SPEAKER_00: i've heard that there's some angel investors or syndicate leads here who have been in companies like uber thumbtack and robin hood we modeled out a little simulation and said jason if you just had an extra 250k to go into the series b of each of those this is my talk tomorrow

SPEAKER_04: what would that have translated to and you can see the name of the yacht which is pro rata yeah

SPEAKER_08: thank you wow you know the wound's still open so if you could put a little more salt in it that would

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SPEAKER_17: to get your first three months free hey everybody alex here i have a couple of absolute treats for you today we have two more talks from our liquidity summit so up first we have our fund of funds panel that means you're going to hear from ben joy from next legacy ventures michael downing from mdsv and seyon kang from the well-known stepstone group you're going to hear about how everyone thinks they're an above average driver and what that means for venture capital returns the power of prorata and what you might be leaving on the table and then of course how fund size impacts returns if you care about the internal mechanics of how venture works this is a talk that you really need to hear this is some venture chat more than founder chat but i think it's good education for everyone out there in the world of startups and venture then after that we're going to have monique woodard from cake ventures she's fantastic i've known monique for a long time she talks about how to raise a fund and how when you raise that first fund you're actually raising your next two to three funds as well monique's fantastic the panel is fantastic let's start with our friends from the world of lps and

SPEAKER_20: then we'll hear from monique enjoy okay one of the things we wanted to address uh during this year's

SPEAKER_22: liquidity was uh fund to funds we heard before from monique hey these uh play a critical part in our ecosystem uh for helping sovereigns um family offices high net with our individuals and they act as a bridge between those individuals and fund managers and we're going to do the same format we just did uh with family offices which is ask them each to give a position and then have a group discussion

SPEAKER_25: first up is ben troy thanks for having us up here especially after flying cars not not a not a great

SPEAKER_26: panel to be right after but um i thought i'd take it uh back down to to cars that are on the road every year aaa does a survey of drivers and it finds consistently that most drivers 73 percent in the last survey of u.s drivers consider themselves better than average drivers if you cut the data a little more perhaps to no surprise in this room eight in ten men think that they are better than average drivers i think drivers are a lot like investors where most investors assume that they are better than average i looked around for data in venture um and there isn't great data but from our own anecdotal experience it's certainly true we we've invested in about over 100 vc firms over the last 25 years that my partners and i and every year we look at around 200 plus vc firms um and you get different levels of um of self-promotion but you know most vcs will tell you that they're above average or they will be i thought what i'd bring today is uh that which is just human nature i think um but bring it to what it means in venture specifically so this chart shows based on some historical data the dispersion of performance between comparing global equities just public equities compared to venture capital so global equities on the on the left hand side there in the blue the dot is the median the bar is the uh top and bottom quartile 75th percent 25th percentile and then the the very the lines go up to something like 95 and five percent maybe a little higher i think drivers are like public equity investors where you know if you're if you're above average as a driver or an average driver like the difference is not that much for venture it's like a 20 year time frame for equities i'm not sure actually it matters that much the difference between a great public investor and an average one not that big of a deal and same thing turns out that if you drive down the road most drivers are average and people don't crash um but in venture it's a lot different the difference between a great adventure investor and a terrible one is huge um and that's that's where this very natural human behavior of well i'm above average most of us think we're above average it's pretty harmless in driving it's relatively harmless in public equities also but it turns out in venture it actually has a pretty big significant impact so what um well they're one of my favorite all in podcast episodes but so here who here is a fan of the pod all in uh not surprising but awesome i think my favorite episode actually is i can't remember how long ago but um there was an episode where uh you all talked about i think chamoc kind of presented some of his performance data and he talked about how how hard it is to actually deliver performance and particularly liquidity in venture and um it takes time you know you go through this for enough decades and and you can see the cycles and realize that you know there's you get ups and downs um but delivering two to three x over a long period of time over a lot of dollars is hard to do um and a lot of a lot of people who are new to venture see this and sort of just see the top of the slide and just see and hear the headlines of the amazing outcomes um without really appreciating the risks that we take on the bottom on the downside um so for me the so what and i'll leave you with the thought i'll leave you with is whether you're an angel investor or a gp investing in founders or an lp looking to allocate into this asset class i'd encourage you to work with a professional um if you're gonna do yourself do it professionally do it full-time do it seriously um and be safe out there thanks okay well done all right next up is michael

