John Felix is the Head of Emerging Managers at Allocate where he leads manager diligence and product innovation within the emerging manager ecosystem. Prior to joining Allocate, John worked at Bowdoin College’s Office of Investments, helping to invest the $2.8 billion endowment across all asset classes, focusing on venture capital. Prior to Bowdoin, John worked at Edgehill Endowment Partners, a $2 billion boutique OCIO. At Edgehill, John was responsible for building out the firm’s venture capital portfolio, sourcing and leading all venture fund commitments. John started his career at Washington University’s Investment Management Company as a member of the small investment team responsible for managing the university’s now $15 billion endowment. John graduated from Washington University in St. Louis with a BSBA in Finance and Entrepreneurship.
[00:00] Intro [02:35] The band that started it all [08:43] How did a band of 3 become a band of 5? [10:39] What bands served as inspiration for John? [13:37] Lessons on building teams and trust [19:48] The mischance that led John into the endowment world [22:34] What John learned under 3 different CIOs [26:20] What does concentration mean for Washington University’s endowment? [33:53] Portfolio construction perspectives at an endowment [36:26] The flaws of GP commits [41:25] How has John’s approach to emerging managers changed over the years? [44:17] What is key person risk? [47:06] One of the biggest challenges emerging managers face [50:45] Balancing over- and under-diligencing an emerging manager [56:28] What are traits that GPs think are unique but actually aren’t? [1:03:36] What makes a great cold email? [1:08:40] As a sports fan, do the highs or lows hit harder? [1:11:53] Thank you to Alchemist Accelerator for sponsoring! [1:12:54] Let me know if you enjoyed this episode with a like, comment or share!
“Being too dogmatic about things or having too black or white views will prohibit a lot of LPs from making really, really good investments.” – John Felix
“The biggest leverage on time you can get is identifying which questions are the need-to-haves versus nice-to-haves and knowing when enough work is enough.” – John Felix
This may very much be the hill I end up dying on as an angel. I also realize that the title of the blogpost itself is ionically charged. But it’s something I feel strongly about.
Two caveats.
One, this is going to be one of my more strongly worded blogposts. I don’t write many of these. It doesn’t give me joy to “call” people out. If you’re a reader to this blog for the more mild-mannered Cup of Zhou, I’ll see you next week. 🙂
Let’s just say I’m writing this out of frustration after chatting with a founder who hit all the below red flags. But more importantly, frustration at myself for not recognizing the below a mile away when I took the meeting. And the opening 2 questions for that meeting was can you share what you do? and what do you invest in? Both of which are quite evident on my LinkedIn. Moreover the cold outreach came via LinkedIn.
Two, I’m a small check angel. And this may not apply if you write north of a $100K angel check or a $250K LP check. You’re likely also excluded from this hill I’ll die on if you don’t have the network that would alert you on deals on a regular basis.
That said, if you’re a small check investor like me AND you have a decent network, any founder who doesn’t know exactly why they want you on the cap table outside of money is probably not a founder worth your time.
Why?
To them, you’re just another check, and not THE check. Whatever wrapper they put on things, you’re dumb money to them. Now, it’s not about feeling self-important. In fact, don’t delude yourself on your importance. It’s about being valuable, outside of the money. The early stages of company-building are so crucial that you really need all hands rowing in the same direction. Any hands that are idle, or worse, rowing in the opposite direction, is a waste of time, attention and resources.
They don’t know what they want. They don’t know the critical needs of the business. Is it talent? Is it getting to $1M ARR and developing a sales strategy? Is it scaling past product-market fit? Is it finding product-market fit? And because they don’t, they don’t know what they need help in. And any non-surgical answer, including terms relative to broad strokes, is a dud.
And in many ways, because of the above reasons, you’re wasting your dollar. The best founders are surgical and intentional to a fault. They’re also some of the best salespeople in the world. And they will make you feel like you’re the most important person in the world (whether actually true or not, but sometimes, even that doesn’t really matter). Because if they can win you over, they have a great batting average of winning key customers over.
