(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 thrilled to welcome Akhar Vachani, managing partner at Fairview Capital Partners. Fairview is a fund to fund with a reputation for backing emerging managers with diverse backgrounds, managing over 3.5 billion in assets under management. Akhar got his, got into work starting at Cambridge Associates and is coming up on 17 years at Fairview. I didn't know millennials did that. (laughing) Love that you love your job. Akhar is well loved by, is a well loved LP by GPs and today we'll discuss how their process has evolved over selecting managers and what he wishes more emerging managers knew as they got started. So with that, we're really glad to welcome Akhar who's also an amazing Kellogg MBA. - That's right. Thanks for having me on guys, appreciate it. - So to start, yeah, we mentioned your background and being an allocator and starting out in Cambridge Associates and now, and being at Fairview. - Like her. I know a lifer is so. Could you just talk to us about how you got into this industry and why it's kept you so intrigued? - Yeah, I mean, early in my career, I don't think I really knew what I wanted to do and I see, I mean, we're joking about it. I don't think I would have imagined myself being anywhere for as long as I've been at Fairview, but I think I ultimately fell into something I really love. I got into this industry really at a startup, learning about how technology companies are built and how they're funded. And that's what got me interested in venture. But it was hard to break an adventure, right? And so I ended up actually really falling in love with this role in Cambridge Associates, which I wanted and I thought would be a great way to learn about the industry. But it took me a couple attempts to actually get an offer and when I did, I jumped on it and spent a couple of years there really learned an incredible amount, but realized I wanted to be on the investment side and then happened to come across Fairview. Well, I didn't know that well, but I got to know and joined as an analyst like 15 years ago. And yeah, I think like, I've just been lucky to have a career where you get to find and invest with some of the best venture firms and emerging managers in the world. It's not easy work, but it's been so incredibly rewarding and stimulating. I think it honestly makes the time go by a lot faster. - Do you mind giving us a quick evolution of what your PE and VC services have been at Fairview while you've been there? - Yeah, I mean, so I started at a really interesting time around 16, 17 years ago, which put us, I started in 2008 which was obviously the right only great recession happens. So it was an interesting time, but interestingly, it happened to be a real like pivotal turning point for the venture ecosystem and for emerging managers as well as for Fairview. I mean, the market conditions were really rough, obviously a lot of LPs had simply walked away from venture, definitely emerging manager investing was not on anyone's radar after what we had been through. And at the same time, there was this reset happening, both in terms of startup formation and venture formation. 'Cause if you remember, AWS came out around that time. It may be a little before like '06, '07, but I think either way, like that around that time is when cloud-based services really started more broadly impacting how startups were built. And that fundamentally started changing the industry. Like you needed way less capital to get a startup off the ground. And then as a result, seed stage investing became a viable area to focus on. Micro VCs started popping up. Pretty much all of them were emerging managers, right? And at the same time, that same trend started to democratize access to venture a little bit. So you started to see diversity increasing. And obviously there's like a long way to go even today, but that was certainly a turning point. So for Fairview, we do two things. We invest in 10-year venture firms and we also invest in emerging managers through separate pools of capital. So our 10-year venture program was in great shape and we luckily had raised capital right before the recession, valuations were low, tech had all tailwinds, a lot of LPs had pulled out. So we were able to generate some great returns just by virtue of being in the market. But one of the things we did to take advantage was to expand our investment activity through SMAs, which are like separately managed accounts or single LP funds of funds with larger institutions. We actually have one in this space, but we selectively around that time started adding a few more. And so that allowed us to remain active, increase the amount of capital we were deploying in those great vintage years versus if we just had a commingled fund. So the mix of fund types really has helped us over the years. So that's how we still invest today. On the emerging manager side, I think it's a bit of a different story. Even though we've been doing emerging manager investing for 30 years, we pretty much like around the time I started had to convince new LPs to start emerging manager programs with us because at that time, we had only done