Cendana Capital

LPs and GPs, it’s often said that fund size determines strategy and that’s very true for portfolio construction. But, another element on fund size is what the total value of exits need to be. A simple rule is what I’ll call the Rule of 30. This assumes that a fund owns 10% of a portfolio company on exit. Multiply fund size by 30 and that’s the total exit value the fund needs to get a 3x gross multiple. Example: a $500M fund means it needs $15B of exit value. 10% ownership at exit is $1.5B which is the 3x gross multiple. $15B of exit value in 1 fund means 15 unicorn exits or a decacorn exit and 5 unicorn exits. Assuming a portfolio of 35 companies, that’s quite a hit rate 🤔 Btw a 3x gross multiple for a $500M fund is about a 2.6x net multiple ($1.5B less $200M of carry / $500M). Aside from deciding if that $500M fund can generate $15B of exit value, an LP will consider that 2.6x for venture vs what they can get in small buyout with a shorter timeline for distributions and perhaps lower risk.

In venture, power law is important, but when building a portfolio, an LP needs to also move their normal distribution curve to the right to generate real alpha--and that is accomplished by manager selection. Carta recently issued its report on VC performance since 2017. Given the number of clients they have, we believe it's a good source of data and we at Cendana Capital reviewed it carefully. We compared our Cendana 3 metrics (vintages 2017-2020) to Carta's 2017 cohort, which is the most fully baked amongst their 2017-2021 data set. Some observations jumped out, particularly in the context of moving that normal distribution curve. Our 4th quartile TVPI is 1.6x vs. 1.16x in the Carta 2017 data. Moreover, our 4th quartile is nearly the same level as the Carta median of 1.78x. Given the comprehensive amount of data Carta compiled, we think this is a clear manifestation of how manager selection can move the normal distribution curve to the right. Reports of venture's demise have been greatly exaggerated--manager selection is critical to generating alpha 💪 🚀

Nice to see PitchBook recognize Cendana Capital as a Top Decile fund of funds 💥

One metric that LPs should consider is the specific impact a single company can have on their own portfolio. One way to assess this is the look-through ownership percentage. Two contrasting examples: Assume a $45M portfolio fund where the LP makes a $15M commitment (33% of the fund), and that fund is getting 9% initial ownership--that's a 3% look-through ownership for the LP. Contrast that with a $45M portfolio fund where the LP makes a $4.5M commitment (10% of the fund), and that fund is getting 1% initial ownership ($200K checks at $20M post)--that's 0.1% look-through ownership for the LP. For this LP, the first approach has 30x greater look-through ownership than the second approach--each positive exit will have a more meaningful impact to the LP's return. This is one of the reasons that from the beginning, we at Cendana Capital have been focused on high conviction investing into portfolio funds that punch above their weight relative to their fund size.

Had a great time on the Venture Unlocked podcast with Samir Kaji💥We discussed what we at Cendana Capital look for in new fund managers, portfolio construction, the evolution of Seed VC over the past 10+ years and avenues toward liquidity (secondaries ftw!) https://lnkd.in/geX6Di5P

Visibility into the supply chain is critical and Craft.co led by Ilya Levtov leverages AI to provide that 360 degree view. Clearly, the US DoD agrees — congrats on new contract 💪🏼💥 https://lnkd.in/gbdXbzxb

LPs want liquidity--and now we at Cendana Capital are here to help! Very excited to announce our new secondaries fund, for which we partnered with Kline Hill Partners. Substantially oversubscribed at $105M, the intent is to deploy this capital through the end of this year. The focus will be acquiring LP interests of very early stage VC funds, leveraging our ecosystem of GPs and LPs. We are grateful to all of our LPs who have supported us on our journey, as we continue to seek new ways to innovate and bring value drivers to the Cendana Platform. https://lnkd.in/gYH4-FNP

Data, structure and analytics are critical to Cendana Capital as we assess new investment opportunities, and work with our portfolio fund GPs and LPs. It informs our investment approach. Today, we are super excited to announce that Fernandina Ko is joining Cendana Capital as the Director of Data Sciences and Strategy💥 Fer brings a comprehensive skill set in analytics, finance, and strategy shaped by her previous roles in investment banking, management consulting, and startup operations. Prior to joining Cendana, Fer was at BCG and Credit Suisse, and has also spent time working in VC and fintech. Through her broad experience, she has honed an ability to leverage data for growth and strategic decision-making in fast-paced environments. She graduated from Stanford GSB last year, and also holds a Master’s degree in Applied Mathematics. Fer will be based in San Francisco🚀

We have been very happy partners with Dustin Rosen since his first institutional fund ($15M!), and look forward to remaining a long term partner to Wonder Ventures

Very excited to partner with Jack Altman for his new fund. Let’s just say the founder references that we did were pretty darn good 😉. https://lnkd.in/dP7-mzS2?