I was talking to an emerging manager raising a $10M fund recently. He shared a comment, likely off-the-cuff, but something I’ve heard many other emerging managers echo. “This year, most of the dollars deployed into venture has concentrated in only a few big funds.”
Not this manager in particular, but I’ve heard so many other Fund I or Fund II GPs say that. Blaming their struggle with fundraising on the world. It’s not me, but the world is conspiring against me. Or frankly, woe is me. But there is no LP who ever wants to hear that. Building a firm is hard. Building a startup, likely harder. No one said it’ll be easy. So let’s not pretend it’ll be all sunshine and rainbows. If you thought so, you’re deeply misinformed. If you’re going to be an entrepreneur of any kind, you need to take matters into your own hands. You cannot change the world (at least not yet). But you can change how you approach it.
That said, the mega funds who are raising billions of dollars are raising from institutions whose minimum check size is in the tens, if not hundreds of millions. These same institutions would never invest in an emerging manager. Their team, their strategy, and their institution isn’t built for it. When they have to deploy hundreds of millions, if not billions, a year into “venture” with a team of four or less, you’re not their target audience. So as an emerging manager, those mega funds are not your competition at least when it comes to LP capital.
You’re competing against all the other funds (likely emerging managers) at your fund size. Who can take the same check size you can take. That’s who you’re competing with. So whether you like it or not, billions going to the mega funds has, from a fundraising perspective, nothing to do with you.
If you are looking for reasons to fail, you will find one.
As the great Henry Ford once said, “Whether you think you can, or you think you can’t, you’re right.”
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“The limiting downside is actually something a lot of emerging managers don’t think about. If you can turn all of your portfolio companies that don’t hit that exit velocity, if you can find a soft landing for those companies versus that’s a writeoff and they’re dead and done, that’s extra effort, but that’s an extra turn on your fund’s performance.” — Carson Monson
Carson Monson is a seasoned allocator with nearly a decade of experience backing emerging and spinout GPs across large institutions, government entities, and family offices. After stints at Greenspring, SITFO, and building a fund of funds strategy for a large European single family office, he now runs the fund of funds at CrossRange, which focuses on supporting top-tier emerging and spinout GPs.
Carson has backed everything from micro funds to high-profile managers spinning out of tier-one firms. He is deeply committed to being a thought partner and strategic resource to the GPs he supports, helping them navigate the complexities of fund building and long-term success in the VC industry.
[00:00] Intro [02:08] Wildlife and wholesome trouble [06:03] The journey to being an LP [10:54] How did Carson join Greenspring? [13:55] Lessons across Greenspring [15:46] How many deals did Greenspring do per year? [18:46] An example of a qualitative metric worth measuring [20:16] How many off-thesis bets is a VC allowed to make? [21:25] When do GPs move from thematic bets to opportunistic bets? [25:45] How much AUM should any one GP have? [29:46] Why does Carson liked concentrated portfolios? [30:32] The case for concentrated portfolios [36:40] Relationships with GPs should stay at the LP partner level [39:49] Fund strategy at Fund (n) vs Fund (n + 1) [45:19] What the hell is ‘critical node theory?’ [49:54] Examples of great references [52:58] The halo effect of mega funds [58:48] How does Carson get to inbox zero [1:02:09] Why is CrossRange different? [1:08:17] The last time Carson had a pinch-me moment [1:10:17] Carson’s ricotta gnocchi [1:12:28] Post-credit scene: Ramen, gluten, Tokyo, and Tonkatsu Suzuki Pt 2
On if 20% of the fund is focused on opportunistic bets… “Wealthy is a nice word. I would say [20% is] egregious. […] 10%, it’s not like it’s the right number, but it’s the number most LPs won’t contest.” — Carson Monson
“In the past, there have been GPs who are truly excellent at one thing or a couple of things, whether that’s a thesis, strategy, or an approach. And that approach makes a ton of sense at the fund size that they’re operating at or maybe a little bit larger. In the 20-teens especially, people were able to raise more and more, and strategy drift became a huge issue. That is something managers have to face the music on now. It’s almost like the idea of being a professional baseball player and grinding and working your way up and becoming excellent and an all-star baseball player. Then being, ‘Well, the motion is similar in cricket, so I’ll just go play cricket now.’ Ya some of the motions are similar, but it’s a fundamentally different sport. Strategy drift, fund size drift; it can be a really easy trap to fall into. The motions are similar, but you lose that competitive edge when you start to play a different sport.” — Carson Monson