FYI, also probably not worth your time if they:
Say you specialize in XX industry is not enough. Anyone can guess that at a glance at your LinkedIn. Even more so, if you’ve made it explicit.
Spend more time pitching to you than asking you questions to understand your values and what you’re interested in. They’re more interested in what comes out of their mouth than by how much reaches your ears.
Say you’re valuable for intros you can make. LinkedIn doesn’t tell people the strength of your first degree connections. For better or worse, I’m connected with a lot of people. Product of me being a bit too liberal with inbound connections early on. But it doesn’t mean I know them all equally as well. In fact, intros for a founder as an investor are table stakes. You must either be best friends with key decision makers/customers or downstream investors, or it’s really not as useful. And that only comes out if the founder spends time getting to know you, as listed in the second point above.
Ever since I added “Angel investor” to my LinkedIn profile, I’ve received a lot of noise. Quantity of deal flow went up by maybe 10-20 per week (and some weeks where I post something or get tagged in something that gets 5K+ impressions, that inbound deal flow from LinkedIn doubles if not more). But I’d say 95% of that are deals I would never invest in. Either since it’s out of scope, stage, check size, or just type of founder. Which at some point, when I remember to and I’m not typing this on my little 6×3 inch screen, I’ll have to redact that title, “Angel investor.”
Deal flow has become easy. But easy doesn’t mean good. The truth is, I’d rather mean a lot to a few than a little to a lot people.
And by the way, the same is true, if you’re a small check LP.
At the end of the day, as a founder (or emerging GP), it’s about finding your early believers. Those who choose to stand by you not just because everything’s going up and to the right. But those who will stand by you when shit hits the fan.
I was watching the latest episode of Hot Ones (yes, this is my guilty pleasure), where Sean is interviewing Will Smith, and Will shares that there are three kinds of friends in your life that you call at 3AM.
One kind of friend looks at the phone and pretends to be asleep.
A second kind of friend that picks up the phone that makes you feel bad for being in trouble.
And the third kind is putting their pants on while they’re answering the phone.
You want the third kind.
It also harkens back to the same conversationAakar, Ho, Vignesh, and I had two weeks ago. Believing comes from faith. And faith comes not just from where you are today, but where you will go. And that is established on Day 1.
To get early believers, you have to show you care. You have to give (even if it means your time, attention, and/or enthusiasm/interest), before you get. That is as true for investors as it is for customers.
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.
At the end of last week, an LP told me something quite provocative. That right now in 2024, we’re in a low-risk environment.
And in all fairness, I thought he was completely bonkers. Fear is high. Investments have slowed their pace, especially in the private markets. Markets have really yet to recover. Some believe we’ve hit the bottom and will bounce around the bottom a few times. Others think we’ve yet to see the worst of it. Hell, just yesterday, Eric Bahn tweeted the below:
These articles were published by the same company within hours of each other… pic.twitter.com/k9TPc2Si5a
Wars are raging across the world. Currency is fluctuating on a global scale. Hell, even for the average person, prices are going up at a rate unfamiliar to most people’s memory.
But his next line really made me pause. “You’re right. There’s geopolitical risk, currency risk, market risk, and valuation/pricing risk. And we can identify every single one of them. In fact, the actual risk of investing today is really low, but the perceived risk is really high. Risk is highest when you can’t tell what the risk is. That was 2020 and 2021, when you couldn’t put a finger on what kinds of risk were out there.”
And that really stuck with me. To underscore again, risk is highest when you can’t tell what the risk is.
And so paved way for this blogpost. Albeit, that last line was the punchline.
He later told me that the concept wasn’t original, but that its origin traces its way back to Ken Moelis. Regardless of the attribution, it’s worth doing a double take on.
There’s that famous Peter Drucker line, “You can’t manage what you don’t measure.” And in many ways, it is just as true for risk as it is for tasks and KPIs and OKRs.
