Earnest Sweat 00:02
Welcome to swimming with Allocators

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

Earnest Sweat 00:06
With your host, Alexa Binns and Earnest Sweat. Are you ready? Let’s Dive in.

Alexa Binns 00:11
A big welcome to our guest, Jaclyn Hester, Partner at foundry.vc based in Boulder, Colorado. Foundry, invest in startups and early stage funds. Foundry manages 3 billion for their limited partners across 70 some portfolio companies and 50 some fund managers. Jacqueline is a recovering lawyer turned investor. She has been with foundry since 2016 and helped launch their partner fund strategy. Today we get into Jacqueline’s process, as well as her approach to investing in funds. Thanks. Thanks for having me. Jacqueline, can you share your LP career journey? So I,

Jaclyn Freeman Hester 00:51
As you mentioned, I am a recovering lawyer. I would like to say I’m pretty fully recovered. I was not a lawyer for very long. It was about five minutes until I realized not, not a fit for me. I did the big law thing, I think, and I was an M and A, which I think can kill a career pretty quickly. I didn’t know what an LP was, I would say, save for I’d probably heard about it in my venture capital class that I took in law school. And ended up volunteering at an event where Jason Mendelson was there. He was one of the founders of foundry, and he had been my professor for that VC class. He was like, I hated my job. I gotta get out. I got to do something else. Get out of LA, like you talked to me about it. And so we had breakfast the following week, and he told me about a bunch of portfolio companies that maybe I could go work with that were in their universe or TechStars. And right at the end of the conversation, he said, you know, he said, Do you have a finance or accounting background? I was like, not really. I have an MBA, but I didn’t focus on those things. It’s like, well, I don’t think you’re qualified, but I’ll introduce you to this guy, Lyndall. He’s joining us to launch a sort of a funds investing practice within foundry. He sees, we don’t hire people ever. We’re sort of anti hiring junior people, but he seems to want to hire somebody. So again, I don’t think you’re qualified, but I will introduce you to him, and that is how I became an LP to start out my career adventure. I really knew nothing about it. He met me. I. And he said the same thing. He’s like, I’m not sure that you’re what I need, but I think you’d be really good at this. So you’ll come launch this thing with me. It’ll be two years. There is no path for you here at Foundry. I’m breaking the one rule they have, which is that we don’t hire junior people. And you’ll build an incredible network. I’ll introduce you to lots of VCs. You’ll learn how you’ll learn about investing, you’ll learn how to invest in people, and then, you know, you’ll have this amazing network, and we’ll find something else for you to do. So obviously, I never left that was eight years ago. I’m now a managing partner at Foundry, and have shifted more to the direct investing side over time. We can talk more about that, but that is a very long winded answer to your question of how I became an LP.

Earnest Sweat 05:45
No, that’s great. I resonated with me a lot because I had this like inflection point in college when I had two internships, one at crevasse Swayne and more, and one at an investment bank, and I quickly so I was like, I’m working just as hard, but this doesn’t look as fun, and my bank account doesn’t look like you guys. So the law will definitely be like that. Corporate laws it can turn like no other for

Jaclyn Freeman Hester 06:16
Vass is a particular thing. Yeah, not knowing

Earnest Sweat 06:20
that yes, yes, I should have done my research. But yes, before we get into kind of like the foundry as an organization and then the plan to start this fund, fund to funds, what did you quickly see in those first couple of months of like, oh, this assumption of me liking to work with startups, it is true. And my background from the legal kind of perspective, this really helps in this way. Yeah,

