Earnest Sweat 00:14
Today, we are thrilled to welcome Aakar Vachhani, managing partner at Fairview Capital Partners. Fairview is a fund of funds with a reputation for backing emerging managers with diverse backgrounds, managing over 3.5 billion in assets under management a car got into work, starting at Cambridge Associates, and is coming up on 17 years at Fairview. I didn’t know Millennials did that. Uh, that love, that you love your job a car 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 new as they got started. So with that, we’re really glad to welcome a car who’s also an amazing Kellogg. MBA,

Aakar Vachhani 01:11
that’s right, Thanks for Thanks for having me on. Guys, appreciate it.

Earnest Sweat 01:15
So to start, yeah, we mentioned your background and being an allocator and starting out in Cambridge Associates, and now, and being at Fairview, I know a lifer is so could you just talk to us about, you know, how you got into this industry and and you know why it’s kept You, you know, so intrigued. Yeah,

Aakar Vachhani 01:41
I mean, I, you know, 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, you know, fell into something I really loved, you know, I got into this industry really, like at a startup, you know, 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 into venture, 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 years there. Really learned an incredible amount, but realized I wanted to be on the investment side. And then I happened to come across Fairview, who I didn’t know that well, but got to know, and, you know, joined as an analyst, like, 15 years ago. And, yeah, I think, like, I’ve just been lucky to have a career where, you know, 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, you know, incredibly rewarding and stimulating it. I think it honestly makes the time go by a lot faster.

Alexa Binns 05:22
Do you mind giving us a quick evolution of what your PE and VC services have been at Fairview while you’ve been there?

Aakar Vachhani 05:32
Yeah? I mean, so I started at a really interesting time around 1617, years ago, which put us I started 2008 which was obviously, you know, the right, right, when the great recession happened. It was such 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 that 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, venture formation, because if you remember, AWS came out around that time, maybe a little before, like, oh 607, but I think either, either way, like that, around that time is when cloud based services really started, you know, 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 coughing 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, there’s like, a long way to go, even today, but that was certainly a turning point. So for Fairview. You know, we do two things, we invest in tenured venture firms, and we also invest in emerging managers through separate pools of capital. So our tenured Venture Program was in great shape, and we luckily had raised capital right before the recession. Valuations were low tech and 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, or funds with larger institutions. We actually had one in this space, but we selectively, around that time, started adding a few more and so that allowed us to remain active and increase the amount of capital we were deploying in those creative 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, it was a tough fundraising market for an emerging manager funded 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 it safe. 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 LPs, separate accounts that we felt 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, you know, those and that took us to, like, I think 2013 2014 added a few new LPs, but that, 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 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 co. Mingled or multi investor fund of funds in the emerging Andrew space five years ago, actually, yeah. And then, and then we added, you know, new LPs and different categories from there, like Visa and New York Life. We’ve got a program with Steve Ballmer and the bomber group and several others, but 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 on the backs of a lot of trends that I’ve touched on, like around seed and micro VCs, because that for us, opened a lot of doors for direct co investment. A lot of these firms would have excess pro rata 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 changed a lot in the last 15 years.

Earnest Sweat 10:56
Any favorite, like anecdotes from those kinds of micro VC days early on that particularly, inform you on the current market we are in today. They kind of give you some extra like, confidence of like, oh, how are we going to end up in the rest of this decade after all the things have gone on these first four years?

Aakar Vachhani 11:19
Yeah. I mean, it was, it still is, I think, a pretty hectic time because there’s 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, believe it or not. And so, yeah, which was, you know, last year was a record in a tough market, 2022, is a record, so it just continues to increase. And I guess, like going back to the early days, 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, because it was clear that this was going to happen, that there were going to be more and more new firms, and that there were going to be good returns, but, 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 that included things like wanting it to be pretty aggressive. We wanted firms to have two to three years like, sorry, two to three like seed stage funds under their belt. 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 is kind of what we termed it. So I think some other people started using that term too, but, when we applied that screed, what we actually realized was like a really relatively small opportunity set. 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 that were early, like ENIAC, right? For example, it 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 categories 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 had laid out, but there’s a little more flexibility around stuff. And

Alexa Binns 13:50
Other funds have come on the show and sort of made the case for emerging managers. How do you differentiate from some of those other funded funds and and partially, it’s experience, right? Like you’re, you’re telling us you’ve been out this for 30 years, but would love to hear what else is sort of unique to you all.

