(upbeat music) - Welcome to Swimming with Alligators. - The VC podcast from the LP perspective. - With your hosts, Alexa Bins. - And Ernest, you ready? Let's dive in. - Today, we are joined by Christopher Johnson, a principal at Knights Bridge Advisors, a firm focused on early stage venture funds and secondaries. For four decades, the firm has been helping their LPs access and vet GPs and growth investments. We are thrilled to receive the guidance today from Chris. He's a trusted advisor, having been an economic policy analyst in the Obama administration, an economic and technical consultant with the faculty of Stanford and Carnegie Mellon, and providing GPs and LPs advice at both constellation advisors and Knights Bridge. Chris was such a great background. We're so happy to have you on today. - Thanks, Rose, ma'am. I'm happy to be here. You both advise GPs and LPs. You kind of have this intermediary position, which are both our core audiences. How did you find your way to this world, especially after doing policy work? - Sure, that's a great question. So I'm from Maine originally. So I'm actually talking to you today from Boston, where offices are. So after undergraduate, I was really looking to do applied finance and public policy work. This was in the W Bush administration. So I went to work as a policy analyst using essentially econometrics to large scale data models. It was very interesting. I decided after a few years that I probably wanted to do something a bit more finance oriented. So I went to graduate school at Carnegie Mellon. That was right around the 0809 timeframe. So I like to say about two weeks after I wrote the biggest tuition check in my life. The economy kind of imploded. So it was an interesting time to be in graduate school. I looked at CMU as a place to both develop more policy as they have a great master's in policy degree there, as well as an MBA program. So sitting through all of the 0809 action, I was able to both serve in the White House for the summer in between my graduate school years and then looked more to applied finance. So it was dealing mainly with litigation matters, having to do with the 0809 blow up, especially around private market shops. So both hedge funds as well as CLOs, which are not a bit more on the rise today, but those were kind of off topic for a while. And then analyzing from a financial damages perspective or litigation perspective, what went wrong? I did that for a few years with a fellow CMU alum, hence why I joined the shop. I moved further, doing that type of litigation work, and then also started being a management consultant, as well as a diligence consultant to both startup asset managers. So people looking to go beyond say to people in a Bloomberg, to really build an infrastructure to look at alternative investing, and then also providing outsourced diligence to smaller institutional investments, kind of using the lessons learned, both in litigation, as well as management consulting. That kind of covers my time. I would say through consolation advisors, all of this was in Manhattan. I moved back here to Boston to New England and joined Knightsbridge. So I've been at Knightsbridge now since about 2017, where most of my role is allocating to early stage venture, some growth. But at this point, it's really been kind of a 360 degree journey around private market partnerships. So I've seen how they essentially implode, I've helped build them, and now at Knightsbridge, we allocate actively to them, both on a primary and secondary basis. - Chris, that's, first of all, I can see how your full background helps you in assessing kind of where the future is going, given, you know, first of all, I'm an econ major, and I've never said I enjoyed econometrics. So kudos to you on that. (laughing) - Well, I did for a few years. (laughing) I was introduced and met it, and I was like, no, no, no, no. But talk about how just like those prior experiences have shaped your worldview within this asset class. - Sure, so I think venture writ large is a place of ultimate hope, right? Going back to my obama days, right? But everything has kind of been up into the right attitude, that you have to really believe in the potential of both the future, but also clearly of your investments to even enter the venture capital asset class. I think my experiences in the earlier part of this century are one of, hey, things can go wrong, right? And as I'm working more and more in venture, that if you think of my earlier finance experience being more hedge fund in all private markets to kind of narrowing down into venture capital, what I'm trying to do is to really take the lessons learned of yes, things can go very, very right and be very, very good, but we need to think through kind of what potentially could happen if things go wrong, or at least protect ourselves and me as a fiduciary for my clients to say, okay, how am I risk adjusting my portfolio or my potential fund or even strategy around that? That I think like venture is definitely a place of hope, but I think it also needs to have some caution. Are there some macroeconomic trends that are influencing your strategy today in venture? - Yeah, so Knightsbridge itself, we're greater than 80% focused on early stage. We do have some growth activity and then we have a growing secondary's practice, which we've now been at for about 15 years. I think on the early stage side for us, from a macro perspective, everyone talks about exit markets and for the fund to fund landscape, if you're investing with as say a series A manager at this point, if I was able to predict what the exit markets are, say a decade hence, I'd wanna probably be much wealthier than I am and two, I don't know that