Folks with frequent flyer miles here know that I’m a big fan of Brandon Sanderson’s lessons on creative writing. So, when Brandon Sanderson shared his new course on YouTube, I had to check it out. And I’m glad I did. In it, there’s a story on a Hollywood pilot for a new sitcom.
A team in Hollywood would bring people in, and subsequently tell them that team would ask the test audience what they thought of the pilot episode after they watched it. People would then watch it. After, they would ask, “There was a commercial at break number one. What brand was this commercial for?” Why? They didn’t want people focusing on the commercials, but wanted to understand the efficacy of the commercial. According to Brandon, they used the same sitcom pilot for years, which they used as the constant to test the commercial itself.
As such, Brandon’s advice to writers was that you shouldn’t ask too many leading questions when asking for feedback. Otherwise you’d predispose your audience to the intentions of your script.
Interestingly enough, I wrote a piece last week on how I do references. In it, I also share some of the questions I use during diligence and reference calls. While the questions aren’t intended to deceive, they’re designed to get to the truth. For instance, instead of asking for a person’s weakness, you ask “If you were to hire someone under this person, what qualities would you look for?” If I were to ask a stranger about their friend’s weakness, 9 times out of 10, I’ll get a response that’s a strength in disguise. A stranger has no incentive to tell me negative things about someone they have known for a while.
But at the same time, my job as an investor, though only a minority investor, is to help their friend grow. And I can’t help them grow if I don’t know what are areas they need to grow in.
As such, the focus isn’t on weaknesses. But shifting the framing to areas where I can complement them. Areas that if they worked on them in the next two years will make them a more robust leader.
There’s also another exercise I’ve really enjoyed working on with founders and emerging managers. I’d host a dinner where most people don’t know each other and what the other people are building. I don’t give them time to introduce themselves, but I ask every single person to bring their deck. During the dinner, they’re required to give their deck to someone else at the table. Each person then has a max of two minutes to look at someone’s deck, with no other context. After two minutes, decks are put away. And each person is required to pitch the startup or the fund as if they were the founder.
It’s a self-awareness exercise. Too often, when we’re looking at our own pitch day in, day out, we tend to lose perspective. We tend to miss things that are obvious to others. Through the above exercise, each person is able to notice what someone with limited time and attention took away from their pitch and what the delta is between what the founder wanted to convey and what the other person ended up conveying.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
Recently, I’ve had a lot of conversations with LPs and GPs on excellence. Can someone who has never seen and experienced excellence capable of recognizing it? The context here is that we’re seeing a lot of emerging managers come out of the woodwork. Many of which don’t come from the same classically celebrated institutions that the world is used to seeing. And even if they were, they were in a much later vintage. For instance, a Google employee who joined in 2024 is very different from a Google employee in 2003.
And there seem to be two schools of thought:
No. Only someone who is fortunate enough to be around excellent people in an excellent environment can recognize excellence in others. Because they know just how much one needs to do to get there. Excellence recognizes excellence. So there’s this defaulting to logos and brands that are known concentrations of excellence. Unicorns. Top institutions. Olympians. Delta Force. Green Beret. Three Michelin-starred restaurants.
Yes. But someone must constantly stretch their own definition of excellence and reset their standards each time they experience something more than their most excellent. The rose growing in concrete. The rate of iteration and growth matters for more. Or as Aram Verdiyan onceput it to me, “distance travelled.”
Quite possibly, a chicken and egg problem. Do excellent environments come first or people who are born excellent and subsequently create the environment around themselves?
It’s a question many investors try to answer. The lowest hanging fruit is the outsourcing of excellence recognition to know excellent institutions and known excellent investors. The ex-Sequoia spinout. Ex-KKR. Ex-Palantir. First engineer at Uber. Or hell, they’re backed by Benchmark. Or anchored by PRINCO.