Aakar Vachhani 14:13
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 51st 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 nor a lot of those advisory boards. So we have a good window into what great firms look like. But I think one of our keys to success has been, you know, that process and starting at the top, like just given, given how many firms there are, given how high the dispersion of returns are, we have realized that 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, you don’t want to, 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 front 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, 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 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 that is unique, even though we’ve been around 30 years. I think a lot of people you know always doubt that a firm like ours, with our team, our culture can’t succeed. And so like waking up every day to prove people wrong is just a big motivator for us, and we’re just kind of obsessed with our work. So, you know, I think that does matter.

Alexa Binns 16:31
No your goodwill, 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

Aakar Vachhani 16:47
that’s good to know

Earnest Sweet 16:50
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.

Aakar Vachhani 17:27
Yeah, I think a lot of the market still struggles, especially when you do the diversity overlay on emerging managers. That’s it. I think it creates a little bit of confusion. People aren’t comfortable investing with that overlay. And the way that we think about it, it’s pretty simple, like 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, there’s 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 fund sizes are smaller. Managers are more motivated by 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 make sure you’re kind of eliminating biases and barriers. And I think those are a lot of the challenges that LPS needs 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 infrastructure, right? Like there’s, there’s 1000s 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 that just takes a lot of reps around, you know, getting good at manager selection too. So it’s a combination of those two things.

Earnest Sweat 21:54
Now, we’re going to take a quick break to speak with our sponsor.

Alexa Binns 21:57
On the show today we have industry expert and sponsor Steve Aronson, a professional hockey player and now managing partner at camber 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 camber. So thank you, Nick, for partnering on the show.

Steve Aronson 22:17
God, thanks for having me. We’re excited. We’re excited to be here. Absolutely.

Alexa Binns 22:21
Can you give us the 411 on your business?

Steve Aronson 22:27
Sure. Canberra road provides capital to venture backed companies. So we help them. We provide that capital to help them acquire their technology and equipment. You know, really, from a founder perspective, we really help them extend the 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, 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 ten million right? It can be certainly higher, as they, as they, 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 want to talk to

a few things, pieces of advice that are, I think, pretty universally agreed to around here 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 VC world, call the bankers, right, 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 in the world and 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 flattering, like, here we’ll give you $30,000,000.30 $5 million which is, wait, I don’t really need that. That’s not even for two or three years. But what it does, it seems like relatively innocuous, but it’s not. Because, not only is it, sometimes not you’re not able to fulfill that, or you’re not even planning 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, ten million and and delivered. When you call us back after 20 months and you have a couple months of cash runway, it’s 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, you really believe in what you’re doing. You know, our advice is, don’t unnecessarily fly too close to the sun, take the capital, have a few partners, see how it works, and ultimately, don’t run out of money.

Alexa Binns 30:31
Yeah, it’s fascinating that that sort of inflation exists on the debt side as well as the equity side. And we’re all sort of learning that lesson, aren’t we?

30:44
For sure, any

Alexa Binns 30:45
final thoughts? Steve, for this audience, we’ve got lots of venture capitalists and limited partners too, who are looking to deploy their capital into different alternative assets. Yes,

Steve Aronson 30:57
listen, you know, for us, you know, I would, I would say on a kind of a final thing is, 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 growing companies, just too many of them don’t know what we do. We haven’t done a good enough job, and so we’re here and other places doing doing everything we can to get our word in the message

Alexa Binns 31:44
out so well. Thanks for doing that here. Appreciate it, of course. Hope

Steve Aronson 31:48
Maybe we can do it again sometime. Thank you so much for having us talk soon.