I'd be doing what I'm doing, right? So I think from a macro perspective, that becomes a little more difficult in that we understand or we think we understand where markets are headed, but if we could actually time them, I'm not sure that long-term venture capital is a place to invest. On the nearer term, so looking at secondaries, that's more of a growth equity mindset. So it's more of a three to five year exit horizon. And what we see there are, because we're often investing in secondaries from companies that exist somewhere in our fund to funds landscape, we've a much better sense of kind of return trajectory or exit path for those companies. So for us, that's where we're much more paying attention to the exit metrics, the public market multiples and peer analysis in terms of making an investment. So it's, I would argue that's more bottoms up approach from a portfolio perspective, where series A is much more a top down, blind pool, relying upon the GP and their team and track record. - Maybe it would make sense to, we can chat about secondaries now and we can get back to your VC strategy. Could you just share what you're seeing in the secondary market right now in terms of activity? - Sure. So we see, you know, bluntly we see quite a bit of a material. So we probably see greater than two to two and a half billion dollars of now a quarter of these days, just of opportunity that, you know, people are trying to sell LP stakes within venture and taking a step back about three quarters of our secondary's work is buying LPs and about a quarter is looking at direct companies. So, so the efforts put forth on LPs are really for us looking at what the portfolios are and what type of overlap or information do we have based on our fund investing. I would say kind of, if you think about historically the three types, or at least I think about it in three different types of people or firms looking to sell in the secondary market, typically have smaller family offices that, you know, probably sub three sub five million dollar lots in that had maybe an initial million dollar sub or two three million dollar commitment that's now appreciated some or maybe stayed flat. And usually those are smaller family offices looking to allocate a single position. There's a lot of flow there, especially on newer assets. So I think that's kind of an indication that many people got into venture over the last five, 10 years or so and are realizing it's a bit longer asset class than maybe initially anticipated. The second category would be more kind of, I would say endowments, US endowments style where you have say five to 10 to upwards of 30 million dollar portfolios and whether that's one, two, five or so holdings, LP stakes at a time looking for liquidity. Those are more longer term investors who are typically have been in the asset class for some time. And at the moment, we're not seeing as much in the way of that deal flow. So there aren't any of that ticket size. And I think that reflects broadly, if you speak to a lot of, you know, my colleagues, other allocators in the industry, especially sitting at those made to larger size endowments, they're not necessarily looking at liquidity from venture and they actually came out a few years ago. Like a group of them saying, hey, we'd like to remain in the venture asset class, they're just not actively re-upping at the same pace. So it's not the case that they're selling, they're just not making new commitments. And then on the far end of the spectrum are kind of those greater than 50 million dollar lots that are typically asset managers or other fund of funds, potentially winding down just larger ticket sizes that are looking more either to sell an entire private market portfolio or an entire venture portfolio for, you know, any number of reasons could be a fund of wind down where, you know, the prior management team is looking to crystallize carry or the prior LP base is looking to crystallize some sort of DPI. And in that case, you have kind of all over the map in the sense of what we like to do at Knightsbridge is look at smaller lots, potentially more off the run or niche strategies. So we would look at, you know, a much larger portfolio like that and potentially a smaller allocation to ourselves. And then maybe syndicate the partner. But I think the hole at the moment or kind of where you're not seeing as much deal flow is that middle ground. And then I'm sure you both have read significantly about continuation vehicles. So those have been on the rise, I would say over the last year and a half or so that managers are looking to kind of consolidate their winners, push that forward, but then also distribute some sort of monies back to their initial LP. So those offerings are increasing in nature. We've participated in a few, but we're not heavy participants in GP continuation vehicles, but that's definitely a growing area, the marketplace. And then on the direct side, it's a little different game in that there are more and more platforms coming to market, like Hive or Forge, that I'm sure you all have seen our carded and made a play at that as well. And then I think most recently Morgan Stanley announced that they were looking to build a private shared platform. As well as Fidelity, actually I read about this morning. So there are a lot of different places that start after potentially looking for liquidity. And I think while those markets are clearly not fully efficient, they're becoming more and more efficient. So bid-ask spreads are narrowing compared to LP transfers. And so for that reason, it's a smaller part of our practice, but you're seeing much more flow on that side. So there are ever greater number of private market shares