The Emerging Managers Podcast is here, but what’s the story behind it? Why this podcast, why now, and why should you tune in? Join Scott Kelly and Tracy Hazzard as they pull back the curtain on their mission to shine a light on the world of emerging fund managers. Scott, an expert in the field, teams up with Tracy to tackle the disparity in venture capital funding. They discuss the startling statistic that a huge percentage of new funds are launched, yet a small fraction receive the majority of capital. This episode reveals the hosts’ passion for giving these deserving managers the exposure and recognition they need and delves into the insights and expertise listeners can expect from the show.
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Listen to the Podcast here
Decoding The Funding Gap: The Emerging Managers Podcast Origin Story
Emerging Managers Podcast: Addressing The Venture Capital Gap
Scott, I am so excited. We are finally doing this.
Me too.
Emerging Managers podcast. We’re going to talk about emerging funds. I mean, you are the expert in this. Scott Kelly, Black Dog Ventures. I think we’ve known each other about almost a decade.
At least, absolutely.
You’re Scott Kelly. I’m Tracy Hazzard, in case you didn’t hear that on our intro. We are going to talk about the new podcast, Emerging Managers. Scott, what made you want to do this?
It’s interesting because I’ve been working on the entrepreneur side, working on entrepreneurs to get exposure to potential investors. You and I have been talking for years at this point about putting together a podcast, and I really couldn’t find the right topic. Something hit me towards the end of last year. There was an article that came out that got a lot of press, a lot of play about the amount of capital going to venture capital funds. The fact that 70% or 80% of the money going into venture capital funds went to only 12 to 15 funds.
I looked at that in the landscape of 3,200 venture capital funds and 1,800 fund ones, brand new managers. I saw, “There’s a gap there.” As I was talking to some of these managers, they are good at managing the portfolio and picking the portfolio companies. Honestly, the alpha, the return on these smaller funds, is historically better than these large funds. Why aren’t they getting more LPs involved? Why aren’t they getting more exposure? Why aren’t they getting the recognition they deserve?
The return on these smaller funds is historically better than these large funds, so why are they getting the recognition they deserve? Share on XI thought that was such an astounding number just to think that 1,800 of them were at Fund One. That’s more than half. That seemed crazy to me. At the same time, I think it makes a lot of sense that there’s a lot of money floating around and everyone’s looking at their niche in their area of expertise. They are way better at picking the startups. They are way better at picking investments.
What I found was that a number of them, I’ll use it as a sports analogy. Some of them were good as angel investors, the equivalent of being good at high school or college baseball. They got really good and decided to move to the big leagues and start a fund. I think they got good at managing their investments, making the picks. The reality is that they just don’t have enough capital and awareness to be effective to as many startups as they can.
Scott Kelly’s Background: VC Fast Pitch And Purposeful Networking
That’s interesting. Now, you have quite the network. Over the years, I want people to hear where you started from and how this has emerged into this. When I first met you, you were running these pitch events, and it was like the short pitches at a bigger event. That’s you were plugging in. Eventually, you had your own events. Tell us how all of that came about.
I’ve been an investor and entrepreneur for 30-plus years. I’ve worked on Wall Street. I worked in Silicon Valley. About thirteen years ago, I went to a pitch event, and frankly, it was terrible. As an attendee, these were entrepreneurs speaking to people with respect for real estate agents, CERN agents, and teachers. They may have given good advice, maybe, but they had never invested in a profit company. I said that had to change.
You saw a combination of both sides of it. The startups weren’t pitching well, and the feedback loop in the investment group wasn’t well matched either.
I launched a VC Fast Pitch about thirteen years ago. I decided to change the model. I don’t have an application process for the entrepreneurs. I don’t vet the entrepreneurs. I vet the investors. At the end of the day, if you’re going to spend time, money, travel, whatever the case, to get in front of an investor, you might as well be in front of an investor. It’s interesting. I did an interview for our podcast with a good friend of mine, his name is Tim Holladay. He came to my event eleven years ago in Phoenix, Arizona.
When he was an entrepreneur with his startup, he pitched for one minute after lunch. After he pitched, he got pulled over by an investor who three weeks later gave them their first check at dinner up in Palo Alto, California, buying a $3 million round the next year and then sold their company and then moved from entrepreneur to running a startup venture capital fund called Space Nation Investments, which has 109 portfolio companies. That was the lightning rod to move towards this podcast is that I think I’ve done deals for 30 years. I’ve got 13,000 plus investors that I’ve done some transactions with over that time. Venture capital funds struggle with a lot of similar things that startups do.
There's a lot of money floating around and everyone's looking at their niche and area of expertise. They are way better at picking the startups and the investment. Share on XI think it’s so interesting. You and I met, and you had asked me because you did this event and I was press at the event. Technically, I was both a writer for Ink Magazine and a podcast host. I was doing both at the same time, and I had my own startup. It was all of the interesting areas, and we meet, and I was fascinated by the fast pitch model.