Jaclyn Freeman Hester 06:48
what I realized was that people who are starting VC firms or newer VC firms are kind of like startups. And so it is like the analogy for startups is, at least at that time, we probably weren’t the pre seed investor, or even the seed investor. In some cases, we were probably like the series A investor. And then for a handful, we were a little bit later stage. For a handful, we were at an earlier stage, meaning that a lot of the firms that we backed were probably on fund two or three, even four. But there were a few where we, you know, we were in fund one. And so it was cool about it is, you know, I think in general, it’s really, it’s hard to be a good LP, because you have to find elements of edge and differentiation in something that has been very commoditized, which is we sell money and VCs, you know, we’re middle people, and we take money from large pools of capital and we put it into startups, but we don’t like we’re not building those things, you know, you’re building a firm. But So learning how to find the ways that these things are interesting and different from each other, in something that looks very commoditized on paper, and where it’s like, Okay, we have a fund of a certain size, and we deploy money to early stage founders. Is like, Okay, how is that different from the other person that told me that they do that at least like companies, I think it’s a little bit easier to tell how their product is different. And so it was, it was kind of a different way of looking at startups, where you really had to dig deep to figure out why something was special. And the special thing, which is, I would say, very analogous to startups, is that the special thing in early, in early anything, is the people. And in particular in venture funds, it’s really about the people. I would say there’s a handful of firms out there that have done a really good job of making it about the firm broadly and not the individual people, but for the most part, it’s the people, and so figuring out people’s brands and how they think and how they make decisions, and the team dynamics, and why would They attract talent, and you know how they think about portfolio construction and portfolio management and all of that, and then building a network, which is kind of hard to do, where you have enough trust and enough of like, a deeply embedded knowledge of, you Know, our small little thing that is early stage venture, where you can actually get back channel references, because that’s like the most important and hardest thing, and and then also just seeing enough where you know, you can know that you’re picking what you think is the best. So like in, you know, if you’re looking today at, you know, the AI co pilot for customer service, right, there’s probably like 50 of those at this point. So I’ll use something where I feel like it’s actually pretty commoditized. And so imagine a sea of, like, 2000 of those that are all kind of coming to market around the same time and popping up, and you’re like, How is this any different from the other one that I saw? And so I just think learning that and learning it from Lyndall, who had been at utmco and had seen, kind of this emergence of the emerging manager, an emergence of, kind of this new set of early funds and kind of the institutionalization of seed was a cool, really cool way to learn it

Earnest Sweat 11:12
so you kind of get started into it a little bit. But I was curious about, you know, there’s a GPS. Investing in other GPS is not a new thing, but to take the commitment to actually be an established platform and say we’re going to institutionalize this internally. Like, what was the decision making for that perspective? What opportunities Did you all see? Yeah. Want to do this,

