Tag: startups

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Referencing Excellence

magnifying glass, excellence

Recently, I’ve had a lot of conversations with LPs and GPs on excellence. Can someone who has never seen and experienced excellence capable of recognizing it? The context here is that we’re seeing a lot of emerging managers come out of the woodwork. Many of which don’t come from the same classically celebrated institutions that the world is used to seeing. And even if they were, they were in a much later vintage. For instance, a Google employee who joined in 2024 is very different from a Google employee in 2003.

And there seem to be two schools of thought:

  1. No. Only someone who is fortunate enough to be around excellent people in an excellent environment can recognize excellence in others. Because they know just how much one needs to do to get there. Excellence recognizes excellence. So there’s this defaulting to logos and brands that are known concentrations of excellence. Unicorns. Top institutions. Olympians. Delta Force. Green Beret. Three Michelin-starred restaurants.
  2. Yes. But someone must constantly stretch their own definition of excellence and reset their standards each time they experience something more than their most excellent. The rose growing in concrete. The rate of iteration and growth matters for more. Or as Aram Verdiyan once put it to me, “distance travelled.”

Quite possibly, a chicken and egg problem. Do excellent environments come first or people who are born excellent and subsequently create the environment around themselves?

It’s a question many investors try to answer. The lowest hanging fruit is the outsourcing of excellence recognition to know excellent institutions and known excellent investors. The ex-Sequoia spinout. Ex-KKR. Ex-Palantir. First engineer at Uber. Or hell, they’re backed by Benchmark. Or anchored by PRINCO.

It’s lazy thinking. The same is true for VC investors and LP investors. As emerging manager LPs (and pre-seed investors), we’re paid to do the work. Not paid to have others do the work for us. We’re paid to understand the first principles of excellent environments. To dig where no others are willing to dig.

To use an extreme example, a basketball court can make Kobe Bryant an A-player, but Thomas Keller look like a C-player. Similarly, a kitchen will make Thomas Keller an A-player, but Ariana Huffington a C-player. Environments matter.

When assessing environments and doing references, that’s something that you need to be aware of. What does the underlying environment need to have to make the person you’re diligencing an A-player? Is the game they have willingly chosen to play and knowledgeable enough to play have the optimal environment that will allow them to be an A-player? Is the institution they’re building themselves conducive to elicit the A out of the individual?

Ideally, is there evidence prior to the founding of their own firm that has allowed this player to shine? Why or why not?

Did they have a manager that pushed them to excel? Was there a culture that allowed them to shine? Were they given the trust and resources to thrive?

References

And so, that leads us to references. I want to preface with two comments first.

One, as an investor, you will NEVER get to 100% conviction on an investment. It’s one of the few superlatives I ever use. Yes, you will never. Unless you are the person themselves, you will never understand 100% about a person. And naturally, you will never get to 100% conviction because there will always be an asymmetry of information.

Two, so… your goal should not be to get to total symmetry of information, nor 100% conviction. Instead, your goal is to understand enough about an opportunity so that you can sufficiently de-risk the portfolio. What that means is that when you meet a fund manager (or a founder, for that matter) across 1-2 meetings, you write down all the risk factors you can think of about the investment. You can call it elephants in the room, or red or yellow flags. Tomato. Tomahto.

Then, rank them all. Yes, every single one. From most important to least important. Then, somewhere on that list — and yes, this is deeply subjective — you draw a line. A line that defines your comfort level with an investment. The minimum number of risks you can tolerate before making an investment decision. For some, say those investing in early stage venture or in Fund I or II managers, that minimum number will be pretty high. For others, those whose job is to stay rich, not get rich, that minimum tolerance will be quite low. And that’s okay.

There’s a great line my partner once told me. You like, because; you love, despite. In many ways, the art of investing in a risky asset class is understanding your tolerance. What are you willing to love, despite?

The purpose of diligence, thereinafter, is to de-risk as many of your outstanding questions till you are ready to pull the trigger.

In regards to references, before you go further in this blogpost, I would highly recommend Graham Duncan’s essay “What’s going on here, with this human?” My buddy, Sam, also a brilliant investor, was the person who first shared it with me. And I’m a firm believer that this essay should be in everyone’s reference starter pack. Whether you’re an LP diligencing GPs. Or a VC doing references on founders. Or a hiring manager looking to hire your next team member.

Okay, let’s get numbers out of the way. Depending on the volume of investments you have to make, the numbers will vary. The general consensus is that one or two is too little, especially if it’s a senior hire or a major investment. Kelli Fontaine’s 40 reference calls may also be on the more extreme side of things. Anecdotally, it seems most investors I know make between five and ten reference calls. Again, not a hard nor fast rule.

That said, there is often no incentive for someone to tell a stranger bad things about someone who supported them for a long time. It’s why most LPs fail to get honest references because they haven’t established rapport and trust with a founder over time. Oftentimes, even in the moment. So, the general rule of thumb is that you need to keep making reference calls until you get a dissenting opinion. Sometimes, that’s the third call. Other times, is the 23rd call. If you’ve done all the reference calls, and you still haven’t heard from others why you shouldn’t invest, then you haven’t done enough (or done it right).

