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 to Mars what would that have translated to And you can see the name of the yacht Which is pra yeah thank you wow you know The wound still open so if you could put A little more salt in it that would be BR this week in startups is brought to You by Squarespace turn your idea into a New website go to squarespace.com twist For a free trial when you're ready to Launch use offer code twist to save 10% Off your first purchase of a website or Domain Gusto Gusto is easy online Payroll benefits and HR built for modern Small businesses get 3 months free when You run your first payroll at gusto.com Twist and Runway looking to level up Your financial planning Runway is the Modern and intuitive way to model plan And align your business for everyone on Your team sign up at runway.com twist 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 Choy from next Legacy Ventures Michael Downey from mdsv and seon 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 pra and what you Might be leaving on the table and then Of course how fun 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 then we'll hear from Monique Enjoy okay one of the things we wanted To address During this year's liquidity was uh fund To funds we heard before from Monique Hey these play a critical part in our Ecosystem uh for helping sovereigns um Family offices High n 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 first up is Ben Choy thanks For having us up here especially after Flying cars not a not a not a great 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 triaa does a Survey of drivers and it finds Consistently that most drivers 73% in The last survey of us drivers consider Themselves better than average drivers If you cut the data a little more Perhaps in no surprise in this room Eight and 10 men think that they are Better than average Drivers I think drivers are 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 uh it's certainly true we We've invested in about over a 100 BC 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 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 75% 25th percentile and then The very the lines go up to something Like 95% and 5% 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 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 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 there One of my favorite all-in podcast Episodes but so here who here is a fan Of the Pod all In 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 you all talked about I Think Chim 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 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 2 to 3x 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 adventure 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 risk that we take on the 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 Going to do yourself do it Professionally do it full-time do it
Seriously and be safe out there thanks Okay well done all right next up is Michael Downing um from MD V Capital Great thanks Jason uh so just quickly at Mdsv we are fund of funds but 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 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 a Category that is 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 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 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 5% of those same small
Emerging managers less than 5% 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% 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 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 this is my talk to
Mars what would that have translated to And you can see the name of the yacht Which is prata yeah thank you wow I mean I really appreciate you coming and I Guess I'm not getting invited back no I Just um you know the wound still open so If you could put a little more salt in It that would be great Founders I know You're building the next big thing in Tech and you probably got some Groundbreaking AI solution or a consumer App that's going to take the World by Storm or maybe you're listening to this Week in startups and you're doing a cpg Business or maybe you're an investor in A restaurant well first impressions Matter you need to have a gorgeous Business website and you want to do that For an affordable price and have Gorgeous templates and have all the Important features out there there is an Amazing solution for you it's Squarespace and that's what I use to Make stunning professional websites Quickly CU speed matters and Squarespace Has a new product that's absolutely Mind-blowing it's called blueprint AI You answer a couple questions about your Business and AI does all the heavy Lifting to give you a custombuilt Website tailored to your brand and it's All powered by Squarespace killer Designs keeping eyeballs on your website And you know there's this expression
Don't judge a book by its cover you know Why they have that expression because People judge books by their cover that's Why when people design books and you go By in the airport the cover pulls you in Same thing with your website beautifully Designed templates are waiting for you There as is the blueprint AI plus you Get built-in analytics SEO e-commerce Tools so when you invest in a Squarespace website you get all of those Developers designers and brilliant People at Squarespace behind your Business go to squarespace.com twist to Get 10% off your first website or domain Purchase and when you're ready to launch Again go to squarespace.com twist and Get that 10% off your first website or Domain purchase squarespace.com Twist no it is uh literally my talk Tomorrow is going to be a little bit About our portfolio strategy and how It's and you know it um and how we've Adjusted it because of this really Profound uh Insight which is only 5% of These winning Investments are followed On so the question becomes why right I Mean I I can tell you from our 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