It’s lazy thinking. The same is true for VC investors and LP investors. As emerging manager LPs (and pre-seed investors), we’re paid to do the work. Not paid to have others do the work for us. We’re paid to understand the first principles of excellent environments. To dig where no others are willing to dig.
To use an extreme example, a basketball court can make Kobe Bryant an A-player, but Thomas Keller look like a C-player. Similarly, a kitchen will make Thomas Keller an A-player, but Ariana Huffington a C-player. Environments matter.
When assessing environments and doing references, that’s something that you need to be aware of. What does the underlying environment need to have to make the person you’re diligencing an A-player? Is the game they have willingly chosen to play and knowledgeable enough to play have the optimal environment that will allow them to be an A-player? Is the institution they’re building themselves conducive to elicit the A out of the individual?
Ideally, is there evidence prior to the founding of their own firm that has allowed this player to shine? Why or why not?
Did they have a manager that pushed them to excel? Was there a culture that allowed them to shine? Were they given the trust and resources to thrive?
References
And so, that leads us to references. I want to preface with two comments first.
One, as an investor, you will NEVER get to 100% conviction on an investment. It’s one of the few superlatives I ever use. Yes, you will never. Unless you are the person themselves, you will never understand 100% about a person. And naturally, you will never get to 100% conviction because there will always be an asymmetry of information.
Two, so… your goal should not be to get to total symmetry of information, nor 100% conviction. Instead, your goal is to understand enough about an opportunity so that you can sufficiently de-risk the portfolio. What that means is that when you meet a fund manager (or a founder, for that matter) across 1-2 meetings, you write down all the risk factors you can think of about the investment. You can call it elephants in the room, or red or yellow flags. Tomato. Tomahto.
Then, rank them all. Yes, every single one. From most important to least important. Then, somewhere on that list — and yes, this is deeply subjective — you draw a line. A line that defines your comfort level with an investment. The minimum number of risks you can tolerate before making an investment decision. For some, say those investing in early stage venture or in Fund I or II managers, that minimum number will be pretty high. For others, those whose job is to stay rich, not get rich, that minimum tolerance will be quite low. And that’s okay.
There’s a great line my partner once told me. You like, because; you love, despite. In many ways, the art of investing in a risky asset class is understanding your tolerance. What are you willing to love, despite?
The purpose of diligence, thereinafter, is to de-risk as many of your outstanding questions till you are ready to pull the trigger.
In regards to references, before you go further in this blogpost, I would highly recommend Graham Duncan’s essay “What’s going on here, with this human?” My buddy, Sam, also a brilliant investor, was the person who first shared it with me. And I’m a firm believer that this essay should be in everyone’s reference starter pack. Whether you’re an LP diligencing GPs. Or a VC doing references on founders. Or a hiring manager looking to hire your next team member.
Okay, let’s get numbers out of the way. Depending on the volume of investments you have to make, the numbers will vary. The general consensus is that one or two is too little, especially if it’s a senior hire or a major investment. Kelli Fontaine’s40 reference calls may also be on the more extreme side of things. Anecdotally, it seems most investors I know make between five and ten reference calls. Again, not a hard nor fast rule.
That said, there is often no incentive for someone to tell a stranger bad things about someone who supported them for a long time. It’s why most LPs fail to get honest references because they haven’t established rapport and trust with a founder over time. Oftentimes, even in the moment. So, the general rule of thumb is that you need to keep making reference calls until you get a dissenting opinion. Sometimes, that’s the third call. Other times, is the 23rd call. If you’ve done all the reference calls, and you still haven’t heard from others why you shouldn’t invest, then you haven’t done enough (or done it right).
A self-proclaimed coffee snob once told me the best coffee shops are rated three out of five stars. “Barely any 2-4 stars. But a lot of 5-stars and a lot of 1-stars. The latter complaining about the baristas or owner being mean.” I’m not sure it’s the best analogy, but the way I think about references is I’m trying to get to the ultimate 3-star review. One that can highlight all the things that make that person great, but also understand the risks, the in’s and out’s, of working with said person.
