Do Most LPs Like Their Job? Featuring Grady Buchanan

With Grady Buchanan,
Co-Founder & Managing Director, NVNG Investment Advisors, LLC
This week on Swimming with Allocators, Earnest and Alexa have a fun and frank chat with LP turned Fund-of-Fund manager Grady Buchanan. Grady is Co-Founder and Managing Director of NVNG Investment Advisors. Grady speaks about the investment opportunity outside Silicon Valley, tailoring a fund of funds to local corporations needs, and tips for LPs on growing your network. He gives helpful color on the day-in-the-life for LPs and how GPs can better differentiate. Nick Talwar, Fractional CTO for VCs and portfolio companies joins this episode. His Agency Bottega8 trains custom AI models for financial institutions. Nick lays out three crucial elements VCs should look for in AI-based investments: technology moat, AI-first operations, and genuine AI expertise.

Highlights from this week’s conversation include:

  • Grady Becoming a Limited Partner (0:52)
  • Networking and Mentorship (3:14)
  • Understanding LP Dynamics (5:29)
  • Job Satisfaction Among LPs (9:03)
  • Understanding Corporate Innovation Needs (13:57)
  • Connecting Startups with Limited Partners (15:22)
  • Value Addition in Fund Manager Selection (18:30)
  • Local Corporate LPs vs. State Money (20:22)
  • Outside-In Investment Approach (22:51)
  • Insider Segment: Implementing AI in VC and Portfolio Companies (24:14)
  • The Importance of Data and Culture (28:35)
  • Misuse of AI Terminology (30:54)
  • AI Playbook for Executives (32:59)
  • Key Qualities for GPs (34:51)
  • The Role of Co-Investment (37:04)
  • Avoiding Shiny Objects (38:58)
  • Final Thoughts and Takeaways for Allocators (40:38)

 

Grady Buchanan is an institutional and risk-based asset allocation professional. His focuses include venture capital fund investments as well connecting startup ecosystems across the globe. NVNG is focused on establishing stronger venture capital presences in regions throughout the US – managing a venture capital fund of funds tailored to meet the needs of local corporations and institutional limited partners. As a Founding Partner, Grady is responsible for the fund of funds portfolio, venture capital fund sourcing and diligence, and for investment allocation decisions.Grady is also the founder and CEO of OmniValley, an online social community exclusively for those looking to establish the right connections within entrepreneurial ecosystems. He’s built a strong and growing platform housing institutional investors, venture capital firms, accelerators, and individuals in efforts to connect under-ventured communities to sophisticated, strategic, and engaged investors, sponsors, and mentors.

Bottega8 offers secure and cost-efficient AI Model Training and Fine-Tuning tailored for financial institutions. If you’re concerned about the expense and complexity of building in-house AI teams, or worried about the privacy and security risks inherent in Big Tech AI APIs, we provide the ideal solution for your proprietary data.Bottega8’s solution is specifically designed for institutional financial clients, including PE/VC funds, hedge funds, broker-dealers, traders, investment banks, and fintechs. By partnering with us, you eliminate the need for expensive AI engineers, hefty API fees, and complex technical roadmaps—reducing your AI development costs by up to 85%. If you’re seeking AI Model Training and Fine-Tuning services that prioritize security and cost-efficiency without sacrificing Big Tech fidelity, we’d love to talk to you. Learn more at bottega8.com/swimming.

Swimming with Allocators is a podcast that dives into the intriguing world of Venture Capital from an LP (Limited Partner) perspective. Hosts Alexa Binns and Earnest Sweat are seasoned professionals who have donned various hats in the VC ecosystem. Each episode, we explore where the future opportunities lie in the VC landscape with insights from top LPs on their investment strategies and industry experts shedding light on emerging trends and technologies. 

 

The information provided on this podcast does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this podcast are for general informational purposes only.

Transcript

Earnest Sweat 00:00
Welcome to swimming with allocators,

Alexa Binns 00:04
the VC podcast, from the LP perspective,

Earnest Sweat 00:07
with your host, Alexa bins and earnest.

Alexa Binns 00:10
Are you ready? Let’s dive in

Earnest Sweat 00:14
today. Today’s episode, we welcome super connector Grady Buchanan. He’s the co-founder and managing director of the Wisconsin based NB and G Investment Advisors. It’s a venture capital fund. Grady is a super connector you’re going to love. He’s an honest and candid guy. He’s going to speak about his investment opportunities outside of Silicon Valley, how tailoring a fund of funds to local corporate needs is a great approach and tips on growing your network and venture. So with that, Grady, thanks for coming on.

Grady Buchanan 00:49
Thank you guys. Big fan, happy to be here.