Safe or convertible note then all of a Sudden the company grows like crazy and Is doing a round with a16 or who ever 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 precede 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 you can pass the Hat Amongst LPS and raise $4 million in a Week is usually not so Smooth yeah it seems to me there are 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 of Times they just don't have the bandwidth We had Mo'Nique 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 this Is this is one of the reasons why we Position this as an opportunity fund for The emerging managers where they get Economics in that whole you just split 5050 we split at 50/50 so we'll put the Capital forward we put it into an SPV They co-manage the SPV with us and now Can have a $15 million fund and invest Like you have a $50 million fund y so You could put in A2 or3 million check Size on average $2 million average size On average yeah this a clever idea that You came up with how'd you come up with It lots of uh you know experimentation And trial and eror over the years and Has it worked how long have you been Doing this deploying strategy we've done About six direct 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 So you don't have to be an LP to get Access to that no it's not just for is It cified or is it like a handshake deal It's a handshake deal what we learned a Long time ago is you know you you don't Want to go to managers and get some kind Of written agreement like hey I'm going To get your prata there's been all kinds Of cautionary stories about that Backfiring and so it's like look we're Here we hope you're were your first Phone call but we might not be all right SE Kang is from 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 well Great hi everybody thanks for having me I will talk a lot about the same kinds Of things um just from a different angle Which is great uh because we did not Confer in advance this slide is just to Level set just the growth or the Explosion inventure that you've seen Since ' 08 The Venture share of private Capital allocations for institutions has Gone from 14 to 25% 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 uh I think uh 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 um 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 um large US 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 LP check that the enfs or the Funs of funds write 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 one 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 LP 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 2% 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 fund with five Partners same Fees and then the rightmost is $150 Million fund with three partners and to Get 67.5 million Per Partner for a larger fund you need a 2X Net for the midsize fund you need a 36 And then for the smaller fund a 56 so The alignment for LPS with GPS at the Smaller funds is Unmistakable so is that economics adding Both manual fees and carry correct fees And carry is there a distinction between What looks like the differential Assuming the smaller funds it's much More based on Terry than men fees and Larger funds public mod 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 working at a startup Versus at Google and that's part of why Smaller funds are more attractive we ran
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 and we wanted to See how many of those were at the lower End of the market so there were 2,991 funds that were raised in the United States since 2018 in terms of Unique manager count was about ,650 you 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 IV plus School defined as the IVs plus Cal MIT Or Stanford 55% of them were former Founders about 177% had worked at a Large tech company whether a private Unicorn or a publicly traded tech Company and then about 15ish per 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 inventure 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 sounds like a Great idea unless you can see the Context you didn't start a company to Run payroll did you of course not and That's okay because Gusto is here to Help Gusto will help you run payroll and Handle your benefits on boarding and HR All in one place don't just take my word For it 300,000 businesses trust Gusto Today asure startup scales Gusto can Grow with it don't just take my word for It 300,000 businesses trust Gusto today Asure startup scales Gusto can grow with It state and federal taxes handled for Your staff around the country hand L Finally time to offer 401K plans to your Staff Gusto's got it need to get your Compliance sorted out well three out of Four employees say Gusto helps them be Government compliant even better Gusto Is simple easy to use software so you Can focus on what matters building your Company so here's a simple call to Action want all that custo has to offer With no hidden fees and discount to boot Try Gusto and get 3 months free at Gusto.com twist that's gusto.com / twist
So I want to end on this slide I'm sorry 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 Adventure 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 than 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 That the the identification and the Selection is extremely critical let Let's talk about which managers in the Emerging class you'd think are the Archetype that wins today maybe Portfolio structure their background Etc And we'll just go right down the line
