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Interacting with LPs - Insights from Kate Beardsley of Hannah Grey
Episode 38th June 2022 • Fund Flow • McGuireWoods
00:00:00 00:44:06

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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.

 

💡 Featured Guest 💡

Name: Kate Beardsley

What she does: Kate is a Founding Partner at Hannah Grey, a first check venture fund investing in customer-centric startup founders. Previously, she worked with Martha Stewart and later Huffington Post co-founder Kenneth Lerer. Kate founded the venture fund in 2021 with Jessica Peltz-Zatulove.

Organization: Hannah Grey 

Connect: LinkedIn | Twitter

 

🗝️ Key Points 🗝️

Top takeaways from this episode

★    When starting a firm, timing is everything. As you get more experienced, it becomes easier to identify the green lights that indicate when might be the right or wrong time to start an investment firm. The state of the market and your relationships with other LPs or previous firms you’ve worked with are all important to consider. 

★    Know your firm’s story. LPs are already reluctant to invest in newer firms. While having experience and a strong portfolio is important, a coherent and well-researched “story” about who your firm is and what you’ll do is an important asset.

★     Do your research and be ready. Relationships with LPs are like marriages: like any long-term relationship, a lot of work should be dedicated to that relationship before committing to marriage. So before even meeting with LPs, make sure you do plenty of research to make sure it will be the right fit for your firm. Being prepared will help you advance deals faster, and avoid relationships that aren’t the right fit. 

 

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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.

Transcripts

Voiceover (:

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 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.

Jon Finger (:

Welcome to Fund Flow, a McGuireWoods podcast for emerging managers. I'm Jon Finger. And today, I'm very excited to be joined by Kate Beardsley, managing partner of Hannah Grey. Kate, thank you for joining us today.

Kate Beardsley (:

Thank you, Jon, for having me. I'm so thrilled to be here.

Jon Finger (:

Our pleasure. Let's start and talk a little bit about your journey in investing and how it led you to begin Hannah Grey.

Kate Beardsley (:

Sure. So I think, probably, what most people, especially emerging managers, would say today is that they have an unconventional path to venture capital. And I certainly share that story, and I think it's for the betterment of the industry as well. I started my career as chief of staff to Martha Stewart, which was a really fun and exciting entry point into the business world. And she's an incredible entrepreneur herself. And so I really got to apprentice with her and help her start a lot of small business initiatives that ultimately would help grow the bottom line of the larger corporation. And then I moved over to being chief of staff to Ken Lerer, the founder of the Huffington Post early on in the Huffington post journey. So I think I was employee number 20 or thereabouts. And that was just an incredible experience of really stepping into the foray of the New York tech scene, which was very much emerging.

Kate Beardsley (:

This was early 2008, I want to say. So right around the inauguration, the Huffington Post was becoming on the map politically at that time. And so New York wasn't a New York tech scene yet. Boston was certainly the east coast dominant market. And then that role... Ken was involved in a lot of amazing, exciting startups, and then started helping with his angel investing for his family office. And then that turned into a formal process where we raised our first venture fund. Back then, it was called Lerer Media Ventures in January 2010, and now it's called Lerer Hippo and is one of the most active funds in New York City for seed stage investing. And it's just become an incredible franchise and so I feel really honored to have been a part of that.

Kate Beardsley (:

I was there for about five years. We did three funds and close to 200 investments, so we were running at a very high clip, but also running with the New York technology scene, I would say, taking shape. And so we were right at the... We couldn't have timed it better. And that's to Ken's credit. He's just a Sage and knew that it was the perfect time. And then he moved over to Galvanize Ventures, which is headquartered in Denver, Colorado, which also brought me out to Colorado in 2015, which is where I am now. Galvanized, at its peak, was a 400-person education company that looked like WeWork meets General Assembly and with a small venture fund. And I had the privilege of managing that venture fund, Galvanized Inc. sold to K12, an online education company, in 2019. But the venture fund still exists. It's now renamed UpSlope Ventures, and me and my partners at Galvanize still manage that fund.