emerging manager investing through SMAs. And it was all public pension plans. And pretty much every LP was spooked by the market and they didn't want to do venture. Some of them even made policies around that in some cases. So it was a tough fundraising market for an emerging manager fund to fund. So we kind of had to rebuild in some ways. We could have taken a number of paths. I think a lot of our competition was playing and it's safe if they were doing emerging managers, it was much more focused on the buyout space and diversity was being shied away from. But we made a conscious decision to lean into our experience in venture and the opportunity we saw with diverse managers. And combined with that trend that I've been talking about of new firm formation, we made it a point to cover as much of the market as possible because we knew that would be important. And then we slowly added new LP, separate accounts that we felt like would allow us to succeed that were positioned in the right way, allow us to invest in the way we wanted to with the right amount of control, not constraining us in any ways. It was still all public pension plans at the time. But those, and that took us to like I think 2013, 2014 added a few new LPs. But I think those strategic decisions combined with our history in the space, going back to 1994, really then laid the groundwork for being able to really expand what we could do, especially for new LP groups. So like we later partnered with Ford Foundation to build a fund that would be used to demonstrate the power of a more inclusive emerging manager investing to other foundations who historically believed or not hadn't done a lot in this category. So that ended up becoming our first commingled or multi-investor fund of funds in the emerging manager space five years ago actually. And then we added new LPs and different categories from there like Visa and New York Life. We got a program with Steve Palmer and the Palmer Group and several others. But so it's been a pretty significant change over time. And then the other evolution I would add is just direct co-investment. We started doing this almost 10 years ago. Really in the backs of a lot of trends that I've touched on like around seed and micro-BCs is that for us opened a lot of doors for direct co-investment. A lot of these firms would have excess per rat in their best deals given they were size constrained. And that created an awesome pipeline of these high quality deals that we couldn't otherwise access. So we've also been doing that for 10 years. So hopefully that's a helpful overview. But we definitely have to change the line last 15 years. - Any favorite like anecdotes from those kind of micro-VC days early on that particularly like inform you on the current market we are on today. They kind of give you some extra like confidence of like, oh, how are we gonna end up in the rest of this decade after all the things that have gone on these first four years? - Yeah, I mean, it was, it still is, I think a pretty hectic time because there is so much new firm formation because you can raise smaller funds and be viable. You know, we saw a record number of first-time funds through June of this year. - Yeah. - Hopefully better not. And so yeah, which was, you know, last year was the record in the top market, 2022 was a record. So it just continues the increase. And I guess like going back to the early days, and I mean, I think there were, we were just trying to figure it out. Like we came together as a team and we decided we needed a strategy around this 'cause it was clear that this was gonna happen, that there were gonna be more and more new firms and that there were gonna be good returns. But we needed to figure out how to navigate the market and all this noise. And there were also like some elements of risk. I mean, this was something different. The funds were smaller, investing a little earlier than most of what we had done in the past. So what we did is we sat down and we created this framework for what we would look for. And this was like a screen included things like wanting, it was pretty aggressive. We wanted firms to have two to three year, like, sorry, two to three like seed stage funds under their belt. I think at least 40 to 50 million of a fund size, at least two GPs, like a fully institutional infrastructure. We ended up calling all this like an institutional quality seed. It's gonna be what we termed it. So I think some other people started using that term too. But when we applied that screen, what we actually realized it was like a really relatively small opportunity set, they weren't. This is great to look for, but this doesn't really exist. Yeah, but in some ways it worked, right? So we ended up investing with firms like that were early, like ENIAC, right? For example, was a good relationship. We started at that time through that filter and some others, but maybe we did miss some things. And quite frankly, you know, because it was a pretty aggressive screen. But I think at the end, it was a net positive. I think we avoided a lot of mistakes and still captured a lot of the early upside in those days. But if you fast forward to