Transcript
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We really look for at the end of the day is is
a flywheel.
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You know, what is it about the investing
behavior of the manager such that as they have
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more success, they're likely to get more
success?
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And I think that comes in a variety of
different forms.
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You know, one form is just specialization.
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If you have access to a particular network, you
know, like SpaceX founders or aerospace
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founders, etcetera, you're gonna develop an
expertise and a network that's very beneficial
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to the next founder.
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There's definitely a huge bifurcation in the
market in terms of, like, super high quality
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and the rest.
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It really starts with access.
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Because if you're able to detect and really
understand what does a great founder look like,
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that's a repetitive motion that will compound.
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I use a baseball analogy where you have single
a, which is the lowest league, double a, triple
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a, and then you have major leagues.
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And a player could be very good at single a or
double a and can be completely crushed at the
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major league in terms of fund size and round.
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And writing at 25 or a 100 or 250 k pre seed
check is very different than trying to lead a
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series a where you're competing against the
multistage firms.
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I think the most interesting for a fund to
funds investor that's focused also on co
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investing is
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Albert, I've been excited to chat.
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Welcome to the Tonnex Capital podcast.
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Thank you for having me.
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Thanks for jumping on.
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So you are cofounder of Level VC.
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What is Level VC?
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Level VC is a next generation fund to funds.
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We focus on building a platform for emerging
VCs, which, for us, means funds in our early
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iterations focused on funds 1, 2, 3 mostly.
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Funds are all pre seed and seed, typically
under a 100,000,000 fund target sizes.
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So we have a strategy of fund the funds that
invests and backs those managers.
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Then we also have a co invest strategy that
invests with managers in breakout companies as
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they get to Series B and beyond.
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You guys have a pretty substantive data set.
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What does your data set say in regards to
investing in GPs?
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Yeah.
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So we have a you know, we collect data from a
lot of different sources.
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We look at private market data.
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We have our own data sources that we get as
well.
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We have millions of profiles of people, you
know, business filings.
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We have scientific journals, a few other
different sources.
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And we try to really understand are the
networks that are forming and evolving within
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Venture.
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We believe a lot of the quality and centrality
of GPs in their relative networks is a strong
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indicator of future performance.
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And given that, you know, these networks are so
dynamic, really trying to understand where
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managers are positioned enables us to to have a
view on whether the manager will be, in a place
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where they'll, you know, sort of outperform.
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And since the part of the market that we're
operating in, you know, typically, fund manager
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is a sort of high dispersion of performance,
you know, and and sort of smaller funds are
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riskier in a way, but there's the potential for
outlier performance.
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And so what we try to really, you know, predict
and understand is who being the top decile or
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top, you know, ventile or performance, you
know, leveraging data, but also a lot of
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qualitative work that we do on top of that.
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When you look at these networks, are you
focused on depth?
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Are you focused on breadth?
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What we do is we reconstruct the networks based
on the data that we're getting, whether it's
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deal streams, essentially transactions between
investors, or whether it's talent investments
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into founders' talent joining the company.
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And really, there's a lot of ways to succeed
with networks.
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What we do find is that having social capital
and having long, durable relationships within
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the right circles is is actually a strong
indicator of performance.
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And what we try to understand is, like, how
that behavior takes place given the deal
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streams that we're seeing.
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In our networks, you know, there's not only
just the relationship between people, but
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there's also the notion of direction and the
notion of strength.
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And it's continuously changing based on the
data that comes in when we see, you know,
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terabytes of data.
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Say social capital, how does a manager go about
building social capital?
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You know, it's what we find, interestingly
enough, especially as a young manager, that you
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can you can tell a lot by the first few
investments that they make.
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And, of course, like, a priority, we don't know
if we don't have data.
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But, you know, as we start to see the investing
behavior unfold, we can quickly get a sense
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for, where they're situated in the network.
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It's not to say that's the only thing that
matters, but it's it's a really strong
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indicator retroactively in terms of what
they're what they're doing and where they're
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sort of placed in the network.
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And so we use that information to then, you
know, essentially get a sense for where they're
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gonna be in the future performance.
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As you go on venture, things are very path
dependent.
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And so where you start on the network, whether,
let's say, you're an operator that spun out to
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build a business and you have a network there,
or whether you're an angel turned sort of fund
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manager, or whether you're a GP at a large
firm.
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And so a lot is already embedded in in what
you've been doing and the networks you have.
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And so we just try to understand what's
actually happening under underneath the
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surface.
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You could tell a lot from the first couple of
investments.
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What are what are you looking for in the first
couple of investments?
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Even with the first couple of investments, we
we'll have a strong indicator as to the access
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to both, you know, the co investor pools.
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Are they creating signal for other co
investors?
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Or what are the co investors either before them
or sort of in the same syndicate?
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But, also, what is the access to to talent
networks that they have?
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It's a signal for us.
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You know, of course, like, as we have more
data, we have more certainty.
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But if you're trying to, essentially, find
managers, discover things before others or
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maybe things that others have not seen, it's
important for us to get an early signal as soon
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as possible in the dataset.
