Earnest Sweat 00:00
Welcome to swimming with allocators,

Alexa Binns 00:03
The VC podcast from the LP perspective

Earnest Sweat 00:05
with your hosts, Alexa Binns

Alexa Binns 00:09
And Earnest Sweat. Are you ready? Let’s dive in. Today, we are happy to introduce Matt Curtolo, a seasoned LP who you may be following already. More than two decades ago, Matt began his alternative journey at Hamilton lane. He then went on to lead private equity at a large, outsourced CIO firm, and then co managed MetLife alternative investments portfolio. Most recently, he built out the investment capabilities at Fintech startup allocate. And we’re speaking with Matt today about which strategies for allocating work for bigger institutional investors versus the growing High Net Worth retail investor class and his lessons learned from working as an allocator of all shapes and sizes and managing hundreds of GP relationships over the years. Thanks, Matt, you’ve invested on behalf of some of the largest limited partners in the world, and that’s across alternative assets. So could we start out by just talking about sort of the role venture plays in relation to other alternatives for these really big institutional investors?

Matt Curtolo 01:09
Yeah, it’s, you know, I think when you think about an alternatives portfolio, right, it can cover a lot of different areas. And traditionally, with larger institutions, the places where you can park the most capital get the most attention. So places like credit buyout infrastructure, places where large checks can kind of do their work, end up being the lion’s share of an allocation. And that’s a generalization every every institution is a little bit different, but venture is usually the smallest piece of the pie for large institutions. And obviously, when we talk about the endowment and foundation world, that’s a little bit different. It’s a different pool of capital. So we can segment LPS into a lot of different sub segments, but we can just say, the bigger you get, the more important the efficiency of capital is, and oftentimes VC, which requires smaller checks. The fund sizes are a little bit smaller, so that ends up being a smaller portion of the pie. So I think the piece that becomes a little bit of a constraint is the bigger you get, the larger checks you have to write. The universe of VCs that you can invest with also gets smaller. So you start thinking about portfolio construction, like, can I write a ten million check when I have a three or four or $5 billion annual plan? So thinking about moving the needle, and thinking about again, not just efficiency of capital, but efficiency of time, that’s also something to consider as you put venture into the portfolio. Is it? Is it meaningful enough to spend as much time? So I think you have some of these plans who will outsource it entirely. Maybe you go to a fund of funds. Maybe you use, you know, kind of the hub and spoke model. So you may have one or two large relationships that then you can maybe add on to with some smaller, specialist type funds you really want to make sure, and I think most of these organizations are cognizant that the dollars have to be meaningful to make it worth the while. Now, on the flip side, I’ve always been a proponent, I’ve long been a proponent of technology as a component of a portfolio. Obviously, venture is the best expression of technology and innovation. It’s the lens into the future. So I think if an institution is not paying attention to it, is not investing in it, is not active in that space, whether it be directly, indirectly, through fund of funds, creatively, through other structures that may not even be available to all investors that definitely have a blind spot then, because you’re either seeing things that are multiple years ahead that you’re going to see reflect in the rest of your portfolio, or in other cases, you may just be missing, you know, a big potential source of alpha, as we see in the in the public markets over the last several years.

Earnest Sweat 03:59
Matt is there you mentioned how the different LPS can be segmented off based on how big they are and how that has an impact on what type of venture allocation they can make. Is there anything from your days as an allocator or in the outsourced CIO role where you feel that VCs don’t have a good understanding about their, you know, first or second, most important customer, the allocator,

Matt Curtolo 04:32
You know, I think there’s, it’s a good question because I think that is something that we talk about a lot, like, where do You fit in the ecosystem, right? You are your customer, right? You can’t be in business without folks who are willing to provide you capital to go execute that strategy. I think that’s something we always remind folks of. It’s a fortunate position to be in. You are getting trust and confidence from investors and getting capital to do that. But. I think just understanding who’s the right who are the right people, where’s the right lane and right path to go down for the VCs, this whole Know Your Customer concept resonates throughout the industry, so it’s making sure you spend the time to listen to who that customer is, understand what their goals are. I always say this is a long journey time and patience, and your timeline as a VC is likely going to be different than the allocator, than than the LP. So making sure that you are you’re going to have to bend a lot of different ways and coalesce to a lot of different circumstances that might be happening the snap your fingers and have it happen is, is not something that really happens, particularly at the larger end of the of the spectrum those larger institutions have, I would say, more process in place, for good reason, but that does elongate the process. And knowing that going in, I think, is super critical, and knowing when to take no for an answer, right? Yeah, don’t think that’s something that a lot of people have a great handle on. There’s the idea of being persistent in a respectful way, but also valuing your own time, right? You can’t, you can’t convert everybody, no matter how hard you try.