Sure I think we've been investing Emer Managers for 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 ad one of those three Things and you just have to have an edge Um we were investors in um anding fund One and every fund since then entries in 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 they continue to um Operate with 500 employees um on the Value ads side at a scale larger than Than all their peers got it so deal uh Deal flow decision making and what we Should there value ad value ad so Support of the company you can slice it More times but yeah that's the rough Three yeah on on the emerging measures I Mean we have some very kind of Hardline Quantitative quantitative Concepts that We look at making sure 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 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 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 driven none of you guys are like this By the way none of you guys are like This it's some other person I'm Referencing but you know they're on Their shoulder disagreable absolutely And they're driven like they're going to Make it work no matter what kind of like Those CEOs that we know that were a Little difficult yeah I met a couple s What do you think in terms of emerging Managers and like your own signaling and Then maybe you know question I had for You since you get to so much from Step Zones data Etc is this were there too Many Managers and maybe not enough work ethic You I have had conversations about just How big this got for a peak Zer era like Just maybe you 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 those so I'll add something to what Ben said in terms of uh if you kind of Break the Venture job in down into its
Component pieces there's source in There's investment judgment there's Winning the deal that you want to do and Then there's the value ad 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 ad 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 ad side whether You ran a team at meta or you or 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 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 I think You know up until 2021 uh there was I think it's very this Is a great job I mean 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 in other asset Classes in particular and you're getting Markups every 6 weeks 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 Was an element you know in life with Luck and timing I think folks who raised Their first funds in 2020 2021 are going To have a pretty hard time yeah I think They're Done well no I mean I I tribute a lot of My Success was the timing I started in 20 2009 1011 and it wasn't as crowded And it was after the great financial Crisis and companies were four five6 Million 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 and I think the entry Price kind of matters 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 $4 million 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 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 that we're seeing something we're Seeing the Reckoning of it now because Those days are kind of yeah and one Thing I always found peculiar was people Sending me their LP updates when things Got marked up of funds I wasn't in and There was one Fund in particular who I Knew the founder they were up like 7x or Something year over-ear and they just Started and I was like is there any Secondary opportunity in this company That's 50x that's made your entire you Know whatever $10 million fund be worth 70 You're kind of obligated to just get Some DPI here and they're like are you Crazy this crypto Project's going to the Moon and I was Like and it was like and and there were Like three crypto wins out of seven and I was like bro I'm just going to give 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 it's only going to ever Go up and not taking advantage of Secondaries for especially for emerging Managers yeah I think I think uh DPI Seems like not that difficult to spell But it's a foreign concept like to a lot Of new investors uh so it's it's Challenge we I was on your earlier point With they're done I I actually don't Think that in some ways it'll be hard to Raise the next fund but uh you don't you Can make a GP can make the last drgs 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 I started a menture 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 dotom bubble and uh all These big brand names well they're They're they're clearly all done they Lost all this money and felt like it Took another five years before some of The these stayed firms that were so Famous like finally start of started to Just didn't hear from that as much I It's GNA 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 10 turns into year 12 and I I Think likely 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 Kim sandana you know put Together I think a $100 million fund it Was purely for buying out LP interests In 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 Want to add oh I was just going to say It that question keeps coming up about Funds shutting down and my and people Are kind of surprised that you haven't Heard more about it but I agree with you I think it's going to be a very slow Burn right because they have management Fees exactly and so they have to burn Off the management fees and what if Something hits in that dormant portfolio You could like all of a sudden have Something pop and then all of a sudden You're back in the game it's it Literally it's like chiping a chair in a Poker tourn crypto recently crypto's Back I think bitcoin's back I don't know
If anybody's apes are too apes are back Oh eth is back how are your Apes doing Folks man that was a weird moment in Time we had like a year or two here Where the got a lot of crypto going all Right let's give it up for our fun def Funds as a Founder there are some Crucial questions you got to ask Yourself do you know how your hiring Plan impacts your burn rate do you know How much cash your startup has right now Are you living in spreadsheet chaos well If you want to have the answer to every Investor question and before they ask it You need to check out Runway this Product is extraordinary they've Completely changed the way startups Handle their finances by the way what an Incredible name on runway.com I'm Talking to Founders about the runway all The time are you kidding me good job Runway so what do they do it's elegantly Simple Runway connects your accounting HR and all your data sources so that you Map growth accurately Financial modeling That you can set up in plain English and Ask questions to and create reports for Investors and your executive gives that Auto update in real time it's so simple Any Department can use it not just the Finance department so join a growing Customer list that includes superhuman Angel list 818 tequila and revenue cat Just because you're startup does it mean