SPEAKER_20: downing um from mdsv capital great thanks jason uh so just quickly at mdsv we are a fund of funds but

SPEAKER_43: we focus on an area that we believe is the greatest single opportunity in venture these days which is also the most overlooked ignored and underrated category of venture which is small sub 60 million

SPEAKER_00: dollar emerging manager funds and we focus on this category specifically and of course as many of you know there's a lot of gps there's there's some lps but this is a category that has outperformed the market over the last 15 years but there's some other data points that we look at specifically that i think not everybody's aware of that really kind of back and inform what we do and the reason why we focus on this part of the market if you look back across the last 15 years and you identify all those unicorn companies those those high value outlier companies that generated so much return 92 of those companies had an emerging manager or a syndicate lead who was an angel investor on their cap table at the earliest moment that becomes important as you think about what the access point that's represented by these emerging managers is for lps less than five percent of those same small emerging managers less than five percent of the time did they invest beyond the seed round in those companies and so if you take a look at that and do some some kind of complex math across that pool of unicorns over a 15 year period you know there's basically 150 plus billion dollars in unharvested or untapped value that could have been created by those managers now i describe all that because part of what we do and how we work with gps like many of you out there is we allocate 25 of our capital to backing small emerging manager funds and then 75 percent of our capital is reserved for what we characterize as an opportunity fund to enable small managers to double down on their outliers and continue to invest in those companies and it's exactly because of these figures that we have that strategy and just sometimes these numbers and statistics are a little bit confusing and don't make sense so i'll try to kind of put it in a more human context here i've heard that there's some angel investors or syndicate leads here who have been in companies like uber thumbtack and robin hood we modeled out a little simulation and said jason if you just had an extra 250k to go into the series b of each of those

SPEAKER_04: this is my talk tomorrow what would that have translated to and you can see the name of the yacht which is pro rata yeah thank you wow i mean i really appreciate you coming and

SPEAKER_08: i guess i'm not getting invited no no i just um you know the wound's still open so if you could put a

SPEAKER_50: little more salt in it that'd be great founders i know you're building the next big thing in tech and

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SPEAKER_22: going to be a little bit about our portfolio strategy and how it's and you know it and how we've adjusted it because of this really profound uh insight which is only five percent of these

SPEAKER_09: winning investments are followed on so the question becomes why right i mean i i can tell you from our

SPEAKER_00: experience we have great managers i think martin tobias is in the audience here incisive this is a guy who's made 60 investments has six unicorns you know they're writing 200k checks at day zero at the earliest point it's going on a safer convertible note then all of a sudden the company grows like crazy and is doing a round with a16 or whoever they don't have any capital to continue to invest in those winners they have to allocate every dime they have to just placing bets to see which company is actually going to make it there's no such thing as keeping reserves sorry for those of you who have reserves in your deck but at a pre-seed stage for an emerging manager fund you shouldn't be keeping reserves you need to optimize for the hardest challenge which is just finding those outliers and so more often than not they just don't have capital and this idea of you can pass the hat amongst lps and raise four million dollars in a week is usually not so smooth yeah it seems to me there are

SPEAKER_22: a multitude of reasons one is bad portfolio construction you're advising don't do it um but not having reserves would be one also um i think you do know your winners that is so one might think it's that the managers don't know the winners i actually knew the winners in all of these cases um and when we did our analysis of previous big wins there was only one that i was actually sure was unsure of so like three out of four in that first fund that hit unicorn status were we unsure of so we would have made the bets on three of the four so then it becomes well what's the other reason and i think a lot of it is you know the management fees on small funds are so low that you don't have a team if you don't have a big enough team you it's hard to stay on top of and build the relationships with a large number of investments and so i think a lot of times they just don't have the bandwidth we had monique talking today about her first fund she's talking about lp relations finding founders and then giving to make the primary investment and then doing the support i mean it's a lot to put on your plate so i agree yeah this is this is one of the reasons why we

