Category: Startup

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The Holiday Special | Nakul Mandan and Ben Choi | Superclusters | S4PSE1

ben choi, nakul mandan

“VC is more about the ground game than the air game.” – Nakul Mandan

“Entrepreneurs think it’s going to be like the Michael Keaton version, and the good ones, they actually have to work through the Christopher Nolan version of Batman.” – Ben Choi

Nakul Mandan is the founder of Audacious Ventures. Audacious is a seed stage venture firm managing ~$250M. Audacious’ foundational belief is that ultimately startup success comes down to two key ingredients: Large markets and A+ teams. Accordingly, the Audacious team focuses on two jobs: 1/ Invest in force of nature founders; 2/ Help them recruit an A+ team. Then they get out of the way. Prior to founding Audacious, Nakul was a GP at Lightspeed.

Some of the companies Nakul has backed over the last decade include: Gainsight, People.ai, WorkOS, Multiverse, Marketo, 6Sense, BuildingConnected, Vartana, Tezi and Maxima, amongst others.

You can find Nakul on his socials here:
X / Twitter: https://x.com/nakul
LinkedIn: https://www.linkedin.com/in/nakulmandan/
Personal Website: https://www.nakulmandan.com/

Ben Choi manages over $3B investments with many of the world’s premier venture capital firms as well as directly in early stage startups. He brings to Next Legacy a distinguished track record spanning over two decades founding and investing in early-stage technology businesses. Ben’s love for technology products formed the basis for his successful venture track record, including early stage investments in Marketo (acquired for $4.75B) and CourseHero (last valued at $3.6B). He previously ran product for Adobe’s Creative Cloud offerings and founded CoffeeTable, where he raised venture capital financing, built a team, and ultimately sold the company.

Ben is an engaged member of the Society of Kauffman Fellows and has been named to the Board of Directors for the San Francisco Chinese Culture Center and Children’s Health Council. Ben studied Computer Science at Harvard University before Mark Zuckerberg made it cool and received his MBA from Columbia Business School. Born in Peoria, raised in San Francisco, and educated in Cambridge, Ben now lives in Palo Alto with his wife, Lydia, and three very active sons.

You can find Ben on his socials here:
X / Twitter: https://x.com/benjichoi
LinkedIn: https://www.linkedin.com/in/bchoi/

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[04:14] Why is Nakul fascinated by Batman?
[06:41] Does entrepreneurial motivation often come from inspiration or frustration?
[10:33] Nakul’s childhood and early upbringing
[14:37] How Nakul grew from introvert to extrovert
[16:19] Did Ben see the ambition in Nakul from the day they first met?
[18:19] How did Ben’s parents’ work in Chinatown influence Ben as a teenager?
[22:47] How did Ben and Nakul meet?
[28:50] Would Nakul have raised in 2020 if he knew how hard it would be?
[33:49] Why did Next Legacy not invest in Fund I, but in Fund II?
[37:49] How did Nakul react to the pass on Fund I?
[39:56] The kinds of people at Next Legacy’s dinners
[43:49] Why Audacious kept a low profile in 2021
[49:01] Why Audacious deployed Fund I over 4 years, instead of 3
[51:46] Balancing the paradox of one of Audacious’ cultural values
[55:14] The difference between pitching individuals and institutions
[1:00:42] What is it like to be married to an interior designer?
[1:02:40] Nakul’s favorite coffee shop, bar, and restaurant
[1:05:56] What makes a sock special to Ben?
[1:07:17] Why does Ben still like venture?
[1:08:10] Why does Nakul still like venture?
[1:11:36] Thank you to Alchemist Accelerator for sponsoring!
[1:12:37] If you enjoyed this holiday episode, and want more like this, do let me know!

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“The risk is slow failure. And actually that’s the worst kind of failure even for entrepreneurs that we back. They’re all talented people. Some ideas work; some don’t. It’s when they end up spending seven, eight years and then it doesn’t work. Then it takes out seven, eight years of their life.” – Nakul Mandan

“Entrepreneurs think it’s going to be like the Michael Keaton version, and the good ones, they actually have to work through the Christopher Nolan version of Batman.” – Ben Choi

“If you don’t wear ambition on your sleeve, how do people know you’re ambitious?” – Nakul Mandan

“VC is more about the ground game than the air game.” – Nakul Mandan

“Always remember there’s a human on the other side of every conversation.” – Nakul Mandan

“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.” – Nakul Mandan

“If you have an understated personality, wear something really bright.” – Ben Choi

Follow David Zhou for more Superclusters content:
For podcast show notes: https://cupofzhou.com/superclusters
Follow David Zhou’s blog: https://cupofzhou.com
Follow Superclusters on Twitter: https://twitter.com/SuperclustersLP
Follow Superclusters on TikTok: https://www.tiktok.com/@super.clusters
Follow Superclusters on Instagram: https://instagram.com/super.clusters

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.

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The Year 1-3 AGM “Playbook”

conference, agm, summit, annual general meeting

A good friend, who’s hosting an annual general meeting (AGM) for his LPs in his first year of the fund, pinged me the other day asking if he should include the IRR metrics in his presentation day of. For context, it was negative because well, that’s how the math works. It’s almost always negative for any venture fund you invest in, in years 1-3. As you’re investing more money, the portfolio has yet to get marked up and raise a new round. So alas, negative rate of return.