“If you’re more concentrated, there is an ability to impact outcomes more meaningfully. I like GPs that play a critical role in the ecosystem in which they operate in. If you play a critical role—whether that’s in go-to-market motions, whether that’s in commercialization, whether that’s in branding and storytelling—there are so many ways you can play that role. Those types of GPs tend to have an ability to move the needle for their founders more—both on the upside and limiting the downside.” — Carson Monson
“The limiting downside is actually something a lot of emerging managers don’t think about. If you can turn all of your portfolio companies that don’t hit that exit velocity, if you can find a soft landing for those companies versus that’s a writeoff and they’re dead and done, that’s extra effort, but that’s an extra turn on your fund’s performance. There is a skillset in identifying that there’s still good in a company, even if it’s not going to have this massive outcome.” — Carson Monson
“Venture should play more like Moneyball. If you can get your companies on base and limit strikeouts, that is actually so impactful at a fund level. More emerging managers should try to think like CIOs, and less like individual investors, like being a portfolio manager and managing outcomes. Obviously, venture is a game of minority positions. You do not have sole control. Playing that role for your founders, it impacts performance. It impacts reputation and, in fact, your ability to win in the future.” — Carson Monson
“You cannot say, ‘I’m going to be SV Angel today, so I can be USV tomorrow.’” — Carson Monson
“A multi-billion dollar mega fund has to have a portfolio of companies whose aggregate equity value outstrips the GDP of most small nations on this planet.” — Carson Monson
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.
One of the most interesting lines I heard on a podcast that Mike Maples was on was: “90% of our exit profits have come from pivots.” Which I first wrote here. Then here. It’s a line that lives rent free in my mind. Ideas, startups, roadmaps, and goals change all the time. I get it. That’s life. Very, very few folks are folks who unilaterally pursue one thing their entire lives. And of those who do, they’re not all successful.
Another friend of mine whose track record speaks for itself, having invested and involved herself in multiple boards before those companies became unicorns and even after, once told me that the idea she invests in is irrelevant. As long as it has grounds and can be adjacent to a large market. The primary thing she looks for is the founding team.
Early-stage investors obsess about people. They’re not wrong. Some are misled by these “VC-isms.” Others still have their own way of underwriting them. I don’t have a crystal ball. I’m also not the smartest person to be dishing out predictions. I have a rough idea of what will change, though I may not always be right. But I don’t know how they’ll change. Or when. So I’ve lived an investing career obsessing over things that don’t change. Or as Naval Ravikant puts it: “If you lived your life 1000 times, what would be true in 999 of them?”
I’ve written about flaws, limitations and restrictions before. But to quickly surmise:
Flaws are things you can overcome. Limited track record. Never managed a team. Never scaled a product. Limited access to capital.
Limitations are imposed by others and/or the environment. Gravity dictates that objects don’t fall upward. There are only 24 hours in a day. If you’re not based in the Bay Area, it’s harder to raise capital. Certain investors prefer co-founders and partnerships. Certain investors care about warm intros. The list goes on.
Restrictions are rules imposed on yourself by yourself. Batman can’t kill. You only invest in solo founders. You only invest in healthcare. You don’t invest in anyone outside the Ivy League schools. But some restrictions go deeper. You’ll never hire from a job portal again. You never hire or invest outside of your network. You won’t invest or hire having never met someone in person. You need to meet their spouse before you make a hiring decision. You don’t invest in single parents. You don’t hire anyone who doesn’t read at least one book per month. You micromanage. You don’t hire anyone who cannot curse. And yes, I’ve heard all of the above and more. My curiosity is always: Why do you impose such restrictions on yourself? What is the story you’re not telling me? Is out of a fear or admiration?
All that to say:
Flaws will and can change if it is a priority. But won’t change if they’re not.
Limitations might change, but it’s outside of your and my control. And I don’t get paid to pray to the weather gods.
Restrictions often don’t change.
Whether you admit it or not, certain habits are hard to change and unlearn. It’s possible. But that requires you to not only be aware of it, but also actively want to change it. Other habits are second nature. How you treat others. How you start each conversation. Why you look both ways before crossing even an empty street. Why you’ve sold yourself a particular personal narrative. Why you have to invest a certain thesis.
