecosystem than just those that we could invest in out of an eventual fund investment strategy in the fund-to-fund side of the business, and it has just been a phenomenal experience. It's turned out to be obviously a very strong compliment to our fund investment strategy, but also just I think where Courtney and I get our energy from. I mean, the opportunity to support so many managers in market and really help accelerate their success has really been transformational for us, too.

That's great. You just said in market. It would be helpful I think to understand the right place in an emerging manager's life cycle where that program is really oriented and drives the most success. I'm sure you have some sort of criteria around the emerging manager, but how best to think about what the right point for an emerging manager to start being considered for that program?

Sure. So we typically say that the fund is best suited for those raising their first institutional fund or starting to think about their second. We say institutional because these are folks that are raising outside capital. For some, there was a fund zero or even a fund one where they were investing out of personal capital or a solo LP. This is really for those that are launching their business to raise outside capital for their funds.

In terms of other criteria, we are focused on US-based managers to date. We hope to be able to service more of the international community in the future, but today it is just US focused. Also, there's no guidelines around sub-sector focus. We've had generalists as well as those with kind of deep sector expertise.

At very high level, what it is that we're looking for is not unlike what it is we look for in the fund investment strategy, right? It's those managers that we think have very unique experience, very unique expertise that will allow them to build a truly differentiated fund and do so in a way that we think has a potential to be an industry leading franchise in the future. Really standing out based on their differentiated point of view, differentiated network from which to identify interesting opportunities, and their ability to win allocation in some of these really interesting companies based on what they have to offer post investment, which really kind of gets your flywheel of entrepreneur referrals going, which is what's necessary to continue building your brand over time.

Really want to support those managers that we think should absolutely be raising their funds, but perhaps could use a little bit of support in areas where we think we can move the needle. We are happy to look at non-traditional, quote-unquote, non-traditional track records, and are excited to also work with those that come from outside of the venture bubble, those rockstar operators that have been exposed to a number of different interesting opportunities and can leverage that to support companies moving forward. We try to keep it broad in the sense that we don't have boxes to check, but we do believe deeply that we want to be supporting those that we think should have a fund and have the expertise to help them stand out in order to do so.

That's great. Well, I appreciate everything you're doing there with that program and look forward to collaborating with you there. Maybe shifting a bit to the true investment side of the house, in today's market differentiation is something that I think is even more paramount for GPs that are looking to raise an early vintage fund. As it relates to Recast, how is your strategy different from other LPs as it relates to your investments with emerging managers? And how do you attempt to truly put your best foot forward with these emerging managers and encourage them that you are the right partner for them versus someone else?

Sure. Yeah. So I think it's a few different things. I mean, first, to kind of double down on the criteria that we're leveraging to set this stage. So we are looking at US-based, US-focused emerging managers in venture. We define emerging manager as those raising institutional funds, one, two, or three. We have a preference for more diverse partnerships, and we define that as at least one member of the general partnership identifies as an underrepresented minority within the venture community. That certainly would include gender, race, ethnicity, but also other underrepresented demographics such as veterans, LGBTQ+ community, indigenous peoples.

We do look to invest in more diverse partnerships, and we define diverse as at least one member of the general partnership identifies as an underrepresented minority within the venture community. That certainly would include gender, race, and ethnicity. But we also recognize other underrepresented demographics within the industry and honor those as well, including but certainly not limited to LGBTQ+ community, veterans, differently abled, et cetera. The funds that we're looking at are predominantly pre-seed/seed focused, and they're predominantly more modest fun sizes.

When you pool all that together, we believe deeply that it's kind of that part of the market that is going to create the alpha that one would expect from their venture portfolio. So taking all that together, my co-founder and I two institutionally trained LPs by background, and given our experience, we just believe deeply that any well-built venture portfolio should include diversified exposure to top-tier emerging managers in venture. And we believe those top-tier emerging managers in venture are going to look and feel like the way we've described it through our investment criteria.