Given that he had a lot of first-time LPs in his fund, he wasn’t sure if they would understand the context of the IRR metric if he just put it on a slide. So he was biased with not including it. To which I responded with… of course you should. For the bread and butter of being a fiduciary of capital, you should always bias towards transparency and honesty. But you should educate them every year in your first three years of the fund on what each number means and what is industry standard. Moreover, the biggest thing you’ll be measured against in the first three years of any fund is the discipline you exhibit. Did you do what you said you were going to do?

Then it brought on a larger question. What should GPs include in their AGMs in the first three years?

So I thought I’d write a blogpost about it.

This won’t be a two-hour documentary, nor a 300-page novel. But rather, just the governing principles of how I think about running annual summits for your LPs. So, as a general compass for the rest of this post:

  1. The basics to share
  2. Content at large and what to expect for the duration of the programming
  3. Gifts

The basics

First things first, the basics. What are the metrics to share?

  1. MOIC and/or TVPI
    • I prefer both gross and net, but most really just share net
  2. IRR
  3. # of investments (total)
  4. Capital called
  5. Capital deployed
  6. # of investments per pillar/vertical in your thesis (if relevant)
  7. # of investments broken down by stage (if relevant)
  8. Average check size
  9. Average entry ownership
  10. Average entry valuation
  11. Notable wins / progress in portfolio companies, and why it matters
  12. Asks for LPs
  13. Where is the market today?
  14. Where is it going? Notable trends

The first 10 are required as a fiduciary of capital. The last 4 means you’re playing professor for a bit. LPs invest in you for your opinion, for your perspective. Also it’s important to note, if more than 20% of your LPs are first-time LPs, you may want to lean more on being a professor of sorts to set expectations. And how to interpret your data. And yes, it’s worth being honest here. In good and bad times.

Do note that in the first 2-3 years, your IRRs will suck. TVPI will be roughly 1X. DPI is either negligible or non-existent. These are all things that are worth highlighting to first-time LPs in the venture space. Focus on why discipline matters more than performance in the first 3-4 years. Did you do what you said you would do?

Also, it is quite normal to invite both your current fund LPs, as well as the LPs you would like to have one to two funds from now. Although if you’re inviting the latter, do be cognizant on sharing sensitive data about your portfolio. Regardless, the AGM is an opportunity to deepen any relationships — current and future.

And, just like a Dreamforce or TwitchCon or WWDC, it’s a chance to reinvigorate your audience about why they should care about you.

Content at large

I’m not the first to say it, nor is it the first time I’m writing about it. For instance, here and here. But GPs are evaluated on primarily three things: sourcing, picking, winning. There are more yes. GP-thesis fit. Differentiation. Portfolio construction. Ability to build an enduring firm. Selling and exiting positions. And so on. But if VCs can boil everything down to team, market, and product, this is the LP equivalent.

And well, the truth is you’re always being evaluated. Even after the fundraising sprint. As in another 2-3 years, you’re going to ask the same LPs to re-up their capital, just like a founder to a multi-stage VC would.

All that to say, in the AGM, you should find ways to highlight each through the content you present. To share some examples:

  • How you source
    • Have your companies share how you first met. The crazier the story, the better.
    • If you have a community/newsletter/podcast, bring in a really high quality advisor or speaker from there.
    • If you champion yourself on outbound sourcing, find an impressive speaker that you cold emailed.
  • How you pick
    • Showcase 1-2 companies with strong growth
    • If you had a track record prior to the firm with an obvious win (i.e. you were a seed investor in Airbnb), bring the founder in to speak.
    • Share market insight that no one else knows. What is your prepared mind?
    • Request for startups.
  • How you win
    • Showcase a skillset that you have through someone else. That someone else can be a former colleague, a name-brand co-investor, or founder. Have them talk about you and that skillset. Stories are always better than facts.
    • Showcase 1 hot company in your portfolio that everyone wanted to get access to but only very few got in. Have that founder share why they picked you.

Of course, you don’t have to be explicit with the above, but nevertheless, a useful framework for planning content.

Also please don’t have your entire portfolio present. Nor any more than 4-5 companies. Two is ideal. Ideally, you want a diverse cast of speakers. And I mean, diverse by job title.

Gifts

I’m always biased towards gifts. It is one of my primary love languages, but also in any event I host or help host, I think a lot about surprise and suspense.

Surprise is relaying information to someone where they do not expect it. Suspense is relaying information where they expect it, but don’t know how or when it’ll drop. Surprise is what gets people talking about your event after. Suspense is what brings people to the event.

The earlier section on content is suspense. Gifts are usually surprises at AGMs.

In terms of what kinds of gifts to give, the most important guiding principle here is to be thoughtful. As Zig Ziglar / Mark Suster once said, ” People don’t care how much you know until they know how much you care.”

It’s less about the gift you give; it’s more important about how you deliver it.

Some examples of thoughtful ones I’ve seen at AGMs in the past:

  1. A GP’s favorite book they read that year
  2. A signed copy by the author of a deeply meaningful book that shaped the way the GP thinks today
  3. A letter at each LP’s seat of the first interaction between the GP and each of the LPs.

In closing

AGMs are the one of the few times in a year, hell, in fund cycle, to remind LPs of why they love you. Are they thinking about you when they put together the following year’s budget and allocation schedule?

And yes, you do need to remind LPs on why they love you. Just like, even if you’re in a happy marriage, every so often, you need a date night. Keep the kids at home. Get a babysitter. And do something wild with your spouse.

