Expanding Your Investment Strategy to Include Venture Capital

With Kate Nevin,
President and Portfolio Manager, TSWII Capital Advisors
This week on Swimming with Allocators, Earnest and Alexa welcome Kate Nevin, President and Portfolio Manager at TSWII Capital Advisors. Kate, who brings over two decades of experience, delves into the firm's history, originating from a family business in wood-burning stoves to investing in Julian Robertson's Tiger hedge fund, which laid the groundwork for their current investment strategy. She highlights the firm’s evolution towards private investments and the significance of diversity in venture capital, particularly focusing on women and people of color as the next big opportunity. Nevin also discusses the importance of building a trusted network and the challenges of scaling investments in female managers. Nik Talreja also joins to explain how Sydecar.io simplifies SPVs for fund managers, evolving terms negotiation, and considerations when warehousing deals.

Highlights from this week’s conversation include:

  • The Origin Story of TSWII (1:04)
  • Kate entering the finance industry (6:07)
  • Family dynamics and alignment in investing (8:28)
  • Transition to private investments (00:11:02)
  • Exploring the full spectrum of investments (15:14)
  • Sourcing and Early Stage Investment (18:58)
  • Investing in Female Managers (22:26)
  • Innovating for Parity (24:02)
  • Insider Segment: Simplifying SPVs for fund managers (26:47)
  • Trends in Special Purpose Vehicles (29:53)
  • Negotiating Terms and Warehousing Deals (32:34)
  • Sustaining Interest in Venture Capital (35:59)
  • Investing in Diversity and Community Building (36:41)
  • Solving Big Problems and Impact Investing (40:00)
  • Sourcing and Supporting Emerging Managers (43:03)
  • Wealth Transfer and Women’s Investing (50:32)
  • Encouraging Women to talk about money and investing (55:31)
  • Final thoughts and takeaways (58:07)

 

Kate Nevin is President and Portfolio Manager at TSWII Capital Advisors, a role she has held for over 20 years. She is active with many industry groups (such as The Academy of Institutional Investors and Nexus) and community organizations focused on conservation and gender equality. She was a Riley Diversity Fellow. Both in her work at TSWII and as a diversity fellow, Kate has ensured that female founders have access to mentoring, networks, and coaching in order to thrive. Learn more: tswii.com.

Sydecar.io is a frictionless deal execution platform for venture investors. Our platform handles back-office operations for venture investors, automating banking, compliance, contracts, and reporting so that customers can focus on making deals and building relationships. Learn more at www.sydecar.io.

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 00:12
Today we are speaking with Kate Nevin, president and portfolio manager of TSWII Capital Advisors. TSWII is an alternative investment advisor in Charleston, South Carolina and Chattanooga Tennessee, investing in hedge funds, pe VC funds and CO investments. originally formed as a family investment vehicle. 30 years ago, the firm has evolved to support family members outside investors, endowments foundations, Kate has been with T SW to capital for over 20 years. I’m assuming she started when she was two. Today, we get to hear from Kate, how the investment landscape has evolved for all investments over the past 30 years where she’s had the opportunity going where she sees opportunity going forward. And particularly investing more in women. So okay with that, Kate, thanks for joining us today. Yeah,

Kate Nevin 01:12
of course. Thanks for having me.

Alexa Binns 01:14
What are the Super Bowl ads for? Little babies giving financial advice I’m picturing

Earnest Sweat 01:21
baby Kate. Yeah,

Kate Nevin 01:24
That was exactly right. Just pop down. Hit The Floor. Yeah. Sorry, to the office.

Earnest Sweat 01:32
No lies there. Before we get started, I would love to just hear the origin story of TSWII.

Kate Nevin 01:42
Yeah. Um, so T SW actually stands for Tennessee stove works. So our original family business was actually wood burning stoves from, you know, over a century ago. Clearly they modernized over the 19 hundreds and then were sold in the late 70s. You know, I mean, it was a stove business. I’m not like we all just sort of retired fat and happy after that. But it did sort of launch what became the second sort of iteration of the family business, which was asset management. So my dad, Hakka, in 1980, to be exact, has scraped together the minimum investment amount to invest in Tiger hedge fund, Julian Robertson’s Tiger hedge fund, which really became, you know, a legendary fund ended up creating an incredible bloodline of talent, tiger cubs, Tiger seeds, a lot of a lot of a pretty incredible ecosystem was built out of one on one park, but that that investment, that single investment in Tiger became sort of the origin story for this next iteration of the family business. So it was really a single family office with that main investment. And then family members saw how well hedge funds did after thinking maybe it was just like going to Vegas or something, they realized it was actually a viable investment strategy, and wanted to invest. And that point, Tiger was a three C one, so had maxed out with its number of LPs. So basically, TSWII was created to provide access to the original Tiger Fund. And then it just sort of grew from there. And clearly, you know, continue to diversify the portfolio officially launched as sort of a fund to fund structure and 1991. And then I joined Lehman Brothers back in 2002. When

Earnest Sweat 03:55
Yeah, when you were to already come out with a graduate degree and everything. Wow, fascinating story. I don’t know what there’s a lot of lessons you can even think about just like your father, like, first of all, even how did he get access? And this kind of the foresight, do you have any kind of like, yeah,