Kate Beardsley (:

But around that time is when I met Jessica in 2014, when I moved over to Galvanize and really just started collaborating with her around what she was seeing in New York. I hadn't moved yet to Denver, but we found a friendship really quickly. We worked the same way. We had a similar intensity and just a deep curiosity for what we were seeing. And she was managing a corporate CVC at the time in New York. And so there was, I would say, some restrictions based on what the corporate was focused on investing at, but I was always a generalist. And so that is my path and that's how Jessica and I teamed up and then formed Hannah Gray last year in 2021 in March. So really thrilled to finally be at this juncture with her.

Jon Finger (:

That's fantastic. Thank you for sharing that. I think I've mentioned to you before, but being memorable is always important in whatever we're collectively doing. I absolutely love your story about how you named your firm, and to this day, it's in my mind. And I always talk to people about it with a lot of emerging managers who are coming up with how do they name their firm. So would you share that with our audience here today?

Kate Beardsley (:

Yes, of course. And thank you for the kind words and compliment. So our firm is named Hannah Grey after our daughters. Jessica, her oldest is Raya Hannah, and my oldest is Gunnison Grey. So we used their middle names, and I think that it was somewhat natural in terms of thinking about it. Jess candidly came up with it. One day, we were on a conversation and we were like, "We'll name it Grey Hannah or Hannah Grey." And immediately, we knew that it was an emotional connection, which is really, as you just said, one of the keys to being memorable. And there's a story there and it has meaning for us, and I think, deeply, it keeps us centered on what's important and how we actually tie our importance to venture capital is who are we doing this for?

Kate Beardsley (:

And we always say that it's, of course, for our daughters to make them proud, first and foremost, but also the next generation. That's really how we think about the long-term holds of venture capital and who we're looking to support here. But yes, it also was easily trademarked. If I'm honest, this was one of the factors. After having named multiple venture funds and renaming Galvanize from UpSlope, going through the trademark process is not always easy. And there's a lot of power words now in the market, which are great and very inspirational but hard to trademark from a financial perspective. And so we were looking at something that was just at the advice of our trademark lawyer, "Go way outside the field," which I think helps to be memorable. The irony is now, Jessica and I both have two other daughters. She has a Dahlia and I have an Olive, so we joke that we need to name something after the other ones as well.

Jon Finger (:

That's fantastic. And quick sidebar, one of my best friends growing up, his daughter name was Dahlia as well. So I know that's a pretty unique name, but-

Kate Beardsley (:

Yeah, she has a great story about that too. Yeah.

Jon Finger (:

Oh, I look forward to... I'll definitely ask her about that. So what were some of the indicators, both internally for UK and then also what you saw in the broader private equity market, that you were ready to raise your own fund?

Kate Beardsley (:

Yeah. Gosh, timing is everything. It's so easy in hindsight to look back whether it's on investment firm is made and say that was the right timing, that was the wrong timing. It's so hard to qualify that in the moment, because you just don't know, A, how long it's going to take you at that particular vintage to raise that fund. And also, is this going to be well received based on what else is going on in the market and what other people are saying and doing? So it's really always your best guess. There's certain things you can look towards. And I think one gets better at it as your franchise grows, and you have a better sense of your Lps' appetite and market timing and expansion and all of that.

Kate Beardsley (:

Being a first-time fund, which even though Jessica and I are not new to venture capital, obviously, we're going out with our new brand and that's just a harder sell. We honestly knew it was going to be difficult. Jessica was officially at our corporate CVC until the fall of 2020. And that was then also a large factor of we really wanted to make sure more so than market timing, that we had alignment with our previous partners in our previous firms, and that we had support from them, from referencing perspective and just sharing our goals. And I think that that's crucial because oftentimes, people just go out and say, "I'm doing this now," but that was a bigger factor for us in making sure that we took the time to get that alignment more so than saying, "We're going to try to time the market and go out." But that was, I think, our most leading factor.