SPEAKER_61: position this as an opportunity fund for the emerging managers where they get economics and that

SPEAKER_00: whole what do you do just split 50 50. we split it 50 50. so we'll put the capital forward we put it into an spv they co-managed the spv with us and now you can have a 15 million dollar fund and invest

SPEAKER_68: like you have a 50 million dollar fund yeah so you could put in a two or three million dollar check size on average two million dollar on average size on average yeah that's a clever idea that you came

SPEAKER_70: up with how'd you come up with it lots of uh you know experimentation and trial and error over the

SPEAKER_71: years and is it work how long have you been doing this it's working we've done about six direct

SPEAKER_00: deals since q4 of last year we're in nine funds we're going to be in 25 funds by q2 of next year and for this for this fund 25 will be the number of funds that we're in but we're offering that that program that kind of capital extension program to a broader set of managers to the whole community

SPEAKER_68: so you don't have to be an lp to get access to that no it's not just for is it codified or is it like

SPEAKER_04: a handshake deal it's a handshake deal what we learned a long time ago is you know you you don't want

SPEAKER_00: to go to managers and get some kind of written agreement like hey i'm gonna get your pro rata there's been all kinds of cautionary stories about that backfiring and so it's like look we're here we hope you're we're your first phone call but we might not be all right say on kang is from

SPEAKER_62: green spring which got bought by stepstone so now you're at stepstone officially and we'll bring your deck up and get your perspective here and then maybe take a couple questions from the audience as

SPEAKER_76: well great hi everybody thanks for having me i will talk a lot about the same kinds of things just from a different angle which is great because we did not confer in advance this slide is just to level set just the growth or the explosion in venture that you've seen since 08 the venture share of private capital allocations for institutions has gone from 14 to 25 percent you've seen about a 10x increase in the assets under management in this asset class and almost a quadrupling of the number of managers i think you know some lp friends at different annual meetings this season have said we've been joking at some of the platform brands agms like i don't recognize anybody here who are all these people because you're seeing a lot of the og lps moving down market if you will looking for emerging managers and a lot of the platforms now have a bigger set of lps including sovereign funds you know etc large u.s public pension plans etc with that though you know i think uh some of the reason why you're seeing this move towards emerging managers is not just because the 20 25 million dollar lp check that the enfs or the funds of funds right are kind of meaningless to some of the platforms today but also because of this slide uh you can see the performance of smaller funds is just better it's a law of small numbers i think we all anecdotally have awareness of this but why don't just put some numbers to it for folks benefit this is a slide that we've created this is a little bit of a newer one that lps really like and most gps at smaller funds don't like so if you look the leftmost column is the economics per partner assuming a two percent management fee and a 25 carry for a billion and a half dollar fund size with 10 partners the middle bubble is a 400 million dollar fund with five partners same fees and then the rightmost is 150 million dollar fund with three partners and to get 67 and a half million dollars per partner for a larger fund you need a 2x net for the mid-sized fund you need a 3-6 and then for the smaller fund a 5-6 so the alignment for lps with gps at the

SPEAKER_84: smaller funds is unmistakable sorry is that economics to adding both management fees and carry correct fees and carry is there a distinction between what looks like the differential there assuming the smaller funds it's much more based on carry than management fees and larger funds it's

SPEAKER_22: probably more management fees that's right and another way of saying this is you don't have to perform as well at a big fund and you have to really perform at smaller funds which then would lps when they're speaking privately say this group you know just can phone it in in a way and then this group has to hunt and fight at a much higher level so there has to be a level of aggression with one group and a passivity or you know whatever they can just rest invest it's like the difference between

SPEAKER_62: working at a startup versus at google and that's part of why smaller funds are more attractive we ran