Kate Nevin 04:17
you know, it really is, I mean, for all those quotes, right, you to get hit by luck. You have to be playing in the streets, or all those good little anecdotes. I’m one of my dad’s best friends from growing up, I ended up joining Julian Robertson from Kidder Peabody, as his right hand man. And so the reason that my dad ever heard about Tiger was because when his best guy friends from growing up, ended up becoming like, you know, one of the key people at Tiger and he said, Hey, listen, you should do this. And he did. And I think, you know, like any good investment I think when you’re sick, you’re looking out for the future, right where the puck is going, you find someone you really trust, and you make sort of a balanced, risk adjusted leap of faith in some ways. And, you know, that early investment, ended up defining what I think is really a really transformational sort of family business story. And it just really happened by the willingness to, I think, to recognize an opportunity early and, and, you know, surround yourself with people that you trust and value their opinion.

Alexa Binns 05:37
Did you set out to sort of build your own skill set? With this percolating in the background? Or has this all sort of been natural? I’m curious how much of your own career journey has been intentional, versus you were just maybe naturally curious about finances, and so you found yourself working in it. And then during the night,

Kate Nevin 06:02
You know, I think it was a little bit of osmosis. I mean, I definitely grew up going to hedge fund meetings, and high school and college annual partner meetings. And it was always like, just the most fascinating discussions, people events, in general. And then kind of made my way from consulting in DC up to New York, and really didn’t have a sense that I wanted to go into finance, I thought I actually might be a writer. So I moved up to New York to go from consulting to writing. And then quickly wondered how anybody pays rent or feed. A writer in New York, and a buddy of mine from college was like you did business courses, like you’re smart enough, just go into Wall Street. And so I did, um, ended up really liking the Lehman team, because you could choose where you want it to go. So I choose the sales and trading analysts track. And then inside of that track, I chose prime brokerage, which was working with hedge fund clients. So it was kind of like early on, I got to self-select into an industry that I already understood some of the basic dynamics and, you know, was already pretty fascinated by it. I knew some interesting people that had clearly defined their careers in that industry. And so I was really lucky to fall into that seat as a young analyst.

Alexa Binns 07:31
And how does the family work together now?

Kate Nevin 07:35
So I’m the only family member that’s really on staff. We’ve never operated as a family business from the perspective that family members are just all over the org chart. Packer, my dad is the chair, he’s not as engaged in the day to day, but he still sits in his chair, everyone else on the team. We’ve hired through, you know, rigorous, you know, job search and looking for the right candidates. And so most of my team on the back office really sits in Chattanooga, the investment team is in Charleston, the majority of my team has been with me for over a decade. So we really have been building out this firm over the last 30 years. And it’s really nice to have such longevity, I guess the family dynamic is that, you know, my family is the largest investor in both of the portfolios that I manage. So that’s my family partnership, my aunts, uncles, cousins, you know, old younger. And so in terms of alignment, I think that’s probably ideal when it comes to working with family. Like I’m not working with family, but I’m investing for family. So they’re holding me accountable. I’m really thinking about the next gen and how you navigate the new opportunity set. And I mean, there’s a lot at play when you’re investing for yourself and for your family. And I think that’s a welcome alignment piece in terms of how I manage the fund, versus, you know, having to manage a bunch of family members and an office. So I think I have that pretty well set up. Yeah.

Alexa Binns 09:19
Kate is a good aunt to have

Earnest Sweat 09:23
When leaving Lehman and joining the family, find what you know, how did you shape the look at the new opportunities? How did you think about, you know, building culture, building the team? Thinking about different alts you know, what was your process when going in and what are the lessons learned?

Kate Nevin 09:50
Yeah, that’s a great question. And it’s kind of like a probably like a decade long answer. Um, so you know, I joined in 2000 wasn’t too. And it was like we were sort of getting our footing right from.com And kind of resettling. And there was a lot of exciting stuff going on, particularly in hedge funds, right, which was the bulk of our investment back then. That’s when a lot of the analysts started leaving Tiger. And there were a lot of new shots being set up and, you know, sector driven funds, whether it was financials or TMT. So, there was a lot of exciting stuff to look at, to do a lot of exciting conferences to go to. And I think one of the first things too is that, you know, I moved to Charleston, and then the back office was in Chattanooga, so in the early 2000s, like remote work, work from home, like that wasn’t a thing, like now we don’t even think about it. So you know, a lot of it was also trying to figure out how to do that well, right. So it’s like really building out a back office that could work over, you know, secure the internet and share files. And so some of it was more like that structural back office stuff, some of it was really continuing to build out the team, because we really did on board a lot of new people in that decade from about 2000 to three through, you know, 20 1314 made it through the great financial crisis, which changed a ton in terms of regulation. And so, I mean, there were a lot of dynamics at play. And then in terms of just more of a portfolio’s specific thread, you know, hedge funds, long, short equity was really our bread and butter, we had also done some distressed debt investing, some macro investing. And then, once I really started to get my hands into the portfolio, we got to the other side of the great financial crisis, started looking more into private investments, we’d always done some private equity, but also started to recognize the opportunity around later stage growth and venture capital. And so, you know, the willingness to look at more private opportunities became a thing, something we thought about in the context of sort of like an endowment approach to investing where we were really trying to think about the risk return overall, but still prioritize that liquidity piece, you know, and have since since day one, I’m