today, I mean, like I said, the category is really exploded. And we certainly have evolved with it over time. So a lot more of what we do today, especially in the emerging manager category, is at the seed stage and with smaller funds. And we still look for some of the elements I've talked about that we originally have laid out, but there's a little more flexibility around this stuff. And other funda funds have come on the show and sort of made the case for emerging managers. How do you differentiate from some of those other funda funds and partially its experience, right? Like you're telling us you've been at this more 30 years, but would love to hear what else is sort of like unique to you all. Yeah, I mean, I think the experience certainly matters. I think we have been the most consistently active LP with emerging managers over the last 30 years. We have put dozens of firms in business. We've done over 50 first time funds. So we know what it takes to build a successful venture firm. We know what great looks like. We invest with 10-year firms too. So we're a lot of those advisory boards. So we have a good window into what great firms look like. But I think one of our keystice success has been that process and starting at the top. Like just given how many firms there are, given how high the dispersion of returns are, we have realized you need to see as much of the market as you can, and then just be really selective from there. Because you don't want to assume that you know who the best managers are, that you have the best deal flow. I think that's very dangerous because we're seeing a lot of great investment talent come from all sorts of backgrounds. So the thing that's helped us on that run is we've always had an open-door policy. We treat people fairly, you know, there's no judgment. Emerging managers know when they come to Fairview, they can be themselves. And we can relate to what they're going through. You know, we've seen this. We also have to raise capital ourselves. And when we want to be helpful. So that leads to a ton of inbound, which we love. You know, I think that helps us see the market better. It helps us make better decisions. It makes us better participants in the ecosystem. It's a lot of hard work. I think most fund of funds can't replicate that. Because you can't just decide to have a reputation like that. You have to earn it over 30 years of actually proving that's who you are consistently. And I think that's what we have that's different plus all the data and insights and intuition and networks and systems and all that stuff that go along with it. So I think that's probably what's different. And then the other unique thing I think is just that there's this chip on our shoulder mentality that is unique. Even though we've been around 30 years, I think a lot of people, you know, always doubt that a firm that like ours with our team, our culture can't succeed. And so like waking up every day to prove people wrong is just the thing that they're for us. And we're just got obsessed with our work. So, you know, I think that does matter. No, you're you're good. Well, we all feel it. You know, like the reputation is real. So I think for GPs who have come spoken to you, it's, you know, the good news travels. That's good to know with, you know, how have you all been able to articulate your differentiation, especially when it comes to emerging managers? When if we look at over the last, I would say, seven years, a lot of other LPs have kind of tried to go into your lane. So I'm just curious on like, how do you continue to like build that lead and really build that case of like, hey, we know, you know, diverse managers can mean a lot of different things. And we know what to kind of filter for. Yeah. I think a lot of the market still struggles with, especially when you do the diversity overlay on on emerging managers. It's, I think it creates a little bit of confusion. It people aren't, you know, comfortable investing with that overlay. And the way that we think about it, it's pretty simple. Like, you know, in the private markets, it's all about finding overlooked opportunities that other people can't see or access or execute on. And for us, you know, when you look at diversity, it's obvious that diverse managers, women and minorities are overlooked. However, you want to measure it. And the advantage that they have is that they have different networks that lead to different opportunities that are often in line with a lot of demographic trends in the country. So there's a huge advantage is no question, but also 90% of diverse managers are raising a first, second or third time fund. So the diverse manager story, like I said, is very much an emerging manager story. And, you know, we all know emerging managers can outperform better alignment, the fun sizes are smaller. Managers are more motivated, all that stuff. But for us, the key has been not to focus on diversity for its own sake. The key is to have as inclusive a pipeline as possible. And then just invest in the best people. And that means making sure you're investing with emerging managers. You have to have that focus, but also making sure you're kind