Earnest Sweat 00:51
So I want to start out with, why become an LP and how did it happen? Yeah, so LP,

Grady Buchanan 01:00
limited partner, right? Because I didn’t even know what it meant. So I was under the belief that venture funds, hedge fund managers, they all just invested their own money, right? Like, as dumb as that sounds, that’s what I came out of school thinking. Went down to Chicago, and that’s where I got my first kind of class into what an LP is, right? So I was in a pit of analysts. We were managing investment performance and risk tolerance is based on our clients needs. One of the clients happened to be the Wisconsin Alumni Research Foundation. So they’re like, Grady, you went to Madison. We’ll give you this client. Great. Nothing other than that, other than luck timing, being there, that client was open, the analyst was transitioning. Got one of the Madison endowments, of which there are two. So uniquely this one was the tech transfer office. And I’ll tell a little bit about that story because that’s the group that I joined. And so everyone in our pit of analysts down at Chicago and Northern Trust, great program. They are there. A lot of hedge funds come through, a lot of venture management. Managers come through. So you kind of get to hear that side of the table as a true limited partner and try to reload, relay that to your clients. And so in doing that, I was like, this is an interesting side of the table to be on the wharf. The Wisconsin Alumni Research Foundation was doing very interesting things. Awarded an innovation for their portfolio. My partner today was the chief investment officer when I joined and so got the call to come up there. Didn’t think I was going to go back to Madison and be a limited partner, because I had gone to school there and probably saw a little bit too much, and didn’t know how adults were functioning. They’re a very big college town, right? And but there are. There was a lot going on in the investment portfolio and the mission attached to it and the team were very attractive to me, but you know, to make a long answer short, is, you’re a limited partner now, like this is, this is what the endowment does. You’re on a team of eight people. We have holistic asset allocation. We have the Investment Committee like everyone else. We do this annually. We look at every fund manager out there which piece of the portfolio is right for you. I started in hedge funds and in our portable Alpha strategy, which was complicated, right? But at some level, hedge funds are very, very different from venture capital managers. We’re all investing dollars, but I quickly gravitate more toward venture and so both sides of that LP, through and through.

Alexa Binns 05:02
And a common thing you hear is that, you know, Vc is an apprentice based business. Would you say? You know, you’re now working with your old boss from Worf, like, what’s, what’s your advice there for people getting started as allocators, and you know how to find those advocates, or how to find those people that are going to take you along. Sure,

Grady Buchanan 05:28
I started when I was at war, if I probably had zero LinkedIn connections, right? Didn’t really focus on the network. Kind of really focused on, like most kids out of school, right or early in their careers, really focused on doing the job really well, and then making sure that my performance reviews went well. And that’s, like, important for, like, the manager that I had and no one else other than me, right? But at the institutional investment office that I was in, I had great mentors, Ryan, our hedge fund manager, John McCauley, who runs the Mott Foundation Venture Program now over in Michigan. And so they all landed very positively, and they’re all in different markets now, which is great, so I can still talk to them. And then Carrie was obviously kind of kind of sitting at a higher level, reporting to the Investment Committee, kind of understanding what she did and being able to support her, but I don’t know in in I would say to the fund managers out there, it’s like, it is a non it is a numbers game. She wanted to get into a venture and look up your job title. That’s what I did. I was an Investment Analyst turned associate portfolio managers like put those job titles into LinkedIn and specifically into what you want to talk to. So I went to the Indiana Foundation, or the Minnesota Foundation, started with the Big 10 schools, right? Didn’t know him from Adam, right? Like, it’s like, oh, I don’t really want to talk to Michigan, because I went to school here, but I will talk to them because they have a very talented program, and I’ll get past it and so on. And then we could talk about sports and why they’re better than So at some level. But it was, it was, it was interesting, getting those connections, building those relationships, because they do things differently within different endowments, they’ll know the same fund managers, though, they’ll have the similar processes, different people, different strategies, different construction. But how do you guys do this? Like, what are you doing? What am I missing? Like, I’m brand new to this. Can you, can you talk to us about it? And just building that network on the LP base

Alexa Binns 10:30
what’s a homeostasis private equity, like, like, obviously, I think all the GPS here are hoping to hear, we’ve got tons of space, but can you sort of give us the flip side of, like, what is actually helpful as an LP, if you’re actually in a pretty good place and you’ve got your managers, like, I think, like, how do you even recognize that an LP is in that space? What are the right questions to ask them?

Grady Buchanan 10:59
LPs are very challenging to work with sometimes, because some are very heavy in venture and you won’t know what their Excel models say. You won’t really know what their dpi or their lack of distributions is right now, I think we’re all in the same setting right now, where everybody’s waiting on distributions. Funds raised a little bit too quickly. Now they’re all coming back to market. Large LPs, institutions, I don’t think they care about that. They’re going to sit there on the sidelines. They’re going to wait. They’ll flock more toward quality, probably because those fund managers are in times that make more sense for them. But if you think about how they operate, you give them money back. They’ll give them back to you. If we’re sitting in a market where you’re not delivering distributions, it’s really tough for them to give you more dollars. So as a general partner, just starting out, I’d really understand the market. I’d talk to other general partners and understand, like, all right, well, why are they one of your investors when it’s are we just taking anybody we can get, or is that a true partnership for you? What do they look at? Other GPS will be helpful.

