Superclusters

Some of our favorite quotes from this episode: “We overcomplicate almost nothing as LPs [about the firm building process]. And this is a criticism of myself. And I think we oversimplify almost everything. Because by definition, we’re the customer of the end product.” – Ben Choi “If I hire someone, I don’t really want to hire right out of school. I want to hire someone with a little bit of professional experience. And I want someone who’s been yelled at. […] I don’t want to have to triple check work. I want to be able to build trust. Going and getting that professional experience somewhere, even if it’s at a startup or venture firm. Having someone have oversight on you and [push] you to do excellent work and [help] you understand why it matters… High quality output can help you gain so much trust.” – Jaclyn Freeman Hester “What’s your right to win? Why are you going to be a founder and talent magnet? Why does the world need you as a firm? Why does the world need you as a VC? And how do you define success?” – Lisa Cawley, CFA

“The job and the role that goes most unseen by LPs and everybody outside of the firm is the role of the culture keeper.” – Ben Choi “You can map out what your ideal process is, but it’s actually the depth of discussion that the internal team has with one another. […] You have to define what your vision for the firm is years out, in order to make sure that you’re setting those people up for success and that they have a runway and a growth path and that they feel empowered and they feel like they’re learning and they’re contributing as part of the brand. And so much of what happens there, it does tie back to culture […] There’s this amazing, amazing commercial that Michael Phelps did, […] and the tagline behind it was ‘It’s what you do in the dark that puts you in the light.’” – Lisa Cawley “At the end of the day, the job is to take a pile of money from your LPs and give them a bigger pile. And giving them back a really big pile is the legacy thing. […] And consistently insane returns are hard. That, to me, are the firms that go down in history.” – Jaclyn Freeman Hester

It’s the first time I’m interviewing a GP for the sole purpose of that GP’s story on Superclusters. But of all people who have asked to be on the podcast and all the people I could have had on the podcast to date, Rick Zullo is the person who made me break my rule to myself and my audience. And Rick I hate you and love you all at the same time for that. While Rick won't take this compliment from me either (perks of this being my LinkedIn post and not his haha), starting a VC firm is frickin hard and Rick went through his trial by fire to start Equal Ventures. And to me, I am in constant awe of what him and his team have built. From sleeping in hostels to making a loan to his own fund so that they could invest in a company that became the inflection for Equal, I loved every second of our episode! If you don’t believe me, and to make it more tactical, here's why our first post season episode for Season 3 is just one of a kind! 🪖 Rick’s 3 hat rule. “When I played football once upon a time, our coach [was] screaming at us, ‘Three hats on the ball! Three hats on the ball!’ The runner wasn’t down until we had three helmets tackling them.” Similarly, venture is a team sport. At Equal Ventures, they work to have multiple people on a portfolio company at any given point in time, resulting in 300+ hours per company in the first year of investment and around 150 hours per company per year after they get past the Series A. 🌱 Seed stage is the worst stage to be investing into now. “Historically, if you look at the last 10 years of data, it would suggest that multiple [of the premium of a late stage valuation to seed stage valuation] should cover around 20-25 times. [...] In 2021, that number hit 42 times. [...] Last year, that number was around eight.” Late stage is actually looking very interesting today. 🏆 Picking a board member that won't retire or leave to another firm in 3-5 years matters. Startup journeys are long, and choosing the right partner who'll be with you through thick and thin matters more than most people give time for when they build their first board. And of course a clip of our episode below with Rick's hot take that funds of funds should get paid more! I also want to give a shoutout to Jerry Colonna for all the great work he does, some of which Rick and I have a mini fanboy session about him. And also thank you to Chris Leiter for sparking our friendship! P.S. Don’t worry, Superclusters will stay focused on LP content, but I thought Rick provided an amazingly refreshing perspective as to how to build lasting communities that I really wanted to share for our audience.

.Felipe Valencia's life is a film and just insane to see how much he's accomplished over the years as a capital allocator!

Check out this clip 🎙️✨ from Abe Finkelstein, Co-Managing Partner of Vintage from his appearance on "SuperClusters, The Emerging LP Podcast" hosted by David Zhou. 💫 Link to full episode 🔗 https://lnkd.in/dtSvr5Y3

This was the episode that changed my mind on why I shouldn't just allocate 20% into enterprise, 20% into deep tech, 20% into life sciences, etc as an LP. And Benjamin Ehrlich, thank you for that!