The family office for a well-known luxury brand once told me that they like to pay the complexity premium on esoteric alternatives. To them, venture is one of those esoteric alternatives. In addition, they’re also happy to overpay during bull markets. Access to a volatile and nascent asset class, to them, deserves a premium.
But taking a step back, there may be more wisdom to it than I initially thought. In bear markets, when the risk is real and discrete, there is no complexity premium to pay. After all, you can begin to manage what you do measure. On the flip side, in a bull market, where no one really knows who will win or what the macro risks are, a premium can be and often is paid as a bet on a company’s future and insurance against a margin of error that is hard to define.
Of course, one can say that the premium is often hype-driven instead of risk-driven. But really, hype is just long-term risk donned with a new set of clothes. A short-term luxury with a buy-now-pay-later tag that comes in quarterly installments of belt-tightening and regret.
While I personally have always believed that as an investor it’s better to be disciplined and to “dollar cost average” across vintages vis a vis time diversification, there are several great investors who believe price is a trap. At the top of my head, Peter Fenton and Keith Rabois. The latter shared his thoughts earlier this year on why. At least for seed and Series A. That in summary, there is no limit on how much you pay for a great company at the seed and Series A (likely the pre-seed as well) that won’t return you multiple-fold back. And that debates on price really are leading indicators on conviction or lack thereof.
The last part of which I agree to an extent.
All that to say, I think a useful exercise to go through whenever making a major (investment) decision is to take out a notepad and write down all the risks you can think of. If you can think of it, you can probably find a way to hedge against it. On the flip side, if you’re about to make a decision and you can’t think of any risks, that’s probably the biggest risk you’ll take.
As my mom told me since I was a kid, “There’s no such thing as a free lunch.”
But if you do come up with a good list, and the world around you is still scared, and you think there might be something special in the opportunity in front of you, sometimes it pays to be bullish when others are bearish.
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.
First off, my lizard brain that optimizes for immediate gratification thought “A Jerk’s Guide to Being Kind” would be a fun title. Clickbait-y (kinda). Great for SEO. So I used that as my prompt for this public journal entry. 🙂
So, if you didn’t come for a public apology and how I say no, I’ll see you in next week’s blogpost.
Secondly, I was reading Chris Neumann’s blogpost this week, aptly named “The Beginner VC’s Guide to Not Being a Jerk.” And realized, holy frick, I’m a jerk. In it, he describes five things that VCs do that come off as jerkish.
Don’t Use Possessive Adjectives
Don’t Multitask When a Founder is Pitching
Don’t Badmouth Founders
Don’t Mansplain
Don’t Ghost Founders
And of the five above, I know I’m an offender of three of the above. Using possessive adjectives. Multitasking. Ghosting. Probably in that order from most frequent to least frequent. (Sorry, Chris. Sorry to founders I’ve done this to.) The first two I don’t do intentionally, nor do I do the either of them often.
Not sure if it makes too much of a difference, but rather than say “my company” or “our companies,” I do say “our portfolio companies.” Just with one extra word in there. Occasionally, will let it slip when I’m trying to shorten the sentence I’m saying.
I know I’m more prone to multi-task when I’m not the only investor in the room, and definitely when I’m not the primary investor. Again, don’t do it often, but it happens. And I never do so when I’m the only other person in that conversation. 99% of the time I do let the founders and GPs I talk to know that I’m just taking notes of our conversation. Personally don’t use the AI notetakers, but that’s a discussion for another day.
And ghosting. My goal is to get to inbox zero every day. And I really do my best not to ghost. But three things will always happen:
Some email or text always ends up slipping through my inbox. Either it goes in spam, or during certain days, I’m bombarded with hundreds of emails and it slips through the cracks. And I do give every founder and GP who pitch me the right to re-surface past emails if it does slip through.
If the email or message seems like it came out of an automation or mail merge AND I’m not interested, I do let it drop. I read EVERY email for sure. But if that email looks like the same one that you send to every investor, those have been going straight into the archives more and more. That also means that some emails just read like it’s an automated email even if it doesn’t, and it slips through.