Alexa Binns 12:30
curious what some of those early exposure to venture is, there was a similar experience with Tiger where you said, Oh, we’re going to dip our toe in and get started. Yeah,

Kate Nevin 12:42
it was and what we really did, Alex was also just sort of stuck, or Alexa, sorry, it was also stuck in the thread of, you know, the tech and the health care that came out of Tiger. So for instance, ones like Cotu, that really started to dip their toes and venture more in the later stage. Funds like Deerfield, to health care that has really navigated both the public and private markets as well. So there were some early leaders in that space, just coming out of that 101 Park, sort of family tree, so that we didn’t have to go to the Sequoia or, you know, a16z, or we didn’t have to go necessarily to Silicon Valley, because we kind of had some of these trusted analysts, PMS and networks that were starting to do it, you know, utilizing their own research and analysts teams just in the public market space. So that was actually an interesting evolution to watch, right? How you could see sort of the broader industry, you know, continuously trying to find those very opportunistic, um, you know, risk-return adjusted investments, and that took them, you know, from public markets through later stages. And there’s definitely been lots of learnings in there, I think for sure, especially when we saw how it all culminated in the volatility of 2022. And then still kind of thinking about how the public and private are connected, but on a lag and lots of iterations in terms of how you need to think about pacing and deployment and liquidity. So it was, I would say, really an evolution just out of some of those early managers and some of the early portfolio analysis that we were doing just in the space in terms of where the opportunities were.

Alexa Binns 14:48
Yeah, a lot of our listeners are allocators who are curious about privates, and, and probably are on a similar path to you a decade behind them. How would you approach that today? Or how has their thinking changed a little bit where maybe you’re more familiar with the public markets and you’re realizing, oh, as long as valuations are down in then venture and PE, maybe we should be, maybe we should be looking over there?

Kate Nevin 15:19
Yeah, I mean, I think the recognition that right now in venture and p is probably a pretty good vintage, given the dislocation of markets, and just the different rate environment we’re in rather than macro factors. So, you know, I think for me, too, it’s been able, it’s been trying to navigate kind of across the firm, right? So we do, we have a couple of different portfolios, and we do things a little bit differently. And so, you know, in one area, I’m spending a lot more time on the earlier stage venture, right, and then some funds skew to more of the later stage growth, and some are more the private equity. So I think from, you know, what I enjoy most about my seat is that I’m looking at the full spectrum, all the time, aperture is wide open from like, public market to early stage seed precede type of venture. Um, and, you know, what I think is compelling in a lot of ways in terms of, you’re just sort of starting to look at the space is, you know, as an allocator, how can you utilize a wider aperture to really manage the risk profile, the liquidity profile, I think, also in terms of sort of whether your sectors or thematic approach might be. So I’ve really enjoyed, you know, you find certain things in earlier stage, I think that you don’t find, well clearly in later stage, but even the the types of managers, the geography, the teams, the gender, the racial makeups, like everything has kind of changed, in terms of the full landscape of venture. So, you know, for me as spending more time, particularly around women and diversity, that’s taken me to an earlier stage, I see a lot more female founded funds coming out of that successful Angel raise, and then maybe going to a fund zero or a fun one, and really staying in that precede seed. And so I think it depends on kind of how like, what the top down approach is to a portfolio leads to sort of how you’re going to source those particular funds, which I think has been super dynamic for me, whether it’s coming out of hedge funds and skewing later stage growth pre IPO, or it’s coming out of a real desire to see more diversity, particularly women in our portfolios, and it’s coming out of that earlier stage. They couldn’t be, you know, on opposite clearly on opposite ends of the spectrum. So then it’s like, well, how do you manage the sizing, the risk, the duration, right, whether it’s 10 years to whatever, like a pre IPO might say, three to five years. So there’s a lot at play. And I think what’s enjoyable, for my side is that ability to take that sort of endowment approach and go, Okay, I gotta manage the risk of the portfolio, I’ve got to manage the liquidity, I’ve got to manage the duration, I’m looking for more women, more people of color, more women’s health care, more future of so then by kind of, like, you know, having these sort of larger themes, I work my way down into the execution. And so, like I said earlier, it’s nice to have like a huge aperture because I get to, you know, I’m drinking from a firehose, so how many meetings I take, but I’m really trying to get a good sense of the entire landscape. I

Earnest Sweat 18:59
i want to get into the sourcing, but first, the half step of I understand how you go from Tiger to then, you know, all the kind of offshoots and getting into the privates and, and kind of late stage growth. But what did you see from Venture’s early stage that made you say, hey, we need to build out, you know, a product and function here?