A lot of Superclusters listeners asked about hearing the psychology of an individual LP, and today we finally have the amazing Susan Kimberlin, who's been the founding LP of Backstage Capital, as well as an early LP in Forum Ventures, Operator Collective 🔆, Boom Capital, The Council just to name a few. And of course, big thank you to the amazing Amber Illig at The Council for setting up this intro! Without you, this episode would not have been possible! From how Susan's first check in Backstage was structured to what motivates Susan to write emerging manager checks, we covered a lot of ground. Hell, even how Susan first started with acapella. But sharing my favorite soundbites below: 🏎 Drive is the relentless pursuit of a goal, but also having the flexibility and the willingness to find more than one path to it. There are often multiple paths Fund I and II managers can take to build an enduring brand, and how one repeatedly tackles that goal is a huge tell on their resilience, but also their mental plasticity. ❓ The value of starting from the why. Why are you doing this? Why do this over the 100s of other options you have? What would the GP be doing if they had to do something else? Motivations transcend pure strategy. In fact, most things are likely to change between a Fund I and a Fund III. Most things won't go according to plan. And there are many opportunities for GPs to give up partway through. But if they really plan for VC to be the last career they'll ever have, they'll have an extremely clear why. 🏆 To build a world-class organization, you must always have high expectations. But there's a delicate balance between having high expectations and conveying the trust you have in your team's ability to get there. And you always need the latter, and to communicate that as explicitly as possible, if you expect high expectations to meet reality. Of course, as always, full episode in the comments

“The average length of a VC fund is double that of a typical American marriage. So VC splits – divorce – is much more likely than getting hit by a bus.” from the amazing Raida Daouk El Jisr and more in the latest episode!

“If you are governing things from a point of a legal document, whatever that may be and having to refer to that in order to trigger a behavior, that often to me feels emblematic of a transaction, not a relationship.” I wrote a post last month about the value of having a VC background as an LP, especially on what it takes to evaluate portfolio health when diligencing emerging managers, and Lisa Cawley, CFA and her team at Screendoor is a perfect example of why Screendoor in being the LP of GPs is valuable. And unsurprisingly, I’ve been looking forward to this episode for a long time, to hear from the expert herself on what it means to construct a team that can straddle both the incentives of an LP, as well as the deep empathy of a GP. Moreover, you'll find out pretty quickly, Lisa is by far one of the most thoughtful souls I’ve had the chance to interview to date. And some of my favorite Lisa anecdotes, kickstart in the last third of the episode. Of the many things I personally found myself taking copious notes during the conversation on, here are favorite 3: 👪 Not all family offices are created equal. How a Generation 1 family office makes decisions (where the individual who created the wealth is actively making investment decisions) is different from a Generation 5, where they’ve likely already expanded to multi assets and have more philanthropic motivations. 📝 It is often easier to get a more holistic picture of a manager when another GP reference-checks with a founder than if an LP did so. Because the founder is not incentivized to share the truth about a GP that’s already invested in their company with an LP they don’t know. 🏊 Venture investing, like swimming, is both a team and individual sport. It’s about balancing team dynamics, decision making and collectively supporting the portfolio with an individual’s own track record. At the same time, an individual’s track record – whether good or bad, can deeply affect how an LP views the fund holistically as well. Link to the episode, show notes and last month’s post in the comments below

“DPI generated in a chaotic environment is sort of similar to TVPI generated in a chaotic environment. It’s great it happened, but let’s contextualize it properly and don’t overweight DPI when you’re evaluating managers.” Cold emails work, and our friendship started from just that. Since then, I've learned so much from my man Evan Finkel at Integra Global Advisors and am honored at how much tactical advice he's shared on the latest episode of Superclusters. While I often find myself obsessing over the VC asset class, it's refreshing to hear from someone with a perspective across multiple assets. The below snippet from our conversation is just one example. My top lessons from our episode together: 📊 IRR is useless in VC. “In venture, we don’t look at IRR at all because manipulating IRR is far too easy with the timing of capital calls, credit lines, and various other levers that can be pulled by the GP.” ⚖ Evaluate all investments both on an absolute scale and a relative scale. “The way we think about VC is both on an absolute and a relative basis. On an absolute basis, we have to be able to underwrite a manager to 3X net or better, or ideally 4X net or better. Because otherwise the lockup doesn’t make sense. It doesn’t make sense to lock up your money for 10, 12, or 15 years with pretty limited distributions. In order to be able to consider a VC fund for our portfolio, we have to be able to underwrite it to at least 3X, but ideally 4X or better. “But then there’s also a relative component. We’re not looking for the best relative managers. Understanding whether this is a really good year or weak year… You might be the best manager of a given vintage, but in absolute terms, you actually might not be quite as impressive. [...] It helps us contextualize the performance of a given manager.” And finally, some of the most interesting areas for operational diligence: 👮♂️ Valuation policy – how are you deciding marks for your companies 💸 How cash moves (cash control policy) – who’s issuing capital calls, who’s deciding capital call amounts, how many signatures are needed to send out wires For established funds, also cybersecurity / information policy. How is information shared in the firm? Who has access to certain information? Oh and also, you heard it here first, Evan’s willing to share his operational diligence playbook to any who reach out. His email is also in the episode itself. Full episode in the comments