Housekeeping
Welcome to another edition of 2&20. We’re here to fill the void that exists between emerging fund managers. As always, I’m here to help you grow the two things that matter: AUM and Alpha.
Been living my best life in LA these last few weeks. Heading back to NYC to pack up the rest of my stuff, and then I’ll be in LA full time. Woohoo! Some pics from my time back:
As always, please hit me back with feedback and comments—I’m constantly seeking ways to make this newsletter a more valuable read.
Diving right in and keeping things brief:
On my radar:
Distilled Intelligence investor tickets have gone live. You can check them out here! Use code STARTUP for a discount, we’d love to have you there.
The new office is in full swing. Shoot me a message, and let’s put my Nespresso machine to work (thank you, Prime Day).
I made a new X account. Please follow me here. Thnx.
Meeting awesome founders and investors, from literally any space/focus, is super helpful to me right now. Intros would be highly appreciated - I can reciprocate :)
I have a little bit of free time… if you or someone you know is looking to bring someone on part-time as an investor or operator, give me a shout.
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The Main Idea
I’ve been having a hard time thinking of topics for main ideas. My goal is for the content to be helpful to a broad audience - topics that your average fund manager doesn’t already know about. When I do think of something, I realize it isn’t much more than a few paragraphs. To make this as helpful & brief as possible, I may include a variety of short topics, like in this week’s edition.
Mixing and matching.
Covering a few topics this week from different areas: tax, strategy, fundraising, and sourcing.
Service providers
One of the things I find myself helping friends with the most are intros to service providers. When we were re-starting Fortify, we really took our time to scope out the entire landscape of service providers. Our guiding belief was that our service providers are not just partners, but members of our team. We had a few pieces of criteria:
Cost: we didn’t want to skimp on quality service providers, but given the fact that lots of our service providers are paid for by the fund, not management fees, we wanted to be good fiduciaries. We didn’t want to be nickel and dimed, and wanted transparency into expected costs.
Interchangeability: We wanted to be able to hot-swap different service providers if the relationship wasn’t working out. If one piece of the puzzle wasn’t working, we didn’t want other services to be affected. A good example of the opposite of this are providers like Carta (no shade to them), because they often fill multiple roles.
US-based: It was important for us to have a US-based communication team. It makes it easier to chat live when there’s time zone overlap, and it added a layer of legal accountability. We have no problem with work being delegated overseas (so long as security standards remained high), but wanted the confidence of having folks we could easily meet in person.
Dedicated POC: Group email inboxes, big teams, and missed emails weren’t going to work for us. We wanted one dedicated point of contact, who could integrate into our team. Whether it’s a text chain or adding them to our Slack, we want the ability to have direct access.
Autonomy and expertise: We are hiring service providers to free up our own time. Is it hard to figure out how to send K1s and get licensed ourselves? Probably not. But a better use of our time is fundraising, supporting portcos, and generating alpha for our LPs, not doing administrative work.
Scalable: We want the relationships we create now to carry over into Fund III, Fund IV, and beyond.
Synchronicity: We ask our service providers to communicate directly with each other wherever possible.
Mutual partnership: We want to help our service providers with referrals and benefits, and ask they do the same for us. Whether it’s helping expand our network or providing strategic support, we hope they go the extra mile because we are their best clients.
Service provider types
This is a list of the various service providers we talked to when re-starting the fund. We decided to engage in some categories, and decided others weren’t important for us at this stage:
Fund formation attorney: We talked to a bunch, and the vast majority of them were way too expensive for our comfort level. The quotes we were getting, just to get the fund up and running, were low to mid-six figures. Most firms were happy to offer deferred fees or other service perks, but the cost was just too steep for us to feel comfortable passing it on to our LPs. We were lucky enough to be introduced to a few great options that were a fraction of the cost of the big firms, and so far we’ve had nothing but a great experience.
Deals attorney: The most important factor for us here was experience and up front fees (fee caps). We wanted a firm who could not only be an attorney, but also be an advisor - sharing what they see as standard in the market today, and giving us a temperature check before we send out a term sheet. It helps to have a second set of eyes from someone who spends all day doing this. We were able to find some big firms who were happy to offer us low fee caps.
Fund admin: We spoke to more fund admins than any other category. Most we spoke to were immediately disqualified based on the criteria above - way too expensive or not US based. Finally, we landed on what we thought was the goldilocks answer. We were engaged with a time-and-materials fund admin for roughly 6 months before feeling taken advantage of. We received bills commensurate to some of the mid-tier fund admins we spoke to, with little to show for the dollar amounts spent. We quickly pivoted away, and found a new flat-fee firm who we have nothing but great experiences to share. Funny enough, the intro to our fund admin now came via our LP portal account rep!
Some interesting data for ya: seed-stage funds (< $25 M) are now paying a median $42-50K/yr flat for admin + tax + audit, while $25-50 M vehicles hover around $60-75K; time-and-materials invoices routinely spike 1.4-1.7× after the first close once K-1 prep and quarterly statements hit. Onboarding still averages 11–13 weeks, with KYC/AML and bank KYB checks accounting for half that clock. The SEC’s 2024 Private-Fund Adviser rules added an extra $3-5K/qtr at many admins for the new “PFAR” quarterly statements—unless the provider has automated tables. Use these guardrails to negotiate and to sanity-check any outlier quote.