A self-proclaimed coffee snob once told me the best coffee shops are rated three out of five stars. “Barely any 2-4 stars. But a lot of 5-stars and a lot of 1-stars. The latter complaining about the baristas or owner being mean.” I’m not sure it’s the best analogy, but the way I think about references is I’m trying to get to the ultimate 3-star review. One that can highlight all the things that make that person great, but also understand the risks, the in’s and out’s, of working with said person.

For me, great references require trust and delivery.

  1. Establishing trust and rapport. What you share with me will never find its way back to the person I am calling about.
  2. Is the reference themselves legit? Is this person the best in the world at what they do?
  3. How well does this reference know said person? Have they seen this person at both their highs and lows? At their best and at their worst.
  4. The finer details, the possible risks, and how have they mitigated them in the past.

I will also note that off-list references are usually much more powerful than on-list references. Especially if they don’t know you’re doing diligence on the person you’re doing diligence on. But on-list references are useful to understand who the GP keeps around themselves. After all, you are the average of the people you hang out with most. As the one doing the reference checks, I try to get to a quick answer of whether I think the reference themselves is world-class or not.

While I don’t necessarily have a template or a default list of questions I ask every reference, I do have a few that I love revisiting to set the stage.

Also, the paradox of sharing the questions I ask is simply that I may never be able to use these questions again in the future. That said, references are defined by the follow-up questions. Rarely, if ever, on the initial question. There’s only so much you can glean from the pre-rehearsed version.

So, in good faith, here are a few:

Does the reference know them well?

  • If I told you this person was [X], how surprised would you be? Now there are two scenarios with what I say in [X]. The first is I pick a career that is the obvious “next step” if I were to only look at the resume. Oftentimes, if a person’s been an engineer their entire life, the next step would be being an engineering executive, rather than starting a fund. So, I often discount those who wouldn’t find it surprising. Those that say it is surprising, I ask why. The second scenario is where I pick a job that based on what I know about the GP in conversations is one I think best suits their skillset (that’s not running their own fund), and see how people react. The rationale as to why it’s surprising or not, again, is what’s interesting, not the initial “surprising/not surprising” answer itself.
  • If you were invited to this person’s wedding, which table do you think you’d be sitting at?
  • Have you ever met their spouse? How would you describe their spouse?

Understanding their strengths and weaknesses

  • Who’s the best person in the world at X? Pick a strength that you think the person you’re doing a reference on has. See what the reference says. Ask why the person they thought of first is the best person in the world at it. If the reference doesn’t mention the GP I’m diligencing, then I stop to consider why.
  • What are three adjectives you would use to describe your sibling? I’ve written about my rationale for this question before, so I won’t elaborate too much here. Simply, that when most people describe someone else, they describe the other person comparatively to themselves. If I say Sarah is smart, I believe Sarah is smarter than I am. Or… if I say Billy is curious, I believe Billy is more curious than I am.
  • If I said that this person joined a new company, knowing nothing about this new company, what would your first reaction be?
    • Congratulate this person on joining!
    • Do a quick Google or LinkedIn search about the company.
    • As an angel, consider investing in the company (again, knowing nothing else)
  • How would you rate this person with regards to X, out of 10? What would get this person to a 10? Out of curiosity, who’s a 10 in your mind?
  • If you were to hire someone under this person, what qualities would you look for?
  • If you were to reach out to this person, what do you typically reach out about?
  • I hate surprises. Is there something I should know now about this person so that I won’t be surprised later?

    Photo by Shane Aldendorff 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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    Request for LPs (2025)

    question, request, ask, raising hand

    A capital allocator is someone who balances the humility that they are not the world’s best at something (or might never be) with the deep belief in the long-term potential of an asset class (even if that means they will play a less active role in the future of that asset class).

    As always, the last holiday period was a time for introspection and reflection. Many of the conversations I had were around request for startups (RFS) with VCs and request for funds (RFF) with LPs. Many of the latter focused on spaces and problems that individuals and family offices personally care a lot about.

    In the essence of putting my vote for all the below, I’m going to phrase them as questions and pontifications rather than statements. Since I don’t have the capital to invest in such organizations, but also it is highly likely that these organizations need no external sources of capital. In fact, a number of the family offices I’ve conversed with have enough capital where they no longer use external bank providers for lending, but borrow and invest only within the families.

    Is there a world where the LP is the sourcing engine for the GPs in their portfolio?

    Like Deep Checks, but catalyzed by a single institution with large brand appeal. The problem is two-fold:

    1. Most LPs are not good at identifying great deals at the pre-seed and seed stage.
    2. Many LPs love co-investment opportunities. They’ve historically invested in brand-name funds expecting such opportunities, but largely evidenced in the 2020 to early 2022 hype cycle, most got no calls from their VCs at all. So, they’ve moved towards emerging managers who don’t have reserves to cash in on their top deal flow.

    If an LP is willing to be a sourcing engine which complements their portfolio funds’ deal flow, that LP will have a chance to build (a) conviction earlier, and (b) build relationships with founders earlier. And in the sourcing/picking/winning framework, outsource the picking element to people who have more refined tastes built upon years of being boots on the ground.

    Of course, said LP cannot enforce that GP invests in a certain type of company in which its sourcing engine brings in. That’ll defeat the purpose of investing in GPs in the first place, as well as diversifying risk.

    Is there a world where a deeply networked LP leverages their network to support the underlying startup portfolio?