Jaclyn Freeman Hester 11:36
yeah. So, like, the decision to do it was made before I came on, because I came on because I came on to help execute it, but then we kind of evolved it over time. But I know plenty about it. I did our last fundraiser, so I can tell all the stories. So my partners, Brad in particular, but Brad SaaS, Jason and Ryan had all been those founders of foundry, early on, had been investing in the sort of new set of seed firms as they started to emerge. And so they were writing personal checks. They were relatively promiscuous. I mean, they were writing checks to lots of people. They didn’t like doing deep diligence on anything. It was people in their network. It was people, like, not even really in their network, and they were just trying to be helpful. Oh, by the way, it’s great for deal flow, if you’re a Series A investor, if a bunch of seed investors like you and you help them get into business. But it’s also all about like, I think foundries, sort of like, give first and contribute to the ecosystem and the startup community, and it kind of all comes back around. And frankly, like, as a Series A investor, or like, sort of the one round later, it’s good to have a bunch of pre seed and seed firms that have been raised, because you kind of get more funded companies to choose from. So it was, you know, sort of good for us, good for them. And if you looked at it as a portfolio which they weren’t really managing as a portfolio. I mean, on the order of, like 100 funds, probably a great multiple, like they did really, really well. And some of that is timing. Some of that is who they chose to work with. A lot of its luck. And so, you know, it was kind of this mix of, well, we think that this is good for what we do. We also think it’s good for the ecosystem that we benefit from and take part in and want to see grow, and it’s a good way to make money. And so in thinking about that, and also foundry, you know, early on, was kind of, you know, we’re not going to do this forever. We’re going to have a number of funds and be done, and we’re not going to shift away from it. I think it’s hard to get to a point of like, okay, well, what would be next if we were going to evolve, and we have this one sort of core value that we call be joyful and experimentation, and so kind of like thinking about, like, what, what could we do where we’re doing something that we, you know, we think great startups can be anywhere, right? That was, like an early thing. And so we’re in Boulder. We were early in TechStars. This was, like another one of those, I think, like early thinking of like, hey, we see this. We’ve tested it enough. It’s worked for us. What if we brought it to our LPs and let them benefit from it as well, in more so, more than just us getting a good deal for flow from it. And so at that time, at the same time, and I’m not sure that they were thinking about it before these conversations with Linda, but at the same time, Lyndall, who had been at utmco for, I think, 13 years, and ran private markets and had, I mean, like, a banger of a venture portfolio for certain vintages, like, it’s all kind of coming to fruition now, but like us, vs first fund, Foundry is first fund. He was in Spark early and, like a bunch of really good funds, so he was sort of, he really wanted to focus on venture. He thought that early stage ventures, ventures that had the most alpha, were the most interesting places to put. Capital, and yet, as a giant institution, you can’t really, you know. So the listener who I’m sure knows this, but like a lot of these funds are 20 and 50 and $100 million when you’ve got a today, $35 billion endowment, I think at the time it was probably 20 at utmco, you can’t be spending time and you have a small team, you can’t be spending time writing like, one to $5 million checks or ten million checks, you have to put the money to work. And so he couldn’t really play where he wanted to play. He helped Michael Kim at San Donna startup, and so utmco was, like, an early backer of them. And San Donna backed a lot of these sub $100 million seed funds. So he was getting exposure to it. He was close to it. And similar to me, it was like, I’m close to this thing, but I’m not close to it in the way that I want to be close to it. And so he was kind of, I don’t know, he turned 40 or something, and was looking for the next thing. I’m close, but I’m not there yet. So it’s on my mind, what am I going to do next? And so anyway, they kind of came together. He had been a long time LP and Foundry was like one of the first people that said yes to them. And so they came together. He loved Boulder, and moved here, and then we started this thing. And so the idea was, let’s institutionalize what we’ve been doing with Personal Capital, but put it inside the fund. So the first iteration of it was a mix of was the first time we had done this. We still had a separate early stage fund at that time. This was 2016 we called it the founder group next, very original. It was 25% funds, 75% direct. But the 75% directs was a mix of an opportunity fund for foundry earlier stage portfolios, which we had done one iteration of prior in our foundry select fund that was like 2013 and then something we’d never done before, which was a later stage entry point, so you could enter at a B or a C, which is the thing that foundry historically had not done through our select fund, kind of earned the right to say that we could do that. But what if we could apply that practice to what some of these partner funds are bringing we call them partner funds. I thought that, by the way, what are we bringing to us? You can’t call everything GPL, p it starts to get really confusing. So, like, we call them partner funds anyway. So that was, that was the first iteration. Then over time, we kind of put everything together. And so we just had a single fund, 25% fund, 75% direct. But the directing was everything we did from an early stage opportunity. It’s

Alexa Binns 17:35
so cool to see how these pieces all come together. What were those early days like? Getting it up and running?