Earnest Sweat 06:19
You Matt, I throw a curveball at you, but it’s kind of on this subject. You know, from our various conversations on air, off air, allocators as well as VCs, friends of ours have spoken about the difficulties of working with, kind of the third parties within our ecosystem, right whether they’re consulting firms or outsourced CIOs or a combination of both. And then you also mentioned that there’s more technology coming right to make it so there’s more information provided. What’s the case for that type of allocator, that role in the allocator space today, and how do you think it’s changed over time in your career.

Matt Curtolo 07:02
Yeah, I think it’s been a few decades. So if I go back to the early days, it was, you know, the universe was a lot smaller, so coverage was a little bit easier. I think that the fundamentals of how you source, how you do diligence, how you ultimately monitor managers once you’ve made an investment. The core of that hasn’t changed the implementation of that, I think that your point about how many layers do you have to go through? There is a place in the market. Consultants serve a really important role within a lot of structures, but you also want to make sure that the flow through of that information is happening in both an efficient and a transparent way. So that’s where I think, as time has passed, technology, whether it be, I now have access to a portal. I mean, this sounds like, you know, we talk about like the iPhones, only, you know, 15 years old, but this, the beginning of my career, was still all PDFs and documents. We had file folders and file rooms, and, you know, that’s how you entered information into a system to be able to look at that portfolio. So an innovation like that, where everything is digitized, now we have things where you’re able to scrape that data, get that into a system without any human intervention. So that’s just an efficiency gain over the years. I think that helps the end LP, if you talk about layers in between, that’s going to be a place where the LP is more informed, can make better decisions, and can think more independently and probably tease out more insights. I think that’s that’s a pretty basic example of where technologies being inserted across the value chain, but even the models that we used to run in Excel, that you’d have to press a button and wait a few minutes for everything to populate, you know, being able to have higher order analytics, doing things that are derivative calculations and things like that, in a system that understands our asset class. For many years, it was just trying to break legacy systems into or conform them into working for what was necessary and in private assets. So now we have purpose built systems, which I think give an allocator, I think, and a GP, a lot more, a lot more tools, a lot more tools in the toolkit. It

Alexa Binns 09:34
we hear based we also hear that a lot of you know, even family offices, they’re much more interested in bringing on somebody who maybe was an early, early analyst at a VC fund, and they’re looking to do directs, because that’s where they see alpha, rather than working with an outsourced

09:53
CIO.

Alexa Binns 09:54
Can you help give some perspective on where? Or where you come to the table, versus trying to do this yourself in health, it’s,

Matt Curtolo 10:04
I think, the first question that every allocator, or every institution that’s looking to allocate needs to ask, having worked at places, a place like allocate, where I was, most recently, where we were serving as the conduit for the high net worth individual for effectively, institutional retail market, that’s a group that probably can’t afford to hire their own staff to be able to execute this. So you use a platform. You use the best fit resources that are available. So I think one is how much capital you’re going to deploy, how much control do you want over that? Do you want somebody in house who can implement a very specific strategy, in which case there’s the trade off between cost time and the value of that person? But I do think I’ll get back to the point of size. Size tends to dictate what type of offerings are available to you. So I think having worked at hurdle County and the outsourced CIO, many of our clients were small and mid sized institutions that might be anywhere from $50 million of assets to a billion. But the consistent theme there is, it’s still not that big to have a full time staff focused on this, you can pick a number of where does it make sense to start bringing people internally? And I think it does go back to those key themes of, how much time are you going to spend on it, how many dollars are you going to deploy. And, you know, is there a particular strategy that you feel like only you can reflect through direct implementation?