SPEAKER_76: some data because we had felt like there has been uh along with the explosion of capital coming into venture there's just there's more funds etc we wanted to see how many of those were at the lower end of the market so there were 2991 funds that were raised in the united states since 2018 in terms of unique manager count it's about 1650. you can see here the breakdown by fund size and then in terms of this may be a little bit self-serving but really a lot of these funds are starting to look very similar in terms of background so we ran and we went through gp by gp education work experience demographics 60 had attended an ivy plus school defined as the ivs plus cal mit or stanford 55 of them were former founders about 17 had worked at a large tech company whether a private unicorn or a publicly traded tech company and then about 15-ish percent were sort of classically trained in financial services whether pe or investment banking or whatnot so if you look at the green bar across the top about 90 of the managers hit one or more of those buckets so on the one hand you definitely want exposure to the emerging manager landscape because the returns are better but on the other hand it's getting harder to differentiate and to ben's point about most people think they're above average i would actually say that in silicon valley and in venture everybody is above average extremely above average in life yes and so you know we just feel like folks need to be very selective because again in a vacuum it's kind of like looking at a startup business plan in a vacuum it sounds like a great idea unless you can see the

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SPEAKER_76: the y-axis is super compressed but it shows that in venture if you are with the top companies and by extension you know we assume with the top funds and ben showed a variation of this um in the equities versus venture returns you can see here the black line on the top is the 95th percentile of deal returns for venture buyout is the orange and then growth equity is the gray you see that there's actually very little in the way of market cycles and we have a view that a lot of investing in venture is driven by innovation not by economic cycles and so i wanted to kind of leave on a high note in that if you believe as everyone says that we are entering this fourth or fifth however you want to call it in terms of wave of you know extremely impactful uh value creating innovation with ai with new companies with reimagined companies then you know you could expect that this will extend and be the case going forward as well the bottom half is the kind of what to your point about the median returns but again

SPEAKER_96: that the the identification and the selection is extremely critical let's talk about which managers in

SPEAKER_98: the emerging class you'd think are the archetype that wins today maybe portfolio structure their

SPEAKER_62: background etc and we'll just go right down the line sure i think we've been investing emerging

SPEAKER_30: managers for the last 17 or so years we're always looking for a manager that has an edge and it's three across three dimensions it's deal sourcing investment selection or value add one of those three things and you just have to have an edge um we were investors in um introducing fund one and every fund since then andrewson today looks very different than what they were then their edge today is very different from their edge then what is their edge today just the scale the scale they they continue to um operate with 500 employees um on the value add side at a scale larger than than all their peers got

Chamath Palihapitiya: it so d uh deal flow decision making and what was your third value add value add so support of the company you can slice them more times but yeah that's the rough three yeah on on the emerging managers

SPEAKER_43: i mean we have some very kind of hard line quantitative quantitative concepts that we look at making sure

SPEAKER_00: they understand just how much of our portfolio is required for us it's at least 30 companies per fund to even be able to find an outlier that's a hard concept some kind of unique sourcing methodology and then there's this kind of soft concept that we look at which is in many ways what we've experienced with emerging managers is a lot like what we experienced investing in startups throughout the 2000s and 90s

SPEAKER_61: where sometimes the best ceo the best founder is also kind of a awkward difficult obstinate maybe even stubborn person i'm sitting right here bro i didn't want to bring it up but uh and and you know it's not necessarily somebody you want to hang out with all the time but for whatever reason they're so

SPEAKER_04: driven none of you guys are like this by the way none of you guys are like this it's some other

SPEAKER_106: person i'm referencing but you know they're difficult on their shoulder agree disagreeable

SPEAKER_04: absolutely and they're driven like they're gonna make it work no matter what kind of like those ceos that we know that were a little difficult yeah i met a couple soon what do you think in terms of emerging

SPEAKER_22: managers and like your own signaling and then maybe you know question i had for you since you get to see so much from step zones data etc is this were there too many managers and maybe not enough work ethic you and i have had conversations about just how big this got for a peak zurp era like just maybe you

SPEAKER_111: talk about how big this got and then what you don't look for and what you do look for you know like both of