Alexa Binns 13:29
Yeah, and what’s, what’s the sort of basic strategy, or day to day job of managing a venture portfolio that’s in homeostasis

Grady Buchanan 13:47
if you’re sitting in the homeostasis land your in your portfolio is looking great, you’re not really going to churn managers that that’s also a tough spot to be in if you’re if you’re actually at the pension or an institution where I really like our managers, I’m not going to get rid of some of these, but we need some more capital deploy. So what do we do here? Do we take some money down from some? Of the big ones, that’s not going to be great, they’re not going to like that, because most of these institutions are very large. Or do we just divest entirely and not do the next fun and move it toward maybe a new class of managers and just kind of continue to build the portfolio that way? So it can be tough. If you’re in homeostasis, where you’re where you’re, it is a competition game, then it is an opportunity cost game where it’s like we have 300 million in venture it’s all allocated. That doesn’t mean we’re not going to hire new managers. It doesn’t mean we’re not going to right size this portfolio and construct it differently, but that’s tough. That takes time like so again, secondary markets are big now, so that’s helpful to some groups that want to get in and out of funds, but because you need liquidity. But other than that, it’s, you’re still looking at new managers. I will say, like, the institutions that we have, it’s not like they’re sitting there. It’s like, oh, I’m done for the year. Like, good luck. They still have to be very conscious of what their portfolio is doing, which, again, is going to do what it’s going to do with or without them. But then they have to know the new managers that are coming to market. They have to know the fun timing of their current managers and make sure that they’re planned for that. So you’re always still very busy. I don’t actually like when people say, it’s like, oh, we’re done allocating for the rest of the year. It’s February. It’s like, Well, great. I don’t know what you’re gonna do for 11 months, but they will tell you that GPS. If they get a little bit you realize you get them on a bad day, it’s like, Oh, geez. How many managers have reached out to you so but if that happens, you will have LPS like that. Grady,

Earnest Sweet 16:25
Do you? I’ve never asked anybody this on the podcast, but a friend and the listener said, I should feel like you’re the perfect person. Do you think most LPS like their job?

Grady Buchanan 16:39
Well, I don’t want to say anything. Added. Yeah, we do. I rarely say No, no, I will say I love my job. I loved my job when I was at war. If I like the LP setting, I like having a mission behind what you were doing, and being able to give money back to the university that I was once a part of right that made sense, and helping like startups through the tech transfer office, that’s kind of cool, like it makes you feel good and doing well. But we’re returning seeking, no matter what right always was. We believe that you can boost returns with some of the strategic initiatives that we do. But I don’t know if I think a lot of LPs get, let’s pick on institutions paid very, very well. They have a very challenging job at times, and there’s a lot of career risk there, because you can be, I mean, you guys know, probably no, it’s like, if you’re right and with the crowd, great, big check mark. That’s better than being wrong and against the crowd. Almost at times, it’s like, because a lot of times you’re not trying to set awards. Set awards, you’re not breaking records. If you’re wrong and not with the crowd, you’re fired, right? So like, as an LP that’s very challenging, your committee better have things in place for you to actually run with that autonomy if that’s what you want to do. But if we put a portfolio together of 20 managers that nobody else is in and they fail, that’s an easy thing for a large institution. LLP, to say no, so to that, what I mean is maybe you don’t have autonomy to do exactly what you want to do. And I think that’s to your question. Maybe you have investment committees that don’t really see eye to eye with what your strategy is, and they just kind of want you in the middle of the fairway. And that can be boring for some folks that want to be truly innovative with their portfolios. So I’d say it’s a good mix that the LPS that we have and the LPS that that we once were, and the ones we choose to say they’ve been the same, they seem to like their roles, mainly more Midwest driven, but overall, I hope so is the answer, but

Earnest Sweat 18:36
It meets me too. And so I want to kind of turn to NV and G, right? And you know, so many times when someone like me talks to someone like you or another allocator, the question is, why do we need another series A fund, or, Why do we need another seed fund, right? Walk me through. Why did, why you felt we needed another fund to find Yes. So

Grady Buchanan 19:05
why we need another fund of funds, and b and g, the reason why Carrie and I founded this and why we do it the way we do it, obviously, you hear the history at Wharf, it’s basically a fund to fund strategy. We had an adventure, right? Like, that’s the institutional and we had some co-investment that Carrie would run with Wharf, because we had a tech train. It was the tech transfer office, right? So you had things. Come through campus that needed some eyes and ears. Maybe we could directly invest alongside some of our managers, and in kind of sitting down with Carrie and asking about, like, what should we do next? Like, what makes sense? Michigan had one of these rights in the Renaissance. Centrifuge has one in Ohio. HX has one down in Houston. They’re funded by corporations so what we know how to do is pick managers, construct portfolios. It’s a portfolio. It’s what we built our careers on doing. Can hit Return targets. That part makes sense to us. That’s like, the financial nerdy part that not a lot of people care about. But that’s, that’s what we know. And so it’s like, okay, we had one investor in Wisconsin that happened to be the university. We did everything under the guise of, we need to help the university. We have a spending record, we have target ventures, part of the overall portfolio. But how do we use the venture portfolio strategically on campus? Because we could say no to everyone, and that’s not that helpful. And if we like something, we’re not also not that helpful. But some of these venture funds with corporate connections and ties out of the market can be very helpful, physically located on campus, the assets that Wisconsin has, because we’re in Wisconsin, we don’t we’re not the startup hub. If we were the startup hub, you guys should know about it. We’re not the venture capital hub. If we were the venture capital hub, you guys would know about it. What we do have, though, if you look at it, is one of the biggest manufacturing corridors, if not the largest in the country. The Midwest thesis alone, for us was something that we were really geared toward, kind of that whole American dynamism thing and whatever, but, but investing earlier into maybe some, what we’d call Rust Belt, offline companies that could really help shape corporations that are looking for this innovation, and the Wisconsin assets that we have, like I said, corporations. So if you look at it, it’s not startups, it’s not so much venture. We are trying hard in those spaces and our state efforts are helping. But corporations are the big ones. It’s like, all right, some of these surnames are massive. Some of these are global institutions with really big teams. They’re working on innovative things. They have the right job titles. Our venture managers don’t know how to connect into them, or very, very seldom do they with very few of them. And it’s like, these are, these are massive organizations, like big, big, and they’re really good at making things. So you have these corporations that are very large, they’re trying to attach themselves to innovation. They’re doing it very internally. They didn’t have a fund like this. So again, we didn’t have a fund of funds presence here. Very few were investing in venture funds. A lot of them were going direct in their M and A departments and family offices, like a lot of corporations do, but just no real ties to the venture community. And the answer to them is, well, why do we need this? Right? So the sell on our side is, well, can we open up Wisconsin? Can we open up and we say Wisconsin? But if you think about it’s just Midwest exposure. The corporations that I listed could be in St Louis. It’s not. It’s no real difference. But we just happen to be in Wisconsin, and we like it here. And if Kerry is going to be in Madison and I’m in Milwaukee, why don’t we try to get not just the one investor, but a bunch of different limited partners, and a limited partners that are focused on, you know, what’s important to their corporations and their assets, but also limited partners that don’t have exposure to the asset class, that could one really benefit from the returns that we think we can provide, because, again, financially driven first. But Can these corporations lend value insights and their strategic use cases to the portfolio companies within these managers, because rather than wait till they hit 100 million and let’s all fight over the acquisition, what if you could help them pivot early? What if you could talk to them earlier? What if you could maybe pilot and provide that kind of early revenue to these companies with the incentive being, you’re an investor in the fund, right?