There’s a shortlist of people who have abused my old personal policy of responding to every email I get. And so for those people, I’m not sorry if I do ghost you. That said, it’s a pretty short list of people (probably 30-40 people as of now).
And lastly, well, I’ve made founders pitching me cry. Not something to brag about. But in sharing what I thought was honest feedback, I made tears flow.
So, in summary, I’m probably a jerk.
In my mind, a jerk is someone who prioritizes their own beliefs and priorities to the point that they either intentionally ignore or severely de-prioritize others’. Although I try my best not to ignore what other might want or need, but I do often prioritize my own. So to add on to all the above, I’m sharing some situations where my jerkiness comes out and what I say in those moments.
When having tough conversations
I actually learned this while listening to Lenny’s podcast with Matt Mochary. When I need to let someone go. When I need to call a friend out on their bad behavior. Or when my partner and I get into a fight. “Preface hard conversations with: This is going to be a difficult conversation. Are you ready?”
In addition, I also preface with how long I think the discussion will take. “May I have thirty minutes of your undivided attention?” And what the topic will be on. No point in blindsiding the other person.
It helps set the stage. And if the other person needs more time, they have the option to back out. Moreover, all tough conversations are 1:1 conversations. At least for me, even if it relates to many, I start notifying them all on a 1:1 basis.
When trying to leave a conversation at an event
This one also isn’t original. I learnt from a friend of mine who is far more eloquent than I am. Not all conversations at events are created equal. And sometimes, at an event, especially a networking event, my goal is to say hi to the event host or to talk to someone else on the floor. And in between, I may find myself in another serendipitous. Case in point, yesterday, I ended up meeting a founder who sold his last company for $500M exit to a large Fortune 50 company in the parking lot and who was figuring out his next thing. Serendipitous. And super fun, but I was going to be royally late for another event if I stayed chatting in the parking lot.
So, when I need to leave a conversation, instead of excusing myself to go to the bathroom or get more food, I’ve learned to say, “I’d love to ask you one last thing that I’d beat myself up tonight if I didn’t ask before I need to go say hi to XXX.”
One, it timeboxes the next few minutes of the conversation. Two, I’m still interested in the individual and I want them to get the last word before I head out.
For 1:1 conversations
I usually let people know at the very beginning of the conversation that I have a “hard stop” at a specific time. Which 90% of the time is true. Usually another meeting. Or I have just way too much work on my plate that I need to get to.
When turning down a meeting (for now)
I wish I had more time in a day to talk to awesome people. I also wish I had more energy in a day to talk to awesome people. But unfortunately, I only have 24 hours in a day. And well, I’m an introvert. As in, I enjoy writing this blogpost you’re reading right now since 5AM in the morning than telling someone in a live conversation what I will end up writing here.
As such, if I’m interested in meeting at some point, I usually say something to the tune of: “I would love to meet, but if I do so within the next XXX weeks / months, I would have failed in my promise to the people I care about. So if you’ll allow me to be a good friend / family member / supporter of my existing projects and investments, could we revisit this in YYY weeks / months?”
Other times to save everyone’s time, since I won’t find my interest levels gravitating towards said topic, I let people know it just isn’t of interest to me in the foreseeable future, and that their luck may be better elsewhere.
When turning down an investment opportunity
This is actually something that was inspired by one of Jason Calacanis’ podcast episodes. And while there are many things I may not agree with him on, I really like the phrasing he uses to turn down founders who push back against his investment decision. And I’ve added some lines that best fit the way I talk. Which I also included this in my 99 series for investors.
“I always have to accept the possibility that I’m making a mistake. The venture business keeps me humble, but these are the benchmarks that the team and I all believe in.”
In closing
Sometimes I think it’s inevitable to appear as a jerk to some people out there. While one can try to reduce the splash damage, the truth is sometimes what you have to say may not be what the other person wants to hear or see. But as long as you hold yourself to a high degree of integrity and do so in as kind of a way as you can, I think that’s all that really matters.
