Track Record Attribution: Relay Races vs. Sprints
To deploy capital as a professional investment firm, first the firm must raise capital for the specific Fund strategy. The capital contributors in a Fund vehicle are called “Limited Partners” and tend to be institutional asset managers, family offices, corporates or individuals. There are several ways these firms evaluate a prospective firm (aka “Manager”), the investment Partners making investment decisions, and the strategies being executed.
A common early request that a Manager receives during evaluation is: “Can you please share your track record, by Partner?”
The Energize answer to this specific question is – and always will be – “no”. For the life of me I can’t understand how in a modern, collaborative investment firm there is such an isolated way of evaluating team performance. Do we have a firm-level track record? Of course. But in the excel column(s) where most LPs want to see deal attribution, we leave it blank. For us that ownership and attribution concept simply doesn’t match our culture and our strategy.
At Energize every investor and most members of our operations platform are involved in EVERY investment opportunity… both before the investment is executed, and especially during the investment period.
How? The investor tracking a theme may not be the individual who has the most interest in the topic by the end of a deep dive. The Energize board member(s) and observer that we and the entrepreneur agree upon may be an entirely different individual who has the best founder-firm match. Furthermore, the board seats at Energize tend to rotate every few years as a company’s scale and opportunities/barriers change with the market. We also have two strategies now: ventures & growth, and each strategy feeds off the other, enabling enduring success.
As a thematic investor, the ability for our entire team to bring a “communal prepared mind” to an investment opportunity is one of our greatest assets. Any attribution or compensation structure that rewards or implies individual deals is a flaw in the system. My point here is that when an Energize team member is on the board of a company there is no “my deal” in the association. Rather, you will hear Energize team members say “I represent the Energize team on our investment into [company].
I can see how attribution works at more horizontally spread firms. But even in those situations, I struggle to see how that investment partnership isn’t more than the equivalent of a shared dentist office business model, with Partners renting out the available chairs. Our approach to this attribution is non-standard and the structure has pushed several high-profile LPs away because we are not fitting the regular mold. The most common criticism we receive is the inability for us or the LPs to identify potential or future underperformers. We understand the discomfort with our communal approach, and we are OK with this being a meaningful barrier for new stakeholders (new employees, new investments and new Limited Partners) to consider before opting into the team.
We believe that value creation and business building is a long-term game and the best teams are running “relay races” vs the single runner sprints. As Energize scales, we intend to maintain this team-first approach and I think it will be a positive contributor to the portfolio performance in the long run, regardless of who represents the firm at any given time.