The world seems to always be trying to stay on top of things, but there seems to be far less dialogue around how to get to the bottom of things. To me, when it’s underwriting a person and their team, it’s about underwriting what doesn’t change rather than underwriting what could.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“A manager doesn’t generally fit into their ultimate quartile until Year 6.”
Apurva Mehta is the co-founding Managing Partner of Summit Peak Investments, a fund-of-funds that boasts a portfolio of both venture fund investments and direct investments, including the likes of Affirm, Anduril, Airtable, Opendoor, and Wish, just to name a few.
Prior to starting Summit Peak in 2018 with his co-founder, Patrick O’Connor, he previously served as Vice President and Deputy Chief Investment Officer for the Children’s Hospital Endowment Portfolio in Fort Worth, Texa. From 2008 to 2011, he was the Director of Portfolio Investments at The Juilliard School in New York City. Apurva began his career in investment consulting and investment banking at Citigroup and Lehman Brothers. He was recognized for his expertise when he was named to aiCIO Magazine’s Top Forty Under Forty in 2012 and 2013 and honored as a Rising Star by Institutional Investor. He holds a BBA in Finance from The George Washington University.
[00:00] Intro [01:40] Tennis [02:45] Lehman Brothers’ impact on Apurva [05:28] What AI is missing in investment management [14:26] Underestimated qualitative metrics that impact a GP’s story [22:10] Building Cook Children’s Hospital foundation portfolio from scratch [30:24] Moving quickly as an LP [31:32] What does Apurva look for in the first meeting? [37:20] Ugly sweater Christmas parties [39:56] Apurva’s favorite ugly sweaters over the years [41:40] Post-credit scene: What does GFW mean?
“A manager doesn’t generally fit into their ultimate quartile until Year 6.” — Cambridge Associates
“If everybody’s running the other way—running from the fire, let’s run into it and there’s an opportunity here.” — Apurva Mehta
“When you think about the brand-name firms, they are iconic firms, iconic names. We love the fact that they’re co-invested alongside us. Even if we could build relationships with those firms, we didn’t feel like we’d get the transparency—maybe it was because of our check size, but maybe that’s just because of how they operate—that we needed to go to an investment committee.” — Apurva Mehta
“The transparency at the brand-name firm level is not as high as it is with the kinds of firms we back.” — Apurva Mehta
“Back then, everything was white space, building around network and ecosystems […] It was easier then because the landscape was less crowded. There were 150 backable or quasi-backable seed funds in 2012. 2000 to 3000 now backable and quasi-backable funds in the market. But it was easier then to figure out what we were looking for because it was just brand new.” — Apurva Mehta
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 was on a walk with an LP friend recently around Redwood City. And he told me a remark that another LP had about a mutual investor relations friend we had. That our IR friend started the conversation with, “What are your life goals?” And it alarmed that LP who was meeting our IR friend for the first time. To which, this LP told a few others that he was not only thrown off, but also felt offput by the interaction.
It led to a discussion between my LP friend and I where neither of us, knowing this mutual IR friend, would ever think less of our IR friend because that’s just how this person operates. But to someone who has no context of our friend, it would seem bizarre.
One of my friends who, at one point in time, was a full-time professional DJ, once told me, “The golden number is 120. 120 beats per minute. It’s the rhythm that when you strip all the noise away and you can get a heart to beat that fast, it feels like you’re in flow—flow state. Pure ecstacy.
“But you can’t start the set at 120. If your mix is at that pace, and the heart isn’t, it feels discombobulating. You need to work up to it. Start the set at 70. And over the course of a one- to two-hour set, you work your way up to it. And notice the audience. The crowd must be nodding their head to your beat. And if you ever lose that bob, slow the set down again. And try to catch that heart rate again.”
To this day, probably one of the best pieces of advice on how to hold a conversation I’ve gotten to date. And it was never meant to be so.
A question I get surprisingly often is: “Why did you start the podcast?”
Among many reasons — I get to ask dumb questions to smart people, refine my diligence skillset, get better at asking questions, and so on — one of which was that when I only have an hour and change with someone, I’d rather not spend 10-15 minutes on small talk. How are you? How was the weekend? Which seems to be the LLM that’s coded in us on how to start a conversation and hope eventually, you can get to the meat and potatoes of the conversation. And it makes sense.