Pat Grady has this great line. “If your value prop is unique, you should be a price setter not a price taker, meaning your gross margins should be really good.” In a similar way, you want to be a schedule maker, not a schedule taker. And to do so, you need to get people excited. And well, you need to be unique. You need people to look forward to your AGM, and not see it as a chore. Since, let’s be honest; if I’ve been to two dozen or so AGMs, not as an LP in most of them, then a seasoned LP is definitely invited to many more.

Earlier this year, I flew over to San Diego for an AGM. I found out two other friends were also flying in to SD for an AGM that same Thursday. The three of us agreed to catch up during the happy hour, assuming all of us were going to the same one. Turns out, we each went to a different AGM. Same day, same time. All within a 10-minute Uber ride from each other. Spoiler, we later escaped our respective events during the happy hours to catch up elsewhere.

Along the same wavelength, in October this year, I was moderating a talk in a building, where there were two other AGMs happening in the same building at the same time. And three others within a five-block radius in SF… at the same time. Those were only the ones I knew of. That said, it was SF Tech Week.

Simply, you’re fighting for attention. And everything above is just table stakes. It’s the bare minimum. But what sets the great ones apart from the forgettable ones is a reminder of what makes that GP or set of GPs special. Their own flavor. Their own touch. And it’s a combination of thoughtfulness and personality. And if you have those, the small bumps in the road don’t matter.

Hope the above helps.

P.S. Why am I sharing this?

  1. I don’t think knowledge is ever perennially proprietary. Today it may be, tomorrow it will not.
  2. If you’re a GP reading this, this is pretty much exactly what I share with all the funds I’ve worked with to help plan their annual summits for LPs. So, you won’t have to hire me anymore to help you with your annual summits. I don’t care about making a living helping other people plan and organize AGMs. But I would like to go to higher quality events in general. 🙂
  3. A rising tide raises all ships.

Photo by Jakob Dalbjörn on Unsplash

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.

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LPs Should Get Paid More | Ashby Monk | Superclusters | S4E5

ashby monk

“Innovation everywhere, but especially in the land of pensions, endowments, and foundations, is a function of courage and crisis.” – Ashby Monk

Dr. Ashby Monk is currently a Senior Research Engineer, School of Engineering at Stanford University and holds the position of Executive Director of the Stanford Research Initiative on Long-Term Investing.

Ashby has more than 20 years of experience studying and advising investment organizations. He has authored multiple books and published 100s of research papers on institutional investing. His latest book, The Technologized Investor, won the 2021 Silver Medal from the Axiom Business Book Awards in the Business Technology category.

Outside of academia, Ashby has co-founded several companies that help investors make better investment decisions, including Real Capital Innovation (acquired by Addepar), FutureProof, GrowthsphereAI, Long Game Savings (acquired by Truist), NetPurpose, D.A.T.A., SheltonAI, and ThirdAct. He is co-founder and managing partner of KDX, a venture capital firm focused on investment technologies.

He is a member of the CFA Institute’s Future of Finance Advisory Council and was named by CIO Magazine as one of the most influential academics in the institutional investing world. He received his Doctorate in Economic Geography at the University of Oxford, holds a Master’s in International Economics from the Université de Paris I – Pantheon Sorbonne, and has a Bachelor’s in Economics from Princeton University.

You can find Ashby on his socials here:
X / Twitter: https://x.com/sovereignfund
LinkedIn: https://www.linkedin.com/in/ashby-monk-208a479/

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[03:44] “I don’t know what to do with my hands”
[04:44] The origin story of Ashby’s LinkedIn skills
[09:04] Ashby’s obsession with the worst title out there
[12:54] Titles at institutional investment firms
[17:05] Building the right incentives for institutional LPs
[20:54] The decision to buy or build for pension funds
[22:36] What’s a smart way to think about the difference of gross and net?
[23:17] When are management fees not justified?
[26:06] When managers charge fees on SPVs
[28:12] When are GPs still grateful for your LP capital?
[29:40] Challenges with the endowment model in PE and VC
[31:14] Why LPs misrepresent what budget fees come out of
[35:28] Compensation structure of a pension fund
[37:59] CalPERS compensation structure
[39:19] The highest paid employees in government jobs
[42:39] Traits of an incredibly talented investor
[47:06] Hire hard, manage light
[51:07] Ashby’s journey into the LP space
[56:05] Why should a young professional work at a pension
[1:00:24] Who outside of investments influences the way Ashby thinks about investing?
[1:02:28] What is organic finance?
[1:07:08] The post-credit scene
[1:12:32] Thank you to Alchemist Accelerator for sponsoring!
[1:13:33] If you enjoyed the episode, would love if you shared it with one friend who would enjoyed it as well!

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“The fastest way to become a billionaire in America today is to set up an alternative investment firm and manage pension capital. Literally. That’s the fastest path. Faster than starting a tech company.” – Ashby Monk

“Many pension plans, especially in America, put blinders on. ‘Don’t tell me what I’m paying my external managers. I really want to focus and make sure we’re not overpaying our internal people.’ And so then it becomes, you can’t ignore the external fees because the internal costs and external fees are related. If you pay great people internally, you can push back on the external fees. If you don’t pay great people internally, then you’re a price taker.” – Ashby Monk

“You need to realize that when the managers tell you that it’s only the net returns that matter. They’re really hoping you’ll just accept that as a logic that’s sound. What they’re hoping you don’t question them on is the difference between your gross return and your net return is an investment in their organization. And that is a capability that will compound in its value over time. And then they will wield that back against you and extract more fees from you, which is why the alternative investment industry in the world today is where most of the profits in the investment industry are captured and captured by GPs.” – Ashby Monk