    There are a number of fund-of-funds in the world who offer their geographical connections to help a portfolio fund’s startup grow in their respective market, but I’ve seen comparatively few, if any, LPs who offer their deep networks as advisors/mentors to portfolio founders.

    For the most part, a VC is likely to better connected to tech talent, executives and founders. But quite a few family offices and endowments have their own deeply entrenched networks. Endowments have alumni networks. Family offices, depending on their source of wealth, are well-connected in the industry that created their wealth. Luxury brands. Oil and gas, as well as renewable energy. Infrastructure. CPG. Pharmaceutical drugs. Transportation. And the list goes on.

    In other words, the LP would help a VC win deals based on their expansive combined networks. And sometimes the best advice a founder can get is not from another founder or VC, but someone tangential to the ecosystem who has seen the world from a birds eye view.

    I’ve written before that there are three kinds of mentors: peer, tactical, and strategic. And you need all three.

    1. Peer: Someone with similar level of experience as you do
    2. Tactical: Someone who’s 2-5 years out and who can check your blind side
    3. Strategic: Someone who’s attained success in a particular field and is often 10+ years out from where you are. They offer the macro and big-picture perspective, and help you define long-term goals.

    Founders often have their peers already. And if not that, there are a number of communities, forums, and groups out there where founders can exchange notes with each other. Many VCs often bring their founders together to co-mingle as well in annual or quarterly get-togethers.

    VCs themselves often act as tactical mentors, and given how their portfolios grow also have access to a plethora of tactical mentors for any given company.

    LPs with their large networks of people who run multi-billion dollar enterprises (often not tech), many of whom achieved financial success independently, have access to people who could be strategic mentors for founders in their fund-of-fund’s underlying portfolio.

    Request for Funds of Funds?

    This isn’t a particularly traditional fund model or fund-of-funds model, but nevertheless would be an interesting product for asset owners. Namely large institutions who are looking for product diversification and who have little to no short-term and medium-term liquidity needs. Large single family offices, pensions, and potentially some endowments and foundations.

    Is there a smaller product that focuses on vintage diversification from both an entry and exit perspective?

    Most investors focus on entry vintage diversification, not as much for exits. Some LPs do, to make sure they have liquidity in every vintage. While I’ve seen only a small, small number of funds and fund-of-funds do this, I wonder if this is something that is more interesting to a broader customer base of LPs.

    Of those I’ve seen so far:

    • Crypto funds that hold both token-based assets and equity-based assets. The token-based ones are expected to deliver DPI within years 4-8. The equity-based assets are expected to deliver DPI within years 8-12.
    • Funds-of-funds that hold multiple asset classes within a single LP entity. Secondaries for 3-6-year time horizons. Buyouts for 5-8-year time horizons. And venture capital for 8-12 year time horizons. Some also hold venture debt assets and cryptocurrency themselves.
    • Large multi-stage billion-dollar plus VC funds that have a suite of product offerings for LPs.

    There are many emerging LPs and LPs who see VC as an access class who can’t write massive checks, but need to hedge their bets when writing into a speculative asset class.

    While I’m still working to collect more data on this, I do wonder. In modern history, market cycles happen every 8-12 years. Venture funds exist on 10-12 year time horizons. Theoretically, that means if you’re investing in the least expensive entry windows, you’re also existing in the lowest revenue multiple windows. And if you’re investing in the most expensive vintages, you’re also existing in the great markets. Which effectively means, the delta between “buying low” and “selling high” are roughly the same no matter which markets your entry point is.

    The data seems to suggest that so far, but the publicly available datasets (i.e. Pitchbook) have heavy survivorship bias. There’s no incentive for funds that fizzle out midway or near the end to report their metrics. Carta is really interesting, but their datasets aren’t robust till after 2017.

    As an allocator, it just means you just need to be in every vintage. It makes me wonder if it really matters to be investing in down or up markets. Probably not. As the sages who have invested through multiple cycles tell me. Though I wonder if underwriting venture funds to 15 years changes anything on the DPI front across multiple vintages.

    Photo by Felicia Buitenwerf 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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    Talent Networks are your Greatest Asset | Adam Marchick | Superclusters | S4E9

    adam marchick

    “When investing in funds, you are investing in a blind pool of human potential.” – Adam Marchick

    Over the past twenty years, Adam Marchick has had unique experiences as a founder, general partner (GP), and limited partner (LP). Most recently, Adam managed the venture capital portfolio at Emory’s endowment, a $2 billion portfolio within the $10 billion endowment. Prior to Emory, Adam spent ten years building two companies, the most recent being Alpine.AI, which was acquired by Headspace. Simultaneously, Adam was a Sequoia Scout and built an angel portfolio of over 25 companies. Adam was a direct investor at Menlo Ventures and Bain Capital Ventures, sourcing and supporting companies including Carbonite (IPO), Rent The Runway (IPO), Rapid7 (IPO), Archer (M&A), and AeroScout (M&A). He started his career in engineering and product roles at Facebook, Oracle, and startups.