Jon Finger (:

So Hannah Grey still relatively new to the landscape being founded in '21, and I know recently closed on your fund. How was that experience impacted by coming onto the scene as Hannah Grey right at the height of COVID?

Kate Beardsley (:

Yes, man, it was a challenging time. I mean, I think we started thinking about it March of 2020 and putting pen to paper of what our deck was going to look like and what our story was going to be. And I go back to that with such awe because the market was collapsing every hour. It was such an insane time, and I've been in venture for close to 15 years and I've really never seen anything like it of just this dissent, to the point where no one could get on the phone. Everyone was panicked about their own personal experiences. It was really hard to focus on work at that time. And then, of course, traditional investors, fund to funds were worried about their current portfolio. There was just no way to engage on a new opportunity.

Kate Beardsley (:

It just felt like the last thing anyone wanted to do at that point. So we really went on a listening tour, talking to, I would say, OGs in this space who had established firms 20, 30 years ago and what were their learnings because they had seen a couple market cycles and so maybe there was advice to be garnered in those experiences. And so that, for us, became what we spent our time doing and trying to really understand how, from that historical data we could get, how could we position our fund, and when was the right time to go out and talk about our brand and how we were going to be differentiated? And things were moving in real time. I just, again, can't underscore enough how bizarre it was to try to form something to talk about as a 10-year strategy.

Kate Beardsley (:

And we also had Black Lives Matter, which was a huge just uprising and just so many other real-time effects that started to change the discourse on a global scale, but also very much on a funding scale of "How is this going to be incorporated in our story, and what are we going to take from these learnings that we were seeing in real time in the market?" So that was just an unprecedented time to... And I think we learned that we had to be quick on our feet and just have an opinion and dive in head first as quickly as possible.

Jon Finger (:

Sure. And it's interesting, living through the COVID time, those challenges, to your point, were so unprecedented. I mean, we've certainly seen, and obviously are seeing, market moves that seem somewhat normal now when you're not focused on can I go outside or to the store and what do I have to do? Having that, hopefully, in the rear view makes some of these challenges, I think, a little bit easier to navigate, but recognizing all private equity and private credit, venture capital, all funds are different. How are you intentional about building the right credentials that would eventually lead to a successful close of Hannah Grey?

Kate Beardsley (:

Yeah. This is always the million-dollar question is what can we do, present, strategize around to make sure that we're innovative and differentiated in the market? And so, for us, we really, again, I feel like looked back at what felt natural to us and what had we learned in our tenure and what do we feel like the market was moving towards? I mean, this is actually our job as first check, early-stage pre-seed investors is, where's the pipe going, try to understand where the market moves, and so we think about that and really dissected a lot of other venture firms and how did they get in market? What was the story they told? Because so much of this is actually breaking it down into digestible stories and pieces that can be understood.

Kate Beardsley (:

Certainly, it's also about your track record, which hopefully, everyone can aim for attribution as much as possible, but it became, "What are you going to do with that?" You can't really go back and do the same thing. "How are you going to evolve and learn from your track and then implement it in a new fashion?" So I think we spent a lot of time breaking down the story because I can't underscore enough, we did not meet any LPs in person. This was, again, another generational shift. We had to do this via Zoom when people were trying to figure out how to log on to have Zooms as the new meeting method. And then most LPs, also when we started socializing the concept, didn't know how to do diligence yet via remote.

Kate Beardsley (:

It was very much like, "Well, we haven't..." As we were asking those questions, no one had arrived at a new relationship that was all remote diligence versus in-person, onsite. So we felt like we really had to break down the story and break down the elements of what they felt like they could have been getting in an in-person and really repackage it for a virtual-first environment. And that goes down to every little single cell, if you think about it. It's just a big exercise in reframing. So I can't stress enough how much we unbundled the process and then re-bundled it to a more digestible experience because when you're on with an LP, you probably have 20 minutes of focus time to pitch and get their questions and leave a good impression. And so that's really what we were striving for is that repackage and that experience. So we broke down a lot of our capabilities and tried to reframe them in a very clean way.