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And we can do that with a few investments.
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How do you look at follow on?
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How should emerging managers look at follow on
their portfolio?
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Yeah.
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So we we get that question a lot.
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And I think, most people have an answer, like,
oh, we should do this much follow on or this
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many reserves.
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I actually believe it's dependent on time and
where we are in the market.
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And there are markets where, you know, the time
between financing is slow and you need to allow
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your companies to mature a bit.
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And there's the ability to take more ownership
in companies preemptively before there's a
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financing or before they hit sort of a
milestone that that's sort of you got proper
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price discovery.
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So I actually think it depends on the market
and then sort of what's happening.
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These days, given that the time between
financings is increasing and sort of the
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graduation rates have declined so much, I think
it's important for, you know, for managers to
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have a good amount of reserves.
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Because a lot of times, companies just need
more time to to hit milestones.
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And since managers have such an asymmetry of
information, they can kinda get a sense for,
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you know, for who can break out relative to the
progress that they have.
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So I think it really depends on the
environment, the market environment, and
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whether you wanna be sort of more offensive or
defensive.
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But in this environment, I think it's important
to have a good amount of reserves.
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So there's a macro factor in terms of follow
on.
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Is there a macro factor as it relates to
portfolio construction?
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I think so.
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I mean, we we like, sort of our preference for
portfolio construction is we don't want a
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portfolio that's too concentrated, and we don't
want one that's, sort of, too market beta.
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So we think there's an optimal size between
somewhere between 20 40 companies depending on
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the strategy.
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I think what really matters though is, just
given the outlier nature of outcomes in
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venture, you want to make sure that the
relative ownership that you have in the
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companies is such that, you know, obviously,
should 1 b break out, you get multiples of
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performance on the fund, multiple turns of the
fund.
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And so there is, like, an optimal ratio between
ownership and, sort of, fund size that needs to
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be maintained.
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And of course, in environments where there's,
you know, better valuations, you can spread out
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a little bit wider and have more bets.
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But what we've seen in seed and pre seed is,
like, valuations have maintained they're pretty
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healthy, and they stay pretty healthy even
though deal counts have gone down sufficiently.
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And so I I I think you just need to have a
portfolio that's sort of wide enough that you
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have enough, you know, shots at bat and not too
concentrated that you're, sort of, you know,
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overexposed to just uncertainty.
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In terms of the relationship of ownership
versus fund size, give me specifics on what
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you're looking for.
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It's more of a rule rule of thumb.
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We wanna make sure that should a company in the
portfolio, a single company, become a breakout,
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you know, let's say over a 1,000,000,000 or so
in valuation, you know, also given what we
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expect to have, you know, in terms of dilution,
either a pre seed receipt, we have some
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dilution expectations, etcetera, that it should
return at least, you know, 1 and a half x 1 to
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1 and a half x of the fund, you know, with some
notion of recycling, which actually is a is a
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very high bar.
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And so you you wanna make sure that that the
ownership is is there in the companies.
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And I think in order to have really good
ownership, you either need to be, you know, be
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there first and lock in price and sort of not
get out for selection, or you have to be very
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disciplined just generally in the market.
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And there's a lot to say about you know, when
we look at the fund managers, whether they've
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had pricing power over time.
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It's one of the metrics that we track.
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You know, whether, like, over time, there's
been sort of a notion of pricing power or
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whether it's just been sort of market beta.
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Do you fall into the camp that one should be
very disciplined at seed, or are you more like
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a hot company?
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If it's a good company, you should pay up.
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There's a brand value to being part of really
great company stories, and I think that that
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sort of translates into recurring social in
that space.
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There's a lot of benefits that are not
necessarily returns benefits to being into
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really great companies.
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And I think that has to be considered,
especially in a fund one.
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And we've seen that many, many times, and I
think it's it's very useful.
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I do think there's a point at which valuations
are no longer feasible, and there's prospective
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returns that are just gonna damage your ability
to raise capital downstream.
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And we have a $151 pre money valuation or a
$100,000,000 pre money valuation.
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You know, the story is no longer accessed.
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It's more about, you know, you got into a deal
at a very high price.
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It doesn't really tell the story.
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But I think there's there's benefit.
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There's social capital benefit to getting into
really great companies early that may be a
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little bit more high priced.
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But generally speaking, the returns come from,
you know, sort of good discipline in investing.
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You want your fund managers to be offensive
when it comes to seed extension, a bit of a
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contrarian view.
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Why is that?
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Most of what we do here in in the firm is is
focused around technical risk versus go to
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market risk.
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So they sent out a lot of the dollars go to r
and d and sort of executing, against sort of r
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and d milestones.
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And typically, we're in markets that are
really, really, really large.
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And so it it happens, you know, generally
speaking with, you know, more complex
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businesses that it takes you know, it's hard to
predict when certain technical milestones will
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be hit.
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But there's an asymmetry of information that
the manager has as to what it'll take, you
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know, as the company progresses to hit those
milestones.
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And so, you know, if if you believe that, you
know, it's it's a 6 month or or 1 year time
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frame that they need, then there's a benefit to
taking more ownership at at typically a similar
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price before, sort of, a big inflection.