“[LPs] want to solve the problem for their sponsor by reducing the cost of a promise.” – Ashby Monk

“Innovation everywhere, but especially in the land of pensions, endowments, and foundations, is a function of courage and crisis.” – Ashby Monk

“The highest people paid in state jobs are football coaches.” – Ashby Monk

“I often tell pensions you should pay people at the 49th percentile. So, just a bit less than average. So that the people going and working there also share the mission. They love the mission ‘cause that actually is, in my experience, the magic of the culture in these organizations that you don’t want to lose.” – Ashby Monk

“The job of an investor is to look at the same data that you and I are looking at, and be ready to make a different conclusion. That’s how you outperform.” – Ashby Monk

“Hire hard; manage light.” – Ashby Monk

“The way best practices are communicated in this industry is through role models. So, Yale model, Canadian model, Norway model… There are no schools of investing. […] And the way models emerge is you get an innovation that results in outperformance.” – Ashby Monk

“I do research projects on nothing.” – Ashby Monk on research into solutions that don’t exist in the world yet

“There are two types of innovation. There’s innovation as an invention. And there’s discovery. And a lot of what I do is discover and apply.” – Ashby Monk

Follow David Zhou for more Superclusters content:
For podcast show notes: https://cupofzhou.com/superclusters
Follow David Zhou’s blog: https://cupofzhou.com
Follow Superclusters on Twitter: https://twitter.com/SuperclustersLP
Follow Superclusters on TikTok: https://www.tiktok.com/@super.clusters
Follow Superclusters on Instagram: https://instagram.com/super.clusters

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.

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The Most Common Rejection Email for Transformative Startups

The most common VC rejection by founders who end up building the world’s most transformative companies seems to be:

The market is too small.

Other variations:

  • Unfortunately, the size of the market didn’t make sense for our investment model.
  • The price of the round felt too expensive for our strategy. (An indirect assumption that the exit-to-entry multiple would be south of a 100X. In other words, there’s a cap on market size. Aka small market.)

There are plenty of public examples of founders (i.e. Airbnb, Instacart, Uber, Facebook/Meta, Shopify, eBay, Ford, NVIDIA, etc.) sharing their rejection emails from the first couple hundred VCs they’ve met. But also, I’ve been lucky enough to read a lot of the memos that GPs and partners have written in the decades past on their anti-portfolio.

Yep, that’s the blog post for today.

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.

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Developing Taste as an LP

taste, donut, bite

Brian Chesky did a fireside chat recently where he talks about how he hired for roles at Airbnb, especially in the early days. To which, I highly recommend you checking the above link. Lots of nonobvious lessons worth noting. One thing especially stood out. Probably due to the recency bias of having a few friends text me who were thinking about investing in their first fund.

“Executives have more experience bullshitting you than you have experience detecting their bullshit. So it’s like an asymmetric game where you’re a white belt fighting a black belt and they’re just going to punch you in the face repeatedly.”

In a similar way, a lot of new LPs in venture have also yet to develop their taste for quality in the venture asset class. If you’ve never hired an executive, you have no idea what a great executive looks like. And if you’ve never invested in a fund, or seen a few, you have no idea what a great fund looks like. Most GPs, given the volume of LPs they pitch to, have more experience bullshitting you as an LP than you have experience detecting their bullshit.

And that’s okay. Everyone starts off this way. So the question then becomes how do you develop taste?

  1. Talk to as many as you can. Don’t overoptimize for quality. You have no idea what quality looks like, so don’t delude yourself that you do. Ask friends who they’ve talked to. Ask Twitter. And ask the GPs you talk to who are friends they respect who are also building a fund. Hell, try your luck at asking certain “influencers” in the space if they have recommendations. Realistically, if you raise your hand and say you’re an LP, GPs will flock to you. In 2024, deal flow, as measured by quantity, isn’t really hard for any LP out there.
  2. Prioritize references.

On the first point, as is the advice I give most first-time angel investors investing in startups, don’t invest in the first startup you see. Unless it’s for a reason outside of financial gain. To support a friend. To learn. For impact. To give back. All great reasons. But not if because your friend told you to.

Along the same thread, don’t invest in the first fund you see. Talk to at least 30-50 fund managers. Get a good understanding of what the average fund looks like. What is actually special about a GP versus what they say is special. Most of the time when someone claims that they are the special one, they usually aren’t. For instance, only [insert big name fund] invests with us. Or we are the only [insert industry or function] fund. Hell, if anyone gives you any sort of superlatives, they’re usually wrong. Only. Always. Best. Most. I’m sure there are more, but the rest are escaping me.

Secondly, prioritizes references over your initial judgment when interviewing and doing diligence. Dan Stolar from Colibri and I had a conversation recently about references, where the questions you ask are paramount. If you’re short on time, I’d recommend starting from the 25:50 mark.

In short, to existing LPs, ask:

  1. How did you get to conviction?
  2. Who else did you talk to that were comparable to this GP before you reached an investment decision?
  3. Is there anything you learned about the team after you made the investment?
  4. What kind of person do you think they should bring onboard either in the next fund or after they get to a close?
  5. Would it be possible to share your investment memo with me?
  6. What were some of the pushbacks or hesitations when this deal reached your investment committee?

To LPs more broadly:

  1. What are your primary motivations to be an LP in venture?
  2. How do you think about portfolio construction?
  3. Who are the GPs you’ve talked to that seem to stand above the rest? And why?