Jon Finger (:

So let's maybe spend a little bit of time talking more about that because, of course, the true LP interactions and framing and construction is always critical. And, as we've touched on, doing that through COVID is truly remarkable. But for Hannah Grey, what were some of the most important considerations for you when selecting LPs to pursue a real partnership with?

Kate Beardsley (:

Right. I think this is the work... So much of the work in fundraising, or I would say also just building a venture firm, is done long before you talk to an LP. I joke that... I mean, it's not really a joke, actually. These are marriages. This is a marriage with my partner. This is a marriage with our LPs, that you have to think in those terms. And oftentimes, the marriage functions much earlier before you actually get to the wedding, and you have to do a ton of research. I would encourage anyone to do a ton of research. I mean, so much of this is qualifying the people that are you think maybe a fit for your fund and doing all that back channeling exercise and research on "Are they actually going to understand my product, like it? Is this even a fit for their strategy?" And the more that you can understand that before you talk to them, the better the conversation's going to be, because through that research, you could say, "You know what, there's no way this group's going to say yes, because of X, Y, and Z and maybe it's a financial thing. Maybe it's a strategy thing."

Kate Beardsley (:

But the point is, if you go in knowing that, the asset you have before you have a fund is time. And so if you can optimize your time to understand who you're actually talking to, I think that's just an incredible asset that's available to anyone. You just have to be smart about it. And so we spend a ton of time really qualifying and very much a sales process and think about it. Something we encourage our companies to do in their software sales is exactly that, is qualifying the lead, making sure that no more than three days go by before you're following up dutifully and with real questions, take copious notes. I mean, there was just a whole host of, I would say, things and small tricks that Jessica and I learned while we were having these discussions to really qualify someone via Zoom and then also back channel with our peers and our network to understand what we heard and what we discussed. Is that really they're also doing in the market, or is there alternative data that we can also find, so our follow-ups can be more qualified?

Kate Beardsley (:

I just think it's, again, really breaking everything down into the small minutia of even just the note-taking can be done differently. I mean, our CRM for our LPs is thousands of names. And plenty of those names we may never have talked to, but we know what they're about. And we know that they're probably not a fit for us, and we didn't even waste their time in our time. So it's just so much of it is just going and finding that data and understanding and doing the reading. I would say that served us really well.

Jon Finger (:

That's great. I think, at some point, maybe there'll be a company that comes along and dedicates itself to somehow aggregating all of that data and then-

Kate Beardsley (:

Oh, there are.

Jon Finger (:

...because-

Kate Beardsley (:

I would say the data's so helpful, but it doesn't replace the real relationship that you're trying to foster. So that's the other thing too is, "Who am I talking to? What are they personally interested in? And again, how do I build a relationship via Zoom as a first step?" And again, as you said earlier, be memorable.

Jon Finger (:

Sure. Did you use a placement agent in your fundraise?

Kate Beardsley (:

We did not. And I would probably say this... I don't want to say a blanket statement, but I've actually never used a placement agent in any of my funds that I've worked for. I think that's because I've always been at new... I have a weird skill set in that I've actually started three funds from the ground up, which most VCs probably have never done. And placement agents, I think, are wonderful for when the firm is established and looking for new LPs and has a track record and they can package it up in a different way and know how to sell it. Emerging managers, I think, will be harder for placement agents just because there's just very little established track and, ultimately, you need to be raising north of $100 million for that engagement to really, I think, be ideal for both parties.

Jon Finger (:

Makes sense. So you clearly had some great success bringing on LPs, but throughout the journey, what were the most common reasons you heard from LPs that were reluctant or hesitant to invest in a first-time fund?