of eliminating biases and barriers. And I think those are a lot of the challenges that LPs need to work on. But if you do that, you will be rewarded. But it just takes a different mindset. And so you need that, but then you also need a really strong, like infrastructure, right? Like there's thousands of emerging managers. So, you know, you need great deal flow. You need to be able to efficiently screen those opportunities. And you need to be confident that you're investing the best ones that just take a lot of reps around, you know, getting good at manager selection, too. So it's a combination of those two things. Now we're going to take a quick break to speak with our sponsor. On the show today, we have industry expert and sponsor, Steve Aronson, a professional hockey player and now managing partner at Canberra Road in case you have a competitive bone in your body. We know this fellow does. The most cost effective and flexible leasing company for venture-backed businesses is Canberra. So thank you, Nick, for partnering on the show. Thanks for having me. We're excited. We're excited to be here. Absolutely. Um, can you give us the 411 on your business? Sure. Canberra Road provides capital to venture-backed companies. So we help them, we provide that capital, help them acquire their technology equipment, you know, really from what we do from a founder perspective is we really help them extend runway. Okay. So we find companies, you know, we're a compliment to their equity dollars. We're not competitive. We're a compliment to their venture debt. And really, in a perfect world, you know, they'll raise equity. They'll have venture debt and then we'll kind of get started with them one to $10 million, right? It can be certainly higher as they raise, you know, large dollar amounts. We can start smaller if we want. But really what we believe is if your company's rapidly, you know, appreciating value, if you believe that we can help you extend your runway that we think that you, you, there's a good chance you're going to want to talk to us a few things, piece of advice that I think pretty universally agree to around here in our, in our room is I think you should ask around. And I know that seems very simple, but I'll provide a contrast, right? Which is we get a lot of people say like, okay, we like you this and that. Let's have some references, right? And so, you know, I think it's okay. But it's like if we have 500 customers, we sure can find three or four that just love us. Okay. So I think a better, a better way to, to, to not take our word for it or someone else's word for it is to call people in the BC world, call the bankers, right, and, and do that research, which is what, and how the companies that have worked with them, not that are hand selected and say, what was your experience like, like, how did it help you, right? What have you heard? I think that's one. And I think the other part is where we see that's a little more, I think, a little more granular, which is we see this like early on, you know, we had this kind of change the world in this and we're going to do this, right? And, you know, people learn how to fight against that. And what we started to see is really large facilities, okay, that people may not lead up to, but it was kind of like flattering. Like here, we'll give you $30 million, $35 million, which is, wait, I don't really need that. That's not even for two or three years. Um, but what it does, it seems like relatively innocuous, but it's not, um, because not only is it sometimes not, you're not able to fulfill that or you're not planning even on it, but you're a very different company as your cash dwindles. Okay. And so when these are opportunities where we would have stepped in and done, you know, five, $10 million and delivered when you call us back after 20 months and you have a couple of months of cash runways, very different, right? So long winded way of like that to look out for, but also as much as it works against us at times, you know, it's not a banking relationship. You can have multiple partners. And if you are a founder and you really believe in what you're doing, you know, our advices don't unnecessarily fly too close to the sun, take the capital, um, have a few partners, see how it works and ultimately don't run out of money. Yeah. Fascinating that that sort of inflation exists on the debt side as well as the equity side. Um, and we're all sort of learning that lesson, aren't we? Um, I was for sure. Any final thoughts, Steve, for this audience, we've got lots of venture capitalists and, um, Linda limited partners too, who are looking to deploy their capital into different alternative assets. Yes, listen, I mean, for us, um, you know, I would, I would say on kind of a, a final thing is, um, you know, we want to have the conversation, okay? You know, we want to be consultative. You know, we want to be good stewards in the ecosystem. And, and what I mean by that more specifically is, you know, we're, we're, we're quick to say when we can't do something, we're quick to explain when we're not the best fit, but ultimately we think what we do is a very complimentary and useful tool and