Earnest Sweat 11:39
Has the recent kind of performance that we’ve had kind of issues and just the kind of cold market that we’ve had in venture in 2023 change any of your thinking on the asset class going forward?

Matt Curtolo 11:56
I would say yes and no, right? I think the entry price is the only thing that you can’t change, right? Once you’re in a company, what you paid for it is what you paid for it, everything else, particularly when you think about an early stage company, it’s probably going to change along the way. So yes, we’re in a more favorable pricing environment from an entry perspective. It’s not universal, and I don’t think it’s cheap by relative standards, but it’s certainly more attractive. So I think folks still need to exercise this point. So yes, broader market favorability as valuations have come down and entry pricing has come down, but I’d say no to the fact that venture is not really something you should think about in a tactical allocation, as an allocator, when we think about early stage, like it’s five to 10 years for these companies to mature and exit and like I said, they’re gonna pivot or evolve during that period. So trying to time, honestly, any private market is a fool’s errand. But venture, I think, is particularly silly when you think about that. So as an LP, I have to map the market. I have to do my due diligence. I have to ultimately make a commitment that can span several months or even quarters, and then the manager themselves is going to spend 234 years finding and investing in the new companies, then making follow-on decisions, helping those companies scale if everything goes right to an exit. And my sense is a lot of things are going to happen in that time period on the broader market that are not necessarily going to be things that you have control over to be able to impact. So I kind of take it back if you don’t want to try to time this market. It’s still fundamentally a bottoms up manager selection game. And that’s not to say certain vintages aren’t going to be better. To be better than others. And I’d argue now the entry points are better than they were in 2021 for example. But if you just took $1 today and blindly allocated it to any manager, I don’t think that’s going to be a recipe for success. So the market is more favorable now, but the manager selection and finding folks who have exhibited discipline across a lot of those cycles, I think, is what’s really going to be the driver of outperformance from this vintage.

Alexa Binns 14:14
There’s quite a bit of buzz right now around a recent carta report, where people are sort of thinking about timing the market. How much do you leverage third party reports like PitchBook and carta for when measuring performance? Are you nervous about any of this new data?

Matt Curtolo 14:34
It’s you know what performance is, one of those things. It’s always been the hardest to truly measure. I remember my first role at Hamilton Lane in 2004 we were trying to develop what was an appropriate benchmark at the time, and that is still ongoing. So I don’t think there’s a holy grail yet. I’m like, here’s a number that everything should map back to. Here’s a data point that we all anchor to all of them. Universities out there that collect data have their own flaws, and I think they’re all incomplete in terms of truly covering the whole market. So I always say they’re all good data points, but take them with a grain of salt. Use them with caution. And I think the other thing, and Alexa, you mentioned the Carter report that came out, making sure there’s context around these data points. I think carta has a unique lens into the market given the type of transparent data that they’re able to collect on a company level and at a fund level. So that’s something that’s valuable as an augmentation of what exists out there. You know, the pitch books, the Cambridges, the prequins of the world, who have been around for decades, but something like that, that chart, that particular chart that came out was, was a chart about DPI for early stage companies, and it created a lot of buzz, because I think people took both sides of the argument, and the reality is that’s not right or wrong, it’s it’s your assessment of what that data point means to you? I would make the argument that as an early stage investor, if you’ve underwritten meaningful DPI by year four, year five, you’ve probably been a little bit too optimistic, and maybe folks who are underwriting in 2020 and 21 had those rose colored glasses on. But I do think that’s a data point that is interesting to look at, interesting to talk about, but in isolation, is not something that should dictate your investment strategy or how good or bad something is. It’s one piece in the mosaic. But you know about performance, I think we talk about these universe comparisons and things like that. There was a report, I want to say, maybe five or six years ago that said 75% of funds could label themselves as top quartile depending on which universe they used. So it’s pick a metric, pick a universe, get a little wiggle room with vintage years. So top quartile people promote relative performance and expect that from an allocators lens to be the guiding light for what’s out there. It comes back to you as an investor in an institution, what’s your goal? And that’s the thing you need to measure against and manage to so if it’s an absolute return, if it’s a relative return to the public markets, if it’s a relative return to, you know, composite that comes from one of these universe providers, that’s what matters the most. I think we throw out a lot of arbitrary terms that people take as gospel without looking at the context. So I think that’s it’s certainly more prevalent is, you know, more and more folks are active on social media with with comments on all sides of the argument, but keeping it insular, what is the most important thing to you as an organization and investor, and really managing towards that without letting the noise kind of impact a lot of that decision, I think, is the way to think about performance.