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And that's what I mean by by being more
offensive.
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And, of course, there's situations where
companies break out and, you know, there's
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price discovery.
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And there, you just wanna, kind of, like,
maintain your your ownership.
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But the offensive situations are ones in which
you can really have asymmetric returns.
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How do you add value to your GPs?
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We're focused on technology as as the value
add.
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We've, you know, collected a very, very large
scale dataset, which, you know, is is complex
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to do because, you know, you have to take in
very noisy datasets that are very heterogeneous
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and be able to map them, map entities and
things like that.
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And these are very hard problems that I guess
few people have solved.
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And so with that, we do a lot of analytics on
top of it and just try to understand talent,
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you know, trying to understand investors.
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And so what we've been doing with, with GPs is,
you know, either they'll send us like an ad hoc
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data request, like we want to track this
company, what are the best engineers that are
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leaving?
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We get those all the time.
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Or we can enrich existing workflows that they
have.
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So if, for example, they're getting a lot of
inbound and, you know, in in their pipeline and
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they wanna be able to, you know, understand
what's high quality in that sort of inbound,
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then we can do, like, that kind of enrichment.
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00:09:54,884 --> 00:09:58,245
And then there's a slew of other things that we
can provide for them including, like, tracking,
218
00:09:58,245 --> 00:10:02,690
like, open source, GitHub repositories for
interesting projects that are taking off or
219
00:10:02,690 --> 00:10:06,149
maybe research labs that are that are sort of
developing interesting highly cited research.
220
00:10:06,289 --> 00:10:07,649
So it depends on what they need.
221
00:10:07,809 --> 00:10:11,730
But what we try to do at the onset is
understand the infrastructure they have, where
222
00:10:11,730 --> 00:10:13,990
they are in their journey of, like, it's sort
of being data driven.
223
00:10:14,054 --> 00:10:18,394
And then we have a process by which we, we sort
of unpack that and see where we can add value.
224
00:10:18,455 --> 00:10:22,554
How has your value add evolved since you
started in Jan 2021?
225
00:10:23,414 --> 00:10:23,495
Yeah.
226
00:10:23,495 --> 00:10:25,654
I just think, you know, when we first started,
we were new to the business.
227
00:10:25,654 --> 00:10:30,039
We had to learn a lot as well ourselves, and
sort of understand the nuances of what, you
228
00:10:30,039 --> 00:10:32,700
know, GPs need and and where we can
differentiate.
229
00:10:33,080 --> 00:10:36,539
You know, at the end of the day, like, we wanna
be able to get access to constrained
230
00:10:36,600 --> 00:10:40,700
opportunities in the best GPs, you know, in the
top quintile of of ECs.
231
00:10:40,924 --> 00:10:42,524
And so we've evolved over time as to that.
232
00:10:42,524 --> 00:10:46,845
But what we found was, like, the we wanna align
our own investing process instead of what we
233
00:10:46,845 --> 00:10:50,524
build in terms of the capabilities and value
that we have for ourselves with what we can
234
00:10:50,524 --> 00:10:51,745
offer others.
235
00:10:51,964 --> 00:10:57,889
And so a lot of that has been just ex
exploring, things around data and ways in which
236
00:10:57,889 --> 00:11:03,889
we can give, managers, an opportunity to
augment and to have a sense for things that
237
00:11:03,889 --> 00:11:04,850
they may not see.
238
00:11:04,850 --> 00:11:07,250
If they needed our help sourcing, that's
obviously adverse selection.
239
00:11:07,250 --> 00:11:11,684
But what we can do is given a particular
sourcing motion, you know, how do we unlock or
240
00:11:11,684 --> 00:11:14,825
or give them enough coverage such that they can
see they can see everything?
241
00:11:14,884 --> 00:11:19,365
The best LPs have a sandbox that they like to
play and know exactly what kind of fund they're
242
00:11:19,365 --> 00:11:19,845
looking for.
243
00:11:19,845 --> 00:11:21,285
What are you exactly looking for?
244
00:11:21,285 --> 00:11:23,684
Everything we do is typically under a
100,000,000 in fund target sizes.
245
00:11:23,684 --> 00:11:26,466
So I think the the small fund itself is a big
thing.
246
00:11:26,466 --> 00:11:27,789
You know, like, your fund size is your strategy
sort of mantra.
247
00:11:27,789 --> 00:11:29,070
I think that's important to us.
248
00:11:29,070 --> 00:11:30,929
We do believe in small funds generally.
249
00:11:30,990 --> 00:11:35,309
We we like early VCs, young ones, in terms of,
like, their where they're on their life cycle.
250
00:11:35,309 --> 00:11:40,225
So funds 1, 2, 3 versus sort of, you know, sort
of more established firms Within that bucket,
251
00:11:40,225 --> 00:11:42,544
what we really look for at the end of the day
is is a flywheel.
252
00:11:42,544 --> 00:11:47,584
You know, what is it about the, investing
behavior of the managers such that as they make
253
00:11:47,584 --> 00:11:50,164
more investments, they're more likely to, you
know, to make better investments?