out there, especially for late stage companies. - I'm kind of curious what it's like working with those platforms. It's like if you've been doing this for 15 years and now a platform's coming to you asking you to participate. - Sure. So the platform itself is, I would say that those on the LP side of the business are pretty rudimentary. And on the direct side of the business, they're easy. I mean, the interface will not eat, you know, eat trade, for instance. It is becoming easier to look at what potential asks are out there. However, most of these markets don't actually show you completed transactions. So you can see the asks and you have an understanding, like Knightsbridge would have been understanding what we'd like to pay for a lot, but we're often not seeing, well, what are these prior transactions actually being transacted at? So I think that's a bit of a one-sided market in that sense. But the data itself similar to LP and even similar to primary fund investing, that data is extremely limited to venture. So while yes, there may be shares of XYZ company on this platform, you don't really have an understanding of what is, where do those shares stack up? Like common shares or common shares, right? But how many common shares are there? Or if it's a preferred share, what does the waterfall look like? So it's really beholden on a firm like ours to go do the research, understand the capital stack before we try to anticipate purchasing asset. So I think the interactivity is good. I think if you're a qualified investor to step onto those platforms and you know what you're doing, it's a benefit. But I think that the transparency is still lacking in the underlying. It'd be very similar to say buying a preferred share on each trade, right? That like you could be buying something, but you don't necessarily know what the financial love say an IBM are or why this shares preferred versus common. And it's really beholden on you to go do that research. - Your LPs, Chris, can look a lot of different ways, whether they're individuals, family offices, foundations, endowments, insurance companies, pension funds. What are you hearing from current and perspective new LPs of what they're looking for in the market, especially the early stage and growth? - Yeah, so I think the very first question I got, actually the very first question I got is often, are newer LPs or LPs who have an invested in venture? And they understand kind of the benefits of a fund to fund approach to primary investing, potentially at diversified, well-balanced exposure to venture and hard to access premier managers, right? That's essentially our elevator pitch. So if it's that type of LPs saying, hey, I'd like to have access to the venture asset class, how best do I do that? I think it's a relatively straightforward conversation. If it's a returning LP or an LP who's been in venture before and may or may not have had a great experience, maybe in a prior business cycle, or if it's a family office that was at one point in, then decided to get out and now is looking to get back into venture and maybe miss the prior cycle and is kind of regretting that, maybe not the immediate prior cycle, but the one before the late keen profile, they'd missed a lot of distributions there and are saying, hey, maybe now's the time to dip our toe back in the water. The biggest concern for those who have been in the marketplace before is valuation, right? So if you're looking at kind of where marks are, where firms are investing, is it really a Series A investment if you're putting X number of dollars at Y evaluation? So a lot of kind of discussion I have, especially with professional money managers, is what type of entry are we getting? And then from there, what's the type of return profile we can expect? And for us, it's really looking forward to relying upon GP's who have done this before, who have had a team through multiple market cycles, and who are properly managing their early stage portfolio for the next three to five years over at allocation period to get a pass to exits that would line up with our past performance. The other big question is just why venture? That's more of a beginner's question. So if you're coming to me and a lot of what I like to think I do at Knightsbridge too is be a cheerleader for the venture asset class. So thinking through, you know, in my mind, if you're looking to capture the portion of the, either the US or global GDP that's growing, you're looking mainly at venture back companies, right? I think private assets, especially those backed by venture firms, typically in the case of Knightsbridge mostly tech, but some life sciences, are where really true value is created. I think if you're more worried about say financial engineering or rearranging deck shares on a large ship, venture probably isn't for you. But if you're, you know, if you are kind of that belief as I was talking about before where, you know, there is a better tomorrow. I think venture capital speaks much better to the investor class than say an LBO transaction where you're investing in a widget company that may or may not have high margins and a market you may or may not understand. - It might be interesting. A lot of our, you know, if you're an emerging manager, you haven't dealt with higher up the stack LPs and endowments and insurance funds and pension funds, but these are the LPs you work with daily. So anything you can share with what it's like working with some of these larger institutional LPs. - Sure. So I think the thing I like to stress with newer GPs and as an aside, I was part of the Kauffman, or I am a part of the Kauffman Fellows program, which deals a lot with newer managers. Really, you know, there are