Interestingly, this part of the market, while many savvy venture investors understand the opportunity that this part of the market can offer in terms of outperformance, it also tends to be the hardest part of the market for many LPs to access. So we were excited to create this kind of institutional grade intermediary through which investors could gain access to the potential returns from this part. So really helping address some of the structural issues that some LPs have in accessing the space such as check size constraints, kind of breadth of team, network to identify the opportunities, perhaps red tape and process that prohibits folks from moving fast enough to get some of the access to the best opportunities, or perhaps it's just outside of their mandate to invest in fund one, fund twos, early iterations. So leveraging our experience, we're excited to create that diversified exposure on their behalf.

In terms of ways we separate ourselves from others that may be doing this, we are solely focused on the emerging manager and venture space. This is where we spend all of our time day in, day out. And as a result, I think have very deep networks of GPs, both emerging and established LPs, and broad community involvement that really helps us maintain our finger on the pulse of what's happening there and really be able to find the signal in the noise. Our Enablement Program is a huge differentiator for us as well, right? Not only does that help us build our brand, but we get to build relationships with so many more emerging managers in market that really helps us widen our top of funnel. I think that there is a huge amount of network effect that's been generated from that, and certainly goodwill in the broader venture community.

Kind of thinking about that as it relates to you coming in to back an emerging manager in their fundraise, have you seen situations and is it part of what you look to do to really jumpstart a fund raise for an emerging manager with a diversity approach or diverse general partner construction? Have you seen the situations where Recast is able to bring others into a fund raise as well, either directly or more just allowing the emerging manager to talk about you as a partner or being part of your Enablement Program? Have you seen situations where Recast has had that impact on emerging managers?

Yeah, absolutely. Interestingly, I think what we try and target, certainly from the fund-to-funds and touch on this a bit in the enablement is kind of a few different archetypes of manager, right? There's certainly the rockstar operator angel that is starting their fund, perhaps may not be as much of a known entity within the venture community yet. In those instances, or if it's just new brands, teams that are coming together that are not necessarily known entities yet, we are excited to invest early and with conviction and to shine that light on those managers where we can draw attention from the LP community and get folks that stand shoulder-to-shoulder with us to get excited about investing there. So absolutely.

Certainly from the other archetypes when it comes to some of the blue chip spinouts or, quote-unquote, more proven partnerships that we end up targeting ... And by more proven, I mean those kind of institutional fund twos and threes that we are also investing in. I think the broad approach that the portfolio has, not only investing early in with conviction, but also just the deep kind of value set that permeates the organization and how we approach the market and our differentiators that I mentioned previously. That allows us to win allocation too in very competitive situations, because I think there are general partners that really want to be a part of what it is we're trying to do in the venture ecosystem and are excited to have us on board with them that their potential returns are actually helped driving that, too.

That's great. I guess, one corollary question I want to make sure we talk about. I certainly hear the mandate around diversity within the general partner. What is the approach and the import or requirement of the funds focused on making investments into portfolio companies that serve a similar goal, whether it's diversity, whatever that strategy may be that the GP is looking to capitalize on? Are you focused on diversity at the GP of the fund, diversity also at the investments they're making and advancing diversity in those goals? How does Recast think about those equations?

We do not have a mandate that requires that the managers in which we invest in or support through the Enablement Program focus exclusively on founders that are diverse, as well. As you can imagine though, given the fact that the general partnerships that we're supporting are more diverse, their underlying portfolios of founders tend to be more diverse, as well. So that's something that we are excited to see and excited to report on over time. I think it's important to note here that yes, we are extremely passionate about diversity, but we do so because we believe it actually makes a difference, right?

