Spotlight on emerging managers

Featuring Schroders Capital, 9Yards and Openspace Ventures

Spotlight on Schroders Capital: Sourcing, selecting and investing in emerging managers

Maria Claudia Prieto is the Co-Head of Private Equity Investments Europe, Head of Sustainability Private Equity, Schroders Capital.

Schroders Capital is a global specialist private equity investor with more than 20 years of experience and over $15bn AUM. It is one of the most active backers of emerging managers globally and has a sustainability integration that supports returns and improves risk management.

Sourcing first-time funds

Finding top first-time funds is a matter of expertise and resources, both of which we have, and this is a strong differentiator. Sourcing can often start before new teams speak to placement agents, so sometimes we have to be the ones helping the emerging manager through their journey of incorporation and structuring.
We usually source locally as emerging firms do not usually have the resources, know-how and network to travel the world in search of capital. We proactively go out and find new teams to invest in. We also track opportunities via a variety of sources, including our network of investments (funds and companies), local conferences, references from like-minded LPs, placement agents and news articles. We track over 300 emerging mangers at any given time.

Selecting first-time funds

In judging which teams are more likely to succeed, we assess a number of factors including their track record, personality, leadership and alignment, as well as market positioning, differentiation, competitive edge. We have honed our processes and expertise for more than 15 years, developing strong internal expertise and a broad global network that helps us to assess and reference new teams.

Due diligence

It can take from 6 months to several years to due diligence an emerging manager – the timeline is usually not fixed. We find that leading the negotiations on the fund terms, alignment and structuring is a resource-intensive process but is absolutely crucial.

Specialisation and differentiation

Our philosophy and strong belief is that specialization is required to succeed in private equity today and going forward. We only back specialized managers – either by industry or strategy. Our team is also specialized in one of five sectors (technology, healthcare, consumer, services and industrials). Our sector practices are staffed with investment professionals from around the world who share industry insights, best practices and benchmark investments globally.

In addition to the comment above about specialization, we focus on two other attributes for our team. Firstly, the ability to assess companies/direct investments is key in assessing the track record of emerging managers. Secondly, we have a team with diverse skillsets to source and assess emerging managers – this goes far beyond desk work!

Other ingredients for success

In addition to expertise, resources, structure and processes, we work very hard to ensure that our sustainability integration and approach supports returns and improves risk management. We work with all of our GPs, in particular emerging managers, to ensure that sustainability integration starts on day one as a means of improving our risk management and the value of the assets at exit.

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Dr. Dorothy Kelso, Head of SuperReturn, interviews emerging managers about their strategy, teams and ingredients for success

Theo Osborne, Co-Founder and Managing Partner at 9Yards Capital

Quick facts:

Year established: 2018
Location: New York, Los Angeles, London
Sector/thematic focus: Growth stage technology; focused on Fintech and Supply-Chain tech
Geo focus: United States and Europe
Number of funds closed: 3 Funds, raised a total of ~ $900M
Portfolio companies include: Chainalysis, Robinhood, Coinbase, Toast, Gusto, Remote
Team members: 11

Dorothy: How is your deal sourcing process differentiated from other VC firms?
Theo: We have a structured and repeatable sourcing process that we divide into three pillars:

Systematic Outbound: This is our dominant sourcing channel, which is largely composed of our quarterly data scraping & our thematic work.
Opportunistic Inbound: Our team maintains robust relationships with other investors, founders and experts.
Pipeline Investment Program: 9Yards selectively writes investments into early-stage companies (<$250K checks) to track ahead of a growth round.

Dorothy: What hands-on expertise do you have?
Theo: We leverage the unique, industry-specific backgrounds and connectivity of our founding partnership to support our companies. One of our Founding Partners, George Osborne, served as the UK’s finance minister for 6 years, one of the longest serving in the G7. Another of our Founding Partners, David Fisher, has deep connectivity into one of the largest privately-held logistics companies in the US.

Dorothy: Why do you invest mainly in Fintech and Supply-Chain tech?
Theo: We exclusively focus on Fintech and Supply-Chain tech because we view these as foundational industries to commerce, undergoing a generational transformation and thus will present the best growth investment opportunities. Through the unique, industry-specific connectivity of our team, we have built a brand as a strategic capital partner that can help meaningfully improve outcomes of the companies we back.

Dorothy: What is your team’s history and how do you see your business scaling?
Theo: The three founding partners are all related, so there is a strong family bond at the company's core. All investment professionals have relevant experience having worked at leading firms such as JPMorgan, Goldman Sachs, Vista Equity and Leonard Green. As the firm continues to grow, 9Yards is committed to building a team that embraces a culture of appreciation, where people can spend their entire careers. Given our focus on culture we prefer to continue operating a flat structure even as we rapidly scale AUM.

Dorothy: What are the key ingredients of your success?
Theo: The first is our specialization. We focus on two sectors only, so we know them like the backs of our hands and we access the best deals in those two sectors. Second is our culture, it is our backbone and defining asset. At 9Yards, we believe that the collective is more important than the individual and that everyone benefits from working together as a unit. Third is our strategic capital. We make 12-14 high-conviction investments per fund. This concentration means we can roll up sleeves and help our portfolio companies, meaningfully affecting their outcomes.

Shane Chesson, Founder and General Partner at Openspace Ventures

Quick facts:

Year established: 2014
Location: Singapore (HQ), Indonesia, Thailand, Philippines, Vietnam
AUM: US $650m
Sector/thematic focus: Agnostic, Series A, B
Geo focus: Southeast Asia exclusively
Number of funds closed: 4; 3 core and 1 growth fund (OSV+)
Current fund size: US $200m (OSV+)
Portfolio companies: 44
Team members: 44

Dorothy: Tell us a bit more about where you invest
Shane: Since 2014, Openspace has been investing with Active Intelligence, backing companies creating a transformative impact where tech meets life. In a region that is as varied and fast-moving as Southeast Asia, we’ve set ourselves up to keep at pace with its constant evolution.

Dorothy: How have you built your team?
Shane: From day one, we put an emphasis on bringing together a team with the requisite diversity of people and experiences, as well as a physical footprint and full-time employees, wherever we invest. By combining an on-the-ground team with our proprietary data intelligence, we are best able to tap into, and make sense of, the local start-up networks and vital information flows. It’s an advantage that has consistently placed the firm at the right place at the most opportune moment.

Dorothy: How much day-to-day involvement do you have with portfolio companies?
Shane: Openspace was also built around a commitment to being a truly value-adding investor. In line with our high-touch high-conviction approach, we led the way in Southeast Asia in establishing an expansive operations team, offering a range of specialisms that touch every part of a business in growth, often with first-to-market competences. Our portfolio companies now come to us for consultancy and execution on data science, tech, product, brand impact, marketing, talent, ESG, legal and corporate development needs.

Dorothy: What’s your secret sauce?
Shane: These strong foundations have enabled Openspace to remain a frontrunner in this region, developing and actioning sourcing, scaling and exit strategies ahead of the curve. We were quick to establish a specific later-stage growth fund, OSV+, as well as create Web3 exposure through our Ocular fund. And as we did in Indonesia with our Series A backing of Gojek in 2014, we’ve also arrived early in high potential markets like the Philippines and Thailand.