    You can find Adam on his socials here:
    X / Twitter: https://x.com/adammStanford
    LinkedIn: https://www.linkedin.com/in/adammarchick/

    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
    [03:14] Who is Kathy Ku?
    [06:20] Lesson from Sheryl Sandberg
    [06:39] Lesson from Justin Osofsky
    [07:46] How Facebook became the proving grounds for Adam
    [09:26] The cultural pillars of great organizations
    [10:40] When to push forward and when to slow down
    [12:39] Adam’s first investment: Dell
    [14:20] What did Adam do on Day 1 when he first became an LP
    [17:00] Emory’s co-investment criteria
    [20:02] Private equity co-invests vs venture co-invests
    [21:15] Teaser into Akkadian’s strategy
    [23:03] Underwriting blind pools of human potential
    [29:03] Why does Adam look at 10 antiportfolio companies when doing diligence?
    [32:11] What excites and scares Adam about VC
    [35:36] Engineering serendipity
    [37:52] Where is voice technology going?
    [39:45] How does Adam think about maintaining relationships?
    [43:20] Thank you to Alchemist Accelerator for sponsoring!
    [44:20] If you enjoyed this season finale, it would mean a lot if you could share it with 1 other person who you think would love it!

    SELECT LINKS FROM THIS EPISODE:

    SELECT QUOTES FROM THIS EPISODE:

    “What’s so freeing is when you can bring your personality to work. It’s so much less cognitive load when you can be yourself.” – Sheryl Sandberg’s advice to Adam Marchick

    “Take your work seriously, not yourself.” – Adam Marchick

    “Be really transparent, and even document and share your co-investment criteria.” – Mike Dauber, Sunil Dhaliwal’s advice to Adam Marchick

    “For an endowment doing co-invests, you should never squint.” – Adam Marchick

    “When investing in funds, you are investing in a blind pool of human potential.” – Adam Marchick

    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
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    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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    Stress and Ambition

    stress, founder stress

    “The thing about working with self-motivated people and driven people, on their worst day, they are pushing themselves very hard and your job is to reduce the stress in that conversation.”

    It’s something Nakul Mandan from Audacious said in a Superclusters episode earlier in Season 4. And a line that’s been gnawing at me for the past few weeks. Particularly, “your job is to reduce the stress in that conversation.” So it got me thinking… Are the entrepreneurs I back stressed (enough)?

    I know what you’re thinking. But before you come at me with pitchforks and torches, here me out. If you get to the end of this essay and still feel as strongly, feel free to take a swing at me.

    First off, let me define some terms in the above question. An “entrepreneur” is someone who starts something that doesn’t exist in the world already. To me, that is a startup founder, a local restaurant, an emerging fund manager, and so on. I use this term pretty liberally. “Enough” is in moderation. A balance of feeling the pressure and urgency, but not enough to make one go insane. By definition, entrepreneurs — people who dare challenge the world and create something that hasn’t existed before — are ambitious. And ambitious, action-oriented doers are, to Nakul’s point, often hard on themselves. So everything in moderation. As a friend once told me, if you’re doing anything ambitious, a third of your days will be epic. A third will be okay. And a third will absolutely suck. As long as your days feel like that proportionally, you’re on the right track.

    So… are the entrepreneurs I back stressed (enough)?

    Let’s start with no. Are they the underdog still, pre-product-market fit, stagnating, losing market share, and/or in a crisis?

    If not, carry on. It’s okay to not be stressed all the time. In fact, it’s probably not helpful to be stressed all the time.

    If so — that they are the underdogs, stagnating or in a crisis — AND they’re not feeling stressed, I do wonder from time to time. And I’d be lying if some part of me didn’t feel buyer’s remorse. Because that means one of three things:

    1. They’ve lost their ability to care. About the product. The market. The team. Or simply, their own ambition. That’s the worst.
    2. Conversely, they don’t feel comfortable enough to be vulnerable with me. And that, in part, not to sugarcoat things, is because of me.
    3. They never cared enough or were ambitious enough in the first place. And that’s something I have to take back to the drawing board so that I learn the next time around.

    Nevertheless, regardless of which of the three, it warrants a conversation. A difficult one. One where I try to understand their current motivations, what’s changed. If their motivations still hold true, then I, in Danny Meyer’s words, add “constant, gentle pressure.” For those curious, Chapter 9 of his book. Nevertheless, my job is to give them the activation energy to hopefully get them back on track.

    If things change, great. I eventually go back to the first question. Are the entrepreneurs stressed? If not, then I let them on a few things:

    1. I’ll spend less time time with them to prioritize the rest of my portfolio.
    2. If they have any of the money left, they can keep the money. FYI, if it wasn’t my personal angel money, but someone else’s capital (of which I’m a fiduciary), depending on how much they have left, it may lead to a different conclusion. But in general, I view it as a write-off.
    3. Wish them the best of luck in their next chapter.
    4. If they feel the fire burning again (for good reason), they should let me know. And I’m happy to have another conversation.

    Now… what happens if the entrepreneurs are stressed. Then I try to figure out if it’s anxiety or stress. Let me define.

    Anxiety is caused by things you cannot control. For instance, the market. Other people you cannot control. Or black swan events. Stress, on the other hand, is caused by things you can control. Your own mistakes. Mistakes made by people you hired. Volume of work that needs to be done. Procrastination. Mistakes that can be actively mitigated. For instance, missing the deadline for a quarterly report. Missing payroll due to insufficient funds. Layoffs. Bad performance. Media, publicity, and perception. Something Danny Meyer calls, “writing a great last chapter.” As Danny Meyer puts it, “the worst mistake is not to figure out some way to end up in a better place after having made a mistake.”