To co-investors/other GPs:

  1. How often do you share deals with this GP?
  2. How often do they share deals with you?
  3. Who are your top 3 emerging managers that you love seeing deals from and why?
  4. Is there an emerging manager you would hire to be a partner or GP at your firm if you could?
  5. How would you rate this GP on a scale of 1-10, with 10 being perfect?
    • What would get this GP to a 10?
  6. Did you or have you considered investing in their fund?
  7. What are some of this GP’s hobbies that I might not guess?
    • This shows you how well people know each other. You can also use this question for other reference archetypes.

To former colleagues and friends:

  1. If you were to hire someone under this GP, what traits or skillsets would you look to hire for?
  2. I hate surprises. Is there anything that could go wrong I should know now about this GP, so that I wouldn’t be surprised when it happens?
  3. Who is someone you would hire or work together again in a heartbeat?
    • Notice if they mention that GP. You don’t have to probe as to why they didn’t mention if they didn’t. But worth noticing. Also probably worth talking to that person they did mention to keep a strong talent network around you.

Obviously the above list isn’t all-inclusive. But nevertheless I imagine they’ll be good starting points. Also, I want to note that going deep is often more insightful than going wide.

Remember, almost everyone is incentivized to say good things about others. Or at least, there is little to no incentive to talk smack about anyone you know. So finding the best way to ask questions that unearth different perspectives and facets of a person is important.

Funnily enough and unintentionally, last week I wrote a similar post from the perspective of a GP, this one happened to be more for the LP.

Photo by Thomas Kelley on Unsplash

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.

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The Difference Between GPs who Can and Should Raise | Dan Stolar | Superclusters | S4E3

dan stolar

“GPs and LPs are both equally busy, but different kinds of busy where on any given day, we’ll probably have the same amount of calls and all these things going on, but [LPs are] going to know [they’re] busy three months ahead of time and a GP won’t.” – Dan Stolar

Dan Stolar is a Principal at Colibri Equity Ventures, a single family office based in NYC and San Diego. Dan leads the venture capital strategy and also participates in all alternative private investments, including sports investing and private equity. As part of the venture strategy, Dan particularly focuses on investing in emerging venture capital funds. Since launching the strategy in late 2022, the firm has invested in ~15 managers. Dan started his venture capital journey as an intern at Viola Credit, a venture debt fund in Tel Aviv, before spending time in investment banking at Peter J. Solomon Co. (now Solomon Partners) where he focused on consumer and retail mergers & acquisitions. After banking, Dan spent ~5 years at Alpha Partners, a late-stage venture firm that partners with early stage managers helping them follow on in their late stage deals. Dan is still involved with Alpha as a Venture Partner. Dan is a proud New Jersey native, and a graduate of the University of Michigan (Go Blue!).

You can find Dan on his socials here:
LinkedIn: https://www.linkedin.com/in/danielstolar/
X/Twitter: https://x.com/dan_stolar

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[02:29] Dan’s high school scavenger hunt
[07:33] Telltale sign of excellence #1 in a GP
[09:29] How telling intros are
[11:16] Telltale sign of excellence #2
[13:46] Underwriting a Fund II vs Fund I
[17:40] What do LPs think of deadlines that GPs set for closes?
[18:48] What does a no that turns into a yes look like?
[22:26] Not all positive references are created equal
[25:50] Questions to ask an existing LP in a GP during diligence
[28:30] Reasons an investor would leave a firm
[30:13] The difference between a GP who can and should raise a fund
[33:01] Fund track records that aren’t scalable
[33:56] The one question that most GPs don’t have a good answer to
[35:09] Responsiveness between a GP and an LP
[38:39] Inbox overload for LPs
[41:21] What trivia does Dan excel at?
[45:07] Biking through snowstorms in NYC
[48:08] Thank you to Alchemist Accelerator for sponsoring!
[49:08] If you learned something from this episode, it would mean a lot to me if you could share it with one friend who might also enjoy it!

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“I think a lot about someone’s transactional ability – or how transactional they actually are – correlates with how successful they’re going to be. […] Who you lift up is a much better indication of how good you are.” – Dan Stolar

“Getting an LP is like pulling a weight with a string of thread. If you pull too hard, the string snaps. If you don’t pull hard enough, you don’t pull the weight at all. It’s this very careful balancing act of moving people along in a process.” – Dan Stolar

“GPs and LPs are both equally busy, but different kinds of busy where on any given day, we’ll probably have the same amount of calls and all these things going on, but [LPs are] going to know [they’re] busy three months ahead of time and a GP won’t.” – Dan Stolar

“When a GP passes on a deal, the deal’s done. You’re not going to see that company again. When I pass on a fund, I might see that fund for another 12 years. So I’m going to be on those updates and those check-in calls.” – Dan Stolar

Follow David Zhou for more Superclusters content:
For podcast show notes: https://cupofzhou.com/superclusters
Follow David Zhou’s blog: https://cupofzhou.com
Follow Superclusters on Twitter: https://twitter.com/SuperclustersLP
Follow Superclusters on TikTok: https://www.tiktok.com/@super.clusters
Follow Superclusters on Instagram: https://instagram.com/super.clusters

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.

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The GP Data You’ve Never Collected Before | Kelli Fontaine | Superclusters | S4E1

kelli fontaine

“Neutral references are worse than negative references.” – Kelli Fontaine

From investing in great fund managers to data to investor relations, Kelli Fontaine is a partner at Cendana Capital, a fund of funds who’s solely focused on the best pre-seed and seed funds with over 2 billion under management and includes the likes of Forerunner, Founder Collective, Lerer Hippeau, Uncork, Susa Ventures and more. Kelli comes from the world of data, and has been a founder, marketing expert, and an advisor to founders since 2010.