Alexa Binns 17:51
Frick, hilarious. 100% of VCs are in the top quartile.

Earnest Sweat 17:56
It sounds like an Onion article. It actually reminded me of when I was talking to an allocator out here in San Francisco who will remain nameless, and is kind of bearish on ventures that they do. They do some work on it. And he was saying that with the growth of how many funds there are, how impressive is top decile anymore if there are 10,000 funds, so it really goes to not using the kind of the same frameworks that we’ve used in the past, but like, what is your as a firm What’s your personal goal? Like, what’s the return mark that you’re looking to hit?

Matt Curtolo 18:36
Ernest? It’s funny. I’ll add something to that, because looking at an analysis of the number of funds that are captured by these major universe providers, and then you look at both anecdotally and factually, the funds that have had a closing I don’t think there’s a major universe, probably a little dated, that covers more than 20, 25% of the market. So even though the top decile that’s being reflected in some of those universes, maybe it’s a number, but you’re probably excluding more than half of the market. So is that a real reflection of what the relative performance is? You know, you get a lot of these. I see a lot of decks where folks are showing numbers that are likely not being captured. They’re too small. Don’t have institutional backing, or whatever it might be. So is that? Is that, again, a fair assessment of how your portfolio or how the fund managers are performing?

Earnest Sweat 19:27
Now we’re going to take a quick break to speak with our sponsor

Alexa Binns 19:31
on the show. Today, we have industry expert and sponsor Paige Gardner, territory manager of Texas, at camber. Road camber is the most cost effective and flexible leasing company for venture backed businesses. Thank you, Paige, for partnering on the show.

Paige Gardiner 19:45
Thanks for making me happy to be here. Absolutely.

Alexa Binns 19:51
Camber Road offers equipment financing. So can you help lay out when we have a lot of VCs listening, they’ve got portfolios. Filled with founders, when should they all be considering leasing versus traditional debt?

Paige Gardiner 20:07
You know, anytime. Really, I think for us, I always want to start the conversation earlier, rather than later. But when you think about leasing versus venture debt in particular, we’re bigger, big believers in diversifying. We think that both are really important, and see ourselves as a complement to venture debt and complement to venture capital. We think venture debt is a great product, and we work really closely with venture debt providers, which can be used for a multitude of different things. I think the main differentiator between leasing and venture debt is, is really our focus, and that being strictly on capex and F, effin E

Alexa Binns 20:54
and I think we VCs appreciate it, because nobody’s leveling us in senior debt. What are some examples when you say um equipment of what founders are working with you to finance? Yeah.

Paige Gardiner 21:10
So we’re totally industry agnostic, which means we finance all different types of equipment and tech, everything from heavy duty machinery manufacturing equipment to laptops and office furniture. It’s really any physical asset you can dream of. We’ve likely looked at and financed some things that don’t typically come to mind when people think about leasing necessarily. Maybe we also do really custom and bespoke assets, first of its kind, cutting edge technology. So compared to some other lenders, we’re actually less focused on the hardware itself, more on the company and the scalability of the opportunity.

Alexa Binns 21:56
Interesting, no, that’s very helpful. And who’s a good fit for financing? What are you looking for when you’re assessing them?

Paige Gardiner 22:05
We’re looking for fast growing, primarily venture backed companies that we think we can build a long term partnership with. What really excites me is working with companies that I know we can scale with overtime and do a lot more and grow alongside them. So we use our own capital too, which gives us quite a bit of autonomy over deciding who we work with, and what that looks like. But I think the one commonality among all of our customers, and certainly our best customers, are those that believe their equity is extremely valuable, and they understand that by leveraging a partner like camber road, they can extend their runway and get to that next, fundraise in a stronger fashion and ultimately hang on to more equity. Yeah, no, that’s,

Alexa Binns 24:21
and what do terms look like? Maybe you can’t give a typical term sheet, but what’s an example of what you might expect?