two, I guess, two dichotomies on the family office side. You know, the famous saying is if you've met one family office, you've met one family office, right? - Yeah, so a lot of those LPs have very differing, either views or needs of venture capital. And it's very important to understand who is sitting across the table from you before. Either you approach them as a prospect or you continue in your investor relations with them as an LP. On the larger side, I think, you know, it becomes much more about client service. So as you think about a large insurance company, typically the person on the other side of the table from you is a salaried employee who may or may not be compensated on the performance of their portfolio, but at the end of the day, have a reporting line somewhere. And what you're looking for as a GP, or what I'm looking for as a GP, is a champion within that organization that really believes in either me or my firm. And so the thought process there is how can I best deliver and assist this person in what they do for a living? And if that person is looking to build a venture portfolio or looking to build up, say, in the case of a large insurance provider, if they're looking to build a strong alternative markets, they have a fixed allocation amongst their investment pool. And they need really, you know, a Knightsbridge-sized puzzle piece to fill out their venture asset class. How can I best reflect venture as being a strong part of their portfolio? From a risk adjustment perspective, again, going back to Knightsbridge's history, we're 41 years old. So where I'd like to say we have kind of the most conservative LPs in a non-conservative asset class. So what we're trying to do is risk adjust our approach into a way that makes sense for LPs like the ones I was talking about. And again, it's really more of a relationship base, both with the person and the firm. So thinking through kind of you and your team, what are you looking for when you're investing in venture and how can we best serve that? - You know, thinking of yourself in client services, I think is a huge jump for some of these folks who consider themselves, you know, sorcerers of great startups. - Yeah, yeah, for sure. Yeah, and I think like my participation in Kauffman and then also just as an aside, sitting in a fund of fun I meet with managers, probably average about one a day, that, you know, the important aspect of all of this is someone sitting in where I sit or even someone sitting in an insurance company sits or an endowment, all of us are serving a client at the end of the day. And in my case, I actually have to go actively raise funds, right, to invest a fund of fun. And in the endowment case, it's a little different, they have to, they're not probably as participatory in the fundraising aspect, but they still have reporting lines, right? And at the end of the day, they have clients. And what I try to do in Kauffman, what I often try to do when I speak with emerging managers is that in today's environment, money is not easily to come by, in any aspect, right? And so thinking through kind of, how does that person, how does that person's life made better by investing in a firm like mine? Or how is, on the flip side, how is a GP's life made better by me making allocation as important? So I think these GP's, you know, generally on the emerging side need to think through that, you know, as my grandma used to say money doesn't grow on trees, right? So thinking through that, you know, a dollar means something quite different to different parties and understanding what that means is really, really important on fundraising. - Chris, how do you just even tactically everybody, all of your LPs are coming from different perspectives that you might have longer relationships with others? How do you make sure with all those puzzle pieces you provide the right kind of output for them, right? Is it all everybody just get the same product or somewhat, you know, slightly different products? How do you make sure you're providing everything to everyone? - Yeah, that's a great question. So structurally, Knightsbridge sits on, like what I think is a three legged stool, right? So our 41 years is mainly venture capital fund of funds and we still do that. For the last 15 years or so, we've been raising secondary funds, which is, you know, typically a different client base just because of that shorter duration or shorter term as well as a different return profile. And then the third and kind of not as mentioned, part of our business and part of the industry are what we call separately managed accounts or SMAs. And those are typically funds of one or funds of you, right? That a client will come to you and say, I have 10 or I have 50 or I have $400 million that I'd like to allocate to venture. I'd like to you to manage that Knightsbridge and whether, you know, and then we can talk as to whether or not the discretionary or non-discretionary account. So thinking through kind of how I can best serve each of those three buckets is different while we have clients who are participating in all three, you know, all three buckets or all three legs. Of Knightsbridge, we have others that are just solely focused on secondaries. We have others that are solely focused on SMAs where they have a customized portfolio due to either their focus, their sector, their interests. And then we have fund to fund clients who have come back to us for, you know, approaching half a dozen funds now. That really what they're looking for us to do is provide an outsourced venture exposure for them. And then similar to many endowments, what we try to do is allocate in such a way that inevitably future capital calls are met by present