Kate Nevin 19:25
Yeah, um, it really was for me, where I saw women where I saw people of color showing up as real thought leaders like real deep analysis, really connected to the opportunity set clearly have a good sense of how they wanted to build a portfolio and how they were going to execute. It came with somewhat of a portable track record. It looked different than what we were typically used to seeing where you know, XYZ analysts left got three years to say you wham right So everything looked different. But I think, you know, one thing we learned from those early years, especially seeing, you know, the Tiger Fund is a model is that talent is evenly distributed, but that opportunity is usually not. So you’ve got to dig a little deeper to find talent in new areas. And so for me driving that first step of the sourcing was, where were the women? Really, that was the only question I started with. And then when I really dug in deep, I found that a lot of the women were in early stage for, for a lot of reasons I’m sure you’ve already discussed on this podcast, I think the barrier to entry there was probably a little bit lower, say, than setting up a long short equity hedge fund, right. I mean, clearly, there’s a difference in the back office and the regulatory environment on those two products. But I also felt like it was a lot of women coming out of prior experiences as operators spending a lot of time maybe working for someone else, and now really feeling like they could go and do it on their own. And it was all showing up and seeing them proceed for the most part, at least, you know, five, six years ago when I really started digging in. And so I just kind of kept with that threat and kept sort of building out that that network effect, right of really making some great early allies, some early investments, and then continuing to pull the threads, because I found that it’s really a nice connected, LP base, right, like part of my job became really getting to know the LPS that were in these funds with me, when doing the diligence, if there wasn’t a long track record, the joy of that was doing, you know, half dozen to a dozen reference calls, and really getting to know a lot of the founders, the portfolio companies and or the LPS that invested alongside me. And their familiarity, their focus, their conviction in the team. So I think in a lot of ways, that early effort created a pretty vast and trusted network, which I was really delighted to find I lean on that early network quite a bit.

Alexa Binns 22:26
This may seem like an obvious question. But why are you interested in investing in female managers? Yeah.

Kate Nevin 22:36
Um, well, I mean, I’m sure you all have had some, and I’ve actually listened to some of your previous allocators. So I know for a fact you’ve had some really sharp people on here. And they kind of give a State of the Union right, of why it’s important. Right. And so I think the reason is, you know, yes, there is, I think, a huge miss in the market for underfunding these managers. I’m seeing the sort of talent that I’m seeing. But more than that, you know, I think I try to move away from talking about or quoting, like the sorry statistics on the state of funding for women, and women of color and people of color. It’s because we all know that I feel like we have them all tattooed on her forehead these days or something. But what really is fascinating to me is like, okay, that’s the how, how are we going to do this? Right. And we know why we need to do it. Because who doesn’t want to be early and an opportunity that it’s like the train has left the station, and you better get on it? Because these are the leaders that are going to define how venture is done in the coming decades, right? I mean, there’s studies that show that women tend to be close to the problems they’re solving for, they’re looking at opportunities, different, they’re building teams different, the way they get back to their communities is different, like so many knock on effects happen inside of just finding a female manager that I think really tips the scale, in terms of like that maximum impact. But I think what I’m really trying to solve is, is how right we are going to do this at scale, because it’s still taking a long time. And I know there have been people in it longer than my, you know, five plus years that I’ve been focused on investing in women, but it’s, um, it seems like what we’re missing is really creating that flywheel, right. And that’s why I think these, this network that I found these other LPs, these other allocators that are focused here, it’s like, how are we going to innovate our way to more parity here because it’s not going to happen the way we’ve been investing in allocating for the last 3050 years. 60 years right? The next 30 years we know are going to look completely different than the last. So we need to make sure our portfolio outlook, whatever strategies we use for allocating future dollars also looks completely different. So I think it’s really trying to nurture the ecosystem share the learning and rounds innovation share how we diligence differently, share how we build the network differently, share, research, memos, ideas, introductions, right really pushing the gas pedal here is important to me, because, again, we all know how little fun the funding is actually flowing to these managers. Now we’re

Earnest Sweat 25:45
gonna take a quick break to speak with our sponsor. On the show today we have an industry expert and sponsor Nick taqueria, co-founder and CEO. Si car.io sidecar helps you start and run your fund or SPV. So you can focus on making deals not spreadsheets. sidecar is a frictionless deal execution platform for venture investors, their platform handles back office operations for venture investors, automating banking, compliance, contracts and reporting so that customers can focus on making deals and building relationships. Thank you, Nick, for being a partner on the show. So you mentioned when you were going on this journey and investing in, in these companies, startup companies you were looking at, you know, what’s out there in the market? You didn’t want to do it. You’re an experienced attorney, but you didn’t want to create all those documents. What was the competitive landscape for your market today? And how do you believe citEcar compares to traditional and emerging competition?

