Paul Graham’s recent essay, Founder Mode, describes the mindset that founders need to adopt to navigate the early stages of building a startup, and how they’re different than ‘manager mode’ which is traditional management/corporate best practices.
In effect there are two different ways to run a company: founder mode and manager mode. Till now most people even in Silicon Valley have implicitly assumed that scaling a startup meant switching to manager mode. But we can infer the existence of another mode from the dismay of founders who’ve tried it, and the success of their attempts to escape from it.
There’s a lot of food for thought for founders in the essay. For me, it triggered the question ‘what’s the equivalent of this for investors?’ and this post is an attempt to describe the ‘Emerging Manager VC Mode’ vs. the ‘Established Manager Mode’.
Emerging Manager Definition and Caveat
There’s no strict definition of emerging managers, but typically, funds are considered ’emerging’ in their first, second and sometimes third fund cycle. Emerging managers, like my firm, Remagine Ventures, are the “founders” of the VC world. Getting a first fund off the ground can be extremely difficult: it often involves foregoing a salary, working around the clock and getting rejected a lot. But even those that are successful in making it to fund 1, keeping an emerging fund going is equally challenging. Recent stats from Pitchbook show that 37% of first-time VCs will not be able to raise a second fund. Like startups, emerging managers have to adopt a creative way of doing things.
However, one caveat for the discussion is that you shouldn’t confuse the challenge of emerging managers to get off the ground to their actual performance. According to Pitchbook, “The median return of emerging fund portfolios narrowly exceeded that of their established counterparts, while the top-quartile figure delivered by emerging managers significantly outperformed.”
And the best three VC vintages in the last 25 years came in the three years after the global financial crists – 80% of those returns came from emerging managers.
Case in point, below are recent examples of European emerging managers who are standing out (from an upcoming report by Dealroom)
For newish VC funds, being in “emerging manager mode” means operating differently from established venture capital firms. It’s about going beyond traditional metrics and processes, adopting unconventional approaches, and doing things that might seem unscalable to most.
Emerging Manager Mode: The Founder Mindset in Venture Capital
Just as “Founder Mode” describes the unconventional tactics startup founders use to succeed, “Emerging Manager Mode” encapsulates the scrappy, out of the box approaches new VC funds employ to stand out and thrive. These are typically first, second, or third-time funds that need to punch above their weight to compete with established players.
Key Principles of Emerging Manager Mode
Think Like a Founder, Act Like an Investor
- Emerging managers build their firms from the ground up, just like founders.
- They wear multiple hats: investor, marketer, recruiter, and more.
- Example: Emerging managers handle everything from deal sourcing to LP communications to social media in-house.
Do Things That Don’t Scale
- High-touch, deeply involved portfolio support is a hallmark of emerging managers.
- They often provide hands-on operational assistance beyond just capital.
- Emerging managers see venture capital as commoditised and understand that competitive deals mean that founders have options. They look at founders as their customers, and the best emerging managers will roll up their sleeves and do candidate reviews, pitch deck assistance and bespoke BD for startups, and personalised updates for LPs.
Build Unique Networks
- Emerging managers create their own communities instead of relying on established circles.
- They often focus on niche sectors or geographies to build expertise and networks. Riches in Niches.
- For example, our focus at Remagine Ventures on gaming, generative AI, and entertainment tech enabled us to create a relevant, focused network of founders, operators, co-investors and strategics who are active in our verticals. The focus on entertainment tech meant that we always cared about content creation, distribution and monetisation. As a result, we started investing in generative AI in 2019, as a way to scale content creation.
Provide Value Beyond Capital
- With smaller check sizes, emerging managers compete on strategic value.
- They offer deep industry insights, connections, and hands-on support.
- Emerging managers tend to focus on ONE key value add category at a time: be it recruiting, sales, design or product support. Their reputation depends on the value they provide, so they work hard to create good-will.
Stay Agile and Evolve
- Emerging managers must be ready to pivot their investment thesis as markets change.
- They continuously experiment with new ways to add value and stand out.
- AI is creating a huge opportunity to level the field for emerging managers. It can be used to automate various part of the job and the best emerging managers are early adopters that constantly look for faster, cheaper, more efficient ways to get things done.
The Emerging Manager Advantages
While emerging managers may lack the deep pockets of established firms, they bring unique advantages to the table:
- Agility: Quick decision-making and the ability to move fast on deals.
- Focus: Deep expertise in specific sectors or geographies.
- Hunger: A strong drive to prove themselves and help their portfolio succeed.
- Innovation: Willingness to try new approaches to sourcing, diligence, and support.
The Road Ahead
We’re currently going through a shakeup in the VC landscape. Many funds that deployed large amounts at high valuations at the peak of the market in 2021, had a reckoning with their portfolio companies either adjusting their prices downwards or shutting down. With exits and IPOs being slow in 2024, many funds have slimmed down their fund targets and taken longer to raise.
For LPs, it seems, there is perceived safety in numbers: mega funds. That being said, emerging managers offer the potential for outsized returns and exposure to niche markets. For founders, emerging managers can be ideal partners who truly understand the challenges of building something from scratch.
As the VC world evolves, those operating in “Emerging Manager Mode” are well-positioned to write the next chapter in venture capital. They’re not just following the established playbook – they’re creating a new one. It will sound like a cliche, but now is potentially the best time to be deploying first cheques into new industries being created.
Keep an eye on these emerging managers – they might just be the Sequoias and Andreessen Horowitzes of tomorrow.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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