Paige Gardiner 24:31
Yeah, 18 to 36 months in length is typically the term length that we see. It’s a true lease, which means we maintain ownership of that equipment. Our customers lease it from us and pay for the use of it on a monthly basis. We have no covenants, no blanket liens on the business, no personal guarantees, no warrants, things that that our customers really find a lot of value in. In. And then at the end of that initial lease term, our customers have three different options. So they can return the equipment, they can buy it from us, or they can continue leasing it.

Alexa Binns 25:13
Well, this has been super helpful, anything, any industries particularly catching around right now, as long as they have you, Paige,

Paige Gardiner 25:21
anything that has or needs hardware to scale. So we’re seeing a lot of hardware as a service, robotics as a service. You know, whether it’s tracking devices, point of sale systems, those opportunities where we can help our customers bring in more customers than they would be able to otherwise, while still preserving cash is really exciting to me. So industry wise, nothing super specific, but the commonality being, there’s that hardware component that they need to grow, and we can help be that partner. Definitely

Alexa Binns 25:54
Some portfolio companies of mine come to mind. I mean, this is, this is very helpful. Awesome. Thanks, Paige,

Paige Gardiner 26:01
Thanks so much. Alexa,

Alexa Binns 26:03
Thank you. Thank you for being on the show. If any of you listening have portfolio companies interested in buying stuff, whether that’s heavy equipment or laptops, you can reach out to camber roads managing partner, Steve Aronson, A R O N, S O n@camberroad.com for equipment financing. And now back to our LP interview.

Earnest Sweat 26:24
One group of the kind of allocator, sec that we haven’t really dug in too much on the podcast yet is allocated that come from the kind of insurance world, insurance companies and so jump into, like your experience a little bit at MetLife, and interested to see, to hear about how that business, like the overall umbrella business, impacted your strategy as allocating into venture,

Matt Curtolo 26:53
yeah. So, MetLife, obviously, is a 150 year old life insurer, Fortune 50 company. The program there is obviously managing the general account for the insurance company as well as its affiliates. So there is really the goal of matching assets and liabilities and making sure that the core business is structured. So you can imagine equities in general are a very small portion of the overall book, because you think about stability, you think about income producing, you think about a lot of those components of the asset stack. So equities were always a very small portion, and then alternatives were also, again, a subset of that. So I would think, given the size of the pool for a lot of life insurers. And then I’ll talk about MetLife more specifically, something like venture is either not pursued at all because you can’t make it work in the in the dollars and cents because the pool is so large, or it’s done really on a selective basis at MetLife, I think we took a an approach that the company had been investing in alternatives for over 30 years when I joined in 2019 and they had been investing in venture since 1988 so it was really an active program. I’m not sure it was going one way or the other. They lived through the.com boom and bust, and then really made a strong push to get back into venture right around the global financial crisis. So the value of the dollars coming from an organization like that, a large stable check that could go into firms that are top tier, you know, all the brand names that we would we would know you wouldn’t think of a firm like MetLife or a life insurer, as a cornerstone lp in these top tier venture firms. But in 2010 2011 a lot of that exposure was built up being able to provide some ballast as a lot of investors, particularly in the NF space, couldn’t go back to these funds. So we were able to build up a program, starting at that point, really with high quality brands, and then being able to complement that across the entirety of the stack, whether it be with specialists in a sector or region, or maybe some later stage folks. I would say the one, I would say the arrow in our quiver that was most impactful at MetLife, and I know this is consistent with a lot of other large firms, but we had a fantastic innovation office within MetLife. So when you think of corporate VC, it takes a lot of different shapes and sizes, but MetLife Investment Office was folks who understood both sides of the wall, so their primary goal was to understand all the needs of the insurance company. And you might think, okay, so this is going to be around insurance products, InsurTech, things like that. No, it’s really all the needs of a fortune 50 company, whether that be HR, whether that be, you know, any kind of implementation across all the business systems and. Then working with our team on the alternative side to get connected directly with the business officers within each of these venture firms, so they can basically have an idea share. And what’s better than an early stage company having a pilot with someone like MetLife. So that was a way that we were able to really elevate our our status with a lot of these GPS and we were, it was, it was one of those things where it wouldn’t necessarily be something that people would know about or take a look at the organization, say, Wow, this is, this is what MetLife brings to the table. But the compliments that we got from that team and a huge shout out to that group. That was really an amplifier of what we were able to do. And as access was getting tighter and constrained, it was maybe a tiebreaker in a lot of situations for GPs to open up more allocation for us