    If it’s anxiety, my role is to calm the founders. Be the mental support they need. Help them see the bigger picture. Build contingency plans.

    If it’s stress, my role is to help them build an action plan. Help get key decision-makers and doers in the same room. Get the founders in front of advisors who can help them think through key considerations and check their blind side (assuming it’s not me. Most of the time it isn’t.). Of course, you need to timebox “thinking” time. There’s a great saying. “There are no right choices; only choices we make right.”

    And finally, help the entrepreneurs execute the plan. Sometimes, that requires getting my hands dirty. And that’s what I’m here for. To increase the metabolism of the organization. Or at the very minimum, leadership. Stress is often caused by indigestion of tasks that need to be done.

    Alas, the job of an investor, given we’re not in the driver’s seat, that we don’t always have complete information, is to reduce the stress of the founder when we have that conversation. More often than not, ambitious founders are hard enough on themselves.

    Photo by Francisco Moreno 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 Dao of Investing in VC Funds | Jay Rongjie Wang | Superclusters | S4E8

    jay rongjie wang, jay wang

    “The first layer is setting up your own strategy. The second layer is portfolio construction. How do you do your portfolio construction based on the strategy you set out to do? And then manager selection comes last. Within the portfolio construction target, how do you pick managers that fit that ‘mandate?’” – Jay Rongjie Wang

    Jay Rongjie Wang is the founding Chief Investment Officer of Primitiva Global, where she runs a family-backed Multi-asset Strategy. She also works extensively with emerging VC managers, and sits on the Selection Committee of Bridge Funding Global.

    Jay’s background uniquely combines software engineering (at the world’s largest fintech platform) and institutional investing (at top funds including Fidelity and Sequoia), as well as general management (3x executive in tech startups). Jay has lived in 5 different countries across 9 major cities, giving her a global perspective.

    Jay obtained her B.A and M.Sci in Physics from Cambridge University and M.B.A from INSEAD. In 2023 she was listed as an Entrepreneurial Pioneer Under 35 by Hurun Wealth.

    You can find Jay on her socials here:
    LinkedIn: https://www.linkedin.com/in/wangrongjie/

    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
    [04:12] Life atop a Daoist mountain
    [10:27] Qigong and tai chi
    [12:21] What is dao?
    [19:18] The weapon that Jay specializes in
    [21:08] Why did Jay leave the Daoist temple?
    [24:24] The motivations behind Jay’s career shifts
    [30:05] The difference between underwriting a VC fund and a fund-of-funds
    [33:08] How does Jay get to know a fund manager?
    [36:31] The 3-layer process for building an allocation strategy
    [38:01] Picking the initial asset class
    [45:29] How much Jay allocates to venture
    [48:43] What does “reasonably diversified” mean?
    [49:15] Figuring out the portfolio construction model
    [54:59] At what point do you stop maximizing for portfolio returns?
    [56:57] How Jay calculates a 200X target return on direct investments
    [57:53] Data on returns as a function of portfolio size
    [1:01:42] The biggest challenge once you’ve picked your strategy
    [1:04:40] Selecting the right fund managers
    [1:14:17] The difference between guqin and piano
    [1:18:42] Intuition versus discipline
    [1:24:08] Post-credit scene
    [1:27:47] Thank you to Alchemist Accelerator for sponsoring!
    [1:28:48] If you enjoyed this episode, it would mean a lot if you could share it with one friend who’d also get a kick out of this!

    SELECT LINKS FROM THIS EPISODE:

    SELECT QUOTES FROM THIS EPISODE:

    “If you have the deal flow and you have the energy and have the skills to construct your own portfolio, then funds-of-funds obviously are more complimentary than necessary.” – Jay Rongjie Wang

    “The first layer is setting up your own strategy. The second layer is portfolio construction. How do you do your portfolio construction based on the strategy you set out to do? And then manager selection comes last. Within the portfolio construction target, how do you pick managers that fit that ‘mandate?’” – Jay Rongjie Wang

    “The later the stage you go, […] capital becomes more anonymous, and […] the more you converge to public market returns.” – Jay Rongjie Wang

    “I only put the regenerative part of a wealth pool into venture. […] That number – how much money you are putting into venture capital per year largely dictates which game you’re playing.” – Jay Rongjie Wang

    “Your average median of a fund-of-funds is higher than a venture capital fund, and the variance, the standard deviation, is lower. So it is possible for a VC fund to have 40%, 50%, or higher IRR. It’s much, much less likely for a fund-of-funds to achieve that, but also the likelihood of losing money is much, much lower for a fund-of-funds.” – Jay Rongjie Wang

    “The reason why we diversify is to improve return per unit of risk taken.” – Jay Rongjie Wang

    “Bear in mind, every fund that you add to your portfolio, you’re reducing your upside as well. And that is something a lot of people don’t keep in mind.” – Jay Rongjie Wang

    “Once you have a strategy, the hardest thing for me is to stick to that strategy because you just meet those amazing managers, amazing funds all the time.” – Jay Rongjie Wang

    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.