Jaclyn Freeman Hester 17:44
Yeah, it was fun. I really knew nothing at all, so it was funny to look back. One of the most fun things was, you know, we would get on planes and run around, and I never even really traveled for work before. I think my first firm was based in Cleveland, so we got to go to a new associate orientation in Cleveland in February. And so that was, like, quite luxurious. I’d really, really have trouble working. So it’s kind of fun. Like, you know, we would get on planes and go to San Francisco and go to New York, go to LA. One of the first things I was tasked with was, like, go figure out LA, you know, should we have an investment there? And so a lot of what I did was just like, just, you know, meet, find the next generation people, find one person who was nice to me. Not everybody, not all communities, are as welcoming as others. I would say La was one of the ones where people were really welcoming. A shout out to Monique via who was, when the first people I met, who was and so all you need is, like, one or two people to open up their network, and then all of a sudden you’re starting to, like, be able to put things together where you’re meeting, like, the kind of the firms that we’d be looking at, and then, plus foundries network, obviously, we had a portfolio, so we were obviously going to pick some of the managers we were already invested with to invest with. But as far as, like, the emerging side of things and the next gen side of things, that’s where I was focused. But to have context for that, I got to do everything. So it wasn’t like, it was like, Hey, you go meet the next gen managers, and I’ll do all the established stuff. We just did everything together. And so I had the context of what good looks like, you know, between foundry and then all these other firms like Founder Collective and freestyle and us, V and forerunner, and I’m gonna leave some out, and they’ll be mad, but like a lot of the more established folks we I got to learn from what it like, what good looks like, and see how to apply that to the next generation. And what might, what might we might want to be different for the next generation. And so, I mean, it was tons and tons and tons of meetings. And what was fun at the beginning was we would walk out of a meeting and Linda would say, Okay, you’re writing a check. Like he wouldn’t say anything, and he would ask me to go first, yeah. And at the beginning, like I was writing everybody a check, because I’d never been around interesting people before. I’d been around lawyers and these. All of these people had interesting backgrounds. And especially at that time, if you got into venture like, you probably had a relatively interesting background and had a lot of experience hearing about their investment theses and their portfolios, and, like, all the cool tech and robots and all this stuff that they were doing was like, way cooler than anything I had been around. So I thought everybody was awesome. And then over time, I think you go from, like, everyone’s awesome, and then you go to no one is awesome. Like, you have to kind of have the drop first. And so then I became highly skeptical and a little jaded, and then like, kind of, you know, balanced out somewhere in between. I’m so I’m like, I very much like and I’m fascinated by people, so I trend positive, but, you know, yeah, you have to have the context over time. So that was fun to learn. And I would say we did. We did a lot of running around, but it was nice to already have a set that we knew we wanted to do. It was more like waiting for their timing. And something that was super cool was getting to have allocations in firms that were sort of like inaccessible, and that was a member’s background and reputation, and my partners at foundry’s background and reputation, I’m sure they liked me just fine as well. But we sort of got into some sort of top, you know, limited access firms because of that. And that was pretty cool to get to be part of those things as well. And then just meeting the other LPs was really interesting. So it wasn’t just about meeting the VCs, but then starting to learn the LP world. And, you know, I remember that I knew what a family office was, because when I was a lawyer, we had trusted estates practice. And I remember being like, like, so is the family office? Is it like an office that this family goes to? And that’s I already had, like, made that stupid comment when I was a lawyer, so I knew what a family office was in some respects, but I didn’t understand the level of investing that they do, and how some of them are really institutional, and how some are really not, and sort of the wide range of like, how VCs raise their money. So getting to kind of see outside. So that was really cool. Was

Earnest Sweat 22:03
there a certain like, did you guys have a different ideal customer profiles for the different managers that you wanted to feel or did it kind of just ebb and flow on the different opportunities? Yeah.

