Transcript
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What's the best practice for allocating the
venture asset class if you're a family office?
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I always, when I talk to people, go with 3
pillars.
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You'll have part of your money in fund of
funds, you'll have some in funds, and you'll
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have some direct.
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And depending on where you start your journey,
you'll either have you'll you'll enter one
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route or the other.
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The one persona we typically encounter with our
LPs is somebody starting out and tipping his or
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her toes into the the space with the fund to
fund, then they use the access they can
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generate to go into funds, and then they become
very excited, and they wanna go direct.
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Another persona is the persona going, direct,
burning his or her hands because they did, 1,
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5, 10 investments in very short period of time.
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And then geo so everything you can be doing
wrong on home buyers, on geo, on not not
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looking at vintage diversification and so
forth, people typically do on direct investing.
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I think one of the big issues with family
offices that invest in venture capital is they
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have the wrong intuition around other asset
classes like private equity, where venture
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capital is power law driven.
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So I think this is a quite overlooked
discussion point in the industry of managing
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family and the business.
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And when you start out on a business, on a
venture kind of firm, I think it takes you 10
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years and takes all of your energy.
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If you have kind of young family at the same
time, that's a strain, which you probably need
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to get right.
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So probably, if I had known that before, I
would have, again, timed it a little
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differently than you kind of learn along the
way.
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But that's probably one very personal kind of
consideration and understanding when you start
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and what what it's gonna entail.
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What is it like to start your own firm, like
Blue Future Partners?
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Walk me through the founder story and what it's
like to run your own firm.
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So I I was cofounder.
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So I cofounded with my brother, Philip.
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When we sat down with the manager, one of the
first funds we've actually invested in in the
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US and New York, we sat down with him.
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And he said, if you don't have a brand and you
don't have a digital presence, you will not
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succeed in venture capital.
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And he this was really eye opening.
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I recall how we sat sat down over lunch in
2013.
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And that kind of gave us the idea to actually
build the firm around it and do a lot of
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activities to actually create a brand.
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And so we focused a lot on, not in in in
scaling people at the firm.
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It's it's not about headcount, but it's about
brand reliability and everything you need as a
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good LP, to build that firm.
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How do you go about building a great brand?
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I think it's something which happens over time,
and then you need a lot of luck as well.
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So I think brand and venture capital,
especially as an LP, you're judged by the
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investments you've done in the past.
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So in the beginning, you haven't done any
investments, therefore, it's a chicken egg
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problem, that you can't really, escape.
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I think, there are a lot of new components in
what you can do kind of for branding purposes.
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So, we have a bunch of initiatives on the kind
of GP and LP side, which now help us kind of to
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more systematically build a brand.
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But it's about breaking in, and if you look at
kind of VC fund managers, they often, kind of
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thrive if they have done a very good deal
everybody talked about, and suddenly you're on
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the map.
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And then you kind of need to prove yourself
long term, which is the even more difficult
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part than actually breaking in.
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How did you solve the chicken egg problem when
you started a decade ago?
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So for us, we were very fortunate that we had a
trusted kind of circle of LPs that very early
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on for our fund 1, which I'd call a fund 0
today, kind of by size, took the leap of faith
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with us and said, okay.
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Let's try this.
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This happened because we had been co investing
in that circle in other asset classes before,
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and they said, okay.
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We'll give them a shot and we'll try.
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From the family office?
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That's family office, and that's other high net
worth individuals and family offices, founders,
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and so forth, that had a good experience with
us as as partners in other asset classes, and
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then we moved on to venture together.
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So we had the trust of people saying, hey.
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Try this.
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We we on paper, we understand what you're
trying to do.
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Now it shows that you can do it.
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And then for fund 2 and fund 3, it was way
easier to convince them in scaling up.
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What percentage of assets do you think a family
office should have in in the venture asset
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class?
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It really depends on what they do.
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So if you look at the top down, you'd say,
typically, the 1 third, 1 third, 1 third rule.
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If you have private markets, or private
allocation of a third, then within that,
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probably, a large majority will be private
equity.
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And then I think given the kind of endowment
style, in investments a lot of family offers
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try to do so to to generate liquidity for the
family from, let's say, real estate or yielding
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assets, and then they can actually take this
really long term view, when they when they
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deploy in in venture.
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They could then probably go larger.
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So I have seen families saying within my
private equity location, it'll be 60% venture
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and are super comfortable doing it.
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I think it is can be a good strategy, let's
say, and depending on what your liquidity needs
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are in the in the mid to long term.