For me, great references require trust and delivery.
Establishing trust and rapport. What you share with me will never find its way back to the person I am calling about.
Is the reference themselves legit? Is this person the best in the world at what they do?
How well does this reference know said person? Have they seen this person at both their highs and lows? At their best and at their worst.
The finer details, the possible risks, and how have they mitigated them in the past.
I will also note that off-list references are usually much more powerful than on-list references. Especially if they don’t know you’re doing diligence on the person you’re doing diligence on. But on-list references are useful to understand who the GP keeps around themselves. After all, you are the average of the people you hang out with most. As the one doing the reference checks, I try to get to a quick answer of whether I think the reference themselves is world-class or not.
While I don’t necessarily have a template or a default list of questions I ask every reference, I do have a few that I love revisiting to set the stage.
Also, the paradox of sharing the questions I ask is simply that I may never be able to use these questions again in the future. That said, references are defined by the follow-up questions. Rarely, if ever, on the initial question. There’s only so much you can glean from the pre-rehearsed version.
So, in good faith, here are a few:
Does the reference know them well?
If I told you this person was [X], how surprised would you be? Now there are two scenarios with what I say in [X]. The first is I pick a career that is the obvious “next step” if I were to only look at the resume. Oftentimes, if a person’s been an engineer their entire life, the next step would be being an engineering executive, rather than starting a fund. So, I often discount those who wouldn’t find it surprising. Those that say it is surprising, I ask why. The second scenario is where I pick a job that based on what I know about the GP in conversations is one I think best suits their skillset (that’s not running their own fund), and see how people react. The rationale as to why it’s surprising or not, again, is what’s interesting, not the initial “surprising/not surprising” answer itself.
If you were invited to this person’s wedding, which table do you think you’d be sitting at?
Have you ever met their spouse? How would you describe their spouse?
Understanding their strengths and weaknesses
Who’s the best person in the world at X? Pick a strength that you think the person you’re doing a reference on has. See what the reference says. Ask why the person they thought of first is the best person in the world at it. If the reference doesn’t mention the GP I’m diligencing, then I stop to consider why.
What are three adjectives you would use to describe your sibling? I’ve written about my rationale for this question before, so I won’t elaborate too much here. Simply, that when most people describe someone else, they describe the other person comparatively to themselves. If I say Sarah is smart, I believe Sarah is smarter than I am. Or… if I say Billy is curious, I believe Billy is more curious than I am.
If I said that this person joined a new company, knowing nothing about this new company, what would your first reaction be?
Congratulate this person on joining!
Do a quick Google or LinkedIn search about the company.
As an angel, consider investing in the company (again, knowing nothing else)
How would you rate this person with regards to X, out of 10? What would get this person to a 10? Out of curiosity, who’s a 10 in your mind?
If you were to hire someone under this person, what qualities would you look for?
If you were to reach out to this person, what do you typically reach out about?
I hate surprises. Is there something I should know now about this person so that I won’t be surprised later?
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
A capital allocator is someone who balances the humility that they are not the world’s best at something (or might never be) with the deep belief in the long-term potential of an asset class (even if that means they will play a less active role in the future of that asset class).
As always, the last holiday period was a time for introspection and reflection. Many of the conversations I had were around request for startups (RFS) with VCs and request for funds (RFF) with LPs. Many of the latter focused on spaces and problems that individuals and family offices personally care a lot about.
In the essence of putting my vote for all the below, I’m going to phrase them as questions and pontifications rather than statements. Since I don’t have the capital to invest in such organizations, but also it is highly likely that these organizations need no external sources of capital. In fact, a number of the family offices I’ve conversed with have enough capital where they no longer use external bank providers for lending, but borrow and invest only within the families.
Is there a world where the LP is the sourcing engine for the GPs in their portfolio?