254
00:11:50,225 --> 00:11:53,129
Meaning that, you know, as as they have more
success, they're likely to get more success.
255
00:11:53,289 --> 00:11:55,230
And I think that comes in a variety of
different forms.
256
00:11:55,769 --> 00:11:57,470
You know, one form is just specialization.
257
00:11:58,250 --> 00:12:02,649
If you have access to a particular network, you
know, like SpaceX founders or, you know,
258
00:12:02,649 --> 00:12:06,250
aerospace founders, etcetera, you're gonna
develop an expertise that's in a network that's
259
00:12:06,250 --> 00:12:07,754
very beneficial to the next founder.
260
00:12:07,754 --> 00:12:08,235
There's others.
261
00:12:08,235 --> 00:12:10,174
You know, there's sometimes it's just community
centric.
262
00:12:10,475 --> 00:12:15,595
You know, you have, a community of individuals
that are maybe, like, top engineers or you have
263
00:12:15,595 --> 00:12:20,154
sort of next you know, sort of a way of
accessing, a set of people that's unique, that
264
00:12:20,154 --> 00:12:21,195
sort of scales over time.
265
00:12:21,195 --> 00:12:22,720
And We have that with some of our funds.
266
00:12:22,720 --> 00:12:25,919
But we look for that flywheel because what we
don't want is just, you know, you've done these
267
00:12:25,919 --> 00:12:29,279
deals, but then you can't replicate the same
activity in the next, you know, cohort of
268
00:12:29,279 --> 00:12:29,759
deals.
269
00:12:29,759 --> 00:12:32,240
And so that's something that we look for sort
of intuitively in the firms.
270
00:12:32,240 --> 00:12:35,360
And then on top of that, you know, we do a lot
of work on studying the portfolios that they've
271
00:12:35,360 --> 00:12:38,404
been investing in, studying the the founder
set, studying the philosophy.
272
00:12:39,024 --> 00:12:42,644
You know, we do want to make sure that the GPs
have an investment philosophy.
273
00:12:42,785 --> 00:12:46,144
You know, because a lot of them do deals, but
not all of them have sort of an overarching
274
00:12:46,144 --> 00:12:46,644
philosophy.
275
00:12:46,785 --> 00:12:49,764
Because you can't always determine success by
outcomes.
276
00:12:49,825 --> 00:12:50,909
It's really by process.
277
00:12:51,149 --> 00:12:54,029
And so we do a lot of work on understanding,
like, you know, the philosophy and how they
278
00:12:54,029 --> 00:12:58,209
think about underwriting and markets and
thematic areas if they have original thought.
279
00:12:58,829 --> 00:13:01,549
You mentioned the flywheel in funds.
280
00:13:01,549 --> 00:13:05,684
Just to unpack that, you're essentially saying
that to use your example, you have a former
281
00:13:05,684 --> 00:13:07,225
SpaceX engineer.
282
00:13:07,605 --> 00:13:09,865
He or she spends all of his time in space
technology.
283
00:13:10,164 --> 00:13:14,644
He or she gets deal flow from space technology,
which makes them better investors and
284
00:13:14,644 --> 00:13:15,125
continues.
285
00:13:15,125 --> 00:13:16,644
That's the flywheel that you're talking about.
286
00:13:16,644 --> 00:13:17,945
It goes back to to networks.
287
00:13:18,049 --> 00:13:21,970
You know, typically, in networks, generally
speaking, and in economies, there's this
288
00:13:22,049 --> 00:13:23,990
there's notion of increasing return.
289
00:13:24,049 --> 00:13:27,569
And there's these positive feedback loops that
occur in the economy, which is why you have
290
00:13:27,569 --> 00:13:30,945
these sort of extreme behaviors in terms of
market prices and things like that.
291
00:13:31,184 --> 00:13:32,865
And networks form in a similar fashion.
292
00:13:32,865 --> 00:13:36,705
So you you have this this notion of sort of the
rich get richer over time.
293
00:13:36,705 --> 00:13:41,105
And what we look for in that flywheel is if if
you're able to access a network that as you
294
00:13:41,105 --> 00:13:44,245
access that network, you're more likely to
access that network even deeper.
295
00:13:44,470 --> 00:13:45,990
That's what we're looking for is that sort of
behavior.
296
00:13:45,990 --> 00:13:47,529
It's it's somewhat nuanced.
297
00:13:47,750 --> 00:13:51,429
But at the end of the day, we're looking for
this sort of increasing returns as they start
298
00:13:51,429 --> 00:13:54,629
investing versus just having, you know, a bunch
of deals that don't they don't look like
299
00:13:54,629 --> 00:13:55,669
there's an order to them.
300
00:13:55,669 --> 00:13:55,909
Yeah.
301
00:13:55,909 --> 00:13:59,184
Something that I see over and over, the most
successful, the top 0.01%.
302
00:13:59,324 --> 00:14:01,644
They just continue to compound their benefits.
303
00:14:01,644 --> 00:14:01,884
Exactly.