This is not a concessionary strategy. This is returns first, right? We believe the data that shows that different lived experience, different networks, different perspectives amongst a team, particularly in venture leads to better sourcing capabilities, better decision making, better post investment value add. So it's all of those things that are driving that out performance that we're hoping to get from our portfolio. So coupling that with the emerging manager space, we hope is really just continuing to fuel the potential out performance that our product can offer. So the diversity aspect of it and the focus in the emerging manager space for us is so amazing because not only is it kind of helping to drive those potential returns, but it is also driving change, but at no sacrifice to returns whatsoever.

Sure. That's helpful. Whether it's through the Enablement Program, your network and having conversations with emerging managers, we live in certainly a new world than we have before and constantly is evolving within the fundraising environment, clearly challenging in many respects, whether it's re-ups or broader macro. What sort of guidance do you provide specifically to your emerging managers as it relates to their overall strategy in today's environment?

Yeah. I mean, it is a very unique time, right? For emerging managers raising capital today, it is a difficult atmosphere in the sense that so many of the potential LP archetypes that they may have been targeting before, such as high net worth individuals and family offices, many of them kind of pushed pause on their deployments given everything happening with the market. They just needed to take a deep breath, and understandably. But unfortunately for emerging managers raising more modest fund sizes, where the check sizes that are possible from that part of the market is really what is most appropriate for their fund, that meant that their pool of potential LPs to target got very small, very fast. So it's a difficult, difficult space.

So I would say LP archetype, or I like to call it fund market fit, is absolutely essential right now. Really being effective and efficient with your time and looking for those LPs that are not only a nice fit for and are excited about supporting a strategy like yours, but also are actually in market making commitments today. So I think that just highlights the fact that GPs in those pitch sessions with LPs should be spending some time in kind of qualifying the LP early on in the conversation, asking the questions to determine whether or not they are currently active. And if they are, how good of a fit is that GP strategy for what that LP is looking for?

One of the things that I know is critically important to Recast is that adherence to values and that commitment to values. Let's talk a little bit about how that commitment plays a role in your selection of emerging managers to back, and what are some of the things that you look for in that respect?

We often say that the emerging manager space feels like a sea of sameness, right? It's true. And we say that our job really on both the fund-to-fund and the Enablement Program is looking for contrarian, right? We spend our time looking at diligence or building relationships with these managers on both sides, understanding if it's contrarian good or contrarian bad, which things sometimes can look like one another, look very similar. But a big part of that, kind of digging in as to why this particular manager should be the one to support, that's chasing this particular part of the market. And oftentimes, a part of that is who they are and how they operate.

The emerging manager space, often there's less, quote-unquote, data to look at from whether a track record or other things to sink your teeth into if you will. But one thing you can and should do a great deal of is off-list references, right? Understand how they are within the community. The venture industry unfortunately has had some bad actors in the past, and continues to unfortunately. Not only are values important, but just being that positive in our community. Sharing the view that great investors, great founders can look like anyone and come from anywhere, and kind of live that, too. So it's kind of a combination of those elements. I know it's a little bit of a fuzzy response. Always, it depends, right? It comes from your gut. It comes from building that relationship. It comes from the pulse of the community. And we know it when we see it.

That's great. Let's talk about the characteristics beyond what we've talked about. Some of the other characteristics that you look for in an emerging manager, whether it's history, pedigree. Talk to us about some of those important things that you look for in a GP.

Sure. I think first and foremost you want to see relevant industry expertise, that mapping to their area of investment. So that might be from previously investing in that industry and having a strong track record doing so, which proves or shows that they likely have a very strong network of the entrepreneurs spending time in that space. So they can likely identify and win allocation in those companies, right? But that may also be deep industry expertise as an operator. More and more you're seeing companies at their earliest stages of development, the founders there need support from folks that'll roll up their sleeves and help them. Without some of that kind of deep expertise, it's difficult for those founders to get what they need.