    Posted on

    2024 Year in Review

    2024

    Undeniably, one of the most insightful books I read this year has been Setting the Table by Danny Meyer. Someone I’ve been a long time fan of. If you’re no stranger to this humble blog, you’ll notice his cameos throughout previous pieces I’ve written. I am also remarkably late to the game. The book came out in 2008. And to this day, is as timeless as it was over a decade and a half back. Thank you, Rishi and Arpan for gifting me a copy.

    That book has led to blogposts like this and this. To finally cold email him (yay, he replied! Danny, if you’re reading this, thank you for making my day, hell, and a good portion of my year!). New ways on how I support GPs. More intentional ways to hire. Inspired me to take on two more writing projects and a new podcast series in 2025 (don’t worry, Superclusters isn’t going anywhere, but expanding). And I’m sure it’s only the tip of the iceberg.

    And as one last fanboy moment for Danny, there’s a line he has on page 220. A line the late and great Stanley Marcus of Neiman Marcus fame once told him. “The road to success is paved with mistakes well handled.” A line I haven’t stopped thinking about since I read it.

    There’s a saying in the entrepreneurial world that it takes between 10 and 15 miracles for a startup to succeed. Each miracle is a trial by fire. A right of passage. A test of character. I’ve always believed that the job of an investor is not to be helpful all the time, or share celebrations on social media, or facilitate just connections. Despite having done many of the above myself, those are all, in my mind, table stakes. Rather, the job of an investor is to be there for at least one of those critical points of failure and to be extremely valuable. To help an entrepreneur handle their mistake well, to borrow Stanley Marcus’ line.

    In another episode earlier this year, Jaclyn Freeman Hester shared one of the best soundbites ever said on Superclusters.

    “If I hire someone, I don’t really want to hire right out of school. I want to hire someone with a little bit of professional experience. And I want someone who’s been yelled at.”

    While it makes for a great clickbait title, the lesson extends further. One only gets yelled at by making a mistake. One learns not by making mistakes, but the public embarrassment of that mistake. If someone learn of the negative aftermath of a mistake, one won’t get the feedback mechanism necessary to grow from that experience. To analogize it to elementary math, if my afterschool teacher didn’t slap me with a ruler every time I got 9+8 wrong, it would have taken me a lot longer to learn that lesson. If no one catches you accidentally making an inconsistent calculation on the balance sheet, you may never learn from that mistake.

    All that to say, someone who’s been yelled at made the mistake, received the feedback mechanism to improve, and learned to handle it better next time.

    So, in my long preamble, and not to bury the lead, 2025 will be the year of big mistakes. Maybe. Hopefully, well handled. 2024 was the year of laying the groundwork. A lot of which were made explicit via this blog. I’m not saying I haven’t made any mistakes. Yes, I’ve left the toilet seat up. I should have asked for more concrete examples during certain podcast interviews. Almost forgot to file my annual tax extension. Forgot to mention a sponsor at an event (luckily my co-host had my back). Made the rookie intern mistake at work. Twice. Different things, but nevertheless twice. But those mistakes will be small compared to the ones I’ll make next year.

    Nevertheless, here are the hallmarks of 2024!

    2024’s Most Popular

    1. Timeless Content for the Weary Investor — Our society spends quite a bit of time focusing on results, outputs, and success. All of which are lagging indicators of the blood, sweat and tears people put in. So instead, earlier this year, I thought it’d be interesting to compile a list of content that some of the most successful investors (LPs and VCs alike) consume. What goes in their information diet? What are the inputs? Some results may surprise!
    2. The Science of Selling – Early DPI Benchmarks — With the economy outside of AI hitting a standstill and hitting record low numbers in terms of liquidity, I’ve found a constant stream of new readers via this blogpost. Many of which I imagine to be fiduciaries and capital allocators. I do hope that one day there is more content on selling and exiting positions in a liquidity-constrained environment though. Although, I may just put out a blogpost on secondaries in the new year, inspired by a number of conversations I’ve had this year already.
    3. How to Break into VC in 2024 — It may be obvious by now that there’s no one set path to get into venture. I’ve worked with colleagues who ranged in majors from history to food science to economics to computer engineering. Additionally, those who have been a founder, a banker, a consultant, a product manager, an artist, an athlete, an actress, a public relations specialist, and the list goes on. But if you were looking for the closest thing to a silver bullet, maybe this essay would be a great place to start.
    4. Five Tactical Lessons After Hosting 100+ Fireside Chats — Surprisingly, this has stayed as a perennial blogpost. I realize even now looking back, how much I’ve learned since, but nevertheless a good starting point for those who want to interview others.
    5. The Non-Obvious Emerging LP Playbook — The first blogpost I wrote on the topic of being an LP. Still my longest one to date. Since then, I’ve learned an LP comes by many a name. Capital allocator. Asset owner. And more specifically, the difference between multi-family offices and single family offices. Family businesses. Access versus asset class LPs. And more.
    6. Non-obvious Hiring Questions I’ve Fallen in Love with — I’ve been lucky enough to spend quite a bit of time around talent magnets this year. And in the surplus of applications, they’re forced to quickly differentiate signal from noise. And these are some of the questions I’ve heard them use. And well, have also used myself when hiring these past two years.

    All-Time Most Popular

    This list hasn’t changed much this year. One can say I have yet to outdo myself. Which may be true. I admittedly, also haven’t shared these blogposts much on Twitter. In fact, over 70% of this year’s posts never touched LinkedIn or Twitter. When in the past, I invested a bit more time in expanding to new audiences. For any essay that did go a little viral this year, it was because of you, my readers. So thank you!