the more conversations we have and the more that we can be in a room and tell the camera road story, certainly the better for us. But I think, I think for these, uh, growing companies, just too many of them don't know what we do. We haven't done a good enough job. And, and so we're here and other places doing, doing everything we can to get our word in the message out. So, well, thanks for doing that here. Appreciate it. Of course. Hope maybe we can do it again sometime. Thank you so much for having us talk soon. Thank you. Thank you for being on the show. If any of you listening have portfolio companies interested in buying stuff, whether that's heavy equipment or laptops, you can reach out to Camber Roads Managing Partner, Steve Aronson, A-R-O-N-S-O-N at camberroad.com for equipment financing. And now back to our LP interview. This, this may be a silly question, but what are some of those things that you all work so hard at? You know, like, like, you're like, we're very strategic and we're doing a lot of work here. Yeah. What, like, what's that look like? Yeah, it's, it's, it's, um, it's a combination of both. I mean, one thing is, um, you really just have to spend a lot of time in the ecosystem, right? You have to know the people to really make good long-term decisions and bets on these people's ability to generate, you know, returns over the long term. Um, so we do spend a ton of time in market getting to know GPs, um, whether that's like intro calls and meetings or events, um, hosting our own events. We're, we're pretty much like involved with every organization that caters to the emerging manager community. You know, we've like founded a bunch of those or sponsor them, put our money behind them. Um, and then we're also like really proactive. I think, you know, in this market now, we're like, you, you have to have a prepared mind. Um, so we, we create like investment theses around large trends, like whether, um, that's, that's new technology, whether that's like new strategies, whether that's new, like ecosystems. Um, because what we find is a lot of new firm formation often happens in clusters around those things. Mm. And that work, um, you know, we'll, we'll create, you know, white paper. Sometimes we share those things externally. A lot of times it's internal. Um, and then just go like map the market in terms of the GPs in those categories. And then also have a strategy around here's what we think. Here's how we want to approach it. This is the kind of exposure we want to develop and how we want to develop it. Um, and then take that and then also combine it with, like I said, like, see as much of the market as possible, um, is hard. Um, we get by virtue of, you know, having been doing this for so long and the things I talked about, probably more inbound deal flow than pretty much anybody. Um, and the emerging manager category. So that's a great place to start. Um, we, you know, we will, we will, we, like I said, we have an open door policy. So we will meet with every GP, you know, kids know them. Um, that just takes a ton of time. And so, you know, that's, that's where a lot of the work comes in. And then it's not just the meeting, but it's following up. It's providing feedback. We pass on 98, 99% of the managers we see. Um, but we want to do it in a way that, um, can be helpful to the GPs in a way that you can, you can have like a cordial relationship with them. And cause a lot of times you'll pass on a fund, one or a fund to you, but come back for that's not two or five, three. Um, so it's that ongoing monitoring too. So when you layer all these things on it, it becomes a lot of work. You know, hearing your old thesis driven approach as a, as an alligator and, and knowing you and meeting other people on the team, it doesn't surprise me and it doesn't surprise me on the success and, and access to you all have been able to build. Uh, but one question to kind of tie to something you said earlier today is we had record number years back to back of new fund formation. Um, so my question to kind of link, what you just said is, did you guys anticipate that or has it been a surprise and kind of how do you explain that given it's looking like chicken, little, everything's falling. Everyone was going to be kicking themselves that they didn't raise last year. It was a prediction of 2024. Yeah. Um, it's, it's interesting. I mean, I think there's, there's a lot of factors, right? Um, you, you look at venture. Um, it's just in terms of the talent, um, pipeline, it's, it's, it's become an increasingly attractive place for young people, right? I think when you talk to young people, they're less interested in investment banking or private equity, you're working a buyout fund. They're more interested in venture. Um, it's kind of an altruistic and I'll admit to that too a little bit, but there's just more interest in venture and in tech in general. Um, so, so you have just that interest. Um, you have a combination of lower barriers to entry, right? As we talked about, you don't need a lot of capital to start a new firm. Um, you have a lot of tenured firms that have kind of become really large, you know, platforms that