Alexa Binns 31:54
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 camber road.com for equipment financing. And now back to our LP interview. This may be a silly question, but what are some of those things that you all work so hard at, you know, like, You’re, like, we’re very strategic, and we’re doing a lot of work here, yeah, what like? What’s that look

Aakar Vachhani 32:28
like? Yeah, it’s, it’s a combination of both. I mean, one thing is, 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. So we do spend a ton of time in the market getting to know GPS, whether that’s like intro calls and meetings or events, hosting our own events. We’re pretty much like, involved with every organization that caters to the emerging manager community. You know, we’ve founded a bunch of those, or sponsor them, put our money behind them, and then we’re also, like, really proactive, I think, you know, in this market now, like you, you have to have a prepared mind. So we, we create, like, investment theses around large trends, like, whether that’s that’s new technology, whether that’s like new strategies, whether that’s new like ecosystems, because what we find is a lot of new information often happens in clusters around those things and that work, you know, we’ll create, you know, white paper. Sometimes we share those things externally. A lot of times it’s internal. 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. And then take that and then also combine it with, like I said, like seeing as much of the market as possible is hard 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 in the emerging manager category. So that’s a great place to start. We, you know, we will. We will. We, like I said, we have an open door policy, so we will meet with every GP and, you know, get to know them, that just takes a ton of time. And so 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. But we want to do it in a way that can be helpful to the GPS, in a way that you can, you can have, like, a cordial relationship with them, because a lot of times you’ll pass on a fund one or fund two, but come back for the fund two or font three. So it’s that ongoing monitoring too. So when you layer all these things on, it becomes a lot of work.

Earnest Sweat 34:54
You know, hearing your thesis driven approach as an allocation. Later, 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 access you all have been able to build. 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. 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’s

Alexa Binns 35:30
gonna be kicking themselves that they didn’t raise last year. Was it right? Prediction of 2024

Aakar Vachhani 35:36
Yeah, it’s, it’s interesting. I mean, I think there’s, there’s a lot of factors, right? You look at venture, it’s just in terms of the talent pipeline, it’s, it’s, it’s becoming an increasingly attractive place for young people, right? I think if you talk to young people, they’re less interested in investment banking or private equity or working a buyout fund. They’re more interested in ventures. It’s kind of an altruistic kind of element to that too, a little bit, but there’s just more interest in venture and in tech in general. So you have just that interest. 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. 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. And so that’s created some opportunity. We see a lot of people spinning out of those kinds of firms today, and that’s also just created opportunity for new firms to come in and then just, just 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 with AI agents on the horizon, like you think about the shifts that cloud had on the venture ecosystem. I think we might see a repeat of that because, you know, there’s so many more efficiencies that come to bear on startup formation. Usually when we see that, we, you know, lead to new firm formation as well. And so we don’t, we don’t expect it to slow. Quite frankly,

Earnest Sweat 37:24
That’s amazing.

Alexa Binns 37:25
Is that a good thing for those of you listening? This is like the colors of bees on here. We’re just missing our, like, redheaded Latinx spokesperson. So obviously, from a diversity perspective, this is fabulous, but more coming up, yeah? But

Earnest Sweat 37:40
from a planet tears of venture go ahead exactly

Alexa Binns 37:45
if, if you were coaching a young person on where blue ocean opportunities are today, is starting a fund that’s who’s listening to this podcast. Is starting a fund a great use of their time, or like, is it the thing they should be focused on? Or, you know, is it hollywoodification? I think Chris from Ahoy, yes, uses 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