So at the most basic level, what we're looking for are those managers that absolutely are the, quote-unquote, horse to ride in their area, the sub sector in which they're playing. Because oftentimes, at least for us, in building a fund-to-fund strategy, we're trying to build a diversified portfolio. That includes diversification by underlying sub-sector exposure. So for us, if we're overweight in an area, it needs to be intentional. So we need to be thoughtful about covering some ground, right? So if we're picking managers that are covering certain areas, we need to be thoughtful about how they overlap, if at all, and is the manager that we're investing in the right one for that space? It's not pedigree in terms of school, or where you grew up, or who your parents were. That's not something we think about, but we do think about whether your relevant expertise makes sense for the strategy that you're pursuing.

Other things that we think about are in many ways coachability. It's not our job to teach managers how to be good investors by any means, right? We're backing folks that we think will be excellent pickers of companies. But it is our job, we believe, at Recast to leverage some of our institutional LP expertise to support the managers in building what we hope are industry leading franchises of the future. That often means leveraging an institutional lens in building your firm very early on, and sometimes that does require allowing us to share our perspective on what should and shouldn't be done as you build your firm. If there is a level of ego or so forth that they're not willing to work with us in that way as a true partner, that is also likely a deal killer for us.

That's very good advice for the community as they think about what's important to Recast and how to position themselves, and frankly, how to position their firm for an LP. I do think that within the venture segment, it's a bit more nuanced and not necessarily the same answer in the broader emerging manager ecosystem. But one of the dynamics that we've certainly seen a lot and focus on is scalability of a GP strategy. I guess, I'd love to hear your comments around the importance of that for you at Recast as you consider emerging managers. And if it's important, and to what degree, how do you measure and assess that scalability?

Yeah, you're right. Venture is kind of nuanced in this way. I believe fundamentally that your fund size ... So if we're talking about scalability in terms of fund size first and foremost, your fund size dictates your strategy in some ways. So your diligence really looks at, at least day one, whether the fund size that the GP or GPs in question is raising makes sense for what it is they're trying to do. By that, I mean are they trying to win allocation and lead deals, and do they have the right size fund to be investing the check sizes that they're hoping to write, or are they writing more modest checks as a co-investor and kind of a broader round, and so looking for perhaps more shots on goal as a result? What is the reserve strategy? Tying all that together, right?

When funds grow, we want it to be done thoughtfully, not just for the sake of raising more capital. Unfortunately, you see many venture managers, and particularly those that are doing well, say, in a first fund and are coming back for their second, and go out and raise two, three times more than what they did in the first vehicle, right? It may be because they feel like they can do more than what they did before. It may be because some LPs are encouraging them to do so, because they want to be able to write a bigger check into the fund. Increasing it just for the sake of increasing it is something that we're very cautious of.

So in some ways, scalability to us, there's a wide spectrum of good scalability and bad scalability. So thoughtful growth of a firm. And oftentimes, that means whether it's adding partners to responsibly invest capital at a larger size, adjusting your strategy as market conditions change, or really kind of honing in on what your superpower is as an investor. That may mean that you want to lead more rounds. You had the opportunity to lead more rounds. It makes more sense for you to raise more capital in order to do that.

It's very much a depends, and it's fund by fund. I personally, when I'm meeting with managers, I often ask, "What does this firm look like two, three cycles from now?" And their answer can be very illuminating. Is this particular GP or GPs really just looking at asset gathering, they want to be a billion dollar fund in a few cycles? And is that kind of ludicrous based on what it is they're trying to do? Or they appear to have a pretty disciplined approach and are being thoughtful about it? Not that you have to remain the same fund size forever, but as you increase, you do so in a disciplined way. That matters a lot, too.

So let me test this out for you, and hopefully you don't mind sharing the secret sauce. So I'm the GP, and you asked me that question. And I say, "Sara, I don't know. My focus is on this fund. And depending on how that goes both with fundraising and putting capital to work, I will assess the future funds alongside my LP partners." How does that answer impact your thoughts about a GP?