304
00:14:01,884 --> 00:14:02,284
And it's Yeah.
305
00:14:02,284 --> 00:14:03,084
It's a company benefits.
306
00:14:03,084 --> 00:14:08,044
And it's one of those things that sounds easy,
but is a difficult in practice, and you have to
307
00:14:08,044 --> 00:14:09,664
say no to a lot of things as well.
308
00:14:10,044 --> 00:14:12,684
Congratulations, 10X Capital podcast listeners.
309
00:14:12,684 --> 00:14:16,476
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310
00:14:16,476 --> 00:14:20,490
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311
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312
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313
00:14:25,040 --> 00:14:29,054
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314
00:14:29,134 --> 00:14:30,735
Thank you for your support.
315
00:14:30,735 --> 00:14:32,735
You spent four and a half years at Coda
Capital.
316
00:14:32,735 --> 00:14:35,075
What learnings do you bring to your position at
Levels?
317
00:14:35,134 --> 00:14:36,654
Coda was was an amazing experience for me.
318
00:14:36,654 --> 00:14:40,914
It was actually my first experience investing
institutionally as a as a VC.
319
00:14:40,975 --> 00:14:44,820
We had a methodology for investing, a
philosophy for investing that I, you know, I
320
00:14:44,820 --> 00:14:49,059
sort of hold in my head, in terms of being able
to really understand, you know, a product, a
321
00:14:49,059 --> 00:14:49,860
team, a market.
322
00:14:49,860 --> 00:14:53,860
But I think just from an ecosystem perspective,
you know, one of the things that that was
323
00:14:53,860 --> 00:14:58,394
challenging was really just keeping a tab on on
the ecosystem and really understanding when,
324
00:14:58,394 --> 00:15:02,075
you know, where should we build relationships
and how should we source, and what's what's
325
00:15:02,075 --> 00:15:02,575
happening.
326
00:15:02,955 --> 00:15:04,315
And what are the trends that are happening?
327
00:15:04,315 --> 00:15:06,014
What are the niches that are forming?
328
00:15:06,315 --> 00:15:07,595
And that takes a lot of work.
329
00:15:07,595 --> 00:15:10,254
And also, it's very difficult to do because
it's a very opaque industry.
330
00:15:10,569 --> 00:15:13,209
And so that was something that I that I
realized was, you know, how do you build a
331
00:15:13,209 --> 00:15:17,690
systematic way to source the best opportunities
and understand where the best opportunities are
332
00:15:17,690 --> 00:15:21,610
and develop thematic focus areas that make
sense within some period some time frame.
333
00:15:21,610 --> 00:15:23,690
And that challenge was it resonated with me.
334
00:15:23,690 --> 00:15:28,095
And so when we started Level, we we wanted to
be in a situation where it was more about
335
00:15:28,095 --> 00:15:29,075
picking than sourcing.
336
00:15:29,294 --> 00:15:33,294
And really, if you have a good understanding,
of what's going on and you can sort of focus
337
00:15:33,294 --> 00:15:37,455
your your efforts and your network your
networking, in areas where you think they'll be
338
00:15:37,455 --> 00:15:39,269
the most value, it's a much easier problem.
339
00:15:39,269 --> 00:15:41,450
Not that it's easy at all, but it's a much
easier problem.
340
00:15:41,669 --> 00:15:43,269
We do believe that that starts with data.
341
00:15:43,269 --> 00:15:47,110
And, you know, the availability of data, has
increased even since my time at Coda and
342
00:15:47,110 --> 00:15:47,429
before.
343
00:15:47,429 --> 00:15:51,110
Like, there's really just been an exponential
increase in the amount of data, both private
344
00:15:51,110 --> 00:15:54,975
markets, but just around sort of technical
contribution communities and things like that.
345
00:15:55,034 --> 00:15:59,034
And we just feel like there's an opportunity to
potentially get edge from that and to see
346
00:15:59,034 --> 00:16:00,575
things that maybe others don't see.
347
00:16:00,634 --> 00:16:03,294
That's, like, sort of the thing we believe and
the ethos of the whole organization.
348
00:16:03,674 --> 00:16:08,174
How much of being a good picker comes down to
seeing what great is, meeting those first
349
00:16:08,500 --> 00:16:12,180
unicorn founders at the seed stage and having
that standard of excellence early on?
350
00:16:12,180 --> 00:16:14,500
I I think it's the most it's the most critical
thing.
351
00:16:14,500 --> 00:16:18,019
There's definitely a a a huge bifurcation in
the market in terms of, like, super high
352
00:16:18,019 --> 00:16:19,080
quality and the rest.
353
00:16:19,139 --> 00:16:20,420
It really starts with access.
354
00:16:20,420 --> 00:16:24,514
Because if you're able to detect and really
understand what does a great founder look like,
355
00:16:24,514 --> 00:16:26,934
you know, that's a repetitive motion that will
compound.
356
00:16:27,154 --> 00:16:28,294
It doesn't compound forever.
357
00:16:28,674 --> 00:16:28,914
Right?