SPEAKER_76: those so i'll add something to what ben said in terms of uh if you kind of break the venture job and down into its component pieces there's sourcing there's investment judgment there's winning the deal that you want to do and then there's the value add after the fact and i think some of the data that we laid out part of why you know we asked our team to run it was because it's starting to get more and more difficult to differentiate on the sourcing or the value add like the sourcing a lot of folks again you can see can tell a good story about the network where i worked and then on the value add side whether you ran a team at meta or you were a founder yourself you have some primary experience or advice that you can offer to somebody that is valuable um to a founder and so i think the picking and the winning the the problem with it and the thing that makes it so hard is the picking it takes so long to see whether you're good at this job and you know seven years maybe minimally um and i'll come back to your second question on that point and the winning is actually a little bit easier to see in real time the um picking piece i think you know up until 2021 uh there was i think it's very this is a great job i mean in investing in companies being pitched who wouldn't like that and it's very empowering technology is really fun to dream about and think about what could go right there's so many you know jobs that you can have where you're paid to think about what can go wrong and other asset classes in particular and you're getting markups every six weeks and so a lot of people thought they were really good at it and what we're seeing now in the last couple of years is uh just these markdowns have been significant uh that people i think there's an element you know in life with luck and timing i think folks who raised their first funds in 2020 2021 are gonna have a pretty hard time yeah i think they're done

SPEAKER_22: well no i mean i i attribute a lot of my success was the timing i started in 20 2009 10 11 and it wasn't as crowded and it was after the great financial crisis and companies were four five six million dollars to invest in the same companies with weaker founders let's be candid were getting 16 or 60 million for some period of time and i think the entry price kind of matters

SPEAKER_76: the one other thing i'll add and then i'll stop talking um was i've had a couple of sort of early stage or seed stage gps who've been in the business a while the last just in the last few weeks say you know the days of getting 20 ownership for a four million dollar check or whatever the check numbers but the days of getting that ownership are over and so in terms of that slide in terms of the portfolio construction math and how much ownership you can get you know to assume that you're going to get a you know 55 billion of market cap and own 10 of a company at exit it's a pretty big assumption to own the 10 at exit so i think all of that we're seeing something we're seeing the reckoning of it

SPEAKER_28: now because those days are kind of yeah one thing i always found peculiar was people sending me their

SPEAKER_22: lp updates when things got marked up of funds on wasn't in and there was one fund in particular who i knew the founder they were up like 7x or something year over year and they just started and i was like is there any secondary opportunity in this company that's 50x that's major entire you know whatever 10 million dollar fund be worth 70 you're kind of obligated to just get some dpi here and they're like

SPEAKER_62: are you crazy this crypto project's going to the moon and i was like and it was like and there were

SPEAKER_22: like three crypto wins out of seven and i was like bro i'm just giving you one piece of advice 10 every time these go 10 20x sell 10 10 20x sell 10 just cover your you know basis and then some you you can't go wrong so when you are evaluating founders and this discussion of secondary has become a bit more um acute or like i get the sense some lps are a little pissed off about this like dreamy

SPEAKER_62: it's only going to ever go up and not taking advantage of secondaries for especially for

SPEAKER_29: emerging managers yeah i think i think uh dpi seems like a not that difficult to spell but it's

SPEAKER_30: a foreign concept like to a lot of new investors uh so it's it's a challenge we i was gonna say on

SPEAKER_26: your earlier point where they're done i actually don't think that in some ways it'll be hard to

SPEAKER_30: raise the next fund but uh you know you can make a gp can make the last dregs of their fund last a long time and so i think there's going to be noise in the market for a lot longer than the fundraising environment might might indicate that i started a venture about 20 years ago and i felt like i was late to the game and like i graduated right into the bubble so i missed like the venture part of the dot-com bubble and uh all these big brand names is like well they're they're they're clearly all done they lost lots of money and it felt like it took another five years before some of these stayed firms that were so famous like finally started started to just didn't hear from us

SPEAKER_04: as much i think it's gonna happen again yeah i think it's it's a really good point about dpi though and how i mean it's just not even a topic most small managers talk about it's just like everything's going to keep moving and you know year eight year nine year ten turns into year 12 and i i think likely

SPEAKER_00: what we're going to see is that ecosystem of how you even execute let's say on secondary sales or or getting early liquidity it's been so limited um i don't know if you saw michael michael camets and donna you know put together i think a hundred million dollar fund it was purely for buying out lp interests and small funds and i think you're going to see a lot more of that um that benefits i think everybody the small fund managers the lps everybody it just gets the capital recycling quicker which i think would be healthy for the ecosystem awesome you had something you wanted to add oh i was just gonna