Like Deep Checks, but catalyzed by a single institution with large brand appeal. The problem is two-fold:
Most LPs are not good at identifying great deals at the pre-seed and seed stage.
Many LPs love co-investment opportunities. They’ve historically invested in brand-name funds expecting such opportunities, but largely evidenced in the 2020 to early 2022 hype cycle, most got no calls from their VCs at all. So, they’ve moved towards emerging managers who don’t have reserves to cash in on their top deal flow.
If an LP is willing to be a sourcing engine which complements their portfolio funds’ deal flow, that LP will have a chance to build (a) conviction earlier, and (b) build relationships with founders earlier. And in the sourcing/picking/winning framework, outsource the picking element to people who have more refined tastes built upon years of being boots on the ground.
Of course, said LP cannot enforce that GP invests in a certain type of company in which its sourcing engine brings in. That’ll defeat the purpose of investing in GPs in the first place, as well as diversifying risk.
Is there a world where a deeply networked LP leverages their network to support the underlying startup portfolio?
There are a number of fund-of-funds in the world who offer their geographical connections to help a portfolio fund’s startup grow in their respective market, but I’ve seen comparatively few, if any, LPs who offer their deep networks as advisors/mentors to portfolio founders.
For the most part, a VC is likely to better connected to tech talent, executives and founders. But quite a few family offices and endowments have their own deeply entrenched networks. Endowments have alumni networks. Family offices, depending on their source of wealth, are well-connected in the industry that created their wealth. Luxury brands. Oil and gas, as well as renewable energy. Infrastructure. CPG. Pharmaceutical drugs. Transportation. And the list goes on.
In other words, the LP would help a VC win deals based on their expansive combined networks. And sometimes the best advice a founder can get is not from another founder or VC, but someone tangential to the ecosystem who has seen the world from a birds eye view.
I’ve written before that there are three kinds of mentors: peer, tactical, and strategic. And you need all three.
Peer: Someone with similar level of experience as you do
Tactical: Someone who’s 2-5 years out and who can check your blind side
Strategic: Someone who’s attained success in a particular field and is often 10+ years out from where you are. They offer the macro and big-picture perspective, and help you define long-term goals.
Founders often have their peers already. And if not that, there are a number of communities, forums, and groups out there where founders can exchange notes with each other. Many VCs often bring their founders together to co-mingle as well in annual or quarterly get-togethers.
VCs themselves often act as tactical mentors, and given how their portfolios grow also have access to a plethora of tactical mentors for any given company.
LPs with their large networks of people who run multi-billion dollar enterprises (often not tech), many of whom achieved financial success independently, have access to people who could be strategic mentors for founders in their fund-of-fund’s underlying portfolio.
Request for Funds of Funds?
This isn’t a particularly traditional fund model or fund-of-funds model, but nevertheless would be an interesting product for asset owners. Namely large institutions who are looking for product diversification and who have little to no short-term and medium-term liquidity needs. Large single family offices, pensions, and potentially some endowments and foundations.
Is there a smaller product that focuses on vintage diversification from both an entry and exit perspective?
Most investors focus on entry vintage diversification, not as much for exits. Some LPs do, to make sure they have liquidity in every vintage. While I’ve seen only a small, small number of funds and fund-of-funds do this, I wonder if this is something that is more interesting to a broader customer base of LPs.
Of those I’ve seen so far:
Crypto funds that hold both token-based assets and equity-based assets. The token-based ones are expected to deliver DPI within years 4-8. The equity-based assets are expected to deliver DPI within years 8-12.
Funds-of-funds that hold multiple asset classes within a single LP entity. Secondaries for 3-6-year time horizons. Buyouts for 5-8-year time horizons. And venture capital for 8-12 year time horizons. Some also hold venture debt assets and cryptocurrency themselves.
Large multi-stage billion-dollar plus VC funds that have a suite of product offerings for LPs.