358
00:16:28,914 --> 00:16:30,995
And so but it compounds for quite a while.
359
00:16:30,995 --> 00:16:32,995
And so that's what we look for.
360
00:16:32,995 --> 00:16:38,529
And we believe that that's you can get a sense
for that very quickly in investing behavior.
361
00:16:38,589 --> 00:16:42,909
But you couldn't do that unless you had a
complete ecosystem view of where of what
362
00:16:42,909 --> 00:16:47,149
quality is and where where is it located, you
know, and how to benchmark one quality firm
363
00:16:47,149 --> 00:16:49,205
against another around similar metrics.
364
00:16:49,205 --> 00:16:52,565
Quality is contextual, not only on the
entrepreneur level, but on the GP level.
365
00:16:52,565 --> 00:16:58,024
Probably every GP that you come across is
certainly top 10, probably top 5% in society.
366
00:16:58,245 --> 00:17:02,024
But maybe if they're only in the top 5%,
they're not investable.
367
00:17:02,245 --> 00:17:04,220
There's a context to that to that quality.
368
00:17:04,519 --> 00:17:06,940
What do you wish you knew before you started at
level?
369
00:17:07,240 --> 00:17:11,640
You know, I think when we first started, one
thing is just is having more control or at
370
00:17:11,640 --> 00:17:14,619
least understanding where a fund manager's fund
size will end up.
371
00:17:14,679 --> 00:17:17,684
You know, because sometimes what ends up
happening is that it balloons, Especially, in
372
00:17:17,684 --> 00:17:20,404
the period of time when we started investing,
there was a lot of ballooning of fund sizes,
373
00:17:20,404 --> 00:17:23,065
and we didn't have much control over that
activity.
374
00:17:23,605 --> 00:17:25,044
And so I think that was that's one thing.
375
00:17:25,044 --> 00:17:28,644
It's really just to have a GP that is very
thoughtful about portfolio construction and
376
00:17:28,644 --> 00:17:29,144
sizing.
377
00:17:29,284 --> 00:17:33,589
Because the the really smart GPs understand
that it's really it's really it should be all
378
00:17:33,589 --> 00:17:37,190
about carry and that there's an optimal
construction relative to the strategy that
379
00:17:37,190 --> 00:17:38,890
they're pursuing and relative to their
capabilities.
380
00:17:39,349 --> 00:17:42,470
But sometimes, you know, obviously, it's
appealing when you get a lot of capital coming
381
00:17:42,470 --> 00:17:45,525
your way to balloon the size with the
expectation that you can maintain the same
382
00:17:45,525 --> 00:17:48,565
quality for the for a size that's much larger,
which is very difficult to do.
383
00:17:48,565 --> 00:17:50,325
So I think that that was a big lesson for us.
384
00:17:50,325 --> 00:17:53,924
And we had a few funds that sort of balloon
larger than we would have liked in that period
385
00:17:53,924 --> 00:17:54,325
of time.
386
00:17:54,325 --> 00:17:57,210
And, you know, in retrospect, we wouldn't, you
know, we wouldn't have done that.
387
00:17:57,289 --> 00:17:59,549
That's sort of one big one big learning as
well.
388
00:17:59,609 --> 00:18:02,890
I mean, the other thing is just, you know, our
our models have gotten better over time.
389
00:18:02,890 --> 00:18:04,009
We're very happy with our portfolio.
390
00:18:04,009 --> 00:18:05,049
We're happy with all the managers.
391
00:18:05,049 --> 00:18:06,490
You know, our models have gotten better over
time.
392
00:18:06,490 --> 00:18:08,109
We have new ways of looking at things.
393
00:18:08,569 --> 00:18:10,589
I think we've we've refined our approach.
394
00:18:10,649 --> 00:18:13,705
We have much more of a brand presence, and, we
get a lot of inbounds.
395
00:18:13,924 --> 00:18:16,404
Our just quality over time is just getting
better and better.
396
00:18:16,404 --> 00:18:19,445
And then at the end of the day, we want to be
the first call for new GPs.
397
00:18:19,445 --> 00:18:23,305
You need to really be, associated with the best
and and being that first call.
398
00:18:23,365 --> 00:18:26,725
And that's something we, of course, want to
keep working on so that we're seeing things
399
00:18:26,725 --> 00:18:27,839
before they go to market.
400
00:18:27,919 --> 00:18:30,019
The last thing is is really around the co
investing.
401
00:18:30,480 --> 00:18:34,640
I think the most interesting for, you know, a
fund to funds investor that's focused also on
402
00:18:34,640 --> 00:18:36,579
co investing is adverse selection.
403
00:18:36,960 --> 00:18:40,394
You know, typically, you're you're gonna get
opportunities in a very reactive way.
404
00:18:40,634 --> 00:18:43,515
And and if you're seeing it, the first question
you asked is not what the company does, but,
405
00:18:43,515 --> 00:18:44,714
like, literally, why am I seeing it?