You can find Kelli on her socials here:
X/Twitter: https://x.com/kells_bells
LinkedIn: https://www.linkedin.com/in/kellitrent/

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[02:11] How Kelli became a figure skater
[06:59] Kelli’s football fandom
[08:47] Picking schools for critical thinking for children
[10:55] The difference between likeability and founder-friendliness
[13:35] Correcting biases as LPs
[15:07] Examples of what makes GPs unique
[19:53] What kinds of data was Cendana NOT measuring when Kelli joined?
[21:58] What are datapoints that LPs should measure but aren’t?
[23:45] Startup metrics that LPs should track
[26:16] Can you trust the data out there?
[32:05] How does one start building a GP dataset from scratch?
[37:38] Why does Cendana do 40 reference checks per fund?
[39:47] Neutral references are worse than negative references
[42:28] The questions Kelli asks founders when diligencing GPs
[43:44] How Cendana does monthly calls with all their GPs and large LPs
[47:57] How often does Cendana send investor updates?
[49:13] The difference between monthly calls and taking an LPAC seat
[51:19] Kelli’s indelible sports moments to witness
[52:37] What makes Kelli laugh?
[56:14] Thank you to Alchemist Accelerator for sponsoring
[57:15] If you enjoyed this episode, it would mean a lot to me if you shared it with one other friend!

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“Neutral references are worse than negative references.” – Kelli Fontaine

“What is unique about their background that gives them a right to win today?” – Kelli Fontaine

“Everybody uses year benchmarking, but that’s not the appropriate way to measure. We have one fund manager that takes five years to commit the capital to do initial investments versus a manager that does it all in a year. You’re gonna look very, very different. Ten years from now, 15 years from now, then you can start benchmarking against each other from that vintage.” – Kelli Fontaine

Follow David Zhou for more Superclusters content:
For podcast show notes: https://cupofzhou.com/superclusters
Follow David Zhou’s blog: https://cupofzhou.com
Follow Superclusters on Twitter: https://twitter.com/SuperclustersLP
Follow Superclusters on TikTok: https://www.tiktok.com/@super.clusters
Follow Superclusters on Instagram: https://instagram.com/super.clusters

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.

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! > ? > , > .

comment, bubble, feedback

Yes, that’s the title of this blogpost. And no, that’s not in Wingdings font.

And yes, that’s also an equation.

Surprises do better than suspense, which do better than pauses, which do better than full stops.

The first is indelible. The last is forgettable.

Let me elaborate.

Notation MeaningExplanation
!Surprise(For all you coders, the exclamation point does not stand for “not.”)

You’ve shared something interesting, shocking, unexpected… something non-consensus or nonobvious. This is the easiest justification for someone to take a meeting. You not only have their attention, but their curiosity.

It’s a point of contention. It allows for debate. At face glance, it may not sound right. It may outright be shocking.
?SuspenseWhy? How? You’ve posed an interesting question that begs an answer. People will follow up. They may or may not take the meeting, which is highly dependent on their bandwidth and your luck in their schedule.

Oftentimes, the follow up will seek some level of external validation. You need to appeal to a higher authority. References. Facts/data, and starting from universal truths. Or sometimes, a higher form of logic and reasoning.

In the words of Siqi Chen, questions are “tell tale signs of objections politely withheld.” For the purpose of gauging interest, quiet objections out loud may work in your favor.
,PauseYou’ve introduced a subclause before the clause. The subclause itself must be interesting enough for them to want to finish the sentence. It’s the difference between a feature and a product. If it is interesting enough, there may be a follow up, but things will usually stay asynchronous.

Oftentimes, this manifests in the form of taking a large leap of faith in logic. Either one starts a premise, but has no conclusion/solution. Or the other way around. You deliver the punchline, but has no build-up.
.StopA quick conclusion can be drawn. No further questions or curiosities. There’s nothing special. Nothing worth noting. This neither grabs attention or begs curiosity. The same as saying the sky is blue.

While that may seem obvious, the equivalent in the startup world is “We are a B2B SaaS product leveraging AI to deliver insights.” You’ve said nothing. And unfortunately, all of which is forgettable.

All that to say, if the goal is to get a conversation going, the above is a formula I often advise the founders and GPs I work with.

Then once you have the meeting, of all the meeting requests I get, the two most common reasons are:

  1. I need money
  2. I need feedback

Oftentimes, not mutually exclusive.

For the purpose of this blogpost, and as I’ve written about the former in the past, I’ll focus on the latter.

Feedback

The vast majority of people also suck at asking for feedback. Take pitch decks, for example.

Most founders and GPs ask: “Can you give me some feedback on my deck?” Unfortunately, the ask is nebulous. What kind of feedback are you looking for? How honest can I be? What are my parameters?

Should I be worried about hurting your feelings? Are you looking for validation or constructive criticism?

Am I the best person to give you feedback on this? Am I supposed to give feedback from the perspective of me as [insert your name] or a different persona?

So, unless you’re best friends with the person you want feedback from AND they are the ideal archetype you’re trying to target, you need to be more direct and focused on what you’re looking for.

Love-Hate-Forget

One of my favorite set of questions of all time happens to be something that was designed to be asked in groups of strangers. Something that came from the social experiments I hosted pre-COVID. Not original, but I forget the attribution.