26:47
That’s a great question. competitive landscape. You know, it’s pretty broad. I mean, you have traditional fund admins that can do what we do, but they would do so pretty cost and efficiently, because again, it’s very manual, and they can’t compete with us on pricing. Because we have software doing what people do in their businesses. You have law firms that do something that like what we do, like as far as just creating the forms. Now that’s a very rote manual process. Again, you wouldn’t want to pay a lawyer for and then you have certain software first businesses like you know, you have Carta, and AngelList, who are two behemoths in our space. And I think like, look, I, I actually respect everyone in our space. I think they’re all great businesses, and they have great teams. Our wedge, however, is unique in that we’ve, again, vertically integrated in a certain part of the space and build software that automates literally everything that can be automated, we’ve invested a lot to do that, because we have a belief that that wedge is going to scale us over time into something that’s powerful. And people will adopt software first as a means of engaging with private investments over time, and not require us to just intake a lot of custom forms. But that’s an investment in the future that we’ve made. And the only way we could have gotten to where we are, is by staying really focused on making that investment. Whereas our competitors and large parts, look at any of our competitors, you can take your custom forms to them, and they will handle your business with a manual team behind the scenes, we have just had a hard line rule on not doing that, right, which means that we will always be software first, not just software as a surface layer.

Earnest Sweat 28:13
That makes no sense. How do you think fund managers should get the most out of their fun admin services or fund admin stack?

28:24
Well, one, I think you should really get to know your fund admins, because they are your long term partners. Like they’re not going to just be there when you create your fund. But you’re going to want them to be there every single year for all of the routine needs, whether it’s accounting or tax related, or storing documentation or relating to your LPs. And they are the firm of the individuals that are speaking to your most precious resource, which is your LPs. They’re your customers, right? So you really have to trust your fund admins. So I think to get the most out of the relationship, make sure you can build that trust. And I think, do your due diligence, make sure that they know what they’re doing speak to their other customers, understand from personal references, that they do things on time they do things well, they don’t make mistakes, because we frequently hear horror stories about such and such fund admin laid on K ones and there were errors in them, right. That’s something that of course, we solve via software. But if you’re using a traditional fund admin, make sure you can trust that they have a team that’s really credible, that they do things on time and in an error free manner. And that they have an ability to retain a strong team. You know, it’s also common attrition in this business.

Earnest Sweat 29:32
So sidecar has emerged as a platform to streamline SPVs. This topic in concept of SPVs is particularly interesting to our GP, both emerging managers as well as established managers and LP audiences. Have you seen any trends of late when it comes to SPVs?

29:53
Yes, you know, in 2021 to 22, there was a trend of hey, everyone’s investing ever Anyone can be an investor, a fun, fun GP. Of course, that led to an explosion in the use of things like SPVs and fun structures. I think. I think an interesting trend, however, is, even in a market that I think if you read the news around like, it just doesn’t sound like a great market, people are still using SPVs. And I think that, because SPVs can be used to build a track record, but also maintain a powerful business, SPVs are used in every cycle. And we’re seeing that in a challenging market, as well as PVS are being very commonly used to support co investments behind your winners or support, doubling down on a business that you really believe in that the market may not appreciate today, for whatever reason. So it’s been a strong product for us through every market that we’ve been a part of.

Earnest Sweat 30:48
Yeah, I can. I’m a living testament Testament, when it comes to the continuing, I’ve been at funds and had a track record there. But also continue to build on my own track record, through SPVs. And through your platform. So I can definitely tell that a lot more people are still doing that, especially in challenging times with the kind of institutional LP market being a little frozen. Exactly. Have you seen anything when it comes to different terms that are used now? Within your user base?

31:28
Yeah, you know, one thing that that has emerged, a fleet that I think is maybe a little counterintuitive, is for those that had aspirations of raising a fund, but are having a hard time, if you think about a fund versus an SPV thing, you know, you kind of like maybe attribute having a management fee with a fund and maybe not so much with an SPV. Because a fund is actively managed over a period of years, and you’re deploying capital from it, maintaining communication with portfolio companies and LPs. However, because raising a fund may be more challenging, we’re seeing that folks who are doing great work and raising SPVs and deploying capital that way, are more justifiably charging a management fee for SPVs. That’s something that we didn’t see as much of previously. Another thing is like around carry, you know, carry, I think, is something that people are negotiating harder. And I think this is as you know, as family offices and high net worth individuals who are commonly the LPS of these funds and SPVs, as they get more exposure to, you know, interesting opportunities to invest in things maybe feel like they can command more power in a challenging market, we’re seeing their carries more heavily negotiated, we previously we see carried 25 30% on some deals. But now it’s all kind of returned to sort of like normalization of the market of standard 20%, sometimes a bit less than 20%. While fees are something that are on the table, given that it is hard work to run a syndicate and people want to be compensated for that work.

Earnest Sweat 32:52
Well, that one is kind of a surprise to me on the management fees. But I would assume, in harder times, finding great companies and the work to do it to actually get the allocation in great companies, you know, these emerging managers or fund managers want to get compensated for that. So that’s really interesting. Yeah. Do you also have a concept that, you know, I think that your platform helps for is again, people building out a track record. Have you seen anything interesting around warehousing deals?