Often times, I do believe it’s more important to be kind than nice. I hope the above helps.
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.
Ertan Can is the Founder of Multiple Capital, a fund of funds focused on investing in micro VC funds in Europe and has been a limited partner in top funds you’ve heard of including Entrepreneur First and Angular Ventures, just to name a few. He’s done his tour of duty in the asset management world at JP Morgan to covering investor relations topics at Thomson Reuters to investing in startups at a family office. Ertan is also a founding member of 2hearts, a community dedicated to building tomorrow’s tech society with cultural diversity.
He is also a proud MBA graduate from the ESCP Business School and a long time student of finance and law catalyzed by his time at Frankfurt and London.
[00:00] Intro [02:21] Ertan’s childhood [05:36] Why Luxembourg? [15:03] Which countries do European GPs set up their funds? [19:46] How did Ertan switch the family office strategy from direct to fund investing? [24:42] How has Ertan’s underwriting process evolved over time? [28:04] Do similar pitch deck formats make it easier or harder to make investment decisions? [30:34] Referrals and warm intros ranked by source [36:10] Geographies that Multiple Capital invests in [37:44] Red flags for Multiple Capital [43:48] How do solo GPs build sounding boards to check their blindside? [49:04] The (un)predictability of outlier investments [1:00:41] How does Ertan think about bringing on Venture Partners in a fund of funds? [1:08:25] The decision-making framework behind an “angel” LP investment and a FoF check [1:12:01] Where Ertan shares his unfiltered thoughts [1:20:14] Ertan’s experience around giving GPs feedback [1:27:05] Cockroaches and superheroes [1:34:08] Thank you to Alchemist Accelerator for sponsoring! [1:36:44] If you enjoyed this episode, it would mean the world to us if you gave us a like, comment, or share!
“Our work is to increase the probability of having some of the outliers as early as possible in as small as possible funds because like a fund, that will lead to a power law in our portfolio.” – Ertan Can
Two weeks ago, Ted Seides put out a great blogpost titled: The Investment Office Playbook – What Managers Don’t See. It’s the truth behind the veil of “It’s not you, it’s me” answer that LPs give. And that the best time for managers to be approaching CIOs at institutions happens to be:
1-2 years after they’re just sworn in (in other words, after they’ve figured out their strategy)
Up to 2-4 years after that period when they’re deploying against that strategy
And around years 11-13 where they’re now restructuring their portfolio after their previous portfolio has been optimized and reached maturity
Last week, Sequoia’s Jess Leeshared a fascinating product-market fit framework. Probably the best breakdown of solutions to problems mapping I’ve seen of late. It echoes much of what I’ve writtenbefore, but more eloquently put.
And the reason I bring this up is not to induce whiplash as you’re reading this blogpost. But that it relates back to when to raise from large LPs. As most of us know, there’s a strong correlation between fundraising as a founder and fundraising as a GP.
The first step is to have a product that large LPs can invest in. As a matter of fact, you need to have a specific product (aka fund strategy) for the LP you wish to court. For example, if a large LP’s minimum check size is $20M and their maximum ownership is 10%, and you’re a $50M fund, you don’t have what they’re looking for. That’s okay. You should never resize your fund purely on an LP’s check size and ownership.
The second is to understand their deployment timeline. In the case of large LPs, like endowments and pensions, that’s usually 2-4 years after a new CIO is sworn in. And years 11-13 when they’re rebalancing their portfolio. For other institutions, like some corporates, it’s actually in the bylaws that every three years, there’s a new Head of Investments. Hell, at Norges Bank Investment Management (NBIM) — the largest sovereign wealth fund, or at least one of the largest ones — a new CEO is sworn in every five years. So the clock is always ticking.
