Investing in Change: Making the Case for Investing in Venture Capital

With Alifia Doriwala,
Co-Chief Investment Officer, RockCreek
This week on Swimming with Allocators, Earnest and Alexa welcome Alifia Doriwala, Co-Chief Investment Officer at RockCreek Capital, a global investment firm shaping a more balanced future. During this conversation, Alifia shares her journey in finance and the importance of outsourced CIO services. She highlights common mistakes fund managers make when fundraising, which sectors have the most growth opportunities, the biggest blind spot for institutional investors, and the importance of focusing on long-term growth. The group discusses the changing landscape of venture investing, noting a shift towards impact and mission alignment in portfolios. During the episode, we also hear from Tim Flannery, Co-Founder CEO of Passthrough, a company aiming to simplify fund closing processes. Don’t miss these insights from allocators and industry experts!

Highlights from this week’s conversation include:

  • The importance of outsourced CIO services (0:24)
  • Common mistakes fund managers make when fundraising (2:02)
  • The future of venture investing and sectors to get disrupted (6:35)
  • The importance of talking to people across different fields (8:36)
  • Managing portfolios with an asset allocation that includes private equity (10:28)
  • Changing views on venture investing among institutional investors (12:59)
  • The importance of understanding fund strategy (16:46)
  • The need for a premium return in private markets (17:20)
  • Vetting managers in the venture space (17:42)
  • Special Segment from Our Industry Expert: Tim Flannery of Passthrough (19:05)
  • The importance of focus in portfolio management (28:12)
  • Challenges for established firms and the importance of succession planning (29:09)
  • Investing in emerging markets and understanding currency impact (32:14)
  • Final thoughts and takeaways(36:12)

RockCreek is a global multi-asset investment firm that applies innovation, data, and technology to sustainable investing. With over $15 billion in assets and decades of experience investing in the energy transition, health, mobility, affordable housing, and fintech, RockCreek partners with university endowments, foundations, pension plans, sovereign funds, and family offices to generate long-term value and make business and financial models more inclusive and sustainable. RockCreek’s private markets teams invest in early stage, growth, and late-stage companies, and its Outsourced Chief Investment Officer (OCIO) and multi-asset class teams invest with leading partners in hard to access opportunities and emerging talent.

Passthrough turns investor onboarding into a solved problem – it seamlessly manages subscription document distribution, execution, and compliance in minutes. As a leader in fund workflow automation for investors, fund managers, and other fintechs, Passthrough provides an integrated platform solution that makes the subscription document process turnkey for investors with replicable and verifiable identity information built in for future use. In addition to subscription documents, Passthrough also offers a full service KYC/AML product that streamlines collecting information from investors and screening them against sanctions lists so fund managers can remain compliant.

Swimming with Allocators is a podcast that dives into the intriguing world of Venture Capital from an LP (Limited Partner) perspective. Hosts by 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. Follow along and subscribe at swimmingwithallocators.com. See you later, Allocator! 

Transcript

Alexa Binns 00:12
This episode of swimming with allocators we’re having on a leafy Odori Wallah, the CO chief investment officer of Red Creek. This was a conversation that I actually learned a ton.

Earnest Sweat 00:24
Yeah, it was amazing. So insightful. Alifia spoke about first of all the importance of the outsourced CIO services in today’s market. She broke down whether you’re an emerging manager or an established manager, the common mistakes fund managers make when they’re fundraising, especially in today’s time, and she gave some insight on the importance of just being prepared and how to execute your strategy as a fund manager. So with that, we’ll jump right in RockCreek

Alexa Binns 01:00
is the $15 billion global investment management firm known for outsourced CIO services, multi asset class solutions and their own private markets platform. Olivia has been with RockCreek now 18 years. What a run. And their clients include some of the biggest foundations, university endowments and organizations that you’ve heard of like the Monterey Bay Aquarium endowment, taking care of those sweet otters, and the Toronto Foundation. Thank you for being here.

Alifia Doriwala 01:26
Thank you for having me. I’m excited to talk.

Earnest Sweat 01:29
Alicia, it is a pleasure to have you on and see you again. I think before we kind of jump into just RockCreek and their story and all the great work that you’re doing, as CO CIO, how did you get to this world? How did you get to this, like, you know, the position of CIO. And that’s a huge task in any organization, being the CIO, especially with all the different asset classes moving in all different directions. So just want to kind of learn what was your journey to this position.