There are many emerging LPs and LPs who see VC as an access class who can’t write massive checks, but need to hedge their bets when writing into a speculative asset class.
While I’m still working to collect more data on this, I do wonder. In modern history, market cycles happen every 8-12 years. Venture funds exist on 10-12 year time horizons. Theoretically, that means if you’re investing in the least expensive entry windows, you’re also existing in the lowest revenue multiple windows. And if you’re investing in the most expensive vintages, you’re also existing in the great markets. Which effectively means, the delta between “buying low” and “selling high” are roughly the same no matter which markets your entry point is.
The data seems to suggest that so far, but the publicly available datasets (i.e. Pitchbook) have heavy survivorship bias. There’s no incentive for funds that fizzle out midway or near the end to report their metrics. Carta is really interesting, but their datasets aren’t robust till after 2017.
As an allocator, it just means you just need to be in every vintage. It makes me wonder if it really matters to be investing in down or up markets. Probably not. As the sages who have invested through multiple cycles tell me. Though I wonder if underwriting venture funds to 15 years changes anything on the DPI front across multiple vintages.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“When investing in funds, you are investing in a blind pool of human potential.” – Adam Marchick
Over the past twenty years, Adam Marchick has had unique experiences as a founder, general partner (GP), and limited partner (LP). Most recently, Adam managed the venture capital portfolio at Emory’s endowment, a $2 billion portfolio within the $10 billion endowment. Prior to Emory, Adam spent ten years building two companies, the most recent being Alpine.AI, which was acquired by Headspace. Simultaneously, Adam was a Sequoia Scout and built an angel portfolio of over 25 companies. Adam was a direct investor at Menlo Ventures and Bain Capital Ventures, sourcing and supporting companies including Carbonite (IPO), Rent The Runway (IPO), Rapid7 (IPO), Archer (M&A), and AeroScout (M&A). He started his career in engineering and product roles at Facebook, Oracle, and startups.
[00:00] Intro [03:14] Who is Kathy Ku? [06:20] Lesson from Sheryl Sandberg [06:39] Lesson from Justin Osofsky [07:46] How Facebook became the proving grounds for Adam [09:26] The cultural pillars of great organizations [10:40] When to push forward and when to slow down [12:39] Adam’s first investment: Dell [14:20] What did Adam do on Day 1 when he first became an LP [17:00] Emory’s co-investment criteria [20:02] Private equity co-invests vs venture co-invests [21:15] Teaser into Akkadian’s strategy [23:03] Underwriting blind pools of human potential [29:03] Why does Adam look at 10 antiportfolio companies when doing diligence? [32:11] What excites and scares Adam about VC [35:36] Engineering serendipity [37:52] Where is voice technology going? [39:45] How does Adam think about maintaining relationships? [43:20] Thank you to Alchemist Accelerator for sponsoring! [44:20] If you enjoyed this season finale, it would mean a lot if you could share it with 1 other person who you think would love it!
“What’s so freeing is when you can bring your personality to work. It’s so much less cognitive load when you can be yourself.” – Sheryl Sandberg’s advice to Adam Marchick
“Take your work seriously, not yourself.” – Adam Marchick
“Be really transparent, and even document and share your co-investment criteria.” – Mike Dauber, Sunil Dhaliwal’s advice to Adam Marchick
“For an endowment doing co-invests, you should never squint.” – Adam Marchick
“When investing in funds, you are investing in a blind pool of human potential.” – Adam Marchick
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“The thing about working with self-motivated people and driven people, on their worst day, they are pushing themselves very hard and your job is to reduce the stress in that conversation.”
It’s something Nakul Mandan from Audacious said in a Superclusters episode earlier in Season 4. And a line that’s been gnawing at me for the past few weeks. Particularly, “your job is to reduce the stress in that conversation.” So it got me thinking… Are the entrepreneurs I back stressed (enough)?