That's a very acceptable answer. Of course, everyone's a 100% focused on the fund they're raising today. I would understand any manager saying that, but I would perhaps push just a little bit more. I think when anyone takes the bold leap of starting a venture fund, assuming this is your full-time job and you are pursuing this with all of your effort moving forward, right? I'm sure before you made that leap, you had a vision for what the fund could be, what you want it to be someday, right?

Maybe your answer is you want to be the Sequoia of tomorrow, and that's a respectable answer, and likely have a thoughtful approach to how you would get there. We would hope there's the thoughtful approach. That's really where we're digging in, right? Or perhaps it's, "We want to be the Founder Collective of tomorrow." Disciplined, always raising the same fund size. Very different approach, right? But you may have your reasons to do that. And everything in between. I would assume that anyone that's doing this would have an idea of what tomorrow could look like, what they want it to look like. It might not look like that, but what they want it to look like if everything works out the way they want it to.

Said another way, what does success look like for the firm? It doesn't have to be how big is your fund when you're raising fund four. The answer could just be, what does success look like? I think different GPs have different answers. Again, it's this depends response, right? Everyone has what feels like their true north when it comes to what they're trying to build. But fundamentally, I want the hunger, the drive to be building an industry leading franchise. That's what they want to do, and they're going to do it in a thoughtful way, but what the end result looks like could vary wildly. It's just understanding the thought behind what it is they're doing. We did this exercise for Recast, right? We know what we want to do, or what we hope to achieve. I would expect our GPs to be able to articulate the same.

That's great. Yeah, I appreciate that. You have a very unique lens, both because of your strategy and also your great history. What is your outlook for fundraising for the rest of '22, which is pretty limited? And in particular, what do you see for '23?

In 2023, I would imagine that some of the institutions, family offices and high-net-worths that paused based on the market are starting to come back. I think for other LPs it's going to be business as usual as it has been for most of 2022, as well. There are many long-term investors that have been through some of these cycles before that realize that this is a long-term game. We're going to continue deploying, and you never want to time the market. I think there are others that despite not wanting to time the market, also recognize that historically these times have been when really interesting fund vintages have emerged. So for others, they're staying because of that, too.

There are a ton of emerging managers out there today. I worry about those managers that absolutely deserve to exist, absolutely deserve to exist, but because of some of the market dynamics, may not have a chance to raise their fund to a level that they were hoping, so maybe not reaching their target or not being able to get off the ground adequately in this environment. Obviously, our Enablement Program is really targeted on helping ensure that there's folks that need the support that get it.

The other side of the coin is if you are a manager that recently raised your fund, recently closed your vehicle, or you're someone with a great deal of dry powder, this is a very interesting time to be an investor. I think LPs in those funds are interested to see what happened. The early stages I think continue to be a really interesting place to be investing. I think within the venture space, the early stage is somewhat insulated from the gyrations of the public market, and they're given the dry powder in market. You're seeing there's a lot of capital out there to support these companies over the next couple of years as they grow.

So I think the best companies are still going to continue to be successful. There are emerging managers that will continue to raise and get the support they need from downstream investors, as well. I just think from an LP perspective, manager selection is going to matter more than anything right now. And in the emerging manager space, manager selection is the hardest.

So I'd want to close here, and take as much time as you'd like, but I'd like to focus on your advice to a GP who's looking to, or in the midst of raising their first fund. What are those critical pieces that you would ensure you want to convey to a GP like that?

First and foremost, assuming you have a story that you're very confident in and how your background translates to the fund that it is you want to raise, where you're focusing the stage in which you're investing and so forth. So your expertise is mapping there. So we'll assume that that's table stakes. The next thing I would say is, or really my first piece of advice really is nothing matters more out of the gate than fund market fit. You want to be targeting LP archetypes that are appropriate for your fund.

So as an example, if you're raising a $20 million fund focused on climate tech, for example, you want to be targeting LPs that, A, can write a check small enough to back a fund of that size. So that already narrows the field a bit, right? Or targeting LPs that have a deep passion for the climate tech space, have dedicated allocations for it. So even if your fund size is modest, they are opportunistic and will invest if it's in their area of interest.