Alexa Binns 24:44
awesome how do you draw those connections for the startup founders to your LPS so that they can start having meaningful relationships? Yes,

Grady Buchanan 24:55
so we guess, and then we just send emails. Yeah, we well, for the most part, it’s like, it’s almost not that far off right now. So we started our first investment in 2021 so that was the first close of fund one, and we’ve been investing since. And as we put new managers in, we’ll hold, like, kind of smaller webinars that teach our LPs, like we call them, meet the managers, and we teach our LPs, and we’ll put on one or two or three managers based on the quarter. It’s like, just share what you’re doing. It’s almost like the fund manager pitches the same thing you guys could do. Right? It’s like, talk to the corporations that are here. We record it. We put it on a platform. We use notion as our platform, Alexa to directly answer your question. So it’s login based. We struggle with finding the right people inside of corporations in which to send these companies, right? So, like, our investors are amazing, are amazing, right? Like, they’re great corporations. But as you can imagine, some of those decisions were made from the top or or made from somebody inside the organization that’s managing it. That’s on the financial side, and they’re not on the innovation side.

Alexa Binns 27:36
Yeah, no, I think, I think it’s a crazy challenge with companies that are just that big. A friend, yet last night, was telling me, Walmart’s put $20 million into his business, and he’s still, you know, looking for those champions in different parts of the company. So I don’t think it’s layers. I don’t think it’s having the VC with the fund of funds. I think it’s in general, these corporations are so big that it’s tough to get to the right person that you really need to talk to. If you’ve just been talking to corporate finance. Well, they’re

Grady Buchanan 28:10
big, and they move around. Two people move so, like, you could be like, think about a startup trying to sell into a large corporation here for seven months. The sales motions take a long time. They got to pivot. Oh, they are champions, great. This is going to get across the line. It’s like, you email that champion. I’m no longer with the company. Thank you so much for whatever. It’s like, yeah, oh, shoot. Now so, and that can happen to us too, right? So it’s like, and we’re, we’re cognizant to it, but that’s where it is. It’s like, can we create, like, a profile in ways where the corporation owns it, and you can put different people in there, put interns in there, put new talent hires in there, so they can see the innovation arm. But is there something where it’s a little bit sticky when I say sticky, it’s sticky regardless of the people that may be there. What’s the innovation engine that you have, and how do we tap into it? Yeah, yeah. I

Earnest Sweat 28:57
I remember when I was at Prologis and building out there venture practice and innovation practice, it was a challenge. And then also being able to connect, not only other venture capitalists, but our startups, as well as connect to Prologis is customer base to then bring it the entire kind of network effects then become kind of like constellation effects, right where, like, no matter where they are, there’s a lot of like, value being set, right? It’s just a tough thing. Now, does the value add influence your criteria of the type of fund managers you want, like, if somebody’s good at that and navigating companies, is that? Does that influence? Yes,

Grady Buchanan 29:36
it does. I ask, if you can speak that corporate language. Do you guys have an interest in doing that? A lot of fund managers won’t, like, a lot of them are skittish around, like, I don’t want to talk to any corporates. Like, corporations are nightmares. It’s like, Well, okay, what if we sit in between? And I’m not saying talk to corporations as LPs. I’m saying talk to corporates so they can help your portfolio companies that they’re all very interested in, right? And so it’s our job to suss out, like, because even if it’s a software only 1010, companies, it’s like, oh, I have a really hard time believing that any of these early stage companies are going to get pilots or programs up, up in some of ours because, because they’re already either doing it or there’s a reason, whatever. But the GP will say, Yeah, this is great. I want to tap into Wisconsin. We don’t have any customers in the portfolio in Wisconsin. It’s like, okay, so we’ve, we’ve, we’ve realized everyone’s gonna say yes to that. But as you diligently answer your question, and you talk to some of their corporations, do they have corporate LPs? Are they backed by families that have done things in the past, that have built things? Why is that family investing in you guys? And are they a manufacturer? Because you guys are all manufacturing technology. So we look at that like, make sure that the LPs are really core to I mean, if you get a couple of LPs in their corporates, and this is one of the two, or only funds that they picked in the supply chain sector, it’s like, that’s that’s probably a decent bet for us, because, not for nothing, in Wisconsin, they’re not seeing what those LPs are seeing.