Jaclyn Freeman Hester 22:20
So I think there was, like a high level there were some high level parameters around what the fund ought to look like or not look like, and then the people. And so I’d say on the fun side, we were mostly looking at 700 million. We would do some that were a little bit larger, because it was an established manager that we knew, or because that strategy made sense, that those were more of exceptions. So we did a lot of smaller funds. We liked the alpha and smaller funds. We also wanted to make sure we weren’t backing funds that we might be competitive with. So it was, like, important that they kind of like, you know, be the rounds before us. So I think that was an important portfolio construction matter to us. So with some exceptions, most of the portfolios were in the category of like 25 to 40 companies buying most of their ownership up front. So we like to add most of them. So that was important to us. And then there’s the and us focused. We really didn’t do much other than blue yard, which was an existing relationship outside the US. And then, like, you know, we don’t do biotech or life sciences, so we didn’t back up biotech, life sciences firms, a great way to make money, also a great way to lose money. And we didn’t really, like, feel like we had expertise there, and we probably didn’t. We didn’t really do much in, like, CPG or a lot of consumer we did, we did forerunner, but sort of different style of consumer that we could underwrite. So some of it was, you know, standing alone has to be a great firm, and we have to believe in it, underwriting it as an LP. And then also, we wanted overlap with foundry in some way, shape or form. So we looked at lots of we looked at, we have plenty of Bay Area firms. We also have firms in New York and LA, but then in between, like that was important to us. And then there’s the people’s side of it. And so the people side of it, it starts with the like, the sort of top of funnel, good humans. That’s, that’s a more positive way of saying no assholes, but I like saying good humans. And then sort of filtering into these people, exceptionally smart and thoughtful, and they have a thesis and can articulate what it is that they look for. Do they have an amazing reputation? Do people love working with them? Are they talent attractors? Are they dynamic, where a lot of people want to be around them, and then have they built a fund and a firm that plays to their strengths as individuals or as a team. And so kind of looking for a GP strategy fit. So those were kind of the general things that we thought about. We like to get to know people. So we would take we, you know, we weren’t super slow. We weren’t as slow as a lot. Institution. But we also weren’t just like, you know, willy nilly rating checks. And then I will say one thing that was an interesting adjustment for Lyndall was in negotiating the LPS. You asked me this earlier earnest, it was helpful to have a legal background, because I could actually understand the documents and run that process and but he had to adjust from being a 50 million or $100 million check to like one or a $5 million check, and the negotiating leverage you have at that stage changes. And so we quickly shifted from like the demands of what the LPA must look like to what I think, which I still do today, which I think is really the way to do it, which is like we would give them the checklist that our firm would put together, and our firm that represents us, we work with, he’s now at DLA Piper, David and Sarah over there, they will put together this checklist, same one for each, for each LPA, and it was the institutional version, right? And so we would, we would show it to the GP, and we would say, here’s all the comments you’re probably going to get if you start to raise from institutions. Here’s the four comments we’re going to make that we really care about. But you should know what these all mean, and let’s work on it together, versus like, let’s put the lawyers against each other and spend a lot of money. You need to understand how you’re and so that was kind of our shift once, once we realized that being 10% of what you went towards is very different.

Alexa Binns 26:28
Well, that is a real gift that you offered those managers on what to expect when they did start talking to the current bundles, as opposed to the past bundles did with this explosion. I mean, in the past eight years, the number of first, second, and third funds has exploded. Did your process have to change?

Jaclyn Freeman Hester 26:51
I think we, I don’t know if it’s because of the explosion of funds or because we just got into our rhythm and learned. I think everybody’s process evolves over time. I would say that the same things that matter to us still matter to us. We probably started to say no to initial meetings a lot more, which, like early on, I really tried to meet everybody and anybody and be helpful as much as possible. And I still want to do that, but there, there just are so many. So I think we had to have a higher like, top of funnel filter. And I think the like, what we would spend time on, or sort of when we would, when we would really dig in shifted. And so I think we would get better at saying no more quickly, because what? And then, once you have the context, and you’re seeing everything that’s out there, you can, you can do it more quickly, but I don’t think we ever felt the need to, like, go a lot faster. I think it’s more about, like, being able to scale so that you can handle all the inbound I will say, well, one thing on that, though, I will say that with especially like in the 2020, to 22 time frame, where a lot of, and this is kind of like the the other version of emerging managers, which is like emerging managers that didn’t have a lot of investing experience, um, which I think, I think has shifted, and I don’t think we’ll see nearly as much of that. But I think if you wanted to look at some of those, and we did, at least, like, entertain that world. You had to find non track record ways, or not develop track record ways, which is, like, I think, definitely hard for institutions to underwrite the managers. And so you had to find things that were analogous to what you think a good manager does in that person’s background, and so I think that was a little bit of an adjustment. Could

Earnest Sweat 28:45
you talk a little bit like, I wasn’t going to ask this, but like, could you talk about what did work for you, whether it was like, specific questions or different tactics that you tried to do to back channel in doing diligence on firm and due diligence, and doing diligence on like, non track Yeah,