To use the DJ analogy above, most people’s resting heart rate is around 60-100. To take the middle of the road, 80. And for busy people who are constantly distracted by meetings and tasks that need their attention, a conversation with a stranger is among the lowest of their priorities. So I always believed that people would be near their resting heart rate when chatting with a nobody like myself. As such, they need icebreakers like “How are you?” to warm them up to the conversation, where their first impression of how you answer that question will indicate where the conversation might go.
On the flip side, most people haven’t been on podcasts. Much less, the guests I aim to have on. LPs. Many typically aren’t given the stage. And even if they are, it’s closed door discussions and private events. Rarely, do they get a public stage. So, the hypothesis was that on average, an LP will most likely be more nervous, excited, you name your fair share of anticipatory emotions jumping on a podcast as opposed to an offline 1:1 conversation. Six seasons in, I’d say we’re pretty close to the mark there.
As such, a faster heart rate means I am often given the privilege of starting the conversation not from “How are you?” but a question closer to 100-110 beats per minute, with hopes we can get into the questions that result in 120+ bpm sooner. And it’s almost always easier to ask a question “for the audience” than for yourself.
“Tell us about the time you proposed to your wife via a billboard. And how does that influence the way you think about pitches today?”
“Half your games on chess.com open with the Ruy Lopez. How do you think about opening gambits when you play white. And how much, if at all, does it influence the way you think about opening a conversation with a GP?”
“How does getting your first day in investment banking postponed, which was supposed to be Sept 11, 2001, influence the way you think about serendipity?”
All questions that I would hesitate to say, would be easy opening gambits in a 1:1 coffee chat. But your mileage may vary.
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.
“It’s a mathematical reality that the highest performing GPs in this part of the market often also have the highest kill rates, which means some things are incredible and other things are super wonky and you have to be cool with that. You can’t be doing a six across the board.” — Caroline Toch Docal
Caroline Toch Docal backs early stage fund managers as the lead of BCV’s Emerging Manager Program. She believes in investing in funds as early as the first close, which is a rare focus in the LP landscape. She’s a lifelong early stage enthusiast from her time at Venture for America to Techstars to Chief to Dorm Room Fund to now Bain Capital Ventures, where she runs the emerging manager program there which has seen quite the evolution since 2017.
[00:00] Intro [01:33] BCV Emerge [02:30] The 13-year summer camp experience [07:46] From VC to LP [09:50] Compare/contrast early stage investing to emerging GP investing [12:51] Behind the scenes of Caroline chose to become an LP [14:36] Caroline’s first investment [16:24] What is a GP-friendly diligence process? [21:27] How Caroline pre-qualifies an investment? [24:50] Understanding if a GP REALLY believes VC is their life’s work [26:25] Examples of long-term language [31:05] The 3 Acts of BCV’s Emerging Manager program [36:44] What the hell is BGH? [38:03] Stand up comedy [39:20] Dogs vs cats
“One of the things that’s not really talked about in this part of the asset class is everything looks pretty good until you see a lot of stuff.” — Caroline Toch Docal
“Sometimes people use the referencing phase to get to know people they’d want to meet. I don’t believe that is necessarily the most GP-friendly thing to do.” — Caroline Toch Docal
“It’s a mathematical reality that the highest performing GPs in this part of the market often also have the highest kill rates, which means some things are incredible and other things are super wonky and you have to be cool with that. You can’t be doing a six across the board.” — Caroline Toch Docal
An example ‘long-term language’: “They don’t celebrate fundraising; they celebrate outcomes.” — Caroline Toch Docal
“The average anchor check for a $10-25M fund today is $4.2M. In 2017 when we started, it was less than $3M. So that’s a huge change. Related, the LP base is just concentrating. Using that same size as a benchmark, they have 25% fewer LPs than in 2020.” — Caroline Toch Docal
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“The intuition part comes from activities of creativity that change your perspective.” — Yiwen Li
Yiwen Li is a seasoned investor with a successful track record of investing in AI, blockchain, and healthcare tech while developing global business partnerships to fast-scale the business.