Kate Beardsley (:

Oh my gosh, the list is so lengthy and for good reason. I mean, if I was in the other seat, I'd have the same answer, so it's not a criticism. And I think, oftentimes, it's just, they don't know what they're buying, and that's really difficult to... You're selling a story, you're selling the future, and even if you do have an established track, it doesn't necessarily mean that that's going to be what they're going to get. And there's a natural hesitation there, so I mean, the list is lengthy because again, when we started these conversations, it was in a COVID environment, not even really post-COVID. It was still happening real time. So the conversation was, like I said before, "We don't really know how to do diligence remotely. We haven't figured that out yet as a team. We actually don't even have an emerging manager bucket. We've never done emerging managers. We don't know how. Our portfolio construction isn't there yet." That was very much a 2022 conversation. "Happy to start the clock with you all, but we like to have years of getting to know you," which is almost always the common comment.

Kate Beardsley (:

And then there's also the very real concern... because Jess and I are partners, so I knew that I didn't want to do a fund by myself. I know how hard it is from having started two other firms from the ground up. I think it really can thrive under a partnership, and that was my preference and so was Jessica's. But of course there's a criticism of "How do we know you're going to stay together? What is your partnership going to look like?" We want to see that in action. And then there's more granular things. We want to be focusing on something different than what you all are offering as a generalist fund. They wanted more specificity in terms of deal flow, certain... There's a lot of category-specific funds that emerge at the same time, which I think is hugely advantageous and important to the industry, but that could just be the preference and diversification they're looking for as LPs.

Kate Beardsley (:

Also, our fund is too small. We were aiming for a $50 million fund and thrilled to say we arrived at that, but some of these investors are really looking to put much more money to work, and it didn't make sense for the checks and the portfolio construction that they had. The list goes on. There's always a reason, but I think you have to listen to the no and understand the why and frame it. And again, what I was talking about is really qualifying those leads. And you can qualify that by saying, "is there a chance in future? Is there really never going to be a relationship here?" There was also often the comment, "Love to do a deal with you first and then make an investment," which there's a number of schools of thoughts on that comment, but I think it ends up being a really hard thing to make happen. And then you have to have the perfect storm to achieve that if, if that's a goal that an LP has for a relationship in order to transact.

Jon Finger (:

Thinking back on your experience throughout this process, were there LPs that initially you or Jess felt like, "Yeah, this just wasn't the right fit or we don't think they're going to get there..." Again, without giving out specific names but that ultimately you were able to bring in? And if so, what were some of the things that you think helped you address their concerns or what you perceived as potentially harder marriage to make happen?

Kate Beardsley (:

Yeah, no, that's a great question because I think this one speaks to the longevity of the relationship. I would say, if you're aiming for a long-term relationship, I think there's that sensitivity. One of the rookie mistakes I think is assuming that you're going to convert someone on a very quick conversation and that they're going to say yes at the end of it. If it happens, glorious, but don't aim for it. I think, in terms of converting someone, ultimately, I would say if someone in their mind is just like, "This is a no, not a fit," it's very, very hard to convince them of something else otherwise. And we didn't really spend a ton of time trying to go up against what could be perceived as a brick wall. But I do think, as you're talking about, was there a reframing that could have happened or understanding?

Kate Beardsley (:

I think some were a very slow role. Maybe there was a conversation early on that, like I had said before, they just didn't have an emerging manager bucket. They really weren't sure how to do remote first diligence and how could we... Was it the process of also time, and we had enough time where we could also wait it out? I think, again, a lot of it goes back to being very specific about the data. Jess and I joke that we had a deck for every question an LP could have, and we probably had the most organized data room you'd ever seen, very lengthy for a pre-seed emerging manager, but we put ourselves in the shoes of an LP and said, "How can we help them and their investment committee and their diligence team get through that process?" And it should all be there in the data room. We should be able to continually point them.

Kate Beardsley (:

And so I think we did... We were pretty maniacal about our follow-ups and just making sure that we use some of our milestones as touchpoints to share those constantly with anyone we were in conversation with. And we did that pretty frequently. And some people would just say, "Thanks so much" and some would never respond. And so it was really, I think to our credit, is if we got someone to care enough to put us in a conversation with the rest of their IC or took time to actually read anything in our data room, that, all of a sudden, they started to, I would say, just come along a journey with us and got a little more excited. And so we were... What's this phrase? It's just be ready. We were at this ready state on our toes the entire time and looking for any of those indications. And probably one of the largest issues about fundraising is that it's overwhelming. You spend so much time trying to do all the things so that you can't be ready, and we spend an exorbitant amount of time just in that ready state.