    1. The Science of Selling – Early DPI Benchmarks
    2. The Non-Obvious Emerging LP Playbook
    3. 10 Letters of Thanks to 10 People who Changed my Life
    4. 99 Pieces of Unsolicited, (Possibly) Ungooglable Startup Advice
    5. Five Tactical Lessons After Hosting 100+ Fireside Chats

    2024’s Most Memorable

    This year was the year of LP content. Also, the year where I stopped using as many headers in my blogposts. Interestingly enough. It wasn’t any conscious decision, but at some point I just slowed my pace down. Excluding this blogpost and a few others. I wonder if I’ll use less next year.

    So, to share them chronologically, here are some of my personal favorites:

    1. The Proliferation of LP Podcasts — I wrote this back in March at the beginning of Season 2 of Superclusters, and I still stand by this today. At the beginning of every content adoption curve, the question is: WHERE can I find this content? But as the content becomes fully adopted, in this case around being a capital allocator, the question will become: WHO do I want to / choose to listen to?
    2. From Demo Day to First Meeting: My Demo Day Checklist — There are times we have to make fast decisions when faced with a volume of options. Going to Demo Days and choosing who to follow up with is just one of such cases. I’m happy this year I’ve codified that practice when going to VC accelerator Demo Days. And I imagine it’s only a matter of time, before we’re faced with the volume of YC Demo Days, but for funds.
    3. The Power Law of Questions — As I’ve grown as an LP, I find myself being a lot more intentional with questions I ask fund managers. This blogpost serves as a record of questions I found myself asking quite often this year.
    4. Emerging Manager Products versus Features — In the startup world, the concept of products and features have become quite prevalent. One is a standalone business. The other is more of a subclause than a clause, incapable of being a product offering in of and itself. As I spend time thinking about an asset class, where the simplest, and likely, most facetious way of describing it, is we sell money, this blogpost serves as “value-adds” that deserve their own fund versus ones that should be built within a larger shop.
    5. Shoe Shopping — One of my posts where the title almost has nothing to do with the blogpost itself. But an observation of what differentiates VC funds beyond what they pitch the public.
    6. ! > ? > , > . — Another one of those blogposts where it’s hard to guess what it’s about from the title itself. Likely my worst essay title to date. Or best? A product of my gripe that most people don’t know how to ask for feedback. And good news! Some readers of this blog have reached out since asking for more directed feedback.
    7. Three E’s of Fund Discipline — A lot of GPs focus on entry discipline. A lot of LPs in 2024 focus on exit discipline. Both are equally as important, but both often forget about the third kind of fund discipline. Executional discipline. I give examples of each in this essay, which hopefully can help as a reminder for what is needed out of a great fund manager. A separate job description from just being a good investor. In fact, you can be the latter without ever needing to raise or manage your own fund, and still make the Midas List.

    With that, 2024 comes to a close. See you all in the new year!

    Photo by Eyestetix Studio on Unsplash

    If you want to check out the past few years, you’ll find them encased in amber here:

    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 4 P’s to Evaluate GPs | Charlotte Zhang | Superclusters | S4E6

    charlotte zhang

    “Executional excellence can get you to being great at something – let’s call that top quartile – but it really is passion that distinguishes the best from great – top decile.” – Charlotte Zhang

    As the director of investments, Charlotte Zhang oversees the selection of external investment managers at Inatai Foundation, conducts portfolio research, and helps to institutionalize processes, tools, and resources. Experienced in impact investing, she previously served as a senior associate at ICONIQ Capital and, before that, Medley Partners. Investing on behalf of foundations affiliated with family offices, her investments supported a variety of nonprofit work, from early childhood education to autism research. Charlotte was a founding partner of Seed Consulting Group, a California-based nonprofit that provides pro bono strategy consulting to environmental and public health organizations, and currently serves on the Women’s Association of Venture and Equity’s west coast steering committee and as a Project Pinklight panelist for Private Equity Women Investor Network. She is also on the advisory boards of MoDa Partners, a family office whose mission is to advance the economic and educational equity of women and girls, and 8090 Partners, a multifamily office consisting of families and entrepreneurs across diverse industries that is currently deploying an impact investment fund.

    Charlotte earned a BS with honors in business administration from the University of California, Berkley. When not working, you can find her globetrotting (18 countries and counting), writing a Yelp review about the best bite in town, or cuddling up with a book and her two adorable cats.

    You can find Charlotte on her LinkedIn here:
    LinkedIn: https://www.linkedin.com/in/charlotterzhang/

    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
    [02:56] Charlotte’s humble beginnings
    [07:02] Lessons as a pianist
    [10:23] Lessons from swimming that piano didn’t teach
    [14:52] How Charlotte became an LP
    [17:44] Where are emerging managers looking for deal flow these days?
    [21:23] Reasons as to why Inatai may pass on a fund
    [24:35] The 4 P’s to Evaluate GPs
    [29:26] How small is too small of a track record?
    [34:42] How do you build a multi-billion dollar portfolio from scratch
    [39:43] The minimum viable back office for an LP
    [42:03] Underrated Bay Area restaurants
    [47:01] Thank you to Alchemist Accelerator for sponsoring!
    [48:02] If you learned something from this episode, it would mean a lot if you could share it with ONE friend!