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You mentioned 5%.
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US endowments are anywhere from 10 to 20%.
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Yale, I think, is mid twenties.
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Why should family offices allocate less than
the traditional endowment model?
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So good one to point out.
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I I'm not necessarily convinced they should,
allocate less.
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I was more referring to what I think they're
doing at the moment.
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And probably it's if you look at this average,
it'll be 1, 2, 3 percent, in in in Europe,
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depending on which country you are operating
in.
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So I think I I'd recommend everybody to grow
that allocation, but you need to do it in a
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very sophisticated way, and that will take
time.
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So, I've see the interactions I've had with
endowments in the US, I think they really know
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what they're doing, and and and many family
offices don't.
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So, it'll take time for them to educate
themselves.
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What's the best practice for allocating the
venture asset class if you're a family office?
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I always, when I talk to people, go with 3
pillars.
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You'll have part of your money in fund of
funds, you'll have some in funds, and you'll
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have some direct.
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And depending on where you start your journey,
you'll either have you'll you'll enter one
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route or the other.
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So, the one persona we typically encounter with
our LPs is somebody starting out and tipping
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his or her toes into, at the space with the
fund to fund, then they use the access they can
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generate to go into funds, and then they become
very excited, and they wanna go direct.
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Another persona is the persona going, direct,
burning his or her hands because they did,
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what, a 5, 10 investments in a very short
period of time, and then geo.
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So everything you can be doing wrong on on on
home buyers, on on geo, on not not looking at
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vintage diversification and so forth, people
typically do on direct investing.
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Very common.
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And then you need to kind of unwind that, what
they've done, and build it into a more
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structured mandate.
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Yeah.
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I think one of the big issues with family
offices that invest in venture capitals, they
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have the wrong intuition around other asset
classes like private equity, where venture
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capital is power law driven.
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Like, 1 or 2 outcomes drive entire portfolio in
private equity.
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There's very few zeros, let alone even, less
than one x.
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I I think you need to, understand, what a
typical fund of fund will be thinking.
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So the the most often I trying to open the door
to to an LP, and then an LP will be saying, I
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don't like double fee layer.
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What they don't look at is that if they have
their own team, they have their fee layer in
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house on their own payroll.
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They somehow apply different standards to it.
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And then most of the family office in Europe,
they don't, deploy large enough amounts to
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actually build good teams themselves because
you'd need, what, about 25 to 50,000,000 a year
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to venture to actually be able to do that.
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And if you look at the maturity of the of the
family office space, there are a lot of family
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offices which are way smaller and and don't
deploy these kinds of, money.
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So the second thing is the fund a fund
industry, and I I call it kind of a dichotomy.
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If you go fund a fund and you operate a fund a
fund, from the inside, you know, either you go
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large and then, obviously, returns will come
down, and the investor, your LP, will be stuck
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kind of somewhere in in in long lockups and and
mediocre returns.
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Or you go the other route, and that's the one
we chose to say, hey.
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We go small funds, and we try to, actually
capture this sort of a top 25, top 10% of
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what's going on in venture.
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And then we need to work pretty hard.
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And it's not gonna work well economically on on
the surface, but then in the long term, it will
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because you'll you'll you'll create that out
outsized return.
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And so if if we we we thought about this for
quite a long time saying, should we run a
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direct fund?
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And we actually did a few stints on on on on
testing that as well.
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I personally really prefer the fund fund to
fund model, because I think if you look at
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downside and upside, the bet you're taking on a
fund to fund as an operator.
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So as a GP for us, it's way better than a
direct fund.
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So double click on what you're saying.
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If you're deploying 25,000,000 a year, you
could put that into a fund of fund, pay 1%,
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which is 250,000 versus hiring 1 employee at
250,000, which is gonna be pretty junior at
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50,000,000.
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You might be able to hire somebody more senior,
but you only have 1 person on your staff.
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Tell me about your portfolio construction.
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Within the portfolio construction, when we
invest in fund managers, we look at
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concentrated portfolios, and we want managers
to take fairly large positions.
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So definitely, plus 10%, ownership, but it
could even be 15, and some of our managers have
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20% ownership in their companies.
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And, the same thing which we look at when we
look at other managers, we apply to ourselves.
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So our portfolio is very concentrated.
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And very concentrated means for given kind of
fund vintage of ours, 15 to 20 lines in a
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portfolio.