I know what you’re thinking. But before you come at me with pitchforks and torches, here me out. If you get to the end of this essay and still feel as strongly, feel free to take a swing at me.
First off, let me define some terms in the above question. An “entrepreneur” is someone who starts something that doesn’t exist in the world already. To me, that is a startup founder, a local restaurant, an emerging fund manager, and so on. I use this term pretty liberally. “Enough” is in moderation. A balance of feeling the pressure and urgency, but not enough to make one go insane. By definition, entrepreneurs — people who dare challenge the world and create something that hasn’t existed before — are ambitious. And ambitious, action-oriented doers are, to Nakul’s point, often hard on themselves. So everything in moderation. As a friend once told me, if you’re doing anything ambitious, a third of your days will be epic. A third will be okay. And a third will absolutely suck. As long as your days feel like that proportionally, you’re on the right track.
So… are the entrepreneurs I back stressed (enough)?
Let’s start with no. Are they the underdog still, pre-product-market fit, stagnating, losing market share, and/or in a crisis?
If not, carry on. It’s okay to not be stressed all the time. In fact, it’s probably not helpful to be stressed all the time.
If so — that they are the underdogs, stagnating or in a crisis — AND they’re not feeling stressed, I do wonder from time to time. And I’d be lying if some part of me didn’t feel buyer’s remorse. Because that means one of three things:
They’ve lost their ability to care. About the product. The market. The team. Or simply, their own ambition. That’s the worst.
Conversely, they don’t feel comfortable enough to be vulnerable with me. And that, in part, not to sugarcoat things, is because of me.
They never cared enough or were ambitious enough in the first place. And that’s something I have to take back to the drawing board so that I learn the next time around.
Nevertheless, regardless of which of the three, it warrants a conversation. A difficult one. One where I try to understand their current motivations, what’s changed. If their motivations still hold true, then I, in Danny Meyer’s words, add “constant, gentle pressure.” For those curious, Chapter 9 of his book. Nevertheless, my job is to give them the activation energy to hopefully get them back on track.
If things change, great. I eventually go back to the first question. Are the entrepreneurs stressed? If not, then I let them on a few things:
I’ll spend less time time with them to prioritize the rest of my portfolio.
If they have any of the money left, they can keep the money. FYI, if it wasn’t my personal angel money, but someone else’s capital (of which I’m a fiduciary), depending on how much they have left, it may lead to a different conclusion. But in general, I view it as a write-off.
Wish them the best of luck in their next chapter.
If they feel the fire burning again (for good reason), they should let me know. And I’m happy to have another conversation.
Now… what happens if the entrepreneurs are stressed. Then I try to figure out if it’s anxiety or stress. Let me define.
Anxiety is caused by things you cannot control. For instance, the market. Other people you cannot control. Or black swan events. Stress, on the other hand, is caused by things you can control. Your own mistakes. Mistakes made by people you hired. Volume of work that needs to be done. Procrastination. Mistakes that can be actively mitigated. For instance, missing the deadline for a quarterly report. Missing payroll due to insufficient funds. Layoffs. Bad performance. Media, publicity, and perception. Something Danny Meyer calls, “writing a great last chapter.” As Danny Meyer puts it, “the worst mistake is not to figure out some way to end up in a better place after having made a mistake.”
If it’s anxiety, my role is to calm the founders. Be the mental support they need. Help them see the bigger picture. Build contingency plans.
If it’s stress, my role is to help them build an action plan. Help get key decision-makers and doers in the same room. Get the founders in front of advisors who can help them think through key considerations and check their blind side (assuming it’s not me. Most of the time it isn’t.). Of course, you need to timebox “thinking” time. There’s a great saying. “There are no right choices; only choices we make right.”
And finally, help the entrepreneurs execute the plan. Sometimes, that requires getting my hands dirty. And that’s what I’m here for. To increase the metabolism of the organization. Or at the very minimum, leadership. Stress is often caused by indigestion of tasks that need to be done.