    SELECT LINKS FROM THIS EPISODE:

    SELECT QUOTES FROM THIS EPISODE:

    “Executional excellence can get you to being great at something – let’s call that top quartile – but it really is passion that distinguishes the best from great – top decile.” – Charlotte Zhang

    “If you have enough capital chasing after an opportunity, alpha is just going to be degraded.” – Charlotte Zhang

    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.

    Posted on

    Three E’s of Fund Discipline

    railroad, discipline

    At a dinner earlier this week, a Fund I GP shared how she had recently hosted her first AGM (annual general meeting). Of which, she spent a few hundred dollars to plan the whole thing. She called in favors on venue. Sponsors to cover food. And the only thing I believe she spent money on were gifts for her LPs. For comparison, when I caught up with a firm with 10+ active funds, they said they spend about $2M on their annual summit.

    For the uninitiated, the annual summit or AGM is typically the event VC firms hold once a year for their investors, as well as for their portfolio to recap the year and share what’s next. I won’t go too deep here, but for those curious, I wrote a post last week on this.

    Naturally, I had to tip my hat off. Not only is hosting a large event like an AGM time-consuming, to minimize the damage to one’s wallet to only a few hundred is a Herculean feat. And yes, she single-handedly pulled it off. While I wasn’t there myself, A+ for executional discipline.

    One of three kinds of discipline that LPs expect of GPs. What are the three?

    1. Entry discipline
    2. Exit discipline
    3. Executional discipline

    The three E’s.

    Did I force myself to find three words that start with E’s that fit? I’m glad you noticed. Originally, called it: investing discipline, exit discipline, and operational discipline. But I digress.

    Let me elaborate.

    Entry discipline

    Entry discipline is all about what and how you invest. It’s the one GPs talk about the most. While it is important – one of the three legs of the stool, it’s not the only one that matters. Nevertheless, it’s a bet on the investor.

    These include:

    • Entry prices (pre-money versus post-money valuation)
    • Ownership on entry
    • Sourcing / picking / winning
    • Due diligence process (references, legal diligence, tech diligence, operational diligence, etc.)
    • Prepared mind
    • Terms of investment (you’d be surprised the number of
    • Pro rata rights, and drag along, and right of first refusal (ROFR)
    • Information rights
    • Portfolio governance (board versus board observer seats)

    Exit discipline

    In the words of Renaissance’s Jeff Rinvelt, “the one that wasn’t baked in for a lot of these firms was the exit manager – the ones that help you sell. […] If you don’t have it, there should be somebody that it’s their job to look at exits.”

    Exit discipline is all about how you think about portfolio construction on a broader sense. And of course, how and when to exit positions. It’s the one LPs care about most in a liquidity-starved environment. It matters especially so for venture that’s known for long illiquidity periods. Still matters for buyouts and other assets, but those have shorter time horizons. When am I going to get my money back? Is there a plan? And while mileage will always vary fund to fund, are you at least primed to react when there are opportunities? Will it be consistent or will you suffer from opportunistic whiplash? It’s a bet on the fund manager. Or really in Jeff’s words, the exit manager.

    These include:

    • Strategy on when AND how to sell. Simply, how much upside to cap to protect your downside.
    • Proactive and explicit communication on fund lifespan and extensions
    • Relationships with secondary buyers
    • Recycling
    • Early distributions (after the recycling period)
    • Enterprise value to breakeven. To 3X. To 5X.
    • The exit manager, if applicable

    Executional discipline

    To quote the amazing Ashby Monk, “the difference between your gross return and your net return is an investment in their organization.” In other words, executional discipline is a bet on the team. Is the team uniquely positioned to scale execution? Are they incentivized in the long-term to do the right thing for both founders and LPs? How is knowledge passed down?

    These include:

    • Fees on capital committed versus capital deployed
    • Fund expenses (travel, meals, hotels, fund admin, legal, accounting, etc.)
    • Talent
    • Events, AGMs, brand-building exercises
    • Content engine, if one pays for such
    • GP salaries
    • Culture (deal attribution, short and long-term incentive plans, manifestos, succession planning, promotions, vesting schedules, etc.)
    • Carry
    • Reporting (Monthly, quarterly, or annually. It doesn’t matter which, just stick to it. Be consistent.)
    • Valuation Policy / Marks (FYI, SAFEs and convertible notes are not marks. But also, if a portfolio company is overvalued, what’s your valuation policy?)
    • LP Advisory Committee (LPAC)
    • LP Agreement (LPA) / Subscription Agreement
    • Capital calls
    • Cybersecurity policy / Information policy (Who gets access to what information?)
    • Compliance / PR

    In closing

    Obviously, as your track record and returns grow and speak for themselves, you accumulate a new type of currency in the karmic bank account: trust. You should always never exceed your means to pay. That your credit balance never exceeds your debit, but you undeniably have a greater credit line to operate the institution.

    To simplify…

    Entry DisciplineExit DisciplineExecutional Discipline
    The betThe bet on the investorThe bet on the
    fund manager    		The bet on the
    team

    Note that for an emerging fund, these three disciplines are expected of the same individual. In many ways, much harder than if you had a fully staffed team.

    Photo by Ales Krivec 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.

    Posted on

    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.

    Posted on

    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

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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.

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