Jon Finger (:

That's great commentary. With emerging manager programs on the rise at different LPs, what do you foresee for the future of the landscape as it relates to LPs' willingness to invest with emerging managers?

Kate Beardsley (:

I'm really glad to see emerging manager programs on the rise. I feel like, in my experience, I was fortunate enough to apprentice, and I still think of myself as apprenticing and really drawing in those mentors where I can find them, but the programs are formalizing that and versus the ad hoc experience that I got. I would've loved to have taken some kind of programming 14 years ago of just how this all works. I had to feel my way through the dark, through when the experience would come up, and that I think just gives more continuity to the whole start and finish of a fund. And I have to say Jessica and I were in the first cohort of Cool Water, which is an emerging manager program. And I think of it as YC for emerging managers. Winter Mead has just done such an amazing job leveraging his network in this education, give first, very Techstars-like format of just coming with wonderful, I would say, experts in the industry, everyone from service providers to fund managers to fund to funds and endowments, explaining how they do their job. And it's very curriculum based, so it does have this continuity of on-ramping you and up to more complex ideas around being a fund manager.

Kate Beardsley (:

And there's just no discounting an incredible cohort that comes with those programs because there's just something in this process. It's very hard. You get a ton of no's, and the ability to turn to your peers and be like, "Well, how are you doing this differently, or how can we level each other up, or support each other through this process?" It's just no one really understands it like someone else going through at the same time. So I think, in terms of how LPs and their willingness to invest in emerging managers, I think this conversation of emerging managers in the last two and a half years has actually earned the right to have a small sliver in a portfolio of an LP base, which I think is just not going away. There's just so many people coming into it. And I think LPs are very aware now that there's an opportunity, and they can carve out a small area of their portfolio construction to essentially test and have a finger on the pulse of what's happening at this level. And obviously, if it's something that makes it through, and I'm sure the numbers are very slim, into the regular portfolio, great, but I think it's just... It's that willingness to try and have a relationship and learn and experiment that I think has absolutely changed in the last two years.

Jon Finger (:

You mentioned this idea about really leveraging community, and I think and I know there's some great programs out there. And I've heard wonderful things throughout the community. And it's, frankly, one of the reasons that we launched our emerging manager chapters around the country, which is essentially YPO for emerging managers, but it's about just having you have the ability to learn and share from people, to your point, doing the exact same thing that you did or you want to do or you plan to do. And I think having that ability to really gain from that experience on a regular basis, and frankly, a more informal basis and sometimes less threatening, is huge. So I definitely have heard the same from our community of emerging managers. I want to take some time, particularly because how remarkable your story with Jess truly is within private equity. We continue to see reports that diverse funds are systematically under-allocated by institutional investors. What challenges did you face and both of you face being a woman in the field, being co-founders of a new fund, both of you women? How did you overcome those?

Kate Beardsley (:

The numbers are truly abysmal. If I'm honest, I... If I'm candid, I never really looked at them. I mean, it's always been hard, and I've honestly never thought of it in a gender lens. I've always been a part of really supportive teams. Sure, I might have been the only woman for a while or maybe the whole time, but I didn't ever see that as the lens I was looking out through or the platform I had. I do have to say that my partner, Jessica, is a force and she created, with Sutian Dong, Women in VC, which is the largest global community for female investors. And as you were just talking about community, it's essential, especially now with a remote-first environment, your network is global. And the ability to interact with anyone who is experiencing the same thing or can help you is global.

Kate Beardsley (:

So, from that perspective, Jessica founded that organization in 2015. So think about it on the heels of the MeToo, but also just aggregating a lot of women who were having shared experiences and leveling each other up and being supportive, as you were just talking about, I think has also been hugely essential. In terms of us and our experience, I don't think it was really a thing we looked at. We were a generalist fund investing in any type of human being across the country. And candidly, our LP base wasn't looking for... It's not diversity dollars. They were looking for returns. And thankfully, we had a great track and demonstration of that and plan to continue it. I think fundraising is always hard. It's 99 problems no matter when you're going out or who you are, if I'm honest. It was never a walk in the park at my previous funds that were all guys who had exceptional track and history too.