distributions, right? So by say the third fund cycle, often the distributions being made by your first investment are meeting the capital calls of your third. At that point, you kind of maintain a relatively steady state exposure on a cost basis to the venture capital asset class. Also a lot of phone calls and coffees. - I was gonna say a lot of phone calls and it's great if it perfectly works out that way with the third fund. For fund managers who are trying to get to know you, now understanding kind of the entire backdrop of what your day to day is, Chris. What advice do you have for them on talking to an organization like yours? - Yeah, I would say, you know, bigger picture, organizations like mine and there are a number of funder funds or intermediaries or other say high net worth channels on a lot of the major banks. Usually those conversations are relatively slow. So right, if you think about ventures or relatively fast moving asset class from a deal perspective, it's a very slow moving asset class from an LP allocation perspective. So while I have had first meetings with managers who were expecting a check after that first 45 minutes, it is a very, very call it extremely rare to get that allocation in a manner like that. In fact, I don't know that it's happened in my time at Knightsbridge. So for us, you know, doing what we do on the fund to fund side of the business, we typically maintain a pretty robust roadmap over the next three to four years. So I have an idea of where not all of my assets, but a good number of my assets are going based on past pacing of my underlying GPs as well as other GPs that I'm keeping an eye on. So getting into that roadmap or on that radar is probably the most important first step, but the expectation and the understanding that, you know, an allocation might not be forthcoming for this fund raise may not even come for the next one, but that if you're constantly reaching out, we have good back and forth, that's potentially a target down the road. So the expectation setting on saying early, like a fund one or a fund two managers are really important. Because, you know, at the end of the day, venture is an asset class of very successful people. People who have been typically successful either in investing, have a great track record, very successful operators who now think they can be VCs. And in both of those cases, there's, you know, the failure rate of someone saying to their face that essentially, you know, I'm not giving you money and which they're translating, which may or may not be true as I'm not good enough, is a hard message to take. So it's preparing yourself mentally to say, okay, maybe not this time, but maybe next time, and that's okay. And what that also translates into a lot more meetings that I think are expected from an early first time manager. So it is the case that you're probably going to get triple digit number of meetings to raise a small to moderate size fund. And it's not the typically the case that like your first five meetings are going to be 10 million each. And then you're walking out the door of the $15,000 fund. - Now we're going to take a quick break to speak with our sponsor. - Next up, we have our industry expert and sponsor, Dave Thornton, co-founder, CEO, and chief investment officer of Vested. Vested provides funding to exercise your stock options. Thank you so much, Dave, for joining us. Do you also have a partnership with Carta? - Yeah, yeah, yeah. - How does that work? - So we are an API partner of Cartas. For folks who are not aware, Carta is the pream and a cat table provider and they do a bunch of other things. In the private markets, I think they've got something close to 80% of BCVAC startups that use them to manage the cat table and maybe half of them. Use them for foreign and evaluations and they've got a fund administration business. They've got their chemicals in a lot of places. They opened up an API to select partners in the last year and we are users of their portfolio API, which basically means you're a Carta user. In other words, you're an employee who has your stock options administered by Carta because your company is paying Carta to do that. You can come to Vesta.co and before, if you were to tell us about your stock options, you might have had to manually enter them into the website and you might have had to cognize the difference between an incentive stock option and a non-qualified stock option. And you might have fed-fingered a couple of your details and gotten it wrong and you might have gotten your FMV wrong. Now you have the option to link your Carta and all the data that you otherwise would have taken 10 minutes to type in or five minutes, but still an annoying amount of time to type in and might have gotten wrong or what kind of streamed directly from the source. And that has been a pretty significant de-frictionization of our user experience. So it's been great working with Carta on that. - Yeah, for sure. And as you said, things like fair market value, they're being updated annually where they offer it. - The fair market value is a funny one. It's because it is a capitalized term. It has a defined meaning. It is produced by a third party. It is approved by the board. But when you just say to somebody, what's the fair market value of your stock? They take it, I'd say it's a third, a third, a third in the following buckets. One third is they actually know what it is and they provide the right number. The middle third is they think it's whatever price the company most recently raised its round at, which is not unrelated but not even close because that tends to be preferred stock that's issued to new investors and preferred stock and common stock are different