Yiwen is currently Head of Venture Investments at Bayview Development Group, a global family office with diverse exposure public market, private equity, venture, and real estate. Prior, she was a Principal at Alumni Ventures, responsible for end-to-end multi-stage investments focused on blockchain and fintech. She was Director for Corporate Strategy at Masimo (Nasdaq: MASI). She built an innovation pipeline in healthcare connectivity and data analytics. She was Director for Corporate Development at NantHealth (Nasdaq: NH), where she established the international business division. Yiwen started her career at Capital Group in equity research.
Yiwen is an Advisory Board member of C-Sweet. She served on the board of Give2Asia as the chairman of the finance committee and a member of the investment committee. She was an advisory board member for the Asia Society where she co-founded the “Asian Women Empowered” initiative. She was recognized as the” Top 50 Women Leaders in San Jose 2024 and 2025”, “Top 50 Women in 2019” and the “Most Inspirational Women in Web 3”. Yiwen is also the author of one of the best sellers “Make the World Your Playground”, inspiring women to find their unique path. She is a frequent speaker on innovation and emerging technology trends.
Yiwen holds a Master from the London School of Economics and a Master from the University of Vienna. She also graduated from the Venture Capital program at UC Berkeley and the Private Equity Program at Wharton. She was selected to be one of the ” Young American Leaders” at Harvard Business School. Yiwen is a recipient of the European Union’s Erasmus Mundus scholarship. She is fluent in Mandarin and German, worked and lived in Europe, Asia, and US.
[00:00] Intro [02:07] Yiwen’s childhood [05:00] Jazz singing [06:14] The value of learning languages [09:01] How to build intuition around emerging managers [14:51] Getting to the bottom of a GP’s motivation [16:33] What percent of GPs are not in VC for the right reasons? [19:47] Does success fuel or inhibit ambition? [24:17] The cost of knowledge is cheaper [24:56] Competitive edges in the current world [27:06] Why creative activities matter [31:21] Advice to emerging LPs [32:42] Post-credit scene
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.
Writing this “Dear Emerging Manager” reached more people than I thought, so people asked me to write the same version for LPs.
You’re not special. No matter what GPs say, you’re not. I’m sorry. Refer to Danny Meyer’s line in Setting the Table: “You’re never as good as the best things they’ll say, and never as bad as the negative ones. Just keep centered, know what you stand for, strive for new goals, and always be decent.”
If you don’t believe me, imagine if you were broke, but you got to keep everything else you have. Knowledge. Network. Would the best GPs still give you carry if you had no money?
You’re likely not going to win the best co-investment. There’s very little incentive for a GP to. An experienced later-stage investor will do better than you. Will likely be more helpful than you. Even if by brand association alone. Will likely be better connected than you.
Even worse is if you can have the full pro-rata amount. Worse still, you get the “opportunity” to lead. If you do, you’re just telling everyone your child is the smartest kid on the planet. If no one else says that, it’s just you. Don’t believe your own bullshit. See Richard Feynman‘s line: “The first principle is that you must not fool yourself and you are the easiest person to fool.” Do note, it’s different if you get access to a Series D deal through your manager.
As of now, we’re investing in “innovation” when we should be investing in innovation. Let me lay down the incentives. You want liquidity, so you look at deals that generate such. The lowest hanging fruit here is companies who IPO. So you start looking for funds, and sometimes deals, that are in the same sector. And because you are, because you’re looking for that story, large organizations are pitching you that narrative. They restructure and hire teams so that it feeds that narrative. Because the multi-stage funds are doing so, early stage funds and “smart” first checks are pitching strategies and picking companies where they know the multi-stage funds will follow. The co-investor (much less the follow-on investor) slide in the deck gets the most attention these days. The established early stage programs are telling me, in confidence, that they invested in X deal because Big Firm Y will do so. And they’re optimizing for that. The larger platforms are telling me they’re hiring team members around which types of companies are getting late-stage funding and/or going public. Fintech became interesting because of Chime. Prosumer became interesting because of Figma. (Circa 2025). AI is interesting because of large secondary opportunities into OpenAI and Anthropic. Yes, these industries are all transforming the world, but note the incentives. These are the IBMs.
Because of all the above, funds really only have a 10-20% allowance to make venture bets. Any more than that, GPs risk career suicide, at least from the perspective of LPs. These GPs are “unbackable.”