Aakar Vachhani 38:16
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 10 year firm that endures, right? It’s really, really, really hard. 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, it’s going to take a lot of grit, and, 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 shot of your career. That’s how you should do it. Do. I think it’s a good idea in this market, you know, I think it comes down. Like I said, there’s a, there’s a there’s a ton of opportunity. There’s going to be even more startups. You know, it’s startups. You know, it’s going to be quicker, faster, cheaper, easier for prototyping, and, you know, to get to create products and stuff like that. So we’re just going to see more startup activity. There’ll be more opportunities. There’s probably going to be a similar number of, like, really outsized winners. So again, there’s going to be a high dispersion return. So if you enter the market, you should really have high conviction in the idea that you know you have a really, really unique deal flow. You have you have, like, a culture you know that you’re building as a firm, and a community you’re building around a firm that’s going to be sustainable, that’s going to allow you to continue to continue to see those opportunities, and you probably need, you know, something that is going to appeal to LPs, right? It’s hard for a new firm in this market. For example, you know somebody who doesn’t have investment experience, right? Like, yeah, we do a lot of firms we’re not going to invest in. Somebody is new to investing, and in this market, you will probably not find a lot of LP. So you need some sort of track record, right? 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 confident you have that. And even if you do, you know, buckle in it all right,

Alexa Binns 40:20
yeah, I get the question all the time of, how did you break into venture? And I think for folks who want to keep that full time job and need to build a track record, you can start raising SPVs, or, yeah, you can start working as a venture partner for Carrie, and you can see what the day to day work includes. Or you can 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.

Aakar Vachhani 40:49
Yeah, our 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 tracker.

Earnest Sweat 40:56
Yeah. What? What other things do you do you look for when a manager is meeting with you all, you have an open door policy. Are there aspects of the team, kind of, you know, portfolio, construction, what are other things that just people should have tight before meeting with you all? Yeah,

Aakar Vachhani 41:17
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 to their partners and to building firms with a positive culture, people who know what it takes to build companies and exit them so that you can be operators or investors. We like the mix of investing and operating experience. Again, people have excellent deal flow like that, intersecting with the best founders of the next generation that can access and win those deals if it’s competitive, but at the same time they’re disciplined. They have a sound strategy that can stand the test of time. That’s not just a point in time strategy, and then in terms of portfolio construction and ownership and all that stuff, you know, we have criteria that differ based on stage and strategy, but yeah, those are probably the key things. And then again, we’ve been kind of this is a lot of this is time tested over 30 years, but we’ve also evolved what we look for over time as well.

Alexa Binns 42:17
You’ve talked about your committing culture being really unique. How do you identify funds with great culture? That’s

Aakar Vachhani 42:26
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 like a good track record, you can understand people’s motivations, who they are. Are they building the right culture? Are they really committed to this? There’s not a lot of shortcuts to that. Quite frankly, like you need to just spend time with AGPS in various settings, whether that’s diligence meetings or informal meetings, one on one in groups, and then the other really big piece of it is reference work. Right? 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, I would say it’s very easy to get a read on somebody’s reputation from people who we trust. And so we don’t care how successful you’ve been, but if you don’t treat people the right way, and you don’t do things the right way, that’s never going to be a fit for us. There are so many great people in this industry that it’s just not worth our time. 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 things that we have as a firm

Earnest Sweat 43:46
with a number of other allocators who are listening and thinking about emerging managers 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 some kind of cookie cutter spin out firm, right? If they don’t have the most robust track record, what are other things that they could look at that are kind of similar to show the work ethic, access all those things.