Earnest Sweat 32:31
I want to hear a quick pitch on the centrifuge you mentioned. We have Renaissance on Christina came on the pod, and then HX. So I guess centrifuge and HX, you’re up next. But could you give a pitch for why this approach to having local corporate LPS is a better approach for states and regions than kind of doing the insular only with state money and, you know, not looking to invest all over?

Grady Buchanan 33:19
Yeah, and it doesn’t, there does not seem to be a truth in between. So, like, that’s the battle that we fight to where, because we’ll see startups around here, and maybe they’ve taken some of the public dollars right, and their cap tables look a little bit different. Like, this is no offense toward the government, it’s just it has to be structured and aligned with the rest of the private industry. And so a lot of the VCs, a lot of our industry, get really, like, frustrated with seeing some of these things come out, or, like, chasing problems that don’t exist. Like, like, we need a bunch more venture dollars in Wisconsin for all of our startups. Like, show me all of our startups. Tell me about where we need to be, and let’s see if we can get outside ventures here too. So I guess there’s the local discount kind of game, like, that still exists. It’s like, and I think some groups have done this really well. There’s, like a 10 to in Oklahoma City, like they care about Oklahoma City. They bring things there in Bentonville. Everybody knows what’s in Bentonville. And regardless of what they know, if they’re investing into it’s like they’re doing things in Bentonville, right? And they’re really in all these companies. So you can kind of see, like they’re trying to change places for the benefit of the larger organizations, for the benefit of people that want to live and work there and promoting the fun aspects of things. And you can kind of do that through venture and startups, but, like, admittedly, and just not to be like, super harsh on Milwaukee, but if you’re a startup founder here, why would I live here and not Chicago? It’s like, you better love Milwaukee, and the quality of life is like it’s but I look at us as like, we’re a Chicago suburb, like people in Milwaukee might like, hang me for this, but it’s like we are a Chicago North suburb, and I’d love it if Chicago included us. But we also have corporations that are much larger. We have corporations that are more powerful, and we’re not competing over this, this, this region, or at least, I don’t want Wisconsin. We’ve had Madison. Madison is pretty good at health care, like you, guess? Why? Green Bay manufacturing, and we got a big sports team up there, and they have a lot of supply chain, and health care is across the state, and then you got Milwaukee and manufacturing and some other kind of nuanced sectors, but it’s like, we’re good at building things. We’re decent at health care. Chicago is kind of the same. I don’t know why everybody’s different, or it’s like Cincinnati needs to do this. It’s like we’re the same as Cincinnati. So when you kind of go across the Midwest and what Carrie and I were built to do at war, if our networks lived elsewhere, like we weren’t investing in venture funds right across the street, because, frankly, we didn’t have any. If we had local funds, great, they’d be in the portfolio. But we had to expand the network. And the reason we were investing in health care specific funds strategically is so they could get to campus, talk about some of the things that were going on now at nvmg, RLP base is kind of across the spectrum of sectors in the Midwest. And I think the outside-in approach is what we’ve tried to teach our LPS quite a bit. Outside in, this is how we were built, like if we were Silicon Valley and Milwaukee wouldn’t need to spin the funds. That’s pretty easy. Go pick the 10 best managers that you can get into and we can help you with that, but we don’t have any exposure here. What if you had a fund of funds manager that actually went out and found the Alexas, and said, these are managers that are building and investing in certain markets. I don’t necessarily care where based on geography, unless that’s core to your mission and you’re only going to do things in Bentonville. Great if we like Bentonville. That makes sense for us, but geography is not as important as it is the portfolio companies that you’re attaching to and the founders that you’re attracting. If the founders are all big in manufacturing, every spin out from any large manufacturer wants to go work at this venture fund and take their money. It’s like, ooh, that’s probably one we’d like to talk to. But from a private perspective, I mean, Wisconsin just deserves this exposure. We saw that corporations had it. Maybe some were talking about ventures. We just, frankly, don’t have a lot of large institutional LPS either. We have good campuses and universities that work for themselves, right? And that makes sense. But who’s really going to open it up and build everything together when these large corporations are working in almost silos, specifically in venture we’re here in Wisconsin, so we care about it, but we just happen to be here. We’re finding firms and companies that are relevant to here, wherever they may be.