406
00:18:44,714 --> 00:18:47,775
What we believe is that you need to have a
really good understanding of the portfolios
407
00:18:47,835 --> 00:18:52,555
preemptively, have value that you bring to the
GP, and value, you know, essentially, it's also
408
00:18:52,555 --> 00:18:56,049
to the entrepreneurs over time such that you
have a really good sense of what qualities
409
00:18:56,049 --> 00:18:58,630
before they go out to market, and you can
preempt some of those situations.
410
00:18:58,849 --> 00:19:01,829
You know, that's something that we're we've
been working on for for quite a while.
411
00:19:01,890 --> 00:19:05,269
How do you suss out whether a manager is gonna
scale their AUM?
412
00:19:05,730 --> 00:19:07,250
Most managers aren't gonna tell you.
413
00:19:07,250 --> 00:19:09,765
So what have you found best practices to
predict this?
414
00:19:10,005 --> 00:19:11,445
We we literally just ask them.
415
00:19:11,445 --> 00:19:13,445
You know, one way we do it is just sort of ask
them.
416
00:19:13,445 --> 00:19:15,224
You know, what what's your vision for the firm?
417
00:19:15,365 --> 00:19:16,964
What what will be the size of your next fund?
418
00:19:16,964 --> 00:19:18,345
How are you thinking about team composition?
419
00:19:18,644 --> 00:19:20,644
You know, how are you thinking about strategy
moving forward?
420
00:19:20,724 --> 00:19:22,085
You can get a sense really quickly.
421
00:19:22,085 --> 00:19:25,839
And most of them are are very honest on what
their, you know, what their agenda is in terms
422
00:19:25,839 --> 00:19:27,279
of, like, growing and scaling the firm.
423
00:19:27,279 --> 00:19:28,880
There's many that we speak to, and they say,
look.
424
00:19:28,880 --> 00:19:32,240
We really just wanna stay, you know, at a range
that we think is is doable and feasible.
425
00:19:32,240 --> 00:19:35,679
And that's actually a very big criteria for us
that they're very introspective and
426
00:19:35,679 --> 00:19:39,599
intellectually honest about whether they could
compete, you know, as as the fund size gets
427
00:19:39,599 --> 00:19:40,095
larger.
428
00:19:40,335 --> 00:19:41,855
Because there is this quantum leap.
429
00:19:41,855 --> 00:19:43,054
I don't know exactly what size it is.
430
00:19:43,054 --> 00:19:47,234
It's probably around maybe 40 or 50 where, you
know, you have to start leading.
431
00:19:47,615 --> 00:19:50,494
And the game theory, of course, changes in the
market in terms of your ability to actually
432
00:19:50,494 --> 00:19:54,599
compete and win allocation and not be adversely
elected, especially when you're competing not
433
00:19:54,599 --> 00:19:58,519
only with peers, but also with large, you know,
multistage firms that have big platforms.
434
00:19:58,519 --> 00:20:01,580
So, like, there has to be that intellectual
honesty there.
435
00:20:01,720 --> 00:20:06,039
The knowledge I use a baseball analogy where
you have single a, which is the lowest league,
436
00:20:06,039 --> 00:20:08,220
double a, triple a, and then you have major
leagues.
437
00:20:08,554 --> 00:20:13,275
And a player could be very good at single a or
double a and could be completely crushed at the
438
00:20:13,275 --> 00:20:15,595
major league in terms of fund size and round.
439
00:20:15,595 --> 00:20:22,154
And, you know, having writing a 25 or a 100 or
250 k pre seed check is very different than
440
00:20:22,154 --> 00:20:25,429
trying to lead a series a where you're
competing against the multistage firms.
441
00:20:25,649 --> 00:20:28,470
What do you believe that other fund of funds do
not believe?
442
00:20:28,609 --> 00:20:32,210
The biggest difference I think we've seen and
we we collaborate it's it's it's sort of an
443
00:20:32,210 --> 00:20:34,769
interesting world is that you have a lot of
people you collaborate with.
444
00:20:34,769 --> 00:20:37,889
You're not you're not often competing for, you
know, for allocation against them.
445
00:20:37,889 --> 00:20:41,424
And so we we spend a lot of time talking to
other LPs, whether they're fund the funds or
446
00:20:41,424 --> 00:20:44,384
whether they're, you know, sort of
institutional investors or even a lot of family
447
00:20:44,384 --> 00:20:46,244
offices that are investing in in this area.
448
00:20:46,305 --> 00:20:49,125
And we try to collaborate a lot, and help our
funds raise as well.
449
00:20:49,345 --> 00:20:53,630
I think what makes us very different and why we
get a lot of questions coming our way is really
450
00:20:53,630 --> 00:20:54,609
the data angle.
451
00:20:54,670 --> 00:20:57,789
Typically, like, when you when you meet a
manager for the first time, even if you look at
452
00:20:57,789 --> 00:21:01,710
their presentation and their traffic or, you
know, which either is either not applicable or
453
00:21:01,710 --> 00:21:06,109
or not existent, is you have a very difficult
time unpacking and understanding whether this
454
00:21:06,109 --> 00:21:07,154
is a good investment or not.