Also, certainly you can build relationships with those that are outside of those areas. But finally, you want to be focusing on those that are actually deploying capital now. So it's great if it's a family office that can write a check of this size, that also cares about climate tech. But if they're pausing because of the market or because they're over allocated to venture, or because they feel the denominator effect, or whatever the answer may be, you want to know that early as well. Because your time is your most valuable resource, and you want to be efficient and effective in your fundraise. So I'd say fund market fit is the first thing.

Second is really highlighting differentiation. We talked about this a few times already, but just to double down on it. How you stand out really matters, because there will be many other funds that, again, hypothetically are raising $20 million vehicles that are focused on climate tech. Why is your approach new, different, interesting? Why should LPs be focusing on you? So I think those are certainly critical out of the gate.

Second, when your peeling back the onion a little bit in terms of fund investment strategy, I think many emerging managers don't always appreciate the difference between approaching and leading a round, and the personality or approach that's necessary to do that versus those that are a participant amongst a group of co-investors that works very nice together. The sharp elbow is necessary to lead and win allocation in some of the most competitive rounds is something that to be minimized, right? That approach and that space in market is different than one of a few firms that's focusing in a space where you tend to work well with other groups. It's very, very friendly, very collaborative, and you're inviting in a number of other investors alongside you time and time again.

Those are two different ways of approaching your strategy, and I think it's one to spend some time on making sure that it's something you're comfortable with, A, and B, something that fits your personality, frankly, and the way you want to show up in the venture industry.

I would also say with respect to track record, I know track record is a hot button issue for many emerging managers, and rightfully so. It's tough to understand what LPs are always looking for, particularly if you come from a, quote-unquote, nontraditional. By that, I mean don't have five, ten-year track record of investments from a prior venture fund, right? On one hand, I think it's important to exercise all of the unique ways you've been adding value to companies. That certainly includes angel investments, but it could also include advisory roles, operating roles, consulting roles.

With respect to angel investments specifically though, if you happen to have an interesting angel track record and I'm looking through your track record, I noticed that the investments that you've been making were fairly modest in size in comparison to the checks you intend to write out of the fund that you're raising. So let's say it's you were writing $15,000 angel checks into companies when for this fund that you're raising, you intend to write $250,000 checks. There's nothing wrong with $15,000 angel investments, right? In fact, it's fantastic, and many are not even able to do that. But the jump between 15,000 and 250,000 is a meaningful one.

So being able to articulate why the same entrepreneurs that you were supporting as an angel would want you to participate and would allow you to get the allocation you're looking for out of the fund. The best way for me to do that is to talk to all the entrepreneurs that you've supported and say, "Hey, if so and so had a checkbook that would allow them to have written a $250,000 check, would you have let them, and why?" We've done checks on folks where the entrepreneur in question didn't remember that angel investor's name. That's obviously not a great sign, right? You want to really be able to get comfort that they're going to be able to execute what it is that they're trying to execute.

The same can be said even if it's without an angle track record, but it's with your advisory work or operating roles, consulting roles, right? It's the same conversations we have with these entrepreneurs to say, "Hey, if they had had a checkbook and were able to write an $X,000 check, would you let them, and why?" Hopefully, again, the answers are a resounding yes and very positive.

Oh, that's fantastic guidance, Sara. Really appreciate it. I know the listeners will, as well. So thank you to our guest, Sara Zulkosky for coming on Fund Flow today and sharing your experience with the emerging manager ecosystem that we have here. And thank you to our listeners for tuning into this episode of Fund Flow, and we hope to have you next time.

Thanks, Jon.

Thank you for joining us on this episode of Fund Flow. To learn more about today's discussion, please email host Jon Finger at jfinger@mcguirewoods.com. We look forward to hearing from you.

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