probably, you know, can't really meaningfully invest in the early stage. Um, and so that's created some opportunity. You see a lot of people spinning out, um, of those kinds of firms today. Um, and that's also just created an opportunity for new firms to come in. And, um, and then just, just the, the opportunity set in tech is just, is pretty massive, right? It's starting to kind of encompass every industry really. And so, you know, there's no shortage of opportunity. In fact, you know, we think it will continue, um, with like AI agents on the horizon, like you think about the, the shifts that, um, you know, cloud had on the venture ecosystem. I think we might see a repeat of that because you, you know, there's be so many more efficiencies that come, uh, to bear on startup formation. Usually when we see that, we, you know, at least the new firm formation as well. And, um, so we don't, we don't expect it to slow, uh, that's, that's amazing. Is that a good thing? We, for those of you listening, this is like colors of Veneton on here. We're just missing our like redheaded Latinx spokesperson. So obviously from a diversity perspective, this is fabulous, but more people are coming up. Yeah. But from a, uh, planeteers of, uh, venture. Go ahead. Exactly. If, if, uh, you were coaching a young person on where blue ocean opportunities are today, she is starting a fund. That's who's listening to this podcast is starting a fund, a great use of their time or it like is it, uh, the thing they should be focused on or, um, you know, it's the Hollywoodification. I think Chris from a boy use that like, is that part of what's happening here? And in fact, the job is not as glamorous as people say. I think there is some of that. I think a lot of GPs underestimate, like truly underestimate how hard it is to build a firm to raise a fund and to build, you know, a tenure, a firm that endures, right? That's, it's really, really, really hard. Um, I don't think that should discourage people if they have that conviction, but I think they should check themselves and make sure they really are and that they are ready, you know, for that journey. Um, it's going to take a lot of grit and, um, you know, it's going to take a long time. Like it should be your last job. If you're, if you want to raise a fund and start a firm that should probably be the last shop of your career, that's how you should do it. Um, do I think it's a good idea in this market? Um, you know, I think it comes down, like I said, there's a, there's a ton of opportunity. There's going to be even more startups, you know, it's going to be quicker and faster, cheaper, easier for prototyping and, you know, to get to, to, to create products and stuff like that. So we're just going to see more startup activity. Um, there'll be more opportunity. There's probably going to be a similar number, um, of like really outsized winners. So again, there's going to be high dispersion return. So if you enter the market, you should really have high conviction in the idea that, you know, you, you have really, really unique deal flow. Um, you have, you have like a culture, you know, that your building is a farm and a community or building around a farm that's going to be sustained. All that's going to allow you to continue to see those opportunities. Um, and you probably need, you know, something that is going to appeal to LPs, right? Um, it's hard for a new firm in this market. For example, you know, somebody who doesn't have investment experience, right? Like we do a lot of firms, but we're not going to invest in somebody's new to investing. And in this market, you will probably not find a lot of LPs. So you need some sort of track record, right? Um, you need, you definitely need that. So, you know, just think about all the things that it takes to be successful. You should be really calm and you have that. And even if you do, um, you know, buckle in, it's going to be all right. Yeah, I, I, um, get the question all the time of how did you break into venture? And I think for, for folks who want to keep that full-time job and need to build a track record, you can start raising SPVs or you can start working as a venture partner for Carrie and you can see, uh, what the day to day work includes or you can, um, do your own angel deals. It's like, you could, you could take the next two, three years to make sure you like doing the work. Yeah. We counsel chief used to do that all the time. It makes a lot of sense, especially in this market and especially if you don't have a robust track. Yeah. What, what other things do you do you look for, um, when a manager is, is meeting with you all, you have an open door policy. Uh, are there aspects of the team, um, kind of, you know, portfolio construction? What are other things that just people should have tight before meeting with you all? Yeah. I think, I mean, this could be a whole really like long conversation, but I think like high level, you know, like we're looking for people to my earlier points who are driven and committed, um, to their partners and to building firms with positive culture, um, people who know what it takes to build companies and exit them so