Home > Talent > Expert Contributor

Emerging Fund Managers Bringing Entrepreneurial Spirit to VCs

By Susana Espinosa - Dux Capital


By Susana Espinosa | Partner - Fri, 05/05/2023 - 15:28

share it

I would like to continue my last article about diversity, this time focusing on the role of emerging fund managers as an alternative option for large asset managers. An emerging fund manager plays a crucial role in the private equity industry. We bring new ideas, fresh perspectives, and innovative investment strategies to boost financial performance. According to Cambridge Associates, new and developing firms are consistently among the Top 10 performers of the asset class and they accounted for 72% of the top returning firms between 2004-2016. The main reasons behind this are:

  • Diversification: Emerging fund managers bring fresh perspectives and new ideas to the industry. They are often more willing to embrace technology and innovation, which can result in new investment opportunities. As I just heard on a podcast while writing this, Pedro de Garay, CEO of GBM, says that the secret sauce for a balanced portfolio is correct diversification with long-term oriented goals. 

  • Agility: Smaller emerging fund managers are typically more agile and able to move more quickly than larger, more established funds. This can be advantageous in a rapidly changing market where quick decisions are critical.

  • Entrepreneurial spirit: Emerging fund managers are often more entrepreneurial and willing to take calculated risks. This can lead to greater investment opportunities and higher returns for investors. An example of this is the success of Domo Capital as a search fund acquiring Agua Fria where the management team really takes an entrepreneurial role in growing and outperforming the industry. (Also thanks for the podcast details German Canale; loved it!)

  • Competition: Emerging fund managers can provide healthy competition to larger, more established funds. This can help to drive innovation and improve performance across the industry. An important point here is that this competition diversifies or also focuses on niche markets or sectors that established funds overlook.

Many of these things may be achieved through investing in Latino and diverse fund managers. To provide some data, in the US, Latino fund managers are a growing demographic. We play an important role in the financial industry by providing diverse perspectives, promoting inclusivity and equity, and investing in underrepresented communities (mostly more Latinos).

The role of Latino fund managers is particularly important as the Latino population continues to grow in the US (currently 18% of the US population and around 13% of US GDP). Between 2021 and 2022, the number of Latinx VC investors grew 36% YoY, but given that the base is so small, they only represent 2% of the industry. From a business perspective, the importance of Latinos helping other Latinos in the US economy can be significant. In my opinion and adding some AI data, here are a few ways in which Latino entrepreneurs and business leaders can support one another:

  • Mentorship and networking: Latino business leaders can provide mentorship and networking opportunities to help other Latinos navigate the business world. This can include sharing knowledge, connecting entrepreneurs with potential investors or partners, and providing guidance on key business decisions.

  • Access to capital: One of the biggest challenges facing Latino entrepreneurs is access to capital (mostly because of the lack of network). By providing financial support to one another, Latino business leaders can help ensure that promising startups and small businesses have the resources they need to grow and succeed. I know, we cannot invest in everyone but we can definitely open doors to other potential investors. 

  • Representation and advocacy: By supporting other Latino-owned businesses, entrepreneurs can help increase representation in the business world and advocate for policies that support diversity and inclusion. 

  • Economic development: Supporting other Latino-owned businesses can also help promote economic development in Latino communities. By investing in these communities and supporting local businesses, entrepreneurs can help create jobs and spur economic growth.

Overall, the importance of Latinos helping other Latinos in the US economy is multifaceted. By supporting one another, Latino entrepreneurs and business leaders can help overcome challenges. In the past five years, this has been growing. Latino founders in the US are becoming an important and growing demographic of entrepreneurs. According to research, Latinos continue to start businesses at a faster rate than non-Latinos. In the last 10 years, there has been 44% growth in the number of these companies to just 4% for non-Latinos. This has led Latinos to currently own between 400,000 and 450,000 businesses in the US and generate an annual revenue of US$460 billion. 

Latino founders are also active in various industries, including technology, healthcare, and retail. As the Latino population grows in the US, we will likely see more Latino entrepreneurs and business leaders making important contributions to the economy. Here are a couple of amazing US-based Latino success stories (all raised mUS$100 million):

  • Kind Bars - Founded by Del Lubetzky from Mexico who created a new healthy snacking category with the introduction of its first fruit and nut bars in 2004 to commit its business as a vehicle for social change.

  • Duolingo - Founded by Von Ahn from Guatemala, whose broken education system inspired him to found Duolingo in 2011 to democratize language learning and increase social mobility.

  • Brex - Founded by Pedro Franceschi and Henrique Dubugras from Brazil. As undergraduate dropouts, the founders launched Brex. Rather than force founders to risk their personal credit scores in those early days, Brex extends credit to startups and SMBs with no revenue based on their cash balance.

  • The Honest Company - Jessica Alba pioneered sustainability, clean beauty and healthy living, lobbying in D.C. for stronger protections against toxic chemicals before founding The Honest Company in 2011.

  • Aura - Founded by James Gutierrez  in 2012 to provide equal access and opportunities to underrepresented communities, minorities, and people of color who remained unseen in traditional banking systems. 

Overall, increasing returns requires a combination of active management, diversification, cost management, active engagement, innovative strategies, and effective risk management, which are a few characteristics that emerging fund managers and the minority founders in which we invest have. These are some key steps asset managers should track to deliver value to their clients and achieve better investment outcomes.

Photo by:   Susana Espinosa

You May Like

Most popular