Sam Huleatt
Venture capital is one of the most competitive industries in the world.
2% of VC funds capture 95% of industry profits - and that’s only if you’re able to raise a fund in the first place. The vast majority of folks who set out to raise a first fund fail to do so. Survivorship bias skews our perception, making us believe it’s easier to raise a fund than it truly is. To raise a venture fund means out competing some of the most impressive people in the world for a scarce sliver of LP capital.
The competition truly is most impressive. Almost by definition anyone raising a venture fund has a serious track record of achievement: outlier investments, top schools, job pedigree, exited companies, elite networks. Non spin-out managers face an even tough challenge: without an institutional track record, you’re really just pitching your story and potential. Given this level of competition, how does a GP stand out?
Become an ‘N of 1’ GP. Do the work to understand and articulate what you do better than anyone else in the world. N of 1 qualities hinge more on narrative, connections, and momentum rather than investment track record, or pedigree. A well-articulated combination of these traits can really elevate a fund's potential and memorability. Ensure your unique value proposition stands out early in your pitch, ideally in the first few slides.
Building An N-of-1 Value Prop
- Focus on Unfair Advantages. What makes you the best (or only) person in the world who can execute your fund strategy? Some ways to think about unfair advantages include:
- Your Moats: These are your structural advantages, like unique industry connections, or a proprietary deal flow, which position you ahead of the competition and are not easily replicable. The best unfair advantages often compound over time.
- Insights and Secrets: Highlight a surprising truth or secret that gives your fund leverage to outperform.
- Unique Intersects: Combine your varied experiences and skills to showcase a differentiated competitive edge
- Highlight Your Spikes. Outlier people tend to have outlier personalities. Keith Rabois speaks about elite founders ‘spiking’ in certain areas, sometimes at the expense of being well rounded. The same holds true for GPs. If you have a spike, lean into it. What is your superpower? Spin a negative spike as a positive: How have you used a perceived weakness, or setback to your advantage? Spikes are memorable and they highlight authenticity. It’s obvious when a GP is trying to be someone they are not. Spikes often manifest with 1st principles thinking: don’t be afraid to highlight where you disagree with a consensus opinion, or zigged where others zagged.
- Narratives Are More Memorable. GPs sometimes forget venture capital is a people-first business. In general the more personal and ‘human interest’ you can make your pitch, the better. Slides highlighting a track record of 5x TVPI along with a bunch of company names you’ve never heard of is boring. Instead, try getting personal. Tell the story behind the amazing founders you’ve backed super early. Show how these founders plan to change the world and how you’ve supported them in the mission, outside of only capital.
- Think In Terms of Products. Many aspects of venture capital are intangible, like the strength of a network. However, top fundraisers excel at making these intangible qualities concrete. Many top fundraisers are really good at productizing their sourcing/picking/winning. For example, instead of merely stating “I’ve built a strong network for finding fantastic founder talent” consider a more vivid approach: “I’ve created a scout program called Sam’s Squad; 20 founders I’ve previously backed who are incentivized with fund carry to send me 3 deals each per month”. This turns a generic claim into a quantifiable, memorable product.
- Offer Value Exchange & Perks. Many potential LPs think investing in a fund means writing a big check and rarely hearing from the GP again. In many cases they are not wrong, but this is the opportunity! The bar is low for GPs getting creative with engaging their LP base beyond the occasional fund update email. My experience is most LPs don’t want to be passive. Treat LPs as a community, rather than a cap table. Appeal to the unique benefits of being an LP in your fund - and being part of your ecosystem - in order to help stand out..
Appealing to Different LP Types
To be most effective with an N of 1 strategy, tailoring the pitch for different LP personas. While grossly generalizing, LPs often fall into two categories: active, or non-active. Active LPs typically have mandates: they are high intent and public about putting capital to work. While such LPs have benefits, the bar is high to stand from among the hundreds of GPs pitching them.
On the flip side, non-active LPs (most HNWIs) offer different challenges. Non-active LPs often require education around the venture asset class. They typically lack urgency. Angel investors can be particularly challenging many see LP checks as an either/or: either invest (smaller) checks myself, or give you one big check.
In today’s hyper-competitive environment, track record is necessary, but not sufficient. The GPs who will have the most LP success are those able to blend their strengths, experiences, and unique insights into a compelling N of 1 narrative.