I don’t want you to stake your careers on it. I’m just a stranger on the internet whom you shouldn’t take advice from. But this same stranger is frustrated at the collective risk appetite of an industry that’s supposed to be known for eating risk for breakfast, lunch, and dinner.
Venture has become too big of an asset class if you can describe emerging managers, established firms, growth equity, secondaries all within the same umbrella. The decision-making and the underwriting is different from each. Some see normal distributions. Others do not. Do not conflate a normally-distributed asset with a power-law-driven one.
A slow ‘no’ is worse than a fast ‘no.’ Some will thank you for a fast ‘no.’ Most won’t. But most will talk behind your back if you give them a slow ‘no.’ Time is the only resource we cannot win back. Yours and theirs.
Marks before Year 5 mean very little. You’re welcome to use them as directional headings, but never rely on them. Even if you do, do your own adjusted TVPI and IRR measurements outside of what GPs tell you and keep that methodology consistent across all investors you come across.
Lemons ripen early in venture. Early losses are not always a clear sign of a bad portfolio.
Another LP passing is not always a bad sign. Find out why. Find out how many other similar funds they saw.
It’s okay to pass on a deal if you don’t have the network to diligence the deal. Not having the network means you don’t have people who’ll tell you the cold truth. These are the people who’ll tell you that you have spinach in your teeth.
Don’t ask for data rooms in the first meeting. Or worse, before the first meeting. You’re likely not going to do anything with the data. In the words of my friend, “it’s like asking someone’s net worth on the first date.” Too early. The deck and a conversation is all you need to figure out if the juice is worth the squeeze.
Be transparent with your timing and decision-making process.
If you do not have the time, energy, budget, or network to do the work in true venture, hire someone to do it. Usually that means an oCIO, fund-of-funds, MFO, or a consultant. Make it their job. But make sure it is their ONLY job. The infamous fictional philosopher Ron Swanson once said, “Never half ass two things. Whole ass one thing.”
Your institution will thank you more for whole-assing one job. So, will your GPs.
In the words of Thomas Laffont, “Focus is a luxury.” You sit on more privilege than the vast majority of the world. More privilege than your childhood friends. It’d be a shame to not use the luxury that comes with that privilege.
Don’t torture the data. “If you torture the data long enough, it will confess to anything.” Let the data guide you to questions. Then form your own hypotheses. Understand you cannot grill any hypothesis until it dry ages for at least 7 years. Any sooner and it’s not worth the premium you paid for it.
Trust your intuition enough that you don’t regret in 30 years that you didn’t take the bet of the lifetime, but not enough that you live to regret a lifetime of (undisciplined) bets.
This letter is as much of a reminder for you as it is for me.
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.
“Once you hit a billion dollars, you should probably consider some sort of internal team. Just to mitigate risk. There’s audit risk involved when you have such a small number of people managing a huge pool of capital. It’s going to differ for everyone. That’s probably a good benchmark.” — Trish Spurlin
Trish Spurlin is the Investment Director at Babson’s $800M endowment, covering private markets investing with a large focus on venture. In fact 70% of their private equity portfolio is venture capital. Quite a unique strategy for an endowment to take. Why? An endowment is required to provide, in this case, the university money every single year, anywhere from 5% to 60% of a university’s annual budget. And to invest in an illiquid asset class aka venture capital that doesn’t return capital till a decade later, if not longer, takes courage.
[00:00] Intro [01:45] Sports in Trish’s life [05:10] How does success fuel inhibit ambition? How does it inhibit ambition? [07:35] How do you underwrite long term motivation? [13:21] How fast you order something might matter [16:04] Can Trish angel invest outside of Babson? [17:08] Endowment with a $80M budget [19:54] Should you hire an outsourced CIO? [24:18] Endowment with a $8B budget [27:47] Babson’s liquidity requirements [30:33] How to ask about a senior partner leaving [34:05] How does Trish build trust with her GPs? [37:48] Trish’s interests vs Babson’s interests [45:24] Hank Sauce [47:26] Why is Ocean City Boardwalk special? [48:51] What serves as a reminder to Trish we’re still in the good ol’ days?