The reason why when you and I started to strike up a conversation, I was fascinated by connecting up with you was because your investors weren’t hidden. Often at these events, they don’t announce them. You have no idea who they are, what their interests are. You don’t know anything about them. It always made me wonder whether or not I was just giving away my intellectual property. Was this on the up and up? Was this even real? You made that so upfront and right. A major part of the event was to get to know both sides.
We were going to get to know the startups because they’re on the stage, but you let us get to know that audience, that panel of investors. I thought that was eye-opening. I do think you changed the model there, Scott, and I loved that about what you were doing. Another thing that you do that I think is relevant to this podcast too, is you connect up service providers too, that could help not only the startups, but sometimes the investors, and help them with their funds, and help them with the management of everything, and whether it’s deal room, creation and legal funds and other things like that that you might need. You bring them all into the model.
That’s how I ended up. I spoke at one of your local events here in Orange County, California, and did a talk about marketing because that’s obviously every both fund and startup need to market themselves. They have to understand what some of those ways that build trust a little better. That was what my first talk was about with you. I think that’s really interesting that you chose that model.
Creating Dialogue & Building Trust Between Investors And Startups
I appreciate that. The reality is that it’s purposeful networking. It’s purposeful dialogue. I’m an A-type personality. I’m a New Yorker. I want to get to the get it.
I knew that’s why I liked you, because I’m a New Yorker too. I’m a Connecticut girl, but I’m still close enough.
Apologies for that, kidding. No, but the reality is you and I both went to these large conferences where maybe you get an Instagram photo with Mark Cuban, but you don’t really talk to Mark Cuban or anybody else who actually has the ability to write a check. We kept our events max out at maybe 200 people because then you get the dialogue. You’re not caught up in this mass hysteria. Again, large conferences have value and have purpose, but we are very purposeful. It’s we don’t bring in a lot of sponsors because the reality is, with respect, nobody wants to listen to them. They want to hear from the entrepreneurs, and they want to hear from the investors. That’s been the focus of our events.
Emerging managers often lack the capital and awareness to be as effective as they can be. Share on XThe other thing that you do, which is why I thought when you told me that you were going to do this podcast, I was really excited for it. One of the things that you do at the end of your events, whether it’s virtual or live, you ask the investors questions, and it’s the turn for the startup to be able to ask some questions as well as you ask some. I always love the questions that are like, “What are you reading? What podcasts are you listening to?” Just some of those things about where they’re getting their information and insight tells you a lot about them that you wouldn’t get elsewhere.
At the end of every event, we do our fireside chat and our in-person events. I tell all the investors, turn your chair around, and they turn their chair around. We did an event. It was like a campfire at our last event in St. Petersburg. We had this big circle of people, and everyone stuck around, and the investors stick around. I’m so grateful if you think about this. These are people that are managing millions to hundreds of millions, possibly billions of dollars. In our Impressions event, they’re there at 9:00 in the morning, and they stay straight through 5:00, which I think is a testament to their desire to be in front of entrepreneurs.
You have got quite the lineup here for the podcast already. We’ve got tons of investors to talk to and fund managers of all levels and all different types to talk about from all over the country, too, and international. I think one of the first ones I heard was from Canada. You’ve got fund managers from everywhere, which I am excited about. The thing that I’m most interested in is what are you going to be able to do different because you don’t have the event. You don’t have pitching going on in front of them? What are you going to be able to ask them that’s different? What are you diving into?
Podcast Goals: Exploring Fund Manager Insights & Building Trust
The thing I want to know is the origin story of how they became an investor. A lot of investors start out as struggling entrepreneurs, even Rami. I want to share first the origin story. I want to learn things about their thesis, why they invest, and how they invest. What the attributes of the investment is. A lot of times, I want to know. The main question I ask a lot of them is why your fund and why now? I think in a field of thousands of venture capital funds, investors want to know where they should put their money and why choose this venture capital fund versus another, this angel fund versus another. The reality is that there’s a lot of white noise out there. The big companies on Sand Hill Road get all the press.
Dominate the conversation to the point that everybody thinks that has to be the thesis. That’s not necessarily the case. That’s why these other funds are outperforming in some areas. I think that also what it does is, and this is why a manager needs to be on your show, is that there has to be a trust-building level that happens when you’re in Fund One. You don’t have a track record to go on. It has to build trust from somewhere.
I think that those investors who decide that they’re going to stay anonymous and behind the scenes and like you’ve never heard of them before, they don’t have a LinkedIn profile, those maybe aren’t the ones for you here. Like, I mean, I think the ones that want to be known are the ones who have the opportunity to move up, to move up to the next tier of investment fund.
Obviously, entrepreneurs struggle with that. The reality is that a lot of VC funds and investors won’t trust a first-time founder because they don’t know anything about them. In some cases, they’ll summarily reject them for that same reason, and the interesting thing I found is that people are doing that with venture capital funds. They have that struggle of we’re competent, we’re good at what we do, but I need to convince you or build a trust relationship with you. You are going to take your high-risk capital of that portion of your portfolio and invest it with our fund.