that, you know, it can be operators or investors. We like the mix of investing and operating experience. Um, again, people have excellent deal flow, like that are intersecting with the best founders in the next generation, um, that can access and win those deals if it's competitive, um, but at the same time, they're disciplined. They have the sound strategy that can stay on the test of time. That's not just a point of time strategy. Um, and then in terms of portfolio construction and ownership, um, and all that stuff, you know, we have criteria, you know, differs based on stage and strategy, um, but yeah, those are probably the key things. Um, and then, you know, again, we've been kind of, this is, a lot of this is time tested over 30 years though. We've also evolved, you know, what we look for over time as well. You, you've talked about your company culture being really unique. How do you identify funds with great culture? That's, that's a great question. That's probably what we spend the most time on once you realize that there's something there in terms of a really strong strategy, really, you know, like a good track record you can underwrite, um, is, is just like understanding people's motivations, who they are. Are they building the right culture? Are they really committed to this? Um, there's not a lot of shortcuts to that. Quite frankly, like you need to just spend time with AGPs in various settings. Um, whether that's, you know, diligence meetings or informal meetings, um, one on one in groups, um, and then the other really big piece of it is reference one, right? Um, by virtue of doing this for as long as we've been doing it, we know a lot of people in the industry and it's very, um, I would say it's very easy to get a read on somebody's reputation from people who we trust. And so, so we don't care how successful you've been, but if you don't treat people the right way, you don't do things the right way, that's never going to be for us. There are so many great people in this industry that it's just not worth, worth our time. Um, but we, yeah, yeah, through our network, we get a really good read. I think that's, that's really one of the most like efficient and helpful, um, uh, things that we have as a firm with, with a number of other allocators who are listening and thinking about emerging managers. Um, you got, you all have been doing this for a while, but what are certain questions or tactics they could use if someone isn't like kind of cookie cutters, spin out firm, right? Um, if they don't have the most robust track record, what are other things that they could look at that are kind of, kind of similar to show the work ethic, access, all those things. Yeah. Um, it's, yeah, you're right. I mean, the, the cookie cutter spin out from the top tier firm, those are easy. And there are generally like decent opportunities, right? I think those deserve, um, the, the LP interests they get. Um, but a lot of times, yeah, to your point, somebody won't have that pedigree. Um, and we'll still make a great investor. Um, and so what do you look for? Um, again, there has to be some indication that this person or this team, you know, can execute deals that are relevant to their strategy. So you have to look for that. You know, what, what kind of investments have they done that are relevant? And then when you have that data, I think you can really like, you know, those deals who are the co investors, who do you know that was like close to that deal, talk to them, understand. I mean, if you talk to the founders, that's great too. Um, get a read on like, you know, the role that the, the GP played. And, um, that, that will tell you a lot, um, how, how the other VC firms think about that investor. Um, and then look for, you know, is that repeatable, right? You want to see if there's a pattern that indicates that this person or, or team can do this in a repeatable way that it wasn't just a one off. Um, and then also that they can write bigger checks into those deals because if they're raising fun, they are most likely they haven't deployed a ton of capital before. So that's a question you really have to tease out of founders. Um, and you know, understand if, if they would have been willing to make more room on their cap table for them. Um, people often say yes, but you know, really have to push on that. Um, so, so those things are important. And then like really getting a sense for a, a firm or, or, or persons like deal flow, you know, what's the community they have around them? What were the types of founders they're intersecting with? You know, everyone kind of has their own unique networks and in relationships. And so you have to get a read on that and get a feel for, you know, if that's high quality or not. And again, like look, we have to look at the types of results that are generated there and the types of other pro investors that you respect that may or may not, you know, be around those same deals. And one, we always talk, my last question is, we always talk so much about how to get that, that check from the, and how to get the start of that relationship, right? But, you know, this is a commitment by the LP. Um, how