33:33
You know, yes, there are a lot of interesting things. You know, I’m pausing here, because, yeah, that I’ll kind of talk about something that may be illegal, nuanced. But yeah, warehousing a deal. What does that mean, right? For those who may not know, this concept of warehousing is, Hey, you, you want to raise a fund. But you’re still fundraising, right? You haven’t closed the fund yet. There are interesting deals that you can do that you want to invest in through your fund, but the funds are not closed yet. So you make the investments either personally or through some other capital source. And the intention is that the fund will then receive that investment that you made, at the cost basis, if you invest at like $1 a share in this company, the fund will take it over at $1 Share, right, you can basically we’re warehousing it to give it to the fund later. Now, what we have seen is that there’s a lot of interest in warehousing. However, not everyone understands some of the limitations around this concept of warehousing . You have to be actively fundraising to a fund. The documentation for your fund has to stipulate that it will have warehouse investments and investors consent to receiving the warehouse investments. The third thing is if you’re raising SPVs to a warehouse and put into your fund later, your LPs and that SPV will basically lose the right to that specific investment. Right when it’s when it goes into the fund. You’re not going to be, they should be okay with that coming fund LP. So I think people want to warehouse but they’re maybe not thinking about the mechanics of it around how it actually happens and how You need to, like get consent for it to actually be the case. However, there’s definitely increased interest in warehousing. So I think we’re a little bit of a nuance there, but definitely interesting. I think not everyone appreciates that some of the things that they’re doing may not actually be, you know, complimentary to this notion of true warehousing. Yeah,

Earnest Sweat 35:19
and I think that’s where your perspective is very helpful, too. And all that nuanced, you know, legal parameters, right? Of, yeah, there’s this one concept and you’re trying to mash things together and then might not actually fit and be best suited for all your customers, right? It’s great for you institutional LP customers, but not those who kind of started with you at the beginning. Nick, you’re clearly out ahead of the future of venture capital. For those interested in using sidecars software, please visit sidecar.io backslash allocators. And now back to our allocator interview. Kate, how do you think we can sustain that interest? Because it feels like you know from the DNI perspective, from the GP, you know, the side that’s definitely wan. And I’ve joked before that the AI and venture mimicked the popularity of clubhouse. And so, how do we actually sustain that? Yeah. into the mainstream. So it’s not just the same community of LPs, but the same community of GPs who care about it?

Kate Nevin 36:39
Yeah. That’s, that’s like the $20 trillion question. Um, but I think at that very basic answer, it has to be performance, right? That’s the only way. I mean, you know, when I think about investing, I’m looking for market based returns first and impact second, but it’s a close second. But I know that impact piece that really moves the needle on women, women of color, as managers that can scale only happens if they’re also managers that can perform. Right. So, you know, I’ve seen, you know, all the stats that kind of show like a slow uptick after 2020. And now it’s starting to drop off a cliff on basically all the sort of dei metrics across the board. And so I think it’s really important that our allocators continue to sustain investing, if that is part of their impact strategy, right. But the impact piece can only be supported by the performance piece, too. So I just, you know, I mean, in a lot of, I also recognize that particularly with early venture funds, a lot of that performance piece comes around being able to fundraise for a viable fund size. And I mean, there’s so many, it’s like the chicken and the egg, the chicken and the egg over and over again. And so, you know, I think, for me, and a lot of the peers that I know are working on this space, it’s it’s moving away from from using maybe polarizing terms like ESG, or D AI or right, we may be we’re getting locked into sort of a political hot potato. So why not just focus on performance, that talented managers, and continuing to share the notes, the ecosystem, investment memo memo, you know, really trying to think about ways to be more generative in this space, so that, you know, if if somebody’s doing it successfully, and they’re maintaining their dollars allocated across the board every year, then they need to be sharing that widely. And also sort of building that community with them. I see, in this sort of more diverse manager space, that creating community is just almost equally as important as the dollars that are getting funded. Because it kind of goes lockstep in terms of building that alliance, familiarity. And also at the end of the day, I think investing is like a really big FOMO like, it’s like a BA it’s like we know Behavioral Finance is a really big deal. So that FOMO piece becomes a part of it too. Like I’m always saying we’ve got to make investing in diversity, the most irresistible investment opportunity there is and so really sharing enthusiasm and diligence and vocalizing as an allocator, where you’re finding this talent, how you’re finding this talent and that you’re sustaining your momentum and allocating to this talent I think is as helpful during these times as ever So,

Alexa Binns 40:00
Now that that really resonates that there are some of these words that are not necessarily helpful, like impact. But if you think of it as solving problems that maybe don’t apply to you, but are big problems in the world that apply to other people, there’s obviously money to be made. I get a lot of FEM tech deals, and the friend afforded me something on incontinence, you know, he sees his wife, he’s like, I don’t know anything about this, but seems like the kind of thing you might, you might be able to diligence Alexa and his wife chimes in and says, I peed my pants twice a day, honey. You don’t know this is relevant to us. Look at our cute Christmas card. And I will tell you about

Earnest Sweat 40:50
the laziness of investors. Yeah, so

Alexa Binns 40:53
So I do think that there are massive problems that you may not recognize or may not have affected your day to day life that are still, you know, trillion dollar trillion dollar challenges out there that need addressing?