Earnest Sweat 38:19
Now we’re going to take a quick break to speak with our sponsor on

Alexa Binns 38:24
the show today. We have a friend and industry expert, Nick Talwar, factional CTO for both VCs and their port. Cos his agency, bottega, eight trains, custom AI models for financial institutions like yours. Welcome, Nick. You know all these things about implementing AI into our funds and portfolio companies that we are eager to become experts at. So thank you. As a technical startup founder, yourself, many times over, you’re now in the weeds for a lot of different companies as a fractional CTO and every AI, every VC and every LP, is thinking about, how should I be best investing in this space? Do you have an opinion on where we should or shouldn’t be investing when it comes to AI?

Nick Talwar 39:15
Yes, that’s a great question. I really boil it down to three heuristics. The first is the technology moat. The second is AI first operations, which is often overlooked, and the third is AI expertise. So with the technology moat, it’s really important that the dealer you’re looking at or the company you’re looking at has proprietary data, but tied to unique human capital. And lastly, it’s a vertical product that’s really important, because a lot of horizontal products will get subsumed by large scale models like from open, AI, Microsoft, anthropic, meta, Google, and AI, when it’s met with a vertical niche is a pretty good bet. It’ll just get better and better with tighter context over time, with proprietary data that those big companies. Is, can’t crawl. Second is, like the first operation. This is really overlooked. Like, the whole nature of how a company does business in the last two years has changed dramatically. Like, for example, we are three to 5x more efficient now because, you know, over the last 18 months, I’ve looked at every single one of our business processes, or engineering and product processes, and made them AI first and AI native, awesome from the ground up. And it is just startling as to how much value we’ve been able to create through those efficiencies. And it’s kind of freed up my time to just do what I do best. And you really need to take a look at the founders and make sure that they are looking at their operations, are willing to learn, roll up their sleeves and actually use these new, new tools, and not just like, from like, oh, I subscribe to free chat GPT. I just talk to it sometimes. No needs to be a little bit deeper than that, particularly when it comes to operations. And then as core LoRa bootstrappers, there’s so many great bootstrappers right now that have built a micro SaaS and using AI first native tools, perhaps they have, like a fire TikTok channel, right? And like those people are so well suited to be founders. If I was like a VC today, I’d be encouraging them to take a niche and partnering with you, if you’re an early seed stage fund, to kind of nurture them because and even cross pollinate what they’ve done across your port coast. And then lastly, it’s true AI expertise. I see this a lot like, you know, 20 years ago, and I’m dating myself. 20 years ago, in college, I studied neural networks, and that’s like the foundation of AI and deep learning. Yes, the, you know, the Transformers paper was a seminal moment, five, six years ago, and it changed and led to like, chat, GPT 3.5 but true AI expertise. Everyone’s putting AI in front of their name, and you have to really vet that the CTO or the co-founder that’s in charge of the technology actually is an AI expert, because most of these products will just fall flat. So the best AI engineers have been in space for a while. They understand machine learning and they understand data engineering, which is like the core to making AI work well. So those are, like the three things I would look at, oh, man,

Alexa Binns 42:16
exceptionally helpful, particularly for LPS, who are trusting the GPs are doing a good job of filtering to know if they’re bringing them the right stuff. You are the expert now on helping executives understand how to implement AI in their company. And I’m curious, what do these execs generally get wrong about implementing AI?

Nick Talwar 42:41
Yeah, I love this question. You know, I fell into writing an AI executive curriculum as I got tired of the mismatch between, like, the public AI marketing conversation and what we were seeing on the ground with VCs and companies like, there was such a disconnect. And so it boils down to a few important things, your data story and your company culture. And again, the company culture is often overlooked and which is really important. So AI isn’t plug and play. It requires deep Data Prep. You need clean, well structured data to be successful. It’s also very multi disciplinary, like your product engineering and sales and customer success at a company needs to all work in tandem and develop new collaborative frameworks that are AI first to make sure that your product is on the right track. And AI breaks down these walls, and it does that by definition. And in my AI playbook for execs, we talk about creating, like a shared AI workspace, because a big problem we have is back in the day, we would have like, a web app, and we’d have like, you know, a figma of, like, here’s what we’re building as a tee and then we’d go raw company all hands. Like, this is the entire UX, and we’re gonna hopefully do it iteratively, and not be a waterfall, but like, we’re gonna be agile and make this happen. And that it really exists for AI, like, data is, you know, ephemeral, and right, so creating that AI workspace is actually the new mock up, and that’s one of the key things we’ve developed as a framework in that playbook. And most don’t heed like this advice, and so they just get started with an API integration, and it falls flat. And usually I get a phone call, you know, a year later, saying they’ve made no progress, right? And that’s always really sad, and I’d like to know your listeners, to avoid that fate. And the second piece is like culture. Keep in mind employees have been assaulted with doom and gloom. AI will take our jobs like, really empathize with your people. It’s like marketing from all angles, and that’s very self-serving from big tech, right? They want you to think that’s what you’ll use their products, right? And you have to manage expectations and assuage concerns, otherwise it’s going to torpedo your culture. People will leave. People will devolve into politics and bureaucracy. Most don’t heat this. Vice and this is why it’s, you know, step two in our playbook. Like people wonder why their first AI project gets mired and back and forth. I’ve seen this story a couple of times already, and, you know, it’s just a confusing time. I see this when I do our technical due diligence or dock review of a company, they misuse basic AI terminology. So investing in learning development is super important. Like, you gotta, you know, you need to know the differences between, like, machine learning and deep learning and an LLM versus generative AI. Like, these are basic terms that people toss around very willy nilly, and it really frustrates me. You know, as that sort of engineer type person that’s like, you know, what are we really talking about here?