Jaclyn Freeman Hester 29:02
We actually did any of those. If I think about it, there were, I think that we didn’t do a lot of those. I think to the extent that we did, they at least had Angel track records. But the number one thing is attracting talent and making decisions. And then if there’s a team dynamic, you have to vet the team dynamic. And so a lot of it was just understanding, like, who this person’s network is and why they see deals. And you know, to the extent that there’s an angel track record, can you take that and extrapolate that that person could write bigger checks. And so a lot of that talking to the founders and verifying that they would have taken a bigger check, or that person super helpful. Another thing that I think is interesting in general, and like, you know, you can’t hold people to it, is just, where did you choose to work, right? And so do some people. Like, made really good choices, like, so for the people that had more of like, the tech career that ended up in venture making, a choice of where you work, in some ways, is an investment decision, right? You’re not spending so much of your time. And so those are the types of things that you could do to at least see, like, how their decision making goes, and then talk to them about that. And then for operators, I think obviously, like successful founders, is one thing. You can see that they kind of created a thing, made a bunch of investment decisions, hired a bunch of people, and then, you know, for many that became VCs had a good outcome. So that’s like a good way of testing that. But even, like, I think that people that have product experience make good investors, because you’re like, what, how that lends itself to like, your you’re researching a product idea, you’re deciding if you bring it to market. So for some of those people, you could kind of talk through like, what they did at their particular place.

Earnest Sweat 31:01
Jacqueline, you, you spoke about how, like, over your career at Foundry, you’ve transitioned more to direct investing, and it kind of takes me the alignment of, like, a series a fund is going to start a fund to fund of pre seed and seed funds so they can get increased deal flow. That’s good in theory. How do you execute on that? And what were some learnings for that?

Jaclyn Freeman Hester 31:25
So many learnings on that. So a couple things I think that we learned were true over time that we didn’t know were true at the beginning. Is that, like, we were pretty early in doing this. I would say, I won’t say we were the first, but I would say we were early. And, like, over time, you saw a lot of GPS, mostly writing personal checks, but a handful, kind of having an allocation in the fund. But it doesn’t just happen that you write someone a check and then they send you all of their deals and so, and then in that case, you’re being reactive. And so I think one of the things was just realizing, like, we needed to get really organized around it, and we needed to be knowing the portfolios and watching them develop and identifying for I mean, if you have a company, your cap table, in some cases, have a ton of investors, but for the most part, you have, like, maybe over time, three to 10 to 15 investors. That matters when you’re early, like an emerging manager in particular, or you have seed funds, you have, like, hundreds of LPs over time, and so, like, you know, you can’t constantly be thinking about what each of them wants to do. And we lived this on the other side, being a manager that had LPS that wanted to co invest with us, and figuring out what that needed to look like to actually work. But in any case, it was like it was on us to kind of monitor the portfolios, know the companies really well, and come to our these, like, check in meetings that we’ve kind of proactively set up, with a prepared mind and with a list of companies that we already thought was interesting, because there’s just so much adverse selection. There’s so much bias when you’re already in a company. And you know, there definitely are cases where we would identify something and a manager would be like, not that one. And so those relationships can help with that, but it doesn’t mean that they’re not biased. And so I think it’s, it’s on the LP to figure out what is it that you want to invest in, what would be a fit for you, and then messaging that and keeping it top of mind for the deep early on and meeting the founder in a way that’s not, you know, disrespectful of their time, or not, like, way too far in advance. So I think that was a learning that it’s like you really have to create a program around it, and you and you have to be super proactive. I think another thing is that you have to remember that, and not all, because some firms, some like early stage firms, do a lot of Series A, but for, like, pre seed and true seed managers, they’re not necessarily good series A investors, right? Like, there’s a reason that they do what they do and that they choose the stage that they say, you can’t outsource the work to them and the decision making. And so like, you have to understand where they’re biased, where they’re, you know what they’re good at, and then bring your own lens, but using and you get to know the managers well too, right? And so, you know, like, even on a given team, right? We’ll call them Sheila and Marge. I don’t think anybody in our funds is named Sheila or Marge. And I’m sure Sheila or Marge will call me later and be like and like. There are the types of friends where Sheila, like, loves every deal and is calling you this is the best deal ever, and Marge never says anything. And so when Marge pops up and says, Hey, you should really look at this one, then you pay attention. But it takes time to get to know those things about different people. Or like, Sheila is really good at Dev Tools deals, so when she sends you to a marketplace, maybe not ragging on Sheila a lot, but in any case, like, I think you have to get to know the managers. You have to do your own work and be proactive. And then. A fun sheet, which you can’t rely on, but as a kind of a fun sheet you see who presents at the annual meetings every year, because most firms are putting who they care about. Founders are up on stage, and so you can kind of track. We always joke that you could, just like, run a fund by just doing whatever presents at the annual meetings. I wish I had actually tracked that to see what the returns would have been. But yeah, those are some of the learnings. Oh, one last thing I would say for us, we’re, we’re a VC firm, right? And we have, we have a reputation. We’re known. So when we want to meet a founder, I think it’s easier to say, Hey, this known brand wants to meet with you. If you’re an LP that isn’t known for direct investing, which is most you have to be really thoughtful about your tasks and thinking about things like, what do you bring to the table? And you’re more of a co investor, whereas we were more of a lead. And so thinking about what it means to be a co-investor, you have to move quickly. You have to know what your process is. You have to know what value you can add to things of that nature. And so I think that’s another thing that maybe was different for