SPEAKER_79: say that question keeps coming up about funds shutting down and my and people are kind of

SPEAKER_76: surprised that you haven't heard more about it but i agree with you i think it's gonna be a very slow

SPEAKER_131: burn right because they have management fees exactly and so they have to burn off the management fees

SPEAKER_22: and what if something hits in that dormant portfolio yeah you could like all of a sudden have something pop and then all of a sudden you're back in the game that's it literally it's like chipping a chair in

SPEAKER_133: a poker tournament crypto recently crypto's back i think bitcoin's back i don't know if anybody's apes

David Friedberg: apes are back oh eat this back how are your apes doing folks man that was a weird moment in time

SPEAKER_22: we had like a year or two here where they got a lot of crypto going all right let's give it up

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SPEAKER_143: so how many people here are raising a first fund or thinking about raising their first fund raise your hands okay okay um how many people have already raised their first fund or are in our already investing out of it all right a few so this talk isn't really about telling you how to do it it's telling you how i did it if you're spinning out of you know a well-known firm like sequoia andreason uh this

SPEAKER_151: probably isn't for you you've probably got institutional investors who want to pile into your fund already but um you know even with my experience raising a first fund that was what i call institutional adjacent uh you know can be challenging i'm monique woodard i'm the founding partner at cake ventures cake ventures is a pre-seed and seed stage fund generalist fund and we invest in companies that will accelerate at the intersection of technology and demographic changes like aging and longevity the increased spending power of women the rise of deskless work everyone gets a little bit of privilege so i think you know my big privilege as i was starting to fundraise was that i uh i was an

SPEAKER_155: investor at 500 startups i was a scout at light speed and i had worked uh advised softbank on standing up

SPEAKER_151: their emerge program within the vision fund but even with with all of those things there was no magic bullet lps were certainly more willing to take meetings because i was a known entity they wanted to know what i was going to do next but it wasn't the magic bullet to like getting an actual investment i'm a solo gp and i raised a 17 million dollar debut fund cake ventures is a pandemic baby so i started the fundraise uh at the end of 2019 and then the pandemic happened in march of 2020 which threw everything for a loop i went from an lp pitch to trying to figure out how to get toilet paper and washing all my groceries but by the summer of 2020 things were kind of back in swing and uh i was back to fundraising and we did our first close i did my first close in march of 2021 and i did my final close in november of 2022

SPEAKER_143: so all told that was 20 months from first close to final close so that was really more than two years

SPEAKER_164: of work actual work 49 of my investors are what i would call institutional or institutional adjacent

SPEAKER_151: via fund of funds and only nine percent of my investors are individual investors which is really different for most first-time funds as a lot of you may already know a lot of first-time funds funds um are primarily made up by individual investors high high net worth investors and most first-time fund managers have very little sort of institutional or institutional adjacent capital

SPEAKER_143: in their lp base there are a lot of myths about raising fund one the first myth that i hear a lot of gps

SPEAKER_151: say is that oh my god i have to find an anchor lp to get this fund off the ground if i don't find an anchor lp i cannot raise this fund and people search and search for this mythical anchor lp who's going to invest a significant part of the fund and sort of put them in business i didn't have a single anchor lp per se but what i did is i had a handful of what i did talked about as small anchors syndana and mitch and frida kapoor put me in business my first close was five million dollars and i did three more closes after that for a total of four closes before the fund was fully closed and i anchored each of those closes around an institutional or institutional adjacent lp so my first close that institutional adjacent lp is syndana for the second close that was foundry for the third close that was pivotal which is melinda french gates's family office and for the final close that's kind of the one

SPEAKER_145: where everyone piled in and it was bank of america and fairview and so on and so forth the second big