  1. Who did you notice? Who, for whatever reason, rational or not, did you like?
  2. Who, for whatever reason, did you not like or feel it may be hard to be friends with them?
  3. And after all that, who did you, for whatever reason, not notice at all?

Similarly, in the case of deck feedback…

Love

  1. Could you go through the whole deck, spending an average of half a second on each slide? While you do so, could you note, which slides you spend longer than one second on, for whatever reason?
    • FYI, leave it up to them if they want to elaborate. Sometimes you don’t need to ask. Oxygen usually rises to the top.
  2. If you were to keep just one slide and throw everything else out, which slide would you keep?

Hate

  1. Could you spend up to five seconds per slide? Which slides do you dislike, for whatever reason?
  2. Why?
    • FYI, typical feedback is usually too messy, no punchline (I don’t get what you’re trying to say), or I don’t agree. The last of which is actually not always bad, depending if it’s a point of view of the world or you’re misrepresenting a fact.

Forget

These are not questions you ask the feedback giver. Rather, these are questions for introspection.

  1. Which slides did the person giving feedback totally ignore?
  2. Why might they have?

More often than not, these are table stakes slides. Delete these slides if you can.

Photo by Volodymyr Hryshchenko on Unsplash

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.

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Hypoxic Training

swimming, diving

Back when I was still swimming competitively, one of the drills our swim coach always had us do was a set of hypoxic drills. The two that left the most indelible marks were:

  1. 10 sets of 100 yards, broken down by 25 yards. Lap 1, breathe every 5 strokes. Lap 2, every 3 strokes. Lap 3, every 7 strokes. And Lap 4, every 9 strokes.
  2. 20 sets of 55 yards. You start with a flip turn into the wall. First 25 yards (Lap 1), no breaths allowed. Second 25 (Lap 2), you’re allowed to only take one breath.

Naturally, those drills usually left me the most exhausted. Not only did I find myself catching my breath, we also had to swim those on specific intervals, which left less than five seconds of rest at best, while swimming at 80% our max speed.

All that to say, it was a set of exercises that trained us to hold our breath. We had less oxygenated blood. Naturally, it was harder to exert our max strength and endurance. But it tested our ability to weather exhaustion.

Just like today.

Our venture ecosystem needs oxygen. The whole industry is holding their breath. For IPOs. like Stripe’s. Which may be unlikely to happen in the near future given Sequoia’s recent share acquisition. Software acquisitions have also hit an all-time low, leaving LPs starved for liquidity from the major private market exit paths.

Source: Tomasz Tunguz / Theory Ventures

And of the few “acquisitions” that are happening, they’re done to circumnavigate anti-trust laws. As Tomasz points out, “they hire the core team [in other words the founding team], license the technology, but the majority company continues to operate as a separate entity.” In addition, a number of companies also need to get re-priced in the market, having raised in 2020 and 2021 on over three-year runways. Which to their credit, was the common advice given by VCs during that era.

Election season does not make this Mexican standoff any less strenuous. How will it impact the global economy? And who’s the last to hold the bag with all these hot AI deals? We all know AI has low margins and requires and immense amount of compute to deliver the results that we expect, but how much longer will this need to go on?

Who knows?

At least until we get to breathe again. The consensus seems to be Q1 2025. But until we have oxygen again, this is the hypoxic training that our world will have to endure for the foreseeable future.

In the words of my coach, “focus on distance per stroke.” In other words, executional discipline. Do more with less.

Photo by NEOM on Unsplash

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.

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Shoe Shopping

shoe

I went shoe shopping with my partner the past two weekends, and I’ll be the first to plead ignorance to the difference between the B and D suffix for shoe sizes. And even after two weekends, I’m still learning.

I’ve never looked much into shoes. Having spent much of my early life bathed in chlorine (so much that at one point, my hair was brown with blond tips. FYI, for those I’ve never met in person before, I sport naturally black hair.), I’ve spent more time choosing the right $300-400 swimsuit than what I’d wear on my two lower appendages the other eight hours of the day. All that to say, I’m ill-equipped to speak the language of sneakerheads and running shoe geeks.

But just as I’m still learning how shoe geeks around the world understand the finer nuances of heel to toe drop impacting ankle versus knee strain, most founders who haven’t spent the time understanding the nuances of VCs think all money is green. In fact, just last month, I spoke with a founder I randomly met at an event who said, “Money is money.”

And he’s not completely wrong. There is some truth to it. At the end of the day, as investors, we sell money. Moreover, most investors who promise to be helpful are not. As well-intentioned as they are at the time of investment, most fall short of being truly helpful. There are multiple studies that show that founders believe a huge majority of their investors are not helpful.

That said, one of my investor buddies said something quite interesting to me earlier this week. Many founders see investors as saviors not partners. A source of capital to save them when they’re near the gates of hell, but not while they’re building their stairway to heaven. All that to say, as someone who’s been an operator, now a “VC”, but also someone who invests in other VCs, here are some of the nuances I’ve really come to appreciate over the years that I overlooked when I first stepped into the world of entrepreneurship.

Consensus and conviction-driven decision making

Some firms are consensus-driven. Others are conviction-driven. The former requires majority or unanimous buy-in. The latter doesn’t. Neither is universally better than the other, but knowing how decisions are made is extremely helpful. Not only to know who else you need to convince on the team, but also to know how the firm will help you post-investment.