Alas, the job of an investor, given we’re not in the driver’s seat, that we don’t always have complete information, is to reduce the stress of the founder when we have that conversation. More often than not, ambitious founders are hard enough on themselves.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“The first layer is setting up your own strategy. The second layer is portfolio construction. How do you do your portfolio construction based on the strategy you set out to do? And then manager selection comes last. Within the portfolio construction target, how do you pick managers that fit that ‘mandate?’” – Jay Rongjie Wang
Jay Rongjie Wang is the founding Chief Investment Officer of Primitiva Global, where she runs a family-backed Multi-asset Strategy. She also works extensively with emerging VC managers, and sits on the Selection Committee of Bridge Funding Global.
Jay’s background uniquely combines software engineering (at the world’s largest fintech platform) and institutional investing (at top funds including Fidelity and Sequoia), as well as general management (3x executive in tech startups). Jay has lived in 5 different countries across 9 major cities, giving her a global perspective.
Jay obtained her B.A and M.Sci in Physics from Cambridge University and M.B.A from INSEAD. In 2023 she was listed as an Entrepreneurial Pioneer Under 35 by Hurun Wealth.
[00:00] Intro [04:12] Life atop a Daoist mountain [10:27] Qigong and tai chi [12:21] What is dao? [19:18] The weapon that Jay specializes in [21:08] Why did Jay leave the Daoist temple? [24:24] The motivations behind Jay’s career shifts [30:05] The difference between underwriting a VC fund and a fund-of-funds [33:08] How does Jay get to know a fund manager? [36:31] The 3-layer process for building an allocation strategy [38:01] Picking the initial asset class [45:29] How much Jay allocates to venture [48:43] What does “reasonably diversified” mean? [49:15] Figuring out the portfolio construction model [54:59] At what point do you stop maximizing for portfolio returns? [56:57] How Jay calculates a 200X target return on direct investments [57:53] Data on returns as a function of portfolio size [1:01:42] The biggest challenge once you’ve picked your strategy [1:04:40] Selecting the right fund managers [1:14:17] The difference between guqin and piano [1:18:42] Intuition versus discipline [1:24:08] Post-credit scene [1:27:47] Thank you to Alchemist Accelerator for sponsoring! [1:28:48] If you enjoyed this episode, it would mean a lot if you could share it with one friend who’d also get a kick out of this!
“If you have the deal flow and you have the energy and have the skills to construct your own portfolio, then funds-of-funds obviously are more complimentary than necessary.” – Jay Rongjie Wang
“The first layer is setting up your own strategy. The second layer is portfolio construction. How do you do your portfolio construction based on the strategy you set out to do? And then manager selection comes last. Within the portfolio construction target, how do you pick managers that fit that ‘mandate?’” – Jay Rongjie Wang
“The later the stage you go, […] capital becomes more anonymous, and […] the more you converge to public market returns.” – Jay Rongjie Wang
“I only put the regenerative part of a wealth pool into venture. […] That number – how much money you are putting into venture capital per year largely dictates which game you’re playing.” – Jay Rongjie Wang
“Your average median of a fund-of-funds is higher than a venture capital fund, and the variance, the standard deviation, is lower. So it is possible for a VC fund to have 40%, 50%, or higher IRR. It’s much, much less likely for a fund-of-funds to achieve that, but also the likelihood of losing money is much, much lower for a fund-of-funds.” – Jay Rongjie Wang
“The reason why we diversify is to improve return per unit of risk taken.” – Jay Rongjie Wang
“Bear in mind, every fund that you add to your portfolio, you’re reducing your upside as well. And that is something a lot of people don’t keep in mind.” – Jay Rongjie Wang
“Once you have a strategy, the hardest thing for me is to stick to that strategy because you just meet those amazing managers, amazing funds all the time.” – Jay Rongjie Wang
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The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