To the second point, for a large LP:
Years 1-2
When the new CIO is just sworn in, in many ways, that might be the best time to pitch a new paradigm. When the strategy has yet to fully shape up. Will you get many checks during that period? Likely not. Unless you’re a pre-existing trusted relationship of the CIO. But even if you do convince the CIO/team, they’re likely only allocating a very small percentage to that field, which for the most part, should work for you.
The goal of the value proposition, and subsequently the onboarding and tutorial, is to give people the activation energy needed to overcome the customer mindset. As such, it means one’s product can’t just be 10-20% better, but 10X better.
For instance, to get over the “yeah, right” and the “it is what it is” mindset, in the words of NFX’s Omri Drory, “the best way to manipulate energy, and get what you want, is to remove that ‘imagination barrier.'”
As such, the CIO must believe in the new paradigm. In all fairness, this takes more validation and big headlines for a tenured CIO to usually begin to believe these.
Years 2-4 (and 11-13)
They’re deploying against a top-down approach. And just as in years 11-13, they’re looking for the best in class solutions for each vertical. Meaning they’ll talk to hundreds of managers and look through thousands of pitches to pick just a few. Processes are long because they dig deep on these multi-fund relationships, but this is also an opportunity for them to increase the surface area for luck to stick.
While we all know past performance isn’t an indicator of future results, there is a reliance on metrics and the consistency of such metrics. For instance, if one were to take the top 2 investments in your portfolio and bottom 2 investments and throw them out, what does your remaining track record look like?
Or if some of your funds have yet to have meaningful distributions, graduation rates become rather important. Not just that on average, 30% of seed stage deals graduate to Series A. And 30% of Series A to B. But how many of your deals graduate past more than one subsequent round? For example, do more than 10% of your seed deals graduate to Series B? Although, to play my own devil’s advocate, vintages post-2019 have yet to really learn the true impact of loss ratios.
In closing
The truth is it’s hard to tell when the best time is. And oftentimes, it’s just a matter of luck. For one to have the right fund a specific LP is looking for at a time when liquidity is good.
But in many other ways, like Ted suggests in his blogpost, it’s the ability to think from the perspective of an LP that is invaluable and greatly appreciated as an LP.
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.
I’ve always admired the way Mike Maples has thought about backcasting. In summary, he proposes that true innovators are visitors from the future. Or as he puts it: “Breakthrough builders are visitors from the future, telling us what’s coming.” Such that they “pull the present from the current reality to the future of their design.” In other words, start from the future, then work your way backwards to figure out what you need to do today to get there.
And I find it equally as empowering to do the same exercise as an emerging manager. Hell, for any aspiring institutional investor. Be it from an angel to a GP. Or an individual LP to a fund of funds.
Start from your ideal fund model. Your ideal LP base. Your ideal pitch deck. Then work backwards to figure out what you need to do today. For the purpose of this blogpost, I’ll focus on reference checks.
For everyone in the investing world, especially in the early-stage private markets, we all know that reference checks is a key component of making investment decisions. Yet too often, founders and emerging managers alike think about them retroactively. Post-mortem. Testimonials that are often not indicative of one’s strengths. And especially not indicative of how a GP won that investment, as well as how they can win such investments in the future.
An exercise I often recommend investors do is write your ideal reference you would like to get from a founder. Be as specific as you can. What would your portfolio founders say about you? How have you helped them in a way that no one else can? What do founders who you didn’t fund say about you?
Another way to think about it is if you were to own a word — something that would live rent free in people’s minds — what would you own? Hustle Fund owns “hilariously early.” Spacecadet Ventures owns “the marketing VC” and they live up to it. Cowboy’s Aileen Lee created the idea of “unicorns.” “Software is eating the world” is attributed to Marc Andreessen.
On the flip side of the token, what are testimonials that should never be written about you?
Hell, at this point, if you’re an aspiring institutional investor, and have yet to spell things out, create the whole deck. Fill in the numbers and the facts later, but for now, make up your ideal deck. When leading indicators become lagging, then update it and fill it in.