things with different values. And then the last one, the last third is they take it as an invitation to just say what they think is fair. (laughing) So it is really, really nice to have the opportunity to most of the time stream it from the source of truth. It makes for a lot less follow up from us to the employee that asking for a correction. - Yeah, well, we giggle but I guess in some of these, you know, marketplaces and so on, the price is what somebody will pay for it. So, you know, what is fair is fair. It's nice that you're actually not having to negotiate any real numbers that you're working with things that are pre-determined. - Yeah, it's great. And like, operationally speaking, we don't get the opportunity to meet 30,000 management teams. And so the traditional primary venture capital approach of, you know, doing a full forensic evaluation of a company is not on the table if you're gonna run our business model. So we have to use the prices that already exist. - Yep, the same number the tax man uses. Any parting words for LPs? - Only that if you're interested in thinking about high quality index style exposure to venture. So think of this as smart beta. We are now about to start launching a bunch of these products in earnest. And we are very, very open to feedback. We can programmatically put a lot of capital to work helping out the employee base that I just described. And it's an interesting time to kind of be one of our early LP partners in the new business model. - Thank you so much, Dave. To start working with Vested, you can please email investors@vested.co and mention this podcast. And now back to our LP interview. - Chris, have you ever received deal flow from the outside of the fund fund kind of funnel? And from where they kind of like special purpose or I forgot the exact term, but like one of your dedicated funds from one of your LPs? - From the SMA's. - Yeah, for sure. So yes, I think people approach an iceberg thinking the fund of fund is our only strategy or people and by people I mean, venture managers, new venture managers, thinking that fund of, it's either fund of fund or bust. And for us, while I appreciate cold emails, warming shows are way, way easier. So getting an nice introduction from either a current LP of mine or a current VC of mine is quite a bit better than trying to just cold email me. 'Cause my spam builder cannot keep up with the number of emails that come in every day. And I just hesitate to say it's hard, it would be hard, very hard for me to recline everything. And actually, as an aside, I had a dinner with a group of fellow LPs a few months back and one that was the head of a very large family office was saying, if I took the time at the end of the day to say, you know, even one sentence response to all the inbounds like, that's really time away from my personal life. And at the end of the day, is it really that constructive? So the thought process around cold email is difficult for someone to begin my seat just because of all the inbounds like that. So warming shows are much better, I would say just generally, versus just trying to send me an email and then recline to that email like five times, which is the case. I have one that I just keep notes on 'cause it's like, I think it's the double digits now or I'm just like, okay, like, I don't know what to do with this anymore, it's getting a little weird. - Have some empathy people, Chris is busy. He's a very, a lot of people wanna meet with him. - Or make it about your life too, catch up. See how his kids are doing, I don't know. - Yeah, exactly, find another way in. - Dee, is there anyone you're actually looking for right now? You know, if this was a push versus a pull opportunity? - I'd love to speak with people and this is more thought process than like, I need someone in this sector, but I'd love to speak with managers for thinking beyond the current gen AI craze and thinking about what potentially the next step is. And this is like more armchair economists than anything, but it seems like so many dollars are flowing the infrastructure, which may or may not be a good thing from an early stage perspective, but thinking through kind of what comes next I think is not as well defined. And if you think about kind of, the way I think about it's more of a cloud infrastructure framework, where you have the notable big winners, right, the Googles, the Amazons, the Microsoft of the world are also appearing to be the notable big winners of AI infrastructure. But if you look at kind of all the companies that were built upon cloud infrastructure, there's a lot of value creation there, right? And you can look at Knightsbridge's website to see some of the firms we would exposure to. I'm wondering what kind of the next generation of firms that, you know, represent kind of the cloud players or the snowflakes of the world, what will those look like in AI? And any thoughts there could be potentially interesting. - Awesome. - Yeah, that makes, that makes a ton of sense. And that's kind of our job to be thinking about what's. - Yeah, yeah. - What's a complete like, always like this, is allocated as a complete no-no, other than emailing you 15 times straight without a response. What's a complete no-no when first meeting with an allocator or yourself, Chris? (chuckles) - So my, one of my favorite stories of all time is, so I started at Knightsbridge, so I, as I mentioned before, I started my career in hedge funds in Manhattan, private equity. Relatively sharp elbow, right? I was wearing a suit and tie every day. Different lifestyle of the venture. And like right around the first year of work at Knightsbridge, I, as I mentioned, and this was back when we were in office more