455
00:21:07,315 --> 00:21:09,875
And especially as you go earlier in this sort
of fund life cycle, it's just almost
456
00:21:09,875 --> 00:21:10,375
impossible.
457
00:21:10,914 --> 00:21:14,035
And there's a lot of studies that show there's
just not even a correlation between the early
458
00:21:14,035 --> 00:21:16,775
IRR and sort of the, you know, asymptotic IRR
firm.
459
00:21:17,075 --> 00:21:22,009
And so since we have an angle which helps us
unpack the manager in a lot of different ways
460
00:21:22,009 --> 00:21:26,410
using sort of market based data, a lot of
people come our way and ask us what do we think
461
00:21:26,410 --> 00:21:28,830
about this manager and what what does your data
show.
462
00:21:29,210 --> 00:21:31,869
And that's sort of one piece of it, which I
think is is critical.
463
00:21:32,075 --> 00:21:34,875
And over time, we should also have our own
flywheel in terms of getting more and more
464
00:21:34,875 --> 00:21:36,015
data, more network data.
465
00:21:36,234 --> 00:21:39,835
The other piece of it is the whole ethos that
we have with GPs is quite different.
466
00:21:39,835 --> 00:21:43,515
We're not just treated, you know, only as an
allocator, you know, because we're also
467
00:21:43,515 --> 00:21:44,009
builders.
468
00:21:44,170 --> 00:21:48,250
It's a small nuance, but when they talk to us,
we can, you know, go very deep into, you know,
469
00:21:48,250 --> 00:21:51,930
the nature of LLMs or or what we think about,
you know, the market or the technology
470
00:21:51,930 --> 00:21:54,509
infrastructure with regards to, like,
generative AI or other areas.
471
00:21:54,890 --> 00:21:57,130
And they really appreciate that lens and that
angle.
472
00:21:57,130 --> 00:22:00,375
And when they look at our demo and our
infrastructure, they they feel like there's a
473
00:22:00,375 --> 00:22:02,154
good, you know, synergy between us.
474
00:22:02,455 --> 00:22:06,555
And I think this new generation of GPs, you
know, they're it's a younger generation.
475
00:22:06,934 --> 00:22:08,134
You know, they're very switched on.
476
00:22:08,134 --> 00:22:11,430
They wanna see sort of a often another kind of
LP around the table.
477
00:22:11,509 --> 00:22:15,029
Who are the most thoughtful institutional
investors that invest in the venture asset
478
00:22:15,029 --> 00:22:15,529
class?
479
00:22:15,830 --> 00:22:17,670
I I think some of the endowments are are really
good.
480
00:22:17,670 --> 00:22:20,549
I think they have a good sense for not not not
all of them, but some of them are really,
481
00:22:20,549 --> 00:22:22,070
really good in terms of their investing
behaviors.
482
00:22:22,070 --> 00:22:25,029
Not not all of them go down to this level in
terms of, like, the sizing of funds and all
483
00:22:25,029 --> 00:22:25,305
that.
484
00:22:25,465 --> 00:22:26,664
But we've seen some really good ones.
485
00:22:26,664 --> 00:22:30,825
There's actually a lot of very smart family
offices, family office investors that we've
486
00:22:30,825 --> 00:22:31,625
seen as well.
487
00:22:31,625 --> 00:22:36,025
Whether it's family offices for some of the
well known sort of large GPs that are very just
488
00:22:36,025 --> 00:22:38,765
in the know and have a good sense for talent
and quality.
489
00:22:38,825 --> 00:22:40,765
I think those are really, really smart
investors.
490
00:22:41,109 --> 00:22:45,190
And then, you know, there's a slew of other
groups that we've interacted with as well.
491
00:22:45,190 --> 00:22:47,769
And also on the fund to fund side that are are
super sharp.
492
00:22:47,829 --> 00:22:50,549
And, you know, they have a good sense for what
what's a quality manager.
493
00:22:50,630 --> 00:22:53,750
But we have a set of people that we just, like,
interact with on a regular basis that we think
494
00:22:53,750 --> 00:22:54,494
are are really good.
495
00:22:54,654 --> 00:22:56,494
Albert, this has been a fascinating interview.
496
00:22:56,494 --> 00:22:59,934
What would you like our listeners to know about
you, about Level Ventures, or anything else
497
00:22:59,934 --> 00:23:01,315
you'd like to shine a light on?
498
00:23:01,615 --> 00:23:01,775
Yeah.
499
00:23:01,775 --> 00:23:05,855
We want well, we want to be the first call for
emerging VCs, and we want to be the best at at
500
00:23:05,855 --> 00:23:10,630
what we do and really build an infrastructure
that we think will be durable and and deliver
501
00:23:10,630 --> 00:23:13,029
returns for LPs and for and really just deliver
value for GPs.
502
00:23:13,029 --> 00:23:14,630
So that's that's what we're trying to build
here.
503
00:23:14,630 --> 00:23:16,150
We have no other agenda besides that.
504
00:23:16,470 --> 00:23:19,130
So we're hoping that that that we can do that
over the next few years.
505
00:23:20,490 --> 00:23:24,590
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