Then be that kind of investor for every founder you help. As Warren Buffett once said, “You should write your obituary and then try and figure out how to live up to it.”
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.
Aakar Vachhani is a Managing Partner and a member of Fairview’s investment committee. He is involved in research, due diligence, investment monitoring, and business development for Fairview’s venture capital and private equity partnership and direct co-investment portfolios.
Prior to joining Fairview, Aakar was with Cambridge Associates, a leading investment advisor to foundations, endowments and corporate and government entities. He was responsible for analyzing private equity and venture capital investments in support of the firm’s clients and consultants. In addition, he led research and data analytics projects on the firm’s private equity and venture capital database. Aakar also spent time with MK Capital, a multi-stage venture capital firm with a sector focus on software and cloud services.
Aakar Vachhani holds a B.S. in Economics-Finance from Bentley University and an MBA in Finance and Entrepreneurship & Innovation from the Kellogg School of Management. He is a member of the Board of Directors of San Francisco Achievers and the New Breath Foundation. On top of that, Aakar established and leads Fairview’s San Francisco office.
[00:00] Intro [04:29] Growing up in a household of 10 [09:36] Aakar’s leadership style when he was a child [12:12] Why Aakar turned down a job in insurance back at home [17:25] The third time Aakar applied to Cambridge Associates [21:56] How Fairview aligns incentives with each investment they make [26:15] How Fairview helps their GPs [28:58] How Fairview gives pitch feedback to GPs [32:54] Reasons Fairview passes on a GP [34:58] How does Aakar define what a “new manager” looks like? [37:55] How did Aakar build out Fairview’s SF Bay Area practice? [44:26] Fairview’s onboarding process for new hires [47:21] Why Fairview’s investment decisions need to be unanimous [52:17] The balancing act between a narrow thesis and a big market [56:09] Why Fairview invested in Eniac Ventures [57:56] What does a helpful LPAC member look like? [59:30] Typical questions GPs bring to their LPAC [1:01:13] How do the best GPs communicate strategy drift to their LPs? [1:03:01] Why LPs dislike strategy drift [1:06:28] What new technologies does Aakar think LPs should pay attention to? [1:08:30] Aakar’s core memories [1:11:45] Thank you to Alchemist Accelerator for sponsoring! [1:14:22] If you enjoyed the episode, it would mean a lot if you could like, comment, share, or subscribe!
Possibly the quiet thing out loud, one of the best parts about demo days is the excuse to catch up with old friends. Yes, we do go there to see deals, but realistically, many of us would have started the conversations with many of the demoing class before demo day. This is not only true for VCs at startup demo days, but equally so for LPs at emerging manager demo days.
Earlier this week, my friend invited me to go to his emerging manager demo day. I’ve always admired how intentional he’s been with picking, so it was a natural yes. The pitches came and gone. And as the networking part kicked off after, a few LP friends and I came together to catch up but also to compare notes. What did we think of Fund A? Fund D? Who was interesting? Who would we take a second conversation with? And why?
Naturally, we shared our respective decision-making frameworks. A lot of which overlapped. Others were more unique to each LP themselves. Simply because the motivations of LPs often differ from each other. Some do so for co-investment opportunities. Others invest in VC as an asset class. And there are also those that invest to pay it forward.
So while it’s not my place to share the words whispered to me in confidence, here are some general takeaways:
Unlike startup pitches, there is no consistency of pitch format among emerging managers.
Most GPs don’t seem to know what kinds of metrics/facts immediately stand out to an LP. One such GP buried an amazing angel track record TVPI as one line in his deck.
Humor sells.
Spinouts are only interesting if your track record is portable. In other words, if you were too junior on the team to have pounded the table for deals, you don’t count as a spinout in some LP’s minds.
Unscripted moments are memorable. At least ones that feel unscripted.
DPI earned within 5 years (as opposed to 5+ years) begs the question of where does it come from (i.e. secondaries, acquisition, etc. Former will lead to yellow flags.)
Track records that began post-2019 have an asterisk next to them.
