What do these emerging GPs have in common? They...
Invest in higher risk-return deals: Focus on early-stage startups, emerging producers, and/or under-publicized court cases.
Generate off-the-beaten-path deal flow: Don’t shy away from doing the hard legwork to find hidden gems with approachable valuations where nobody else is looking.
Outrageously motivated to return capital: Are willing to do whatever it takes to prove their fund can produce attractive profits for their LPs, whether by warehousing deals, making large personal GP commitments, and working full time for 6-12 months to get to first-close without a salary.
The flipside of being a first time GP is equally obvious:
First-time GPs can’t soak up large management fees: The average first fund is $10MM – $30MM (the latter is on the high side) so a 2% management fee across 3 GPs doesn’t go far.
They can’t walk into deals without adding tangible value from day 1: Most of their time is consumed by managing their portfolios – providing advisory, connections, and anything else under the sun that will increase their investment’s chance of success.
First-time fund managers have to run the fund end to end on their own: No experienced GP to navigate expensive structuring mistakes. No full-time staff to free them from operational, governance, and fiscal responsibilities. They’re perpetually distracted from their highest value add – sourcing, underwriting, and nurturing high potential investments.
That’s why we launched Diffuse Alt Funds.
We partner with select emerging managers across alternative asset classes who we feel have a high alpha thesis and a background that uniquely positions them to execute their investment strategy.
Diffuse joins the emerging manager’s team as an operating GP for the entire lifecycle of the fund, taking it from thesis to live investment vehicle as quickly and cost-efficiently as possible, and runs the fund to optimize for a solid track record that LPs will confidently invest in for fund 2.
In return for the support that we provide, we accept no consulting fees, no retainers, and no hourly billing. We fully align with both our fund’s GP and LPs, by taking a percentage of management fee and carry, proportional to the number of GPs, the size of the fund, and the level of support provided.
Acceleration from Thesis to First close and Beyond
With our wealth of experience spinning up and running funds (Kenny Estes has 10 under his belt) we provide our emerging GPs a ready-to-go Fund Launch toolbox that includes Fund Model, Investor Pitch Deck, One Pager, Term Sheet, Service Provider quotes, and CRM templates that can be customized in days.
Equipped with the tools to fundraise, Diffuse advises on LP outreach and negotiation strategy, empowering the GP to run their capital raising campaign with minimal rookie mistakes that could cost them the most promising investor checks.
Post first close we act as the fund’s COO/CFO overseeing functions critical to building an LPs friendly track record, including fund governance, fiscal controls, investor reporting, fund administration, accounting, and legal.
We source GPs who are uniquely positioned to execute their thesis, hence we do not sit on the fund’s Investment Committee. Instead our role is to ensure each deal has passed an air-tight due diligence process so that the GP builds a flawless track record for fund 2.