Interesting. I know it must be at least six years ago or something. I heard Bill Kelly speak, and he is one of the original founders of WebMD. He was a founder of one of the pieces that became WebMD when they consolidated all the parts. He called the investment model a “sacred trust.” I always loved that idea that you put in that concept in head that it’s a sacred trust between the startup and the fund or the startup and the investor, whether they’re angels or whatever level they are. That trust has to have a certain amount of disclosure. A certain amount of understanding on both sides, a certain amount of mission and background alignment. I’m giving a presentation as a startup and get into the get to know the other side mode.
The reality is that I’ve been in sales my entire life. I trained a thousand salespeople in my career, probably more than that. The reality is that people do business with people they like, people they trust, and people they know. If you can get through those three things, your ability and your aptitude to be successful just increases.
Content Focus: Diverse Funds, Investment Areas, And Perspectives
I love that. Let’s talk about some of the people that are coming on, like some of the types of funds and the areas you’re going to cover. What are you looking at?
We’ve got at least dozens already scheduled. I’ve already interviewed Tim at Space Station Investors, I told you about, Top Down Ventures. These were entrepreneurs that built a really solid business in the MSP space, managed service provider space and had several exits in the space. They took what they did in that industry and became investors in that industry. They have implicit knowledge of that. I’m really excited about, it’s ironic you were taping this right after the Super Bowl, where there was a record number of betting on the game. We’ve got Jake from Better Capital, who invests in gaming companies, and it’s a niche.
We have a lot of those interesting folks. A good friend of mine, Brian Mac Mahon, Expert DOJO. He’s not shy, and he’s all over the place. The reality is that he’s going to be a great interview because he comes out from a really interesting perspective. That’s just the beginning. Like I said, we’ve got investors from Silicon Valley, from the Southeast. We’ve got some really good Midwest investors. I did an interview with somebody who was from Cincinnati, and we had a really interesting conversation about why invest in the Midwest. The office conversation came up as well. The valuations are a lot cheaper than San Francisco or New York. We’ll have a lot of good perspective from all kinds of emerging investors.
I love that. Of course, why not? We need investment from all over. I think that that’s also something like, I don’t know the statistic on that as well, but I would imagine when you talk about only those top funds getting all the funds, they’re all in Silicon Valley. Excuse the geographic location of the funding as well. Just by that.
The other thing interesting is that the same struggle in venture capital funds, there’s the same struggle that certain groups in startup space have. We’re going to have some minority managers. We’ll have female fund managers. Again, not only do the startups in those demographics suffer as you compare it to everybody else, so do fund managers. The reality is we’re going to be Switzerland in our approach.
Providing Startup Insights And Defining Roles
I think that’s great. Why am I here? I think my role is going to be to sometimes define some things that maybe the startups didn’t know or understand about the process and give that, I’m going to call it that startup perspective recap because I come from the world of innovation and entrepreneurship. I think, my $2 billion of consumer product goods. I’d say consumer products, I probably have a greater dollar value in terms of experience in. I mean, I’ve been running a tech startup for, we’re hitting on our seventh year. We just had our seventh year anniversary.
The reality is, obviously, when I decided cash, you were called number one for very obvious reasons. You’re what your background in the podcast space is second to none. You’re right. You bring a really interesting perspective. You are a successful female entrepreneur. Not only say that because it’s obvious, not because it’s necessarily an issue one way or the other, but you also do have that perspective. I think sometimes for me, I’m dealing from the connector standpoint. It’s important that we get the perspective of not just people investing the money but also the people hoping to receive the investment.
We should. In full disclosure here, Scott is an investor in Podetize, our company, and we have worked together on raising funds, which I’ve never taken. I actually didn’t end up taking it. We’ve had offers, and we’ve turned them down. We just decided to go a little bit different model of it, mainly because I had some 20 years ago had experience with angel investors that was not as good as it could have been. I may be a little bit hampered by that. I always also look at the investment model as how much of that can I trust as a startup, as an entrepreneur?
How much is this going to be a good relationship and mentorship for me as well? I think that it’s going to be an interesting viewpoint to take a look at that. Our goal is to bring that at the very end as our payout as to what our final thoughts are and not mess with the interview in any way, shape, or form. Sometimes Scott’ll do the interviews, sometimes I’ll do them. Sometimes, we’ll do them together, but we’ll always catch back up and do a little recap. If for some reason we didn’t, if you reach out to us on social media, one of us will be happy to give our thoughts on social for you. Neither one of us is shy about giving our ideas.
There’s not a lack of opinion on this show.
That’s right. If for some reason, you didn’t hear an opinion about something that you would like to hear, you just reach out to us, and we will get that to you.
Absolutely.
I am looking forward to this Scott, and this would be my I think it’s my eighth podcast technically that I’ve ever done, it’ll have to be eleven years. I swore to myself I wasn’t going to do another one. I swore to my partner I wasn’t going to do another one because he said no. Your model sucked me in.
I appreciate that. Thank you.
I hope you listeners out there are as excited as Scott and I are to bring you the show, Emerging Managers podcast. Tune in every week, everywhere you listen to podcasts. Scott, final words?
My final words is that we want to make sure that the best managers get the best opportunity to talk to the best opportunities.
I love that. We’re going to uncover VC funds that are the next great investment fund.
Absolutely.