Alexa Binns 45:43
Yeah, AI washing, as opposed to exactly, just

Nick Talwar 45:47
throw in the washing scene, throw some terms on it, sprinkle some fairy dust. It’ll work, right? But no, that’s not really how it works. And then at the core of it, people have a they think that AI is like an all knowing bot, right? Like the Movies have conditioned us for decades. You know, it’s in the best interest of big tech and their API is that we just go to them as the arbiter of knowledge for everything else, the Oracle, and when the reality is that’s not really what how AI can help you today and in the future, even, in my opinion, it works best as a context oriented tactical bot for a back end workflow. I’ll say it again, because it’s so important. It’s a context oriented tactical bot for a back end workflow. That’s the real impact we’re seeing today. It’s not like a customer-facing chat bot has its limitations, and we never use that as a case study or example. And you can train multiple versions of an AI bot for different contexts, different teams and different workflows to help you augment your work and make it more accurate and efficient. And you got to tailor to each use case. So, long story short, a lot of things, but if you keep these few things in mind, I think you’ll be really successful.

Alexa Binns 47:05
That’s an awesome teaser of your AI playbook for execs. Obviously, we highly recommend it does. Having been helping these people with change management, give you an opinion on whether the winners are going to be people who are building from the ground up, like you and your own agency, where you have been sort of AI first from the beginning, versus some of these challenges you’re describing for existing Companies, you know, in the horse race of being AI enabled, are these newer firms and companies that are sort of AI native gonna win?

Nick Talwar 47:50
Yes, I think they will. I mean, provided they’re just on a chat GPT wrapper, which we already saw that wave last year. Come and go. But I think you know the nature of work, you know, the future of work. Conversation has been brewing for 10 years. It’s really, you know, in the last 24 months has actually, you know, hit the rubber meets the road, yeah. And, you know, the zip era is behind us. So op X has been the entire conversation for the last like, 36 months. And so AI does that. So, you know, I think that that story is writing itself.

Alexa Binns 48:23
Thank you so much, Nick. If you are looking for help implementing AI at your fund or across your portfolio, you can please go to Bottega eight.com, backslash swimming. That’s B, O, T, T, E, G, A, eight, as in the number.com backslash swimming, we appreciate you giving this the credit, so please use the URL. And now back to our LP interview. The relevancy piece makes a lot of sense based on knowing who your LPs are. What else makes a GP a good fit for you all? Yeah,

Grady Buchanan 48:59
Core fits for us, like from the onset, I need to know that there’s a network there. I need to know that this brand is ready to attract institutional capital, or it’s building a firm that will one day attract institutional capital, because they’re targeting venture capital competitive returns, because they’re able to attract funds. Core to their sectors. So a lot of what we do ends up coming down to References, referrals, like calls around like the industry. We have the benefit of having corporations get to lend their eyes and ears and say, This is never going to work. Their fun doesn’t work. Energy is never going to sell this way. It’s like, well, that’s okay. That’s good to know. Like, we can write that in and we can document it, go at it with the manager as to why they believe it or not at the corporate level. But we have, when we look at managers, like, they better have that network and because we’re going to call them and we’re going to figure it out. Venture capital is so transparent these days for any new managers, just understand that. Like, if you pull a term sheet, like, if the founder is upset, like, that’s going to get back to an LP that’s doing diligence on you. You better have a story around that. Like, I know everything’s different. People pull turn sheets, but again, everything’s so transparent. Everyone’s co investing in very similar looking deals right now, especially in our space, across like, very core industry verticals. And so I would, I would say that the network is huge, building your brand, focusing on it, even in a fun way to attract founders, it’s like, oh, you’re going to be the best in Manufacturing. It’s like, well, how is your brand growing? Do founders know that about you? When they type it in on Google, when they talk to other founders, are they going to mention you guys? Because then you’ll miss that deal flow, so you’re not focused on it. So again, the network, the brand that’s kind of more on the emerging side returns, it is the obvious answer. When you look at the kind of bigger managers that have been around, can they prove results? But I inherently believe VCs do three things, like, you raise money, you invest in companies, and you have to exit companies, which returns money to the limited partners. If you can’t do the first one, it doesn’t really matter. So again, network is most important, making sure that they have their way to win within their strategy. And then our thing is that corporate angle, like it did, it has to be kind of Midwest aligned, and it has to be ready to go into a corporation, or one day want to go into a corporation here.

Alexa Binns 54:05
And is CO investment also something in consideration for you, whether you’re going to direct or any of your corporates go. When I go directly, most

Grady Buchanan 54:14
of our funds will offer core investment. They’re very nice to us, and they’ll offer it on our platform, just to see what LPS that we have, NDG itself and fund one not interested in core investment so much, we offer it on the platform to our LPs. We actually don’t do it ourselves. So it’s kind of nice for our managers, because if we raise any money from our LPs, great, that’s good for them. If we raise the Euro, great. They don’t really care either way, because they’re doing their own sidecar vehicles. It is a good question, though, because managers that don’t offer co investment, why or why not? Who are their LPs going to be? Could it hurt them in the fund raise based on their strategies and how much they have reserved for or how much they’re going to offer in CO investment? Or do they have proprietary co investments that only go to the bigger LPs, like, again, things that we don’t necessarily. Care about as investors ourselves, but as managers and LPS in the fund, it’s I need to make sure that they’re set up to doing everything appropriately, not just for one LP or for two or three big ones, but for everyone in the fund, make sure that they’re scaling appropriately so in Future Fund raises, that’s cool. Maybe we do want to do the CO investment thing and we have access to it, but protecting other LP interests. It’s not necessarily what we have to do, but it is something we look out for, and that coal investment piece is something that does help attract capital for the use managers.