SPEAKER_151: myth is that you shouldn't spend any time with institutional investors who don't invest in fund once i actually think this is a huge mistake that a lot of fund managers do because they want to they rightly want to spend the most of their time with people who will invest in this current fund but institutional investors are are an interesting lot you know you have to spend time with them um often for many years before they will actually invest in your fund and so i really wanted to start the clock ticking on that relationship in fund one even if they were i knew they were not going to convert to an actual investor in fund one now a lot of those in investors are interested in my fund two some might convert some might convert in fund three we'll see but i think it's a huge mistake to not spend any time with institutional investors who aren't fund one investors and then the third is that you need to sort of uh soft circle 40 to 50 of the fund before you do a first close i think that keeps a lot of fund managers out of business and out of making actual investments venture capital is by its very nature a blind pool and so if you are waiting that long to do your first close the pool remains blind for way too long put yourself in business um you know find find those institutional adjacent investor investors who will

SPEAKER_155: put you in business so that you're able to start doing investments and so that the pool is not as blind

SPEAKER_143: as it will as it would be otherwise and honestly first post first close it conversations just hit different

SPEAKER_151: um it almost doesn't matter how big the close is it has to be big enough um to be viable but it doesn't need to be massive but post first close conversations are far and away different from anything that that happens before that because then people know that this train is is moving and it's rolling with or

SPEAKER_164: without you like i said most fun ones are heavily weighted towards individual investors high net worth

SPEAKER_151: individuals put a lot of funds in business and we love them for that but heavily weighting your fund toward the individual investors can be really challenging for building a firm that has a lot of longevity most venture funds do not deliver liquidity to their fund one investors before they need to go back to market for fund two and often fund three so there are not enough returns to deliver to your early investors to reinvest in those funds so if you're uh if your fund one is heavily weighted on individual investors that just means that you have to completely reset your lp base on the next fundraise and that'll that level of lp turnover can be really challenging and difficult to manage and then you know the question of institutions versus individuals is a little bit too binary as you all saw there are you know four different categories of lps that i have in my fund fund to funds some corporate dollars foundation dollars which are institutional but there are lots of ways to sort of uh thread the needle between institutions and individual investors but speed to close is the trade-off and so i didn't have a ton of high net worth individuals in my network frankly most of the individual investors who invested in my fund are gps at other funds like jason calacanis but speed to close is the trade-off you're you're signing up for a slightly longer sales cycle um but i believe that is valuable if you ask any gp how they raise their fund everyone will have a very different story some people will say oh you know this corporate lp uh anchored my fund and and then i was they put me in business or i went out and raised from um all the people who invested in my startup and they put me in business there are so many different ways to raise a fund you just have to find the right way that works for you and your story and your network and your background so you are not just raising fund one you're actually raising the next two or three funds sometimes the next four funds and that is why you should be talking to institutional investors early and often so that you are you know you are kind of uh setting them up for the next two or three funds that you raise and fundraising is so difficult and often onerous it's not our favorite things to do thing to do even as even as fund managers and so everyone wants to get

SPEAKER_155: through it really quickly and move on to the good part which is deploying the capital working with founders

SPEAKER_151: all the stuff that we actually sign up for but you have to spend enough time uh doing the fundraise so that you are actually able to set yourself up to build a legacy firm and there are lots of different types of lps in the world and you need to find your ideal lp persona as quickly as possible i discovered that my ideal lp persona was fund of funds sometimes emerging manager fund of funds but not always and these fund of funds sort of uh they take money from uh larger institutions like endowments and pension funds and then they they deploy it into uh into fund managers and i knew that my fund was going to be too small to go directly to those sort of pension that level of pension funds and endowments but i knew

SPEAKER_155: that i could get adjacent to them by going after the fund of funds so once i was able to close uh i closed

SPEAKER_151: sindana first um the first fund of fund and once that became the persona i just went deep and closed started closing every fund of fund i could and there are roughly i don't know five six fund of funds um in the cake ventures lp base and your persona may be corporates um you may find that you know if you're building something in uh if you're building the ai fund that corporates really want to get close to what's happening in ai and you know they're willing to to put some dollars behind that but you just have to figure out which persona is the one that that clicks for you so you've raised your first fund

SPEAKER_143: um and uh you're ready to you're deploying what what happens next well you've got to continue to be

SPEAKER_145: uh institutional so you've got to build the muscle that helps you move up the institutional stack and