Alexa Binns 30:54
when, when access is constrained, there’s these windows. It seems like we’re in one where you can get into a fund you may not have been able to get into a couple years ago. Do you get to keep your seat?

Matt Curtolo 31:11
It is a multi-layered answer to that question Alexa, because I think the organizations are going back to the idea that it’s not tactical, and thinking about, okay, maybe I’m going to dial up or down based on what the prevailing macro conditions are or what the rest of the portfolio is doing. This sole denominator effect, that sort of go comes and goes over many different cycles, is, you know, a set of handcuffs for a lot of allocators. So that does open up allocation for newer entrants. Obviously, most GPS would love to upsize the existing folks to fill those holes. But if you’re a top tier firm and you have a list of folks who have been you’ve been either cultivating the relationship with or have been banging on the door, it’s a it’s an interesting proposition to be able to let some of those folks in, I would say, if you we’re seeing a little bit more turnover in those seats too, partly because we always say in the LP world, it’s musical chairs, like there’s a there’s a group of folks who are moving seats and taking different roles. So does the relationship live with the individual, with the organization. How are you able to continue to compound those relationships with a new or existing organization? But I do think with the turnover of folks, we saw a period of really rapid growth by GPS, so they tapped markets like the retail market, and looked at other avenues to build up LPs. So I think the coveted seat of I’ve been here since the beginning, and I’m going to continue to do this, it should be safe, but I do think in a lot of cases, GPS aren’t going to kick you out, but they are going to continue to expand and look for different avenues to raise capital.

Earnest Sweat 32:59
And one great avenue that, or new avenue that we’ve been able to see is accessing new pools of capital, and so we’ve seen the rise of a lot more high net worth individuals. And RIAs would love to hear your perspective on like the opportunity there, and come from your experience at allocate, but other offerings that that group of or that pool of capital is is getting to enter into venture as well. Yeah,

Matt Curtolo 33:30
I think that’s the most exciting part of this market today. If you think about that period, call it anywhere from the mid 2010s, to early 2020s, as funds continue to expand, Ernest, you alluded to the number of funds being raised, the dollars that were coming from traditional institutions where I had worked my whole career. There was just a max, right? You couldn’t keep doubling and tripling and adding new names, and there weren’t new endowments or new pension funds popping up with any regularity, if at all. So GPS had to start thinking about other avenues. So private banks had been around for a long time. That had been a channel that a lot of folks had used, but really this concept of democratization and bringing venture to more folks, I do think is the next wave. So firms like allocate, where I spent time at helping build out that offering the idea is bringing what was only accessible to the big institutions to more folks. There are friction points and structural constraints that you have to work around to make that happen. Right? If you’re an accredited investor, or if you’re a small ticket investor, going directly to a top tier firm and offering them 50 or 100k is just not how the system works. Now you could argue if it should or shouldn’t, but that’s just. The rules of the game. So building constructs to be able to make that easier, whether that be with feeder funds, whether that be with, you know, smaller fund of funds, where those minimums can be a lot lower. So I think there’s a lot of avenues to do that. We’ve seen a rise of evergreen funds, you know, I think those have a lot of appeal to bring in the average investor into the asset class. So that opportunity set, you can take a look at any of the research, it’s, you know, 10s of trillions of dollars that could be allocated to alternatives and broadly. And then, if you think about the venture opportunity set, that’s going to be sort of this emerging LP, probably hasn’t done it before, has the desire and appetite to do it, and now also has a means to be able to execute on some of those, some of those ideas that they’re trying to bring forward in their portfolios. We

Alexa Binns 35:55
talked a little bit about what a balanced portfolio looks like at MetLife. You know, the sliver that venture makes up similarly with your clients, when, when you’ve worked as an outsourced CIO at really big institutions for these high net worth individuals, what’s you’re dealing with so much less cash? What’s the strategy for a venture that actually makes sense for you?