“What have [ambitious people’s] transition periods looked like? A lot of times when people do really cool things, there are 2-3 years after where they just don’t know what to do with themselves. That’s very normal. You see that with Olympians. You see that with astronauts.” — Trish Spurlin
“Once you hit a billion dollars, you should probably consider some sort of internal team. Just to mitigate risk. There’s audit risk involved when you have such a small number of people managing a huge pool of capital. It’s going to differ for everyone. That’s probably a good benchmark.” — Trish Spurlin
“If you want to be told things when they aren’t going well, you can’t freak out when somebody tells you something that’s not going well. No emails in caps. No yelling. Take a moment to digest what you’re being told. You’re collecting information. You can discuss that information when the time is appropriate.” — Trish Spurlin
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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.
I was chatting with a GP last week about the highlights and lowlights of having a multi-stage fund or just a VC fund as an LP via their fund-of-funds. The obvious synergies of access to downstream capital and branding, especially if the individual running the fund-of-funds is known for their institutional track record as an LP. As well as access to the GPs at those funds for mentorship reasons.
But the downsides also exist. You’re one of many of other GPs who have access to the same team. More often than not, there’s no institutional diligence. And the investment happens largely for strategic purposes. Same is true for multi-stage GPs investing through their own family office. But you also have to think through the tough conversations you need to have when you take checks from more than one of these funds. Assuming all else equal, and they write the same check size, when your portfolio companies are outperforming, do you pass them to Big Fund A or Big Fund B? Equally as true for any LP who wants co-investment opportunities. Family offices. Fund-of-funds. The classic question of: Do you like Mom or Dad more?
And there’s one more. Consider a multi-stage fund who’s an LP in your fund. You share one of your stellar portfolio companies with them, and they loved the deal so much they also invested. Not only invested, but led the following round at a much, much higher valuation. For the sake of this thought experiment, let’s say the Series A valuation is a solid nine figures. As such, they take a board seat. A year later, your portfolio company has the opportunity to exit for $800M. A phenomenal exit for everyone on the cap table, including yourself, your other co-investors, the founders, and the employees. And for you in particular, this would return meaningful multiples of your fund. But not your Series A lead, who is also your LP. The math isn’t inspiring for them. $800M would only be a shy 4-8X on their initial investment.
So, the Series A lead/your LP blocks the acquisition deal and pushes the founders to go for more. You push back on the motion as everyone else’s incentive, including the founders, is the same as yours. Whether the deal happens or not at this point is irrelevant. This Series A lead, who’s also your LP, ends up telling a number of other LPs that you’re difficult to work with. To the effect that they would also no longer re-up in your next vintage. And that makes your fundraise for the next fund even harder than you expected.
You’ve not only lost a $500-2M check (on average), but worse, you’re likely to have a tarnished reputation with prospective LPs. If they like you already, they may look beneath the surface. If they haven’t gotten to know you, they’ll likely surmise on limited information that the juice isn’t worth the squeeze.
Before you dismiss this as just a hypothetical case study, note that this is a true story.
As my buddy Thoronce told me, “Capital formation is a design principle. Fundraising is a sales process. Without true design around a customer base and a product, you will fail eventually.”
Capital formation is thinking through the types of conversations you want to have when you’re in Fund n+1 and n+2, 5-6 years from now. As Adam Marchickonce said, “The bulk of your conversations with an LP happen negative 6 months to time of investment. The most important conversations you have with an LP are Year 2 through 6 of your investment.” These are the conversations about extending recycling periods, early distributions, fund extensions, and so on. Many of which revolve around the return incentives of your LP base (if decisions are made by majority approval) or by LPAC approval. A family office who has no immediate liquidity needs might not want early distributions and wants you to hold out. Another who’s starting a new business line or pulling completely out of venture (because they were misinformed or set the wrong expectations initially) will want early liquidity and/or someone to buy their stake. An institution with a high leadership turnover rate will likely have a new CIO who’ll want to redo the whole portfolio. So what used to be obvious re-up decisions will need to be re-underwritten altogether.
So I’m not here to say, “Don’t take LP checks from fund-of-funds whose core business is being a VC.” I just want to remind you to consider the incentives of each LP you have on your cap table. Ideally, your LP base’s incentives are homogenous. Not only to themselves, but also to yours. Realistically, for the average emerging manager, it won’t be. But if you know it won’t be, prepare guardrails for future conversations. Don’t walk in blind.
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.