The former is usually a firm where carry is split equally among all partners, so all partners are theoretically incented to see every portfolio company succeed. So as a founder, if you want to rely on the expertise and network of the collective partnership, these are the firms you should pursue. The latter, the conviction-driven ones, are most helpful if you really want one specific partner’s experience. They’ll be the person who takes the board seat. Opportunistically, they may ask for 1-2 junior team members to also have board observer seats. The downside is when and if this partner leaves the firm, there may be a gaping hole in governance as well as interest in the continued success of your company. But otherwise, this will be the partner you will have on speed dial.

I shared a presentation I made recently on LinkedIn. Of which, I share that three kinds of friends in the world. When shit hits the fan at 3AM in the morning…

  1. There’s the friend you call. They see the call. And they go back to sleep.
  2. There’s the friend you call. They see the call. And begrudgingly pick up.
  3. And there’s the friend you call. And as they’re picking up the phone, they’ve got their pants on already and are running out the door with their keys.

Conviction-driven firms, where the partner that pounds the table for you will likely be on you board, or even if not, they’re going to be the third friend. At consensus-driven firms, and I’m clearly being reductive here, you’re more likely — not always — to have the reluctant one or sleepers.

Then it comes down to how the team is compensated. Not something most founders can find out or ask out, but how carry is distributed for each fund matters.

Disagreeableness

I’ve realized a lot of the best investors are quite disagreeable. They have their opinions and are quite vocal about them.

A lot of them quite often score incredibly low on investor review sites. Of course, some just score low on NPS purely because their assholes. But I want to caveat. Assholes are often disagreeable, but not all disagreeable people are assholes.

But it takes a lot of courage to have a contrarian viewpoint that one can back up. You don’t have to agree with it. But it matters. More often than not, these folks will also have negative references. For an LP evaluating VCs, that’s ok. Negative is always better than neutral references. The latter means you’re easily forgettable.

Regardless of whether you agree with these investors or not (equally, if not more true, in great founders), they make you stop and think. And that pause to think makes you a more well-rounded professional, and makes your own opinions more robust when you choose to adopt or not adopt said piece of advice.

There’s a great Steve Jobs line, which I think is quite applicable here. “Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”

Great investors are troublemakers. In a good way.

P.S. To the three verified troublemakers I know who are reading this blogpost, can’t wait for your debut.

Small talk

Small talk was definitely one of those things I was rather dismissive of earlier in my career. Who da hell cares about the weather? Or what you did over the weekend?

But over the years, I realize some of the best investors are remarkably good at this. Not in the sense that they know how to ask great weather questions, but they learn how to build rapport early and quickly. And even better, they get a founder comfortable, honest, and candid about where they are at.

No one’s perfect. Every investor gets that. Most founders often pretend that they are. But a great investor is great at helping a founder realize they don’t have to be, and also get to understand a founder from a personal level. Not jumping straight into the pitch. Or give me your metrics. Or how much are you raising at how high of a valuation?

Radical candor

Borrowing this phrase from the amazing Kim Scott, the best investors are upfront with expectations. They don’t waste your time. Some even go as far as to share what their incentives are. And the harsh reality that they may be wrong many times before they’re right. They don’t beat around the bush. They don’t delay the inevitable. They’re great at ripping bandages off quickly, so they can prioritize their focus on other matters that require more attention. They have tough conversations early and synchronously. The last thing one can ever say about them is that they aren’t thoughtful. It seems remarkably simple, but most cannot do just that.

To be fair, it’s sometimes easier said than done. Even for myself, and I would not even dare to put myself in the category of great, I’ve been berated, gaslit, and shamed (haha!) for giving and attempting to give honest feedback to founders and investors. In fact, I was introed to a fund manager recently for the purpose of giving feedback. When I realized a couple red flags about her fund (namely her raising a $100M fund with no track record), I asked if she wanted feedback. To which, she replied with something to the effect that she only takes feedback from people who invest and that I didn’t deserve to give her feedback.

So I can see why some managers are averse to giving any.

Raising junior talent

I was reminded of this in my recent episode with Rick Zullo. And I noticed Rick is really good at giving credit and lifting up his team. In a soon-to-be-released episode, Eric Bahn from Hustle Fund does the same. I’ve asked him to speak at events before and he’s often referred one of his junior team members to the event. Not as a “I don’t want to do this, so someone else should”, but as a “I believe XX person will be a great future leader of this firm, and I believe others need to hear her insights.” And he’s been right every time.

Building an institutional firm takes more than one person. It takes a village. To build a legacy also requires more than one generation. I often see great investors taking less credit and giving a lot more to their team. Those often hidden from the limelight.

Discipline

Every great investor I know does something consistently every day. They set ground rules and while it’s less so for others, they hold themselves accountable to do so. Whether it’s a cup of coffee brewed from home every morning, or going to the gym on a daily basis or quality time with family or calling their significant other at a set time every day, I have yet to meet an investor who can’t keep to a promise they made to themselves consistently.

Venture capital is a long game, and it’s very possible for these multi-decade games, to be lucky at least once. Good investors, at some point, hit a unicorn. Great investors can discover many before others do. But any more than twice requires extreme discipline and the ability to say no to things that are good to make room for the great. And it’s so much harder than one might think.

And the simplest proxy to an investor’s ability to do so is their ability to fulfill promises to themselves when no one else is looking.

In closing

    At the end of the day, not all shoes are the same. Just like not all VCs are. But if all you need is to get from Point A to Point B, and you don’t care for what kind of support you get along the way, VCs, like shoes, may all be the same.

    Photo by Hunter Johnson on Unsplash

    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.

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