Kate Nevin 41:09
Exactly right. There’s this economist that I follow. She’s great Dr. Pippa Malmgren. And she said it really well, when she said, um, those that will find something like those that will find success in the 21st century are those that love solving problems, not those that love money, right? So it’s almost like I feel like that’s kind of the new paradigm is allocators and investors, we need to be trying to find whether you want to call it impact, or D, if we need to get closer to the people that are finding the solutions for the intractable and maybe just sort of some of the basic problems of what we’re experiencing, that’s gonna carry I think all the returns going forward. And I think that’s kind of what we saw in 2020. Like 2022 was just some crazy valuations and companies that really weren’t solving big problems. And it’s kind of like, how did we get here? Um, so I feel like in a lot of ways, there is a new recognition that problem solvers are going to define success in the future. And so whatever you want to call that impacts women, you know, the complete shift in demographics that’s happening across the world, like, those are the people that I want to be connected to, because I feel like they’re really at the ground level trying to solve a lot of these problems. So I think that’s a good point, Alexa, like problem solving, not impact. It’s problem solving. Yeah.

Earnest Sweat 42:45
Yes, it’s sad that impact is an awful word. Now, it just says something about today’s climate. But in brighter news, I want to ask how many VC managers do you have in a portfolio today? Okay,

Kate Nevin 43:02
So I am firm, we probably have about 20 relationships. Um, so and again, maybe 20, maybe 25. And that’s really from the early stage all the way up to later stage growth. In terms of just the female funds in the portfolio, there are currently seven

Earnest Sweat 43:35
I believe we got connected through one of our managers, Sierra at CRP. Yeah, yeah. Yeah. did so. So when you’re sourcing? I’m sure you get both you go inbound and outbound. Who should approach you? And how’s the best way? Yeah. Um,

Kate Nevin 44:02
I have really tried to make it a point to meet with as many female GPS as possible. So over the last year, I think I’ve met with almost 500. And I feel like I’m just scratching the surface to be honest. But really, as I was digging in, around, getting to know the ecosystem, and the landscape and the opportunity, I felt like that was basically the most important thing really was to, to to, to have a touch point with as many managers as possible. So I’m still doing that not at the same rate that I was over the last year because I had some weeks that were basically full zoom weeks. And so now I’ve sort of instituted something called office hours where I have big chunks of time, usually one or two each week, and then I’ll just kind of populate any inbound there. So you know, I send people to my office. I’m colleagues, she helps me kind of manage my calendar. So, you know, her email is ir@tswi.com. And that’s really the best place to start. It’s how we can kind of track the initial inbound and then get something on the schedule for office hours. I’m also on LinkedIn, but I’m not as active there. So sometimes it’s easier to just come straight into the IR inbox. Yeah. And

Alexa Binns 45:28
I don’t think most people realize there are 500, emerging manager, female GPS, having taken all of these meetings, curious, what are some of the things that are, you know, what diamonds, what are some of the things that are table stakes, versus some of the things that are actually helping people stand out? Or really catch your eye? I think most emerging managers don’t really know who their competition is, to the full extent that you’re, you’re meeting everybody. Yeah, um,

Kate Nevin 46:05
you know, it’s really, it’s really interesting, because there is such a, it’s a broad brushstroke, right. And I feel like even of these 500, I think that might only be a true, maybe, third, maybe a half of all the funds out there, like, there’s still so many clearly that I have not met, but so far, in terms of what I’m tracking is, you know, for me, I’m willing to go into fun ones. So really, it’s not even like I’m waiting to see a certain execution on their own sort of internal track record, we can triangulate other track records, other ways to do the references. So that’s not even really the only bar. I mean, for me, in terms of managing a portfolio, there are just some minimum font size, like 22 million is really the minimum font size, I need to fund to be audited. Because that’s actually required in terms of our you know, maintaining all the books and records and auditing requirements for our SEC registration and all our responsibility to our LPs. So that audit is really important. And, you know, I, I love to see clearly since I’ve been digging in with women, there is a lot of conversation around lack of funding, access to funding. And you know, how to find a viable fund size, right, so you don’t. So I think that is something that I actually can’t solve on my own as an allocator, but spend time discussing with other allocators in my network that I now are focused on. And it’s really sort of How to Be supportive when it’s tough for the individual allocators to take a risk on a new small fund, right? Like what are the support scaffolding that we need to build on and so I’m always impressed when I see some VC managers come in. And they’ve already really thought through that support structure, whether they host their own accelerator, or they do their own sort of coaching, or they have this interesting pipeline ecosystem sort of. Because I think again, it’s just really iterating over and over again, how to build a more supportive ecosystem across the board. I would say that table stakes are letting me know how underfunded women are. Like, yes, I know that and it is the most frustrating thing in the world. So let’s stop talking about that. Tell me why you’re so deserving of being right. What are you doing? That’s transformative? Why is this fun going to be, you know, a three to 5x over time, right? What’s your special focus in women’s health care or women’s financial access or like if you’re digging down into one of those industries, particularly as it relates to women that is so ripe for innovation and disruption? I really have a clear pitch on that because I don’t think and I know this personally, because I’m also thinking about this. I don’t want to hear how underfunded certain industries are. I want to hear how you’re going to exploit the lack of exposure there. The lack of dollars there, the lack of investors there, right how are you going to use that to your advantage and hobby show not in the past.

Earnest Sweat 50:02
I want to switch gears to, you know, future allocators. So McKinsey has reported women are set to control much of the unprecedented 30 trillion in assets held by baby boomers, by the end of the decade, you know, calling it the great wealth transfer. What advice do you have for women coming into inheritance? And how should they approach maintaining and building wealth?