Tax accountant: It seems like the options were far more limited for tax folks than other categories. There were maybe 3 or 4 firms that were well regarded for having venture fund experience, with nominal price differences between them. We ended up selecting the accountant who we believed had the most experience and could be most helpful to our situation.
Valuation service: Ultimately, we decided to not engage a valuation service. We feel confident in our ability to value our own assets with a strong valuation policy, and loop in a firm on an ad hoc basis for more complicated matters.
CFO service: Another thing we decided we could live without! Between our own skillsets and support from our fund admin, we decided that a CFO on the ManCo end of things would not be worth the cost for us - not enough for them to do!
LP portal: We took a look at quite a few options. Most of the fund admins we spoke to had their own, and they all sucked. Outdated UI, unreliable tech, and questionable security. It seems like there are 4-5 quality options on the market, but all but one of them were a) super insanely expensive or b) only half the solution (portal and onboarding are separated).
Broker-dealers (now called promoters, I think?): Super helpful for selling shares on secondary and for capital raising. Because most will take either a small retainer or no retainer, we decided to not go with an exclusive partner, and instead engage a bunch of placement agents, (careful that they don’t sell or solicit the same folks).
Banking partner: I think this is the one I’ve been most public about here - we use Rho, ALL of our portcos use Rho, and we have nothing but good things to say. They have amazing perks, sign up bonuses, tech, and rates. If you check them out, please do so here.
Registered agent: This was the least differentiated service provider we looked at. Our biggest requirement was that they have a good relationship with our attorney, so we were happy to go engage whoever that was. I think we’ve talked to our registered agent maybe once or twice? That’s it.
Tech platforms like LP and company databases: This could be its own deep dive, but we demoed all the tools: PitchBook, Preqin, FINTRX, Crunchbase Pro, etc. I’ll leave this for another edition, and we can really dive into it :)
Things I wish I knew or paid more attention to
Fund admins are acquiring other fund admins left and right. When you talk to two separate companies, you actually may be talking to two arms of the same body. Do some research to see what unique options are out here.
Insert a right to terminate without penalty if the provider is acquired or merges. M&A is rampant (30-plus admin deals since 2022), and service quality tends to dip in the first 6-12 months post-transaction.
Make sure your contracts with service providers allow you the right to collect ALL your materials from them within 30 days (or even better is “shall return or destroy all Client Documents and Confidential Information in its possession or control by the earlier of: (i) the last day of the current fiscal quarter, or (ii) thirty (30) days from the date of this Agreement, of account termination.”). Make sure you’re not going to have surprise bills related to transitions or closing fees.
Understand where service providers make money - and cut down on the high margin items (like in-house tech or software). If you’re getting billed $20k/year for your fund admin’s LP portal or a file management software, it’ll be the easiest category to negotiate down.
See if your LP portal offers offsetting services, like AML/KYC. It’s often cheaper than having your fund admin do it.
Ask if your service providers will bill you to communicate with other service providers. If yes, set a cap so you don’t receive random bills for unnecessary communication between them.
The SEC’s 2024 Private-Fund Adviser Rule (PFAR) forces quarterly fee/expense statements - admins without automation are quoting $3-5k/quarter, per vehicle, to comply, whereas tech-enabled shops absorb much of the lift. Try to optimize for shops that automate.
Don’t take someone’s word for “SOC 2 compliant.” Ask for the full Type II report, list of carve-outs, and last two bridge letters. Roughly a third of admin shops exclude their fund accounting stack from scope; you only find out when an LP diligence team requests the report.
Summary and concluding thoughts
I know this was more of a data dump than a guide or explainer. Service providers are such a personalized thing, that it’s hard to cover in a general newsletter. One of these days, I’ll sit down and make a matrix of all the service providers we talked to, comparing them to each other.
If you’re looking to move away from more typical platforms like Carta or realized that you need to find a new service provider, reach out to me here and I’ll be happy to guide you in the right direction.
However you choose to tackle this, take the time to really think about optimal goals and outcomes. My list of criteria above is what allowed us to be so satisfied with the outcome of our selection process.
Dank Tweets
You can click any image below to see the original Tweet.
Some cool stuff on my radar
Here’s this week’s pocket dump. I’ve been in full LA mode:
I have been using Comet & Dia as my browsers - both have a long way to go to compete with Arc, but the vision is there.
I just got a Nespresso for the office, but I should have bought the Moccamaster.
I have gotten really into shaving. Using a good safety razor and good technique, I get a crazy nice shave without annoying my skin. Here is my setup:
Fish.
I have been loving my Magnanni Dumas shoes - so summery and comfortable. Obviously not an everyday shoe, but great for a nice dinner out. The only thing I will say is the sizing is crazy, go down by like 3-4 shoe sizes if you get them.
Rorra showerheads are up!
Might have already mentioned this but I am LOVING superwhisper for voice to text.
Closing
Thanks for taking time out of your Wednesday to read. Since you made it this far, a little easter egg for you…
As always, you can find me on X and LinkedIn, and I’d love to hear from you via email. Whether it’s talking startups or just shooting the shit, I’m always happy to connect.
Onto the next!
//Eli