SPEAKER_151: that's all about the fun stuff of operations it's reporting it's making sure your audit is um done well and on time and with an audit firm that uh people trust and you don't really get that muscle unless you go pretty institutional pretty early and it's hard to then do then you know build the muscle later when you want to go institutional because you just haven't had enough practice at it so i would say build that muscle early and then you'll be able to easier have an easier move up the institutional stack and then every every fund like every person has a little bit of privilege every fund has a little bit of privilege right so i think you have to find the thing that you're good at and then build your firm's reputation on that and it's not always completely obvious the thing that cake ventures is really good at is understanding demographic changes understanding how that impacts technology and then helping our founders harness those those things for their growth but we actually discovered that we were good at something else and one of our superpowers is uh that i'm able to distill a lot of information and show people how that turns up in the portfolio so amber illig who is a general partner at a fund called the council actually called this out for me we are both investors in a company called aster and after aster announced their fundraise i gave a quote to the press and i also did uh i wrote a bit about why aster is is important and so many investors just kind of give the off-the-cuff quote of we are so excited to be investors in this new company we can't wait to see what they do and that is very boring and not helpful at all to founders what is helpful is having an investor contextualize their investment in your company so that other people get equally excited about the thing that you are building and so we harness content and attention for the value of our portfolio and the value of our founders and you know we try to go a level or two deeper um and actually give them something that that is useful for the future and then you must especially if you are raising or want to be institutional do the thing that you said you were going to do if you raise a fund and you tell people that you're a seed fund and then three years from now i look back and 50 of your deals are in series a companies that does not engender confidence and that is not the way that institutional investors want to invest if you say i run a fund and i invest in ai and data and then 50 of your deals are in consumer consumer companies that have no ai and data that does not engender

SPEAKER_155: confidence that's not what an institutional investor wants to wants to invest in now you do earn the right

SPEAKER_151: to go off script but you have to earn that right you have to show that you can do the thing that you sold them you have to show that you can do and execute on the thing that you told them you were going to do so the biggest one of the biggest things um when you have institutional investors is do the thing that you said you were going to do and they will continue to invest with you because hopefully you're good at it a few final thoughts before we open it up to some questions raising a fund is permissionless so many gps start off their fundraise by asking other people what they think of what they're doing it's great to get other people's opinions but you can't spend too much time asking other gps and other people who are not building this business with you what they think and how how they think you should build this firm you have to just go out and do it one lp does not stop or start the show so many gps and fund managers feel as though if i just get this one lp to invest in my fund everything will be great i can't do it unless they invest in the fund that is a very very very dangerous place to put yourself in you have to be in the mindset of this train is rolling people are going to get on it i hope it's these people but if it's not then there will be other people on the train because the train's got to go there were some lps who i thought these these lps are going to love what i do it's going to be a slam dung they're going to be super into it they didn't end up in the fund and that's okay they might be in fun too they might not but the train the train rolled on and then finally i think if you're if you're holding on to you know if this fundraise doesn't work i can go get that job at google or if this fundraise doesn't work i can go be a partner at some firm or if this fundraise doesn't work i can go do xyz

SPEAKER_157: you almost have to burn the boats in order for the fundraise to be successful

SPEAKER_151: i burned the boats i cashed in every 401k that i had i put all the money at it i didn't have another job i had nothing else to go back to and so i moved forward into cake ventures and closed the fund if i had something else back there that you know was was hanging around the hoop that i could like easily say if this doesn't work out i can go do that we might not be standing here with me as the founding partner of cake ventures we'd be standing here with me as you know partner at some fund some other fund that i don't run so if you go out there with the mindset that you've burned all the boats and there's

SPEAKER_145: nothing else for you to go back to that is how you get to an institutional fund it takes a little bit

SPEAKER_17: of work to get these talks approved to be shared with you but we've gotten such good feedback from everybody about this series that i think we're going to do it every year so if you can't make it to the liquidity summit next year expect some of the talks to come out later on we may have one or two more for you but in the meantime there will be lots more live news there will be interviews both from jason and myself we have so much twist planned for you stay in that seat keep those headphones on and i'll talk to you very soon bye