do you, what are the best practices to maintain that, right? And have that storybook ending of like, you continue to scale and then you go into the, um, mature portfolio. Yeah. I mean, there's a lot, you know, I think the, the GPs themselves have to have that vision, right? Um, in a plan for, for that being what they want to do. But the, the thing is it's never linear. Like none of the firms that I mentioned that are in our 10 year measure, polio, that started out as emerging managers. None of them had a linear path to that point. Um, they all had their ups and downs. They all had to navigate tricky situations, team, market, fundraising, all that stuff. And so, um, I think it's, it's really important for GPs to, you know, have that longterm vision, um, in, in stay focused on it, but, you know, realize that things are going to go wrong. And I think that's why it's important to have a strong team that, you know, everyone kind of believes in each other and is committed to each other, um, through the good times and the bad, because there will be bad times. Um, I think it's also like LP relationships matter, right? Like, you know, we, and a lot of other LPs have been doing this for a long time. So having those types of folks on your LPAC or just as advisors to get through those challenges, I think we found has been really helpful to a lot of managers and, um, and then just, you know, that, that creates a different depth of relationship too, which makes it more likely for, um, LPs to believe in you and maybe others might not in, in challenging times. Um, there's been several cases in our history where we've stuck with a firm that, you know, other LPs walked away from, and it might have taken that firm like two years to raise a fund, both, both tenured firms and, you know, emerging firms and maybe we're like a fun two, fun three that people lost belief in. And in the vast majority of those cases, we were really, really strongly rewarded for, for our patients and loyalty. And a lot of that came down to like our belief in the managers and what we saw. And then also just the strength of the relationship. Yeah, I guess that's where you have to be willing to learn from your mistakes. Yes, absolutely. You, you, uh, I'm not going to ask you to share all your theses. I get you got to keep those close to the chest, but is there something you're looking for, um, that, uh, you can share with us, you know, in, in, whether it's a focus area or a sort of unique, um, you know, if there's some GPs coming up, we're working on X, um, a couple of things come to mind. I think one is, I think, personally, I think there's a nice opportunity at the series A right now. Um, a lot of the incumbents are too large. So these deals aren't as meaningful for them. Um, we're seeing founders prefer firms where their company matters more to, to the firm. Um, and these companies are a little de-risk given all the seed capital. It's out there. So I think it's a good time for like a right size. Series A firm, and there's not a ton of them. Um, so, you know, we've, we've backed a few managers in that category recently. Um, and then the other thing we're, we're keeping an eye on, um, which we've talked about a little bit, but again, it's just AI, right? I mean, that's used to be all everyone wants to talk about. We've seen so many new firms pop up that our AI focus or a lot of firms just pivot their focused AI and, you know, we, we've been through this cycle, you know, around Gen AI. It seems like things are rationalizing a little bit, but, um, you know, one of the things we're working on is just looking ahead, like, you know, it's clear that AI is going to permeate every industry. Um, we generally are not investing in specialists unless there's some like really unique advantage. Um, but, but what we do think, you know, is going to be more interesting. It's just AI agents. And that's how, you know, the transfer, the transformation landscape is really going to change, like, as we've talked about, like the cost of prototype, we're going to start up off the ground, we're to market or the product market fit is going to go down. Iteration is going to be a lot faster. And in that world, there will be more startup formation. Again, usually when that happens, you see more firm formation as well. Um, so over the next four to five years, the market's just going to get more crowded, more complicated, going to feature a higher dispersion of returns. Yet there will be a ton of value creation. Uh, so again, like a lot of things we talked about today, uh, market coverage, manager selection and focus being, having a prepared mind, all those things won't matter a lot more, um, from an LP perspective. And it's going to take a lot more for GPs to stand out and succeed in that market. Um, but again, however it plays out, there will be a lot of opportunity. And I think, um, we're, we're certainly guaranteed for some interest in that set. Awesome. Well, Agar, thanks so much for just like, uh, your insights, uh, really appreciate your intention and thoughtfulness. Uh, thanks for being on the pot. You later, alligator. After portfolio tile, investing with a smile. (upbeat music)