Matt Curtolo 36:21
Yeah, I think each situation, each fact pattern, is going to be different for each investor. So I would avoid painting with a broad brush. But yeah, one of the things we always say with these types of investors who haven’t done it before, don’t shoot all the bullets in the gun. Kind of be very thoughtful and ease into it. So your first commitment, if you think, hey, over the next five years, I have a million dollars to invest, don’t write a million dollar check this vintage year, right? I mean that that’s probably not the best way to get what would look like an institutional type portfolio. Being opportunistic is great, and recognizing that illiquidity is more acute, oftentimes for the high net worth investor. So make sure that you have enough coverage to make sure you can make those capital calls. It sounds simple, but also making sure you understand the dynamics of what a drawdown vehicle looks like, and what type of exposure you’re going to get and what a J curve looks like. I can tell you, across multiple organizations that I’ve worked, when you get those first or second statements and you see a negative 80% return, the phone calls start coming in. So I think making sure you’re educated to the point where you know what you’re getting into before you make that first investment is critical, and that’s just fundamentals. I think you can find that all online, a lot of firms do some really good, really good education pieces to just kind of get folks up the curve and then sizing it in a way that’s comfortable for you. We talked about big institutions. You want it to be meaningful, I’d say with the high net worth individual. Think of it as you know. If you think your standard check is going to be x, think of x divided by two. Think of about half that as your first step in just so you can get comfortable with this, just so you can kind of understand the landscape and feel confident that this is going to make sense for you longer term, that the biggest challenge is protecting people from themselves, right? I think people are used to investing in public markets, where sentiment drives a lot of what’s happening ventures, not a set it and forget it, but for the most part, when, after you make that commitment, you’re not going to get a ton of feedback. You know, quarterly valuations, financial statements, maybe you hear from them four times a year. Not a lot changed in those early years, other than new names added to the portfolio. So you have to make sure you’re in the mindset of, I have a long term view. I have the capital that I want to dedicate to this. I understand what it means to my overall portfolio. You know, I should be able to access something that’s going to provide some alpha over the other opportunities that I have available. But my number one is just making sure you know what you’re getting into before you write that first check.

Alexa Binns 39:15
Yeah, we have, we have plenty of LPs who come on this show and they talk about indexing ventures, you know that they need to capture just statistically. It’s a game of chance, and they just need to capture X percent of the unicorn. So they need x number of managers. Is this like online gambling, where the professional online gambler is playing 24/7, and you log in because your favorite, like quarterback, is playing today. Do you have any chance if you are only shooting a few times on goal here? Like it? Should everybody just run the other way under a certain network?

Matt Curtolo 39:58
That’s it. Yeah, it’s a good argument to make. I think you could definitely make the case for you know, if you’re not, if you can’t do it, right, don’t do it at all. I would definitely advocate for that. But right? I think it takes a lot of different pieces. The indexing model, I think, in venture is impossible, right? You can’t ever buy the whole market, and that’s why it’s always going to be an active management game. But shots on goal are meaningful, right? You do need to have enough hits. The power law is real when you look at all the data. But there are also other ways to make money in venture. I think the early stage definitely has those characteristics, but going back to setting your own goals and targets. So what am I doing to get exposure to different types of assets? Earlier assets, the public markets are becoming more and more squeezed in terms of just the number of companies that are out there. Do I want to introduce a new pool of companies into my portfolio, potentially getting more compounding? So I think it’s less. I have to reprogram my brain a little bit thinking it’s just about picking the best managers in each of these. It’s picking managers and picking funds investments that are going to meet your criteria, versus just trying to be in that upper echelon. Hopefully you’ll be able to achieve all of that, but in some cases they, you know, don’t overlap, right? Maybe, maybe there’s something you’re trying to accomplish with this allocation that goes beyond just trying to capture, you know, a market level return for venture, which I would argue, if you look at the median returns over a long period of time, they’re not that great. I mean, they’re good, but it is still about that manager selection, being able to pick the right firms and funds. So making sure that you do have some sensibility of what you’re seeing, why you’re seeing it, is another lens to put on top of that. I can’t emphasize that enough when we look at portfolios that have been created. One of the hats I wear today is looking at family office portfolios that have been constructed over the last several years. And you know that there are decisions that were made that I don’t think we’re in the context of a long term program. They were more opportunistic and tactical. So trying to unwind some of that and making sure you understand what you’re trying to accomplish with those dollars, I think becomes a lot more relevant when we talk about individual portfolios. Not that it’s not important for institutions, but I think it’s a little bit more commonplace where you have a strategic plan that you’re executing against. Yeah,

