The interview below is part of a series from The McGuireWoods Emerging Manager Program featuring impressive emerging managers. The McGuireWoods Emerging Manager Program supports emerging managers throughout the most critical stages of a fund’s evolution. It offers a differentiated and proprietary approach to connecting emerging managers with limited partners, providing intelligence on market terms and preferences, and advising emerging managers on all components of building a durable brand as an investor. To recommend an emerging manager for a future interview, please email the team at [email protected].
Q: What led to the decision to raise your initial fund? What were the indicators that you were ready?
Elana Berkowitz (EB): The inspiration for raising our first fund came from our observations of the massive demographic and social shift coming for the United States, turning issues like caregiving, flexible work and household wellness, all historically considered “women’s issues,” into issues that impact everyone. These are issues — and opportunities — that cut to the core of our economy and social structure. It was our assumption that there would be a wall of money coming for this social transition, not unlike increased funding and investment coming for the green transition, and we wanted to play a role in shaping how and where these increased dollars were spent.
We view the infrastructure to serve the needs of working women and their families as underfunded and under-innovated. That infrastructure is becoming mission-critical for an aging society, a tightening labor market and rising dual-income couples. We think this is a trillion-dollar opportunity. For example, according to BCG, by 2030, the United States could lose roughly $290 billion in gross domestic product annually because of the growing staffing crisis across child and elder care. This is becoming a must-fix issue and is just one part of our investment thesis.
The managing partners at Springbank have varied work experiences and networks that cross the public and private sectors, from startups to Fortune 200 companies. Courtney (Leimkuhler) was previously the chief financial officer of Marsh and led M&A for the New York Stock Exchange. I worked on the Obama transition team, at the U.S. Department of State and then in the New York tech ecosystem as an investor and adviser. We knew the combination of our previous work experiences would serve as a unique network for sourcing and adding value post-investment and would allow us to bring a needed operational perspective to our thesis.
We built out our track record via angel investing together and running special purpose vehicles (SPV) with a handpicked network of operators, investors and unicorn founders over 18 months prior to beginning the fundraise.
Q: How did you think about assembling your team?
Courtney Leimkuhler: As a first-time fund, we are functionally a small startup in sprint mode, and we knew we needed team members who were game to roll up their sleeves and take on a bit of everything.
We are also humble enough to know what we don’t know. We have proactively surrounded ourselves with a braintrust of advisers, including three unicorn founders, chief people officers, policy experts and other corporate executives who represent critical constituents for our founders. They are an enormous resource in sourcing, diligence and making revenue-generating introductions. Our associate, Brian Nguyen, comes from an operator and product management background, which has given him a lot of founding team empathy and a natural network of product builders thinking about starting something new.
Beyond our day-to-day team, we’re lucky that Springbank goes far beyond just our core team. The community who participated in our early SPVs have become trusted thought partners and sources of introductions — and half of them became LPs in our fund. Jen Lee Koss, who founded Springbank with us, is still involved as a venture partner and adviser, bringing us LP perspective, consumer expertise and a global network.
Q: What were the most important considerations for you when choosing LPs to pursue for partnership?
EB: One of the most important things for us in our fund 1 was finding LPs who were also best-in-class investors themselves and understood what it takes to be a breakout new fund. Two of the LPs we are proudest to work with are Union Square Ventures, which, as almost lifelong New Yorkers, we view as the iconic and iconoclastic New York City fund, and Foundry Group, which has backed amazing emerging managers for decades out of their fund of funds. Partners from both funds now serve on our limited partner advisory committee and have been invaluable sounding boards as we navigate the management of our fund 1.
As we were raising, we were cognizant of how crowded the fund 1 market was at the time and made sure we built our pipeline strategically. We first focused on investors who had known us in prior roles, had invested in our prior SPVs and were known to have a keen interest in our thesis area or known to have emerging manager programs.
Q: What did you consider and prioritize when developing an investment strategy for your initial fund?
CL: We are a thesis-driven fund, first and foremost. This led us to prioritize deep expertise in our core themes across career, care and consumer. This means we have a prepared mindset when we meet founders in our thesis, and they can almost always skip the first few pages of their deck with us. We know the problem and the opportunity at least as well as they do.
We also knew that specializing and therefore building asymmetric information across our thesis areas would allow us to deliver outsized value to our portfolio companies individually and also across our portfolio, which has come to fruition several times.
Finally, we prioritize building a resilient portfolio of companies that also delivers diversity across payer types, from consumer to employer to government to insurer. We lean in to understand the right business and payer models for the companies we back and help our companies get up the curve quickly.
Q: With emerging manager programs on the rise, what do you foresee with respect to LPs’ willingness to invest with emerging managers?
EB: In this market environment, raising a first-time fund is hard. Many LPs have found themselves overallocated in venture and, as often happens when the market cools, many LPs stick with brand-name funds with long track records. That said, data suggest that first-time funds generate top-quartile returns at higher rates than non-emerging funds. We think early fund managers are an awesome opportunity to gain alpha by backing investors who are lean, scrappy, have founder mentalities and bring fresh, differentiated networks and perspectives.
We have also been keenly aware of investors’ need to invest in more emerging, diverse fund managers. Data tell us that emerging fund managers outperform, and venture capital firms that hired 10% more women partners had on average 9.7% more profitable exits and 1.5% higher annual returns. However, in the past two years, if you wanted to invest in a female-managed fund, you had a 90% chance of it being an emerging manager. With data on the side of progress, we hope to see an uptick in investment in diverse, emerging fund managers in the coming years.
We’re also excited to see larger LPs like the California Public Employees’ Retirement System (CalPERS) increasing their commitment to emerging managers and leveraging partners to do that. The truth is, massive funds like CalPERS can’t always justify the effort to write hefty checks into emerging managers, but by working with due diligence partners, they can. We think that’s an exciting commitment and opportunity.
Q: What is the best piece of advice you were given when raising your first fund?
CL: If you didn’t get more noes than yeses today, you didn’t talk to enough people.
Also, raising a fund is tough, but running a fund can be even tougher. Especially in this climate, once you successfully raise your fund, you are committing to making this your mission and passion for at least the next decade. You’d better love it.
There are about 5,800 venture funds out there, and it can be hard to differentiate. You need to absolutely understand your edge and be able to communicate it clearly. What hole do you see in the market? What problem do you want to solve? What untapped opportunity to generate alpha do you want to tackle? Is it keeping you up at night? If so, good. Go raise a fund.
Smart investors make dumb decisions all the time. There is no signal. Trust your own judgment.
About Elana Berkowitz
Elana Berkowitz is a co-founder and managing partner of Springbank. Before founding Springbank, she advised and invested with Eric Schmidt’s family office and worked as an Obama administration technology policy official in Secretary Hillary Clinton’s office at the State Department. Berkowitz also served as innovator-in-residence for CARE, one of the world’s largest humanitarian organizations. She is a graduate of Brown University, Harvard Kennedy School of Government and Harvard Business School.
About Courtney Leimkuhler
Courtney Leimkuhler is a co-founder and managing partner of Springbank. Before founding Springbank, Leimkuhler was the chief financial officer of Marsh, a leading global corporate insurance broker, and the head of M&A for the New York Stock Exchange and its parent company. Leimkuhler began her career at Goldman Sachs. She serves on several venture-backed company boards and is a graduate of Harvard College and Harvard Business School.