often. So we, we were in an office. I had a brand new analyst with me. It was less than a month in the job. And we took a meeting with a person who was passing through Boston, because of where we said a lot of, a lot of managers come to the Boston area to speak with the endowments, and while they hear they often meet with us. So I'll often kind of leave and open a couple hours in the afternoon just saying, you know, every week saying someone stops it and that's fine, they can stop by our offices too. Anyway, great meeting, decent, probably not a fit for us. I gave a preamble about why it's not a fit for probably not a fit for us, before the meeting even started, right? It's a pretty high hurdle. But, you know, it would still love to hear the pitch if you'd like to, you know, give that to us. And at the end of the meeting, the guy goes, what is $5 million to you? And I'm like, what? And he just, he kind of stayed on that line of reasoning for about two or three minutes, and it was just really, really awkward. And it was like, you know, okay, all right, great, great meeting, thank you. And he leaves our offices, my analyst is like, are they all like this? Is this how it works? He's like, this would be great. And I'm like, no, no, that's not how it works. - Wow. - So, I appreciate the ask. But if the ask is like immediate, and you're not getting positive vibes from the table, it's probably not happening. So that would be a big no-no number one. No, it's really awkward. - I think the other big no-no for me is going back to kind of the cold emails is, I'm often the point person on a lot of databases like PitchBook and Prequin and others like that. Please, please, please look at your audience before you send emails. Kind of giving, you can figure out what Knightsbridge does based on our website or any kind of generic elevator pitch like you gave them to the beginning. But I still get kind of like cannabis farm pitches, oil and gas pitches, the multifamily apartment building pitches. And all right, you know, the flavor of the moment is private credit, which we really don't do. But all the same, these are like taking a seconds now of my day in my inbox, just thinking through. So, the big no-no for me is not doing the research before you step into the meeting and not understanding what, say, how fun to fund may be different than an announcement, or a family office. So just thinking through kind of what the different flavors of LPs are really, really important. But also, a benefit or insight is now any allocators out there who do a lot of different things in privates. Hey, if you're looking for multifamily, deal flow, Chris can help you out. - Great, I'll just keep forward. You send me email to Florida too. You wanna buy a look at multifamily? I don't know why I get these emails. Like, I've under subscribed so many times, I'm just like, yeah, now I'm good. - The recently launched fourth stool at night. - Yeah, exactly, yeah. - Fourth? - Yeah. - We got oil sheets, we just wrote it down in the basement. Don't worry about it. - That's all it is. - Is there a piece of advice you've received in your career that's been meaningful? - I think the big thing for me is, you know, time is valuable. You don't get that back. And on the flip side, venture is a very long asset class. So, the relationships you make in this business are typically very long lived and it's very much a repeated game. That on the LP side and the allocator side, you know, my network's pretty broad. We all talk, we often switch chairs. So there'll be, you know, people move from an endowment to an endowment or an RA to an endowment or vice versa. And once you kind of have a toe in the venture ecosystem as an LP, you're typically having a affinity towards it for quite some time. So, I think both spending time with venture managers is important, but also understanding that it's a very long time horizon within venture. And that, you know, memories are long both on the GP and LP side. So, you see a lot of the same faces. And if venture cycle, you know, if fundraising cycles are ideally about three years apart, hopefully, can we get back to that? (laughing) That means like if you've raised three funds, you're in it for a decade, right? And often you're approaching the same people over the same. - Yeah. - So, I think that's really important to know that, you know, it's, first impressions matter, but it's also length and depth of relationships are quite important too. - No, I actually think that's been one of the biggest pieces of feedback we've gotten for doing this podcast. Thank you for coming on, that now Knightsbridge and you are real entities, you know, you're not just this, you're not a name or an email and a database where people I don't think necessarily feel like they see the human behind the, - For sure. - Behind the easy five million bucks. - Yeah, I know. - That's easy, yeah. What is it to you? - Like what's the TU? - It's like one thing. - Why are you being stingy? - On the flip side too, like is on the, in the secondaries, you know, part of my day job, like one reason we're able to purchase LP interests is often there's turnover too, right? So I read something like the average CIO and an endowment is like six years. And if you think about like a primary fund that it's not unheard of to go, you know, 15 plus, that's like three people, right? It's a parent and then two step parents of a single fund. And ideally if the GP is still there, you're maintaining relationships across that spectrum. So that was a bit eye opening for me as we were diving deeper in the secondaries world and as the flow is picked up there, you're really seeing assets being sold that, you know, the person who made the investment