Kate Nevin 50:31
I think that’s such a great question. Earnest. And I think, you know, that is such a headline number that is like, I mean, that six, six years away, right, this wealth transfer is now you know, six years away ish. And I think about how important it is for women who have not otherwise been engaged around investing, or their family office or with their financial advisor, or, you know, with the gen one, or whoever is sort of above them. I don’t want this misstep, I don’t want this to be a missed opportunity, right? I mean, just because the wealth was transferring doesn’t mean that the levers are being pulled for change, right? I mean, there is sort of this larger, I think, agency and advocacy piece, and maybe a little bit of education that needs to go along that as well. Um, so my main message always to women is that you probably already know exactly how you’d like to invest your money. And whether that’s defined by your consumer spending habits, your philanthropic dollars, the way you volunteer, what you advocate for your thoughts on education. I mean, most women really know exactly what they want to see in the world, right? Whether it’s change or solutions, or just products that they’d like on the market. So I always try to connect that, so that I don’t get lost in the jargon, like it is totally a reasonable thing to sit down with your financial advisor and simply say, let’s look at the diversity of my portfolio, like, who are the managers? Like, can we just like step one, do an audit? Like, what is the makeup of the people managing my money across the board? Right, that’s a great place to start. I think most people would be surprised to find that there are very few women, very few people of color. If there are some amazing things, then let’s keep going. Right? I mean, let’s take it up to 10% 15% 30%. Those early conversations, I think, are really important. And then double down on Okay, well, you know, I’ve spent a lot of my time in education. Throughout my career, or my life, maybe I’m really interested in the future of education. What does the future of space look like? What does ed tech look like? Right? Or I think climate change is one of the most pressing intractable problems of our time. I want to double down on learning more about decarbonisation, and how to invest around that. So it’s just starting with questions of that values alignment piece, and not worrying about public equity, private equity, venture capital, real it like all the terms. That’s what advisors are for, right. That’s what I think allies and peer networks and investing groups and Angel networks are for. But I really, you know, I really hope that, you know, the six years eight, wherever, however far, you know, might take maybe a true 10 years from now that during this wealth transfer, there is a whole new generation of agency and allocators to these more diversified opportunities, because I think their questions and their value aligned investing will unlock exponentially what is seemed glacially slow, but that’s if and only if they really, you know, step into that sort of, I think, true power of change in terms of sparking those conversations. Well, and

Alexa Binns 54:34
Kate, I’m reminded of this image of you, tagging along to the annual LP meetings, that if you are one of these boomers listening, and you do have a decade of which you can co manage capital with the next generation. Your girls may not have the lingo of Wall Street Journal And so you may not have thought of bringing them along to your annual LP meetings in the past, but you just, you’re gonna get the money. So would you rather, start bringing them along today and make this a gradual process where you show confidence that they’re going to make smart decisions with what you are giving them? Or would you rather drop it in their lap when you’re gone? And they don’t have a chance to talk to you about it? You know?

Kate Nevin 55:30
Exactly. I think Alexa, I think we just as women, Mothers Daughters, need to just be talking about money more and investing more like normalizing it right? Not just having like, girl masbia TikTok thing that’s actually the opposite of doing that. My daughter shows me these TikTok. And I’m like, That’s not math. But the good news is my daughter has been my intern last summer and this summer. So I think it’s really willingness to throw anyone interested in the deep end, right, and not have to worry about getting everything right or sounding smart, or asking all the right questions like, so much of learning is awesome Moses and the willingness to just kind of pay attention. And so I would love to see more women, just just that I know that curiosity is there. So just remove the fear of being wrong or not knowing everything about it yet, and just be curious, like, figure out what the most interesting question is, and then just go from there. And I would say to the network, or the Gen ones, or the people that are still sort of running the family office, be completely open to that, right, like, to your point, like, we’ve got to get, you know, broader engagement from this next generation. And I think they have some really interesting ideas on how to do this. And we could probably learn a lot from their non traditional approach. I always tell people that if you’re in a room, and you really want to ask a question, there’s probably someone else in that room that really wants to ask that question, too. And they will be so glad that you did. So do it. Right. I just I really, I really think that curiosity and that you know, because being at the table, speaking of earlier, table stakes, like a seat at the table is quite literally table stakes. These days, if you have that seat at the table, ask a couple of probing questions, right? Don’t feel bad if they’re difficult, right? If you catch your advisor or your portfolio manager or someone flat footed, that means you ask the right question. So I think it’s really honoring that creativity and allowing more rooms and conversations for that to happen.

Earnest Sweat 57:56
Okay, thanks so much for the advice. The inspiration just being a trailblazer in our industry, and thanks for being on the podcast. Oh, it’s

Kate Nevin 58:07
a delight. I really enjoyed speaking with you both. Thanks for having me.

Alexa Binns 58:12
See you later, Allocator!

Proudly sponsored by

Subscribe for updates on events and resources for LPs and VCs.

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 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.

Copyright © 2024. Swimming with Allocators. All rights reserved.