Aakar Vachhani 44:18
Yeah, it’s, yeah, you’re right. I mean, the cookie cutter spin out from a top tier firm, those are easy, and there are generally, like, decent opportunities, right? I think those deserve the LP interest they get. But a lot of times, yeah, to your point, somebody won’t have that pedigree and will still make a great investor. And so what do you look for? 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 kind of investments have they done that are relevant? And then, when you have that data, I think you can really, like, you know, you look. 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 can talk to the founders, that’s great too. Get a read on, like, you know, the role that the GP played, and that will tell you a lot about how the other VC firms think about that investor. And then look for, is that repeatable? Right? You want to see if there’s a pattern that indicates that this person or team can do this in a repeatable way, that it wasn’t just the one off, and then also that they can write bigger checks into those deals, because if they’re raising a fund, most likely they haven’t deployed a ton of capital before. So that’s a question you really have to tease out of founders. And, you know, understand if they would have been willing to make more room on their cap table for them. People often say yes, but, you know, really have to push on that. So those things are important. And then, like, really getting a sense for a firmer or persons like deal flow, you know, what’s the community have around them? Who are the types of founders they’re intersecting with? You know, everyone kind of has their own unique networks and 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 control investors that you respect that may or may not be around those same deals.

Earnest Sweat 48:30
And when we always talk, my last question is, we always talk so much about how to get that check from the in, how to get the start of that relationship, right? But, you know, this is a commitment by the LP. 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 mature portfolio,

Aakar Vachhani 48:58
yeah. I mean, there’s a lot, you know, I think the GPS themselves have to have that vision, right off in a plan for that being what they want to do. But the thing is, it’s never linear, like none of the firms that I mentioned that are in our tenure management portfolio that started out as emerging managers, none of them had a linear path to that point. They all had their ups and downs. They all had to navigate tricky situations, team, market, fundraising, all that stuff. And so I think it’s really important for GPs to, you know, have that long term vision and stay focused on it. But, you know, realize that things are going to go wrong. 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 through the good times and the bad because there will be bad times. 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 lpat. Back or just as advisors to get through those challenges, I think we found has been really helpful to a lot of managers and and then just you know that that creates a different depth of relationship too, which makes it more likely for LPS to believe in you and maybe others might not in challenging times, 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 around like fund two, fund three, that people lost belief in. And in the vast majority of those cases, we were really, really strongly rewarded for our patience and loyalty, and that 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.

Alexa Binns 50:51
Yeah, I guess that’s where you have to be willing to learn from your mistakes.

Aakar Vachhani 50:55
Yes, absolutely you, you. I’m

Alexa Binns 50:58
not gonna ask you to share all your theses. I get you gotta keep those close to the chest. But is there something you’re looking for that you can share with us? You know, in whether it’s a focus area or a sort of unique you know, if there’s some GPS coming up who are working on X,

Aakar Vachhani 51:18
a couple things come to mind. I think one is, I think, personally, I think there’s a nice opportunity at the series A right now, a lot of the incumbents are too large, so these deals aren’t as meaningful for them. We’re seeing founders prefer firms where their company matters more to the firm, and these companies are a little de risk, given all the seed capital that’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 that. So, you know, we’ve, we’ve backed a few managers in that category recently. And then the other thing we’re, we’re keeping an eye on, which we’ve talked about a little bit, but again, it’s just AI, right? I mean, that seems to be all everyone wants to talk about. We’ve seen so many new firms pop up that are AI focused, or a lot of firms just pivot their focused AI. And, you know, we’ve been through this cycle, you know, around Gen AI, it seems like things are rationalizing a little bit. But, you know, one of the things we’re working on is just looking ahead, like, it’s clear that AI is going to permeate every industry. We generally are not investing in specialists, unless there’s some, like, really unique advantage, but, but what we do think you know is going to be more interesting is just AI agents, and that’s how you know the trans transformation landscape is really going to change, like, as we’ve talked about, like the cost of prototype or get a startup off the ground, where 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. 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. So again, like a lot of things we talked about today, market coverage, manager, selection focus being having a prepared mind, all those things will matter a lot more from an LP perspective, and it’s going to take a lot more for GPs to stand out and succeed in that market, but again, however it plays out, there’ll be a lot of opportunity, and I think we’re certainly guaranteed for some interesting thoughts

Earnest Sweat 53:27
ahead. Awesome. Well, Aakar, thanks so much for your insights. Really appreciate your intention, thoughtfulness. Thanks for being on the pod.

Alexa Binns 53:39
See you later. Allocator.