Kate Beardsley (:

I think it's the job of whomever is building the firm to figure out how you're differentiated, to figure out how you can be memorable, to figure out how you can stand out for better or for worse. And sure, there's just going to be more challenges, but I don't know, Jess and I just learned, like I said before, we were just constantly in a state of ready. And that is the thing that actually pushed us, I think, above other emerging managers, no matter whose background we were being compared to. And that I feel like is what was also very memorable. It's just that we were tenacious, and there was a demonstration of our work ethic. And regardless of who you are, what your background is, anyone can be that, and I think that's always well received. I mean, I was a college athlete, and I feel like a lot of the things I learned in this fundraising process, I learned early on in sports and it's very, very comfortable.

Kate Beardsley (:

So I hope it gets better. I do think there's a lot of initiatives that are now trying to change that and are allowing emerging managers and diverse managers more access. There's tons of improvements that can be made, but the proof is in the pudding and the work that you do and the numbers. This is for capital returns. So that's really what I focus my true north on at the end of the day,

Jon Finger (:

I've certainly seen in the past few years more dedicated pockets, particularly within fund to fund strategies, that are committed to women and other diverse managers. Did you see that evolution or progress in your fundraise? And what else, if anything, were some takeaways you saw with changes in the past couple years around diverse managers?

Kate Beardsley (:

Yeah, I think there's an absolute shift in the conversation. There are more demonstrations. I feel like in the last year we've had some wonderful headlines of brilliant women closing funds, Katie Hahn. It's just a killer milestone. And I think it's headlines like that and then will continue to be that will help change the conversation, that opportunity. Of course, there's other, as you were saying, pockets on fund to fund and groups that are focused on diversity, which are amazing. I think we were probably a little early in that process, and the funds were being raised while we were raising our funds, so it was maybe a timing issue for a lot of them. But I'm so glad that there's an appetite from LPs to form vehicles to be able to do this.

Kate Beardsley (:

Candidly, I wish it was just part of the regular vehicle and not an exceptional vehicle, but I do think that, essentially, those other vehicles are already established and maybe there's opportunity to evolve those together in the future, but I hope it doesn't go away and I hope it just emerges into a percentage of parody and we, again, just focus on the capital returns and performance, because arguably, fundraising is a huge qualifier. And we're trying to make it more equitable to be able to have a shot at that, but then over time, it'll definitely be performance that we're all judged against. So yeah, I'm a huge supporter of any new initiative that's looking at new emerging managers and diverse managers to get in business.

Jon Finger (:

Sure. Any specific things, whether directed at the advancement of diverse managers or just more broadly within the emerging manager ecosystem... Anything you would like to see changed that you think could have an impact on either the whole ecosystem of emerging managers or the diverse manager ecosystem?

Kate Beardsley (:

Yeah, my partner, Jessica, and Sutian Dong wrote a wonderful white paper on this, I want to say about a year and a half ago, and they have a full financial plan on how to make it happen. So I feel like if anyone's listening, reach out to Jessica and Sutian Dong, because it's actually not a lot of capital. There's just so few... If we just take the numbers of women for a second, because that's the research that Jessica and Sutian did, there's just so few women starting funds. It's not a lot, but to be able to essentially give them each an anchor check of say 1 to $2 million is absolutely doable in a way where, essentially, we're creating a new vintage of female fund managers. And so you can take the same data points of diverse managers. It's essentially the hardest period is really that first close of how do you find someone within your network to help anchor you?