Alexa Binns 36:05
us. Yeah, when we would send out our, you know, quarterly LP updates at Jesse Draper’s firm, and Tim Draper would write back and say, can I talk to that company that you just gave us the update on? We always knew we had, we had something good. So Jacqueline, would you recommend this strategy to series A or growth funds? Now that you’ve sort of seen how it all worked for you,

Jaclyn Freeman Hester 36:35
I wouldn’t recommend it as something everybody should just do, right? And I think a bunch of firms tried to do it, and a lot of them, I know, tried in crazy times to shut it down. And I also don’t think that the time that everybody did it was the right time to be doing it right, like now would actually be a great time to be doing this, which, which we are doing. And so what I would say is that I think you have to think about why you would do it, and then what it should look like for your firm. And if you want to bring it inside of the fund and have, by the way, LPs hate fees on fees. You all know this. So if you’re going to have a significant version of your fund in it, you have to understand that it may change your fee structure for all sorts of things. They also take longer to return, so that changes things stop for the faint of heart. But what I would say is, if you want to do it as a real strategy that’s going to be where you’re going to really invest in setting up something that’s going to be core to your business, you’re spending a lot of time with the managers. What we liked is, I think of it as a filtered set of opportunities to focus on, because there’s so much noise out there, it’s nice to just be focused on a set. And it’s like, Well, we think these managers are great. We underwrote them ourselves. Most fun, most companies that come to us have already raised a seed. So why not have some focus on this? I don’t think you can cut off the rest of the world to it, because you have other networks and you want to look at other deals that are interesting, but it is a nice way to proactively focus on a set of deals where you have information and a relationship advantage. And I would say the relationship advantage is much higher than the information advantage, but I do think that if you’re going to do it, you got to focus on it and actually spend time on it, whether that means you spin up something that’s real and you hire someone with experience doing it to run that, or it’s more like, Hey, we’re gonna write some checks as the GPS. You still probably want somebody focused on it, but maybe you’re not investing in it as much in it, but like, like, anything like, you sort of get out of it what you put into it. And so I think if you’re gonna do it like that, you need to have a real strategy around it, have a sense for what you’re trying to get out of it. But, you know, I will not discourage GPS from writing checks to emerging managers, because that is the way that most emerging managers get into business. And so I think it’s important for the ecosystem

Earnest Sweat 38:51
Jacqueline, where it feels like it’s an inflection point in the industry. Or I’m just almost 40, so I think everything is at an inflection point.

Alexa Binns 39:02
But if you do believe that a new podcast called almost 40, almost 40? Yeah,

Earnest Sweat 39:09
I just got six months. But where do you see the industry going?