Earnest Sweat 55:30
Great is it? I know, in our prep call, we spoke about just what’s out there in the market, 2100 funds, or whatever there is and people in various stages, right, emerging, manager, established and going out to market. Could you talk to us about, like, kind of the trends you’re seeing, as far as, like, what’s interesting, what’s not interesting? Yeah, and what managers shouldn’t be doing anymore.

Grady Buchanan 55:59
Managers should not chase the shiny objects, no matter if you’re emerging or well established. And what I mean by shiny objects, it’s actually the thing that we’re attracted to right now, because we’re in the market, and so we’re going to be deploying next year and things like that. So the shiny object today seems to be on trend. Is defense tech, like, like, very real companies, that it could be software wrapped in hardware, but a lot of them are hardware companies. A lot of them are ex operators from large call them corporations that are builders, and they’re building real things, like very hardware specific things, very, very, you know, they almost look like private equity type companies, but they’re still early, and this is the whole venture needs to go more toward the Midwest. Venture needs to hit up more of the American dynamism stuff that mark and tee preach So, and that might be true. It’s still very challenging for them. We have managers that are obviously writing checks in those spaces, like, that’s that’s how we pick our managers. But for a lot of other ones, it’s like, you can, you can see that this is a trend, because you can see some of them. I won’t say their names, but let’s call them Silicon Valley managers that often don’t do a lot in the Midwest. You see them in early stage rounds. You see them buying optionality for the later rounds in which they’d probably invest, but they’re finding companies.

Earnest Sweat 1:00:45
Grady, it’s been great having you on and I was wondering if you had any kind of parting thoughts for our other allocators or our managers. I would

Grady Buchanan 1:01:00
Say to allocators, obviously, looking at a fund of funds is great, one based in Wisconsin that would love to talk to you about venture capital. But more realistically, if you were a for general partners and emerging general partners, or just general partners that are out there made with new investor relations people, we hear a lot of the same things. Most GPS want to get to deal flow and ignore the fundraising relationship side of things, which I don’t blame them, but it’s important to pick your LP partners, and it’s important to pick them in ways that help you build your firm if you’re an emerging manager. And so I don’t know, we will get enough emerging managers around here, and I will speak to every single one of them who sold GPS, like, like, multiple teams doesn’t really matter. But if you start, if you, if you come from a different world, if you’re like, it’s like, what did Peter tee say? Competitions for losers, right? It’s like, I don’t subscribe to that theory so much, but venture managers for us, fund to funds, institutions, especially in today’s world with all these different managers, maybe that is the way to go. Like, if you came to us and said, like, we have a fund manager send us quarterly letters, I won’t name him, because he’ll listen to this, I’m sure. But like, no idea, no idea the types of companies he actually likes to invest into. I could not tell you. Like, after the first, like, 10 investments, it’s like, oh, this is what makes a good company. But what I can tell you is those 810 companies are totally different, outside of anything else that our other 190 plus companies are at like, and so that’s an interesting manager for us, because they live in a different world, a very different type of strategy, and they’re going to invest in companies that I might have no idea why, but that could be the next unicorn for all they believe, right? And so they’re proving out that thesis. But that’s an Emerging Manager Fund, one that we took a bet on because we knew that deal flow would be unique, also close to home. But, yeah, I won’t share the name. No,

Earnest Sweat 1:04:36
no. That was a great No. That makes it thanks so much, Grady, we got to have to have you back on, because I know you’re going to have even more insights in a year or so. But thanks for being on so thanks so much. Guys, happy to do it.

Alexa Binns 1:04:50
Thanks, Grady. See you later. Allocator.

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The Hosts

Earnest Sweat

Earnest Sweat is the Founding Partner of Public School Ventures, a dynamic syndicate of over 600 technical operators, go-to-market specialists, and LPs. Previously, Earnest built new venture capital practices at Prologis and GreatPoint Ventures. His focus is on investing in value chaintech, specifically vertical SaaS, applied AI, middleware, and B2B marketplaces, which are poised to revolutionize foundational industries like real estate, insurance and supply chain. Earnest has sourced and led investments in companies such as Flexport, Flexe, KlearNow, and Lula Insurance.
Alexa Binns

Alexa Binns

Alexa Binns is an angel investor and LP. An experienced investor and operator, she has climbed the ranks from associate to partner at Maven, Halogen, and Spacecadet Ventures and built digital and physical products for Kaiser, Disney, and Target. Alexa has worn every hat in venture from fundraising to sitting on boards. She invests in companies with mass consumer appeal, focusing on the future of shopping, health/wellness, and media/entertainment. Key angel investments include The Flex Co, Sana Health, and Chipper Cash.

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