You can run your accounts on the back of A napkin come on if you want a Personalized demo very simple and it's Going to blow your mind by the way Runway.com twist and sign up to get 3 Months free right now that's kind of a Special offer so let's take advantage of It run way.com Twist 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 and are 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 well-known firm Like Sequoia Andre uh this probably Isn't for you you 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 onique 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 desk list work Everyone gets a little bit of privilege So uh I think you know my big privilege As I was starting to fund raise was that I uh I was an investor at 500 Startups I was a scout at light speed And I had worked uh advise soft Bank on Standing up 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 debut fund Cake Ventures is a pandemic baby so I Started the fund raise 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 so all told that was 20 months from First close to Final close so so that Was really more than two years of work Actual work 49% of my investors are what
I would call institutional or Institutional adjacent via fund of funds And only 9% of my investors are Individual investors which is really Different for most firsttime funds as a Lot of you may already know a lot of Firsttime funds um are primarily made up By individual investors high high net Worth investors and most firsttime fund Managers have very little sort of Institutional or institutional adjacent Capital in their LP base there are a lot Of myths about raising fund one the First myth that I hear a lot of GPS 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 talked about as small Anchors sandana and Mitch and Freda Kapor put me in business my first close Was $5 million 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 Snana for the second close that was
Foundry for the third close that was Pivital which is Melinda French Gates's Family office and for the Final close That's kind of the one where everyone Piled in and it was Bank of America and Fairview and so on and so forth the Second big myth is that you shouldn't Spend any time with instit tional Investors who don't invest in fund ones 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 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 invest investors who will put You in business so that you're able to Start doing Investments and so that the Pool is not as blind as it would as it Would be otherwise and honestly first Post first close conversations just hit Different 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 in way different From anything that that happens before That because then people know that this Train is is moving and it's rolling with Or without you like I said most fun ones Are heavily weighted towards individual Investors High net worth individuals put A lot of funds in business and we love Them for that but heavily waiting your Fund toward the individual investors can Be really challenging for building a 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 fun 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 your 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 fund raise and that 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 binary as you all saw there Are you know four different categories Of LPS that I have in my fund fund of Funds um some corporate dollars Foundation dollars which are in 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 um are GPS at other funds Like Jason calanis but speed to close is The trade-off uh 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 through it really quickly And move on to the good part which is Deploying the capital working with Founders all the stuff that we actually Sign up for but you have to spend enough Time uh doing the fund raise 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 Fun 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 that I could get adjacent to Them by going after the fund of funds so Once I was able to close uh I closed Sana first um the first fund of fund and Once that became the Persona I just went Deep and Clos 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 the 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 um and uh you're ready to you're Deploying what what happens next well You've got to continue to be uh Institutional so you've got to build the The muscle that helps you move up the Institutional stat and 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 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 stat 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 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 in the Portfolio so Amber IG who is the 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 offthe Cuff quote of we are so excited to be Inv investors in this new company um 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 3 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 in data that does not Engender confidence that's not what an Institutional Investor wants to wants to Invest in now you do earn the right 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 fund raise by asking other people What they think of what they're doing It's great to get other people to pay 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 fund Raise doesn't work I can go get that job At Google or if this fund raise doesn't Work I can go be a partner at some firm Or if this fund raise doesn't work I can Go do XYZ you almost have to burn the Boats in order for the fund raed to be Successful I burned the boats I cashed In every 401K that I had I put all of 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 a 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 nothing else for You to go back to that is how you get to
An Institutional Fund it takes a little bit 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