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We do concentrate, 80% or so of the capital,
around, let's say, 10 to 12 names or so, and
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then we take smaller bets with, managers we
haven't known for so long and build
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relationship over time.
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So concentration is super important.
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Hey.
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You're a fund of funds, so you're investing
into GP, so you're one layer up.
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How does your time diversification play into
that?
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What vintages are you getting exposure to as a
fund of fund?
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Vintage.
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We look at 3 years of deployment period, and
then the funds we invest in will will have a
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deployment period of, let's say, something
between fast deploying funds, 2 and a half
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years or so in the in the in the in the good
days.
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And then, you'll have funds going all the way
up to 5 or 6 years.
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And so, basically, on diversification, we'd
say, typically, you have 7 years of vintage
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diversification within a given fund to fund
with us.
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How do you deal with an LP that's, you know,
giving you a lot of trouble?
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How do you practically deal with that?
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I I talk 50% of my time to GPs and 50% of the
time to LPs.
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I use every discussion I have with a fellow LP
or potential investor to run my diligence on
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the funds I can later on invest in and build my
network.
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So it's an information trading game we're in as
a funder fund.
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So we need to basically make sure, that we we
spend our time well.
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So if an LP comes up and says so we have an
investor, let's say, in the US, and he wants to
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come to Europe and wants to understand who
should I be investing with, if I go direct to a
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fund, then we need to be helpful.
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And, if if and and and and and let's say, one
of your LPs has a fund position in another fund
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he's not really happy with, if you have built a
trusted relationship, they'll ask you a favor,
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and you'll Interesting.
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Take a look at the position, and you'll talk to
the manager and try and qualify something.
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You'll always take something out of it.
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So this, I think, although it might seem just
like work, I think if you if you play it the
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right way, you can actually get a lot a lot out
of it.
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What are some archetypes of LPs that you would
want to avoid in the future?
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So in the past, we've always said this and
tried to say, hey.
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We want long term relationships.
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If you are in this game long term, we're happy
to engage.
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And I think the industry term is tourists or
tourist LPs, that you want to avoid tourists.
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And when markets go up, everybody comes to you
and says, yeah.
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I wanna invest.
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And then when the markets go down again, they
stop investing.
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That's kind of wasting your time because we all
know if you understand what venture is, and we
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spoke about cyclicality.
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I just had this up in my my AGM, actually, last
week.
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It is about understanding the dotcoms, and then
you go down, and then the GFCs, and then you go
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down again, and then you have the next crisis.
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We don't really know what's when it's gonna
happen.
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So I think you need a 20 year horizon or so as
an investor and venture.
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It's not like 5 to 10.
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If if if if not, you don't really know, I
think, what what what you're getting into.
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There's a saying in politics, last one in the
boat, first one out, the ones that take the
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longest time to convince there are not true
believers are the first ones to leave.
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It's important to take into account who
actually believes in your story and who's
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underwriting you as a manager versus just
trying to get into a market trend.
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Yep.
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The other the other lesson I've personally
learned is the the difficulty of managing small
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checks.
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Nothing takes more time to manage than a small
check, whether it's 25 ks into a startup or
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$250,000 into a fund.
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And, no good deed goes unpunished when you
bring in a small check.
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So I'm very vigilant on the small checks as
well, not because they're small, but because
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they tend to be from people that really
micromanage their capital.
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Absolutely.
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And they don't know the processes.
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If you have kind of institution grant
multifamily office or family office, they just
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know what you need in data.
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They have their packages ready.
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They run through an onboarding process swiftly.
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Chasing people from capital calls, right, with
with with small investments can be very, very
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time consuming.
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So what's your value add to LPs as a fund to
fund?
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So we have various, activities we engage in.
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Just to mention, one which we've done, recently
is an LP kind of family office academy format,
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where we bring in 50 LPs.
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We spend 2 days with them.
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We bring a lot of good speakers who know what
they're talking about and deep dive on, deal
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sourcing, deal execution, time sheet
negotiation, and so forth.
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Just no selling, just providing, content.
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I think that's a super important one, both kind
of building the network, but then also for
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them, and that's the kind of second part, we do
apart from kind of events and formats is,
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providing a network with other LPs.
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As I said, we spend day to day in meeting other
LPs.
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Our LPs typically don't because they're family
offices.
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They spend, what, about 10% or so of their time
in venture.
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And so they benefit highly from meeting other
LPs, being able to talk to them, build
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friendships and relationships that later on can
utilize.
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So we are basically like the kids throwing a
cool party.