Kate Beardsley (:

And there's a lot of corporate strategics that stepped into that role in the last year and a half, two years, which is just wonderful. We didn't have an anchor for our fund and, in some cases, it may have been better, maybe not, but I think if I'm looking at one small thing... And I know it's millions of dollars we're talking about, but essentially, if there was a group that wanted to underwrite that process and focused on the anchor check, that would be life-changing, I think, for so many fund managers that are really just trying to get to a first close to demonstrate and then can close more money. It's very actionable. And like I said, Jess and Sutian have laid it out in a whole white paper. So if anyone's interested, we have a plan.

Jon Finger (:

Outstanding. Well, we'll make sure to get that available to the community as well. Again, looking back, recognizing all the complexities and challenges in raising a first-time fund, what were some of the most teachable moments you and Jess encountered along the journey?

Kate Beardsley (:

Gosh, go back to that things I said before though, really qualifying your leads, understanding who you're talking to, understanding their background. I mean, we say the same thing in venture capital when we're talking to entrepreneurs is those are just better conversations when we feel as though we're starting from a baseline. And we can certainly go through introductions. That's not what I'm talking about, but I'm talking about asking those specific questions that get a deeper conversation rolling, because you've done the work and the research and you know what that person said on Twitter or read their latest blog posts. There's just so much content and data out there. And then also, that back-channeling conversation, I mean, there's a ton of off-book referencing that happens in the LP world. And I say teachable moment here. The minute you launch your firm, it's not so much your deck is circulated, but your firm name and your just presence in the market is being circulated amongst fund to funds and family offices. And they're talking to each other just you're talking to your peers and saying, "Hey, I spoke to Kate and Jess at Hannah Grey. Have you talked to them? What do you think?"

Kate Beardsley (:

And it's just that sort of second-hand conversation that you hope is deeply positive. And you have no idea, but those interactions that you have with maybe LPs that are not a fit for your fund, but just as you said in the beginning, John, how can you be memorable? So even if they're not going to put money into your fund, because it's an endowment, could you leave a positive impression so that in those second-hand conversations, your firm name is brought up as who have you talked to lately that you think is really impressive, or who would you stay away from? You want to be thought of in that light, and you can't control those conversations, but you certainly can tee up as much as you can to have that all be very positive and rolling in your favor because there's a ton of off-book referencing that happens in the industry. And I think that goes such a long way. And the more you can demonstrate your reach in those areas, the better. That was something I didn't understand enough. And then once we were closing up our fund, I realized how it all worked on the back end, so yeah, go in eyes wide open.

Jon Finger (:

You've really provided a ton of insights here, Kate. I think the last question I would have for you is, in hindsight, of all of the advice that you may have received, that you may have formulated throughout your process, what would be the one piece of advice you would give to any emerging manager who wants to start their own fund?

Kate Beardsley (:

Absolutely find mentors, people who are willing to teach you their trade. And I'm not talking... Don't reach out to me. I don't feel like I've been doing this long enough. I'm still apprenticing, but I mean people who are retiring and have seen it all. And really, venture capital, I think, is a layered series of experiences, both on the fundraising side but also the deal side. I've had the privilege of being involved in close to 300 transactions at the early stage. And that helps dip into the perspective of what I'm going to continue to see. And so find someone who's had just exposure to hundreds of thousands of opportunities in their lifetime and see if they'll be willing to just have a conversation with you and be very specific on what you're looking for. But it's that type of experience that hopefully you can find and transfer to your experience. I mean, that would be the thing I would've done sooner. That's gold, if you can get it.

Jon Finger (:

Absolutely. Well, thank you so much to our guest, Kate Beardsley, for coming on the podcast today. We'll certainly be keeping an eye on all the success that I'm sure you and Jess will see in the future with Hannah Gray. And thanks to our listeners for tuning into this episode of Fund Flow.

Kate Beardsley (:

Thank you so much for having me. It was wonderful to be here, and your questions were awesome. There were some of the best I've heard around fundraising, so thank you.

Jon Finger (:

Well, thank you, Kate.

Voiceover (:

Thank you for joining us on this episode of Fund Flow. To learn more about today's discussion, please email host John finger at JFinger@mcguirewoods.com. We look forward to hearing from you. This series was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in this installment. The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This series 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.

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