Big Money, Encore! Our Q&A with Dayna Grayson, Co-founder and General Partner of Construct Capital

In the latest installment of our successful Big Money webinar series (Big Money Part 2 - Real Advice from Institutional Investors for Emerging Managers), we collaborated with new expert panelists to provide real advice to emerging fund managers on how to be "institutional investor ready." In this Q&A, we highlight valuable insights from Dayna Grayson, Co-founder and General Partner of Construct Capital. Dayna shares lessons learned from her experience starting a new firm, implementing a robust data analytics foundation, and attracting LP capital in the current climate. She also discusses her thoughts on the unique, pandemic-induced pacing of today’s investments. 

Q: What were some of the challenges and surprises that you encountered starting your firm?

A: Setting up the back office is the first area that comes to mind. Presently, our portfolio is manageable with seven investments; however, as we grow, it will become more challenging. We are looking to fill positions to help meet the demands of the back office, including a COO and CFO. We are currently using outside partners to help us with our back-office needs and we'll bring more staff in-house over time with follow on financings, evaluations, and audits. 

Unexpectedly, the global pandemic hit right at the beginning of our first fundraising session. We were, thankfully, still able to close the first round despite the pandemic, and then did the full close at the end of 2020. My institutional experience was helpful in this situation. For instance, due to my prior work with a large portfolio, I was acquainted with how to pull every round, valuation, names of management, co-investors, and process lots of information. That expertise was immensely helpful when it came to developing the mindset necessary to set up the investment details early on. It would be laborious to go back later and add in the datasheets, memos, etc. – it’s advantageous to start with the data points and analytics plan in place. 

Q: How did the previous relationships you had formed, especially those from a large fund experience, lead to opportunities and deals you might not have otherwise been privy to?

A: Everything we do is built on the experience we have developed previously. All of the co-investors in the seven investments we've made to date come from relationships we've either co-invested with in the past or that were board-level contacts from related investments. All of the founders came out of our networks or our co-investor networks. Networks are invaluable. 

Q: Considering the competitive fundraising dynamics that exist today for emerging funds, how competitive is the market for LP dollars?  

A: Even investments with the most stellar investment track records inherently have risks. For this reason, LPs can have a particularly critical eye when it comes to evaluating new managers. Another factor is the speed at which some managers are coming back for subsequent raises. For example, if a firm says, "We're going to raise fund 10 and it's going to be deployed over the next three years and it will be 50% larger than fund nine," then they come back in half the amount of time.  That’s four times the amount that they had originally planned to deploy. I learned to understand this about LPs and the money they have to put into play over cycles. All of our LPs were looking for the next generation of firms and seeding those markets. What we have seen is that LPs are not seeking to add a new fund each year. 

Q: What are your thoughts on the pace of investments and the volume of deals that firms are executing right now?

A: We are pleased to say we are on pace in an environment where it's tough for firms to stay on strategy. We've talked to a number of our compatriots, and they have shared that they are surpassing their typical number of deals this year. A firm that may have four new investments in an average year now has eleven. The biggest outside factor that has impacted our timetables is that we are all doing investments over Zoom. This virtual marketplace has led to a transactional culture. This is due in large part to the fact that people don't have to leave their homes to invest. They don't have to drive or get on a plane. They don't even have to take 30 minutes to commute. As the world opens back up, we’re bound to see some slowing as we return to the process of meeting with people in person again. For now, this trend with the high-speed transactional environment has been fascinating the watch -- it has made investments move faster than I've ever seen.