That said, if it may be helpful to not only GPs, or other LPs out there, I’ll share my own calculus below.
I want to preface that the goal of the below “checklist” is for me to quickly decide which GPs I should follow up with, given limited information in the format of a 5-minute pitch. As such, this isn’t all-inclusive, but simply answers the question: Is this fund/manager interesting enough for me to spend another hour with them?
I will also say that this works best for me particularly for Funds I and II.
And one more thing, I’m still a WIP. In other words, this is the checklist that suits my current needs the best, but your mileage may vary.
The Demo Day checklist
At a high level, below are the five categories that are the most interesting to me.
Sourcing — Are they fishing in differentiated pools? Do they have proprietary access to deals? Where are they finding diamonds in the rough?
Picking — This can be interesting in two ways: (a) track record (which only starts to become interesting after 5+ years with 20+ deals), and/or (b) decision-making framework/algorithm.
Winning — Why do the best founders pick you? How much ownership can you get in these companies? Some examples here.
Likability — You’re either very likeable or contrarian. Anything else just isn’t memorable. And if not memorable for me, likely not memorable for founders. In many ways, I’m looking for ways you stay rent free in a founder’s mind when they know nothing else other than the fact that you invest in early stage companies. ‘Cause let’s be honest; most firm’s websites say just that and nothing more. Some might call this GP-founder fit. Others call it vibes.
Uniqueness — A bit amorphous here, but really, it’s just: Is there something I’ve never heard of before?
As a caveat, I only started including this “pillar” after I saw about 200 decks and pitches. Before that, I simply didn’t know what counted as unique and what didn’t.
And for each category, I give 4 different kinds of scores.
✔️
There’s something special here. Worth digging deeper. If I continue on to diligence, this is usually the first thing I reference check.
〰️
No strong opinion here and/or there’s no edge here.
❌
I use this extremely sparingly. This is a sign of a red flag. In fact, there are very few red flags that can even come out in a 5-minute pitch. So really, I only use an X when I feel the fund manager is sharing something dishonest.
Yes, that’s a blank space. Meaning the pitch itself failed to offer any reference point or evidence on this variable.
And for the five categories above, having a check mark in at least two of them is enough for me to say yes to another conversation. No single A+ trait standing in pure isolation. But only one X is enough for me to pass.
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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.
Youngrok Kim is a Partner at GREE LP Fund, a Fund of Funds operating in the US and Japan. Previously, he held the position of SVP at Recruit Strategic Partner, the strategic investment arm of Recruit Holdings, a major internet company in Japan. Youngrok began his career as an engineer at Goldman Sachs before transitioning to a VC career at ARCH Venture Partners in Chicago. He earned an MBA from the University of Chicago and received his degrees in Information Technology from Aoyama Gakuin University in Tokyo.
[00:00] Intro [04:10] How did Youngrok find himself in Japan? [09:29] Picking up the Japanese language [20:29] How did Youngrok go from Japanese guitarist to being an LP? [26:50] From pitching LPs on a fund-of-funds to getting a job offer from a prospective LP [33:21] GREE LP Fund’s hiring process [37:40] The three sources of data that helped Youngrok’s fund-of-funds thesis come together [44:17] Superpowers and where to reference check them [48:57] Simple versus nuanced questions for fund managers or reference checks [56:12] One thing that many GPs think is special but actually isn’t for an LP [58:52] What makes a good LPAC member? [1:00:26] What are typical questions GPs have for their LPACs? [1:05:28] Why GP friendships with other emerging managers might be becoming less important? [1:11:55] A fun fact about Youngrok’s name [1:12:55] Playing a number game with Youngrok [1:16:05] Thank you to Alchemist Accelerator for sponsoring! [1:18:41] Like, comment, or subscribe if you enjoyed this episode!
“Reference calls have a lot of nuance. No one wants to say bad things about their investors. And no one wants to say something bad about their co-investors. So my job is to find out the subtle nuances.”