Alexa Binns 39:14
People think earnest and I are like 25 by the way, so it is quite surprising for

Jaclyn Freeman Hester 39:22
and they were like,

Earnest Sweat 39:24
I promise, I’m 40 Yeah, these are 339

Alexa Binns 39:26
year olds. In case you don’t know what 39 looks like. It’s this attractive. Hey,

Jaclyn Freeman Hester 39:31
I’m 37 years old.

Earnest Sweat 39:33
We have a young

Jaclyn Freeman Hester 39:37
bug. What I hope to see is people who love it, because you have to love this work to do it. Yes, you can make a lot of money, but it’s, I’ll credit my partner, Ryan, with this. He calls it “get rich slow” and then I’ve added “get rich slow”, maybe because a lot of people do not make money doing this, and especially if you’re starting out small, like you don’t really make much of a management fee. So it’s all about carry and you may not make much money in carry if your fund doesn’t perform, and you won’t know that for 15 years and or 10 years, and you’ve already dedicated your career to this, and so you can’t really switch. So it’s like, it’s a hard thing. There are better ways and better asset classes for making lots of money, which includes hedge funds and PE and buyouts and things like that. So I think it’s like, I think that it kind of goes back to, like, either the tourists go away, or the people who love it really want to do it. My hope is that you get people with, like, just new perspectives on how this should be done, attracted to the industry. And I think, like, what I would like to see is some, some of the back to basic stuff, which is like, making the fun size makes sense, having a real strategy and having some discipline around it, I really wonder what will happen with the multi stage firms. I don’t know the answer to that, but I think it’s really hard to return good multiples on those, those kinds of sums of money in the billions of dollars. And I hope that early stage founders get smart to the idea that if you take money really early from one of those firms and they don’t continue to back you, you might be kind of fucked. And so, you know, we’ll see what happens with all those and whether they can raise but I think there’s a bit of correction at the same time, and a lot of people, as you know, like foundry, made a decision. And proactively that we’re not going to raise more funds. These funds take 20 years to manage. I am the youngest, I like to say, by far more than my partners. And it wasn’t really like the next generation, like I said, like, kind of wasn’t set up to do that pretty adamantly. So I didn’t expect that. I were

Alexa Binns 45:19
the only person they ever hired. Yeah,

Jaclyn Freeman Hester 45:23
and breaker. I, you know, I like, I’m likely to start something new in a couple years after we finish our investment period, but I will always sort of be connected to foundry, and still help with my foundry work and work with the founders. I get excited about, like, just generational shifts, and I think that we’re heading into one, and I think it’s going to be a good vintage. You know, what happened with the bull market is a lot of LPs that never touched venture and hated it saw like, oh, shit, I missed out on this money. So we now have to have a Venture Program. That’s the exact wrong time to be starting your Venture Program. And so a lot of those programs started and will probably stop pretty quickly because of the change in valuations that people have seen and just the craziness. And so what I like, what I’m excited about, is for the folks that are really smart. I think there’s the LPS that will continue to do venture as they always have consistently. But then I think the people that we attract in the next three to five years of this vintage 2024, to 27 or whatever it is, I think they’re going to do great. And so I like that it’s really exciting for the future of the industry.

Earnest Sweat 47:51
Thanks so much. Jake Whalen,

Alexa Binns 47:53
What a good time.

Earnest Sweat 47:55
No, this is, this is great. We really appreciate your perspective and just walking us through your own journey and learnings. If people, especially amazing founders, want to find you, how do they get in touch with you?

Jaclyn Freeman Hester 48:09
So my email is on our website. If you’re smart enough to figure that out, you could find me. I’m on LinkedIn. I’m trying to blog more. So like, I’ll put my blog posts up on LinkedIn, and I will make my way around. But yeah, like, I’m focused on Direct Investing Series A and B. So please holler at me.

Earnest Sweat 49:02
Thanks so much for joining us. You did great.

Jaclyn Freeman Hester 49:06
Such a pleasure you two. Thanks for doing this.

Alexa Binns 49:08
See you later, Allocator!