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We have the room.
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We get them the drinks, and then everybody else
can take it from there.
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What's the biggest early mistakes you made as
founding Blue Future Partners?
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So one of the mistakes we've been dealing with
is what I said earlier, the cyclicality of
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really understanding what, you go into on on on
on timing.
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So it is very difficult, on the fundraising
side and delivering your product, if you get
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the timing wrong.
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Right?
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So, you don't actually, the last 2 years, you'd
if you if you spent the last 2 years, let's
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say, on the road trying to fundraise, you
wasted a lot of time and you wouldn't have been
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very successful on it.
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And so it really depends on when you started
your vintage and how long the fundraise was.
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That's one of the things, with hindsight now, I
would have timed the vintage a little bit
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differently.
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And the second thing is understanding, the
nature of or complexity of a global approach,
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which we talked in the beginning.
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So we said we're gonna deploy 50% in the US,
30% in Europe and Israel, and 20% rest of the
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world.
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That's a very difficult proposition for
investors to digest because they don't really
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know where to put you.
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And often, they'll say, hey.
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I covered the s u d the US myself.
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In Europe, I'd I'd be joining you.
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Right?
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And, vice versa.
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So I think, and we are actually making this
adjustment for our fund 4 coming up.
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We won't go for global, but we'll go for kind
of regional, mandates, with some kind of
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international component to it.
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The irony on that is that as you niche down,
you get access to larger LPs because there's
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only you have to be a certain size to put
$20,000,000 in European venture versus global
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venture.
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So you get a different quality of LP,
paradoxically.
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What do you wish you knew before starting Blue
Future Partners?
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So it's the greatest love of my life to a
certain extent because I love technology, and I
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know how, fruitful it is.
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00:17:55,845 --> 00:17:59,769
The interactions you have every day, right,
with people is so rewarding.
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And the other hand, it's so challenging at the
same time.
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So I think, being if I had been more aware of
the long term, kind of strain and stress you're
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you're putting onto yourself, I could have made
a way more, decisive decision.
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Right?
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So I think this is a quite overlooked
discussion point in the industry of managing
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family and the business.
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And when you start out on a business, on a
venture kind of firm, I think it takes you 10
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years, and it takes all of your energy.
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00:18:30,319 --> 00:18:35,519
If you have kind of young family at the same
time, that's a strain, which you probably need
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to get right.
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00:18:36,365 --> 00:18:41,085
So probably, if I had known that before, I
would have, again, timed it a little
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differently, but then, you you kind of learn
along the way.
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But that's probably one very personal kind of
consideration on on understanding when you
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start what and what it's gonna entail.
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The personal sacrifices.
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What would you like our listeners to know about
you, about Blue Future Partners, or anything
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00:19:00,170 --> 00:19:01,210
else you'd like to share?
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00:19:01,210 --> 00:19:08,194
Venture is a great asset class, and, the last 4
years have been extremely rough, and I think we
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we are seeing kind of light at the end of the
tunnel.
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We're not sure whether it's gonna be 1 year, 2
years, or 5 years, but it will get better
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again, and I would, really hate to see a lot of
talent, which is in the industry now to leave,
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00:19:20,819 --> 00:19:23,799
and actually miss out on the greatest
opportunity coming up.
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Especially if I look at Europe, what's going on
here, we have huge kind of, tailwinds from from
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regulatory point of view.
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European Union is really trying everything to
get Europe back on the feet and reinvent
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itself.
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So from that point of view, I think, really,
the whole industry, I really wanna encourage
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everybody to kind of stick in or hang in and
and and keep going.
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It'll get better again.
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On Blue Future partner level, I'm super open
for both kind of GPs and LPs.
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There are kind of 2 things we we're doing.
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So on the GP side, we just co initiated a GP
Accelerator program, alongside with Mount Side
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Ventures out of London, and we offer kinda up
to 20 per cohort, GPs, 10 week program in
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person, combined with matchmaking with LPs.
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So we've kind of put out a program to to
support, kind of fundraising activities from
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the from from fund managers.
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It's kind of one of the initiatives.
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You can find that at program.vc/25.
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And, on the LP side, we're kind of very kind of
active in in in engaging with the community and
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running academies and so forth.
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So if you just get out onto our website, you
can find kind of what's going on at the time.
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Reach out to us.
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We're super happy to engage.
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We're not always fundraising, but we're always
engaging with LPs.
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Greg, this has been, great to chat.
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David, thank you so much.