decision and often even the documentation around that investment decision aren't available 12 years later, right? - That actually brings up kind of a question for me. We're seeing kind of like the movement on seats both from GPs and LPs. Quick aside, one friend told me that a question that founders are asking kind of like late 30s, early 40s GPs is like, are you a flight risk? So like there's just like a, like there's like a fear there but I didn't think about it from the allocator start. I don't know if that trend is accelerating more and people are changing the scene more. So I would love to know that, but then-- - I would say that's a great question. I don't have any numbers. I think conceptually it was easier to change seats in a zero interest rate environment, right? Where people weren't paying attention as much to DPI, they're really just looking at markups. And could you have an interesting, say sub five year track record and then go hang your own shingle and raise, say 10, 20, $50 million? I think that has become extremely difficult. But on the flip side, we've invested with any number of managers that have gone through either single or multiple generational transitions. And I would say beyond values, which is a minority of decision making process, it's almost always economics. And the question in my mind and a lot of our diligence is looking at both the leadership of a GP that we're making an allocation to, but also who's coming next and what that potentially looks like in the future. As a fund to fund, and I think this is true of many allocators that yes, we're making an investment decision on a single fund. But part of our analysis is, is this a potential for a second or third of fine allocation as well. So if your entire team makeup is transitioning from one fund to the next, it's not typically an investment for Knightsbridge 'cause we're also investing in you as a firm, you as a person, but also you as a firm, right? So we want to see that once we've had this multiple times because we invest in spin outs, we often look at the prior shop. And if we're re-upping with the firm that the person departed from, we want to see who's remaining and what those individual contributors look like, as well as what the new contributors doing at say on the spin out opportunity. So it's yeah, it's definitely something we think about from a, we don't necessarily call it a flight risk, but we say, what is your strength to the team and are you being, at first principles, are you being well accommodated? And if you're not, or it's not as prevalent today because of the Zoom, but back when they're in person meetings, it's very obvious who is driving the conversation. Like I've sat in GP meetings where, say, a principal we introduced at the beginning of the meeting and then that person will say zero words for the next hour. And you get an idea of, okay, I'm glad I got to meet a new principal. I don't know that I remember that person's name, but I can see who is driving the bus here. And then on the flip side, going back to kind of that repeated game, if I know what your attribution looked like from a performance perspective on this fun, I may have said, no, on the next idea of different personnel and you're sending me attribution file, I would highly recommend it looks very similar to the previous one. And it's been, there's been more than one occasion where it's not. So for someone's sitting through a repeated game, you kind of understand what's going on, right? That like, oh, no, I actually sourced that deal. - You're saying I can't put all the bad deals on the person who just left? - I wouldn't suggest it. I mean, unless it's all new prospects, then no worries. But just if you have called me before, yeah, probably not. You might want to check out your Excel file before you send it on. - This has been so fun, Chris. Any final thoughts for this audience? - Yeah, I mean, I think, you know, tough times will get better. I think, you know, people see fundraising is difficult right now. I think it may have swung too far the other way in the prior environment. It shouldn't be easy, but it won't be impossible. And if your difference is valid and your track record is strong, someone will allocate to you eventually. It may not be me, but there's enough capital out there looking for interesting ideas and venture that, you know, it's not the end of the day. The other thing I would say too, is discover what your MVP is for your fun size. So yes, you may be trying to raise 200 million, but is it a strategy you could deploy at 100 at 75? At a certain point, it may make sense for you to try to go to the market and start building a track record and to remain, you know, fundraising ad nauseam. And there's that, that's a decision I don't have a specific answer to, but thinking about trying to get in the market and show your abilities on the investing side as soon as possible would weigh on me as an early stage, you know, allocator and should weigh on you as an early stage investor. If you're able to find those deals, you know, go to it sooner rather than later. - Well, Chris, thanks so much for spending time with us and sharing all the knowledge and great anecdotes as well. If you're, I was gonna say, if you're interested in talking to Chris, I'm sure those people know how to get to you anyway. So. (laughing) - No, no, you should email Ernest. You should email Ernest first, and then let him be the filter. - Yes, let me be the filter. I'll take all the oil and gas in real estate. - Yeah, yeah. - But seriously, thanks, Chris, for being on. - You're very welcome. I'll speak to you guys soon. - See you later, allocator. - After portfolio tile, investing with a smile. (upbeat music)