Earnest Sweat 42:36
Matt, you’ve mentioned a number of times that this is a bottoms up, like a fund manager picking a business right? Like, what’s one thing looking at the median, but like, people don’t come here, you know, people don’t go to Vegas to get the average, you know of what people they’re trying to win big money, right? And so are there? Do you have any you know, less popular beliefs or hot takes on what makes a great manager?

Matt Curtolo 43:05
I don’t know if they’d be hot takes, but I definitely think there is, I have a fundamental view. Being contrarian is going to be to your benefit over the long term. The herd mentality, I think, is prevalent both on the LP side and the GP side. You see the shiny new thing, everybody runs towards it. I do think that the Gretzky quote of skate, where the puck is going, not where it is, is something that a lot of people need to think about. So being able to invest in things that are a little bit out of favor, and having your own personal conviction around that. I know the flip side of it is we saw a lot of firms pivot from crypto, blockchain to AI over the course of a couple couple months, couple quarters. I come back to things like authenticity. We always talk about this idea of GP thesis fit. Like, are you the right people to be doing the right thing? You overlaid a market on that. Like, maybe it’s not good or bad, but I believe those two pieces, if you have a particular specialty and area of expertise, maybe it’s not going to transcend market, but it could end up trumping the you know, what’s going to happen in some of those, some of those spaces. So being willing to be contrarian, I’m spending a lot of time talking to folks focused in the consumer space, D to C, whether it be things like that, where, I think by and large, most folks have, I won’t say, walked away from that, but have focused a lot more on B to B focused a lot more on AI and SaaS and things like that. Not to say those aren’t good areas and areas where I think they’re going to be great investments, but the consumer makes up 70 some percent of the GDP. There are a lot of different pockets within that space in particular that I think will be really good opportunities. And because they’re a little bit unloved or overlooked, the valuations might be better the exit opportunities if you look over the course of time or have always been there in a certain range. So that’s one thing I would say for a lot of GPS, is be true to yourself and what you’re doing, rather than try to chase where the dollars are in the market. That seems simple, but I think a lot of people fall prey to the, you know, the human instinct of kind of running where that is,

Alexa Binns 45:28
if it’s trendy, you’re already too late. Yes,

Matt Curtolo 45:30
very true.

Alexa Binns 45:36
And so it sounds like you are definitely taking active, actively taking pitches from managers. Who do you want to hear from? Yeah,

Matt Curtolo 45:44
I mean, so, given the background and history I’ve had, I kind of wore a lot of different hats at different allocators and have looked at funds across all strategies. I have a number of engagements right now where I’m talking and helping a lot of emerging GPS kind of put together what would be a good go to market strategy in terms of what their what their ideas are, getting their thesis on paper, really imparting what I’ve learned sitting on the other side of the table of, how do you deliver a clear message, providing candid feedback? Interestingly enough, it is a sought after skill set here, where I think a lot of people either get ghosted, get a No thanks, but very rarely get a lot of candid feedback. So if you’re an emerging GP, I’d be more than happy to help you on that journey, and then as a personal investor as well.

Earnest Sweat 46:38
Well, Matt, we want to thank you so much for taking out time and just providing your vast insights from your vast experience as an allocator. Thanks for swimming with the allocators.

Matt Curtolo 46:51
Thanks a lot, guys. This is great.

Alexa Binns 46:57
See you later, Allocator