Alifia Doriwala 02:03
So I always tell people never go into anything thinking, you know, what’s going to happen at the end or the outcome, right? Because when I went to college, I wanted to be an English and history major, and I wanted to be a teacher, I would have not known anything about finance, I really would not have gone in this direction, did a great internship in New York had a lot of fun in New York for the summer, got an offer to go full time after that after I graduated and ended up in investment banking, which is still actually nothing close to what I do today. Right. So I always say that finance is a huge area. And Asset Management is in particular, really a huge area. But I went through a very different kind of area within finance before I found asset management. And then clearly, that was what really stuck. I’ve been here for 18 years doing this. But I had a lot of different experiences along the way that were again, all tangentially related to what I do today and make me a better investor, but not at all really what I do today. So I think that is something that we don’t really encourage young people to do, right? Explore. So it doesn’t have to be what you ended up doing. Whatever you thought you would end up doing, just be open minded and say yes to everything, because you really don’t know. And I just fell into RockCreek, I moved back to Washington, DC and from the area. Again, not a huge finance hub like New York. So just kind of searching for what it was out there. And RockCreek came along. And I had a connection and talked to somebody and they were growing rapidly and looking for people. And I was like this is something that I’d love to try and do and work with people who are super smart and know this area and are very encouraging to young people at the time to really like to try and build them up.

Earnest Sweat 03:51
That made me think of also I think we would shortchange our audience, if we didn’t talk about the history of RockCreek. Could you just talk a little bit about that and their awesome, awesome leader?

Alifia Doriwala 04:04
Yes. So I do have the advantage, which I always forget. And I worked with a very diverse team and a very diverse background, the backgrounds and founders. So Sani Beschloss is the founder of RockCreek, and she was a former Chief Investment Officer and treasurer at the World Bank. And I think because of that culture, we just organically have a very diverse culture. We have a very non I would say Wall Street culture, nothing wrong with Wall Street, but it’s a little bit different. And I work with a lot of awesome honestly senior women, which is again, something very, very unusual in finance, but which I have obviously loved and we love to also find diverse talent. And it’s just been something that is, again, slowly finance I think is moving in that direction. But I’ve been lucky and kind of take for granted that I work with all these individuals that are kind of a little bit different than the typical profile. Finding out for this

Alexa Binns 05:01
podcast is about hearing the LP perspective specifically on venture and curious, just an open ended when we say the next decade of venture. What’s top of mind for you?

Alifia Doriwala 05:13
Yeah, I mean, it’s such an interesting time for you to be kind of hearing these perspectives, I think because things have changed so significantly, just in the last 18 months in the venture world, but also in the opportunities set over the last like three years, right, post COVID are joining COVID. So when I think of the next 10 years, I really think of sectors that are going to get disrupted, and they’re going to get disrupted by innovation and growth. And where does innovation and growth happen? It happens naturally, adventure like that, you know, I should be synonymous with innovation and growth, because that’s what venture investing is all about. So when I think about the next 10 years, I really get excited about certain sectors that are going to get disrupted. So healthcare, finance, education, areas like that, where there is so much potential and opportunity. That has really been, I think, untapped up until now, in terms of the traditional kind of capital that’s been going to some of these areas. And we might get to this later. But everyone talks about AI, right? But an AI adventure now it’s like just AI investing in AI and venture. But that’s not really what I think it’s about, right, it’s how are these tools going to fundamentally change how certain business models are operating, and how certain sectors end up evolving?

Earnest Sweat 06:25
How with so many things changing? You know, it’s an inflection point in the industry. How do you decide like, or how do you use your prior experience to really determine like, alright, where should we go next, or there’s some Defining Moments with your with RockCreek, or your kind of like, interaction with the asset class, they’re really like, shaping how you’re going to view this next 1020 years, it kind of goes to the quote, like, History doesn’t repeat itself. But it does rhyme.

Alifia Doriwala 07:00
I think that’s a great question. Um, you know, I think that one of the things that we have always strived to do at RockCreek, and I think makes us better investors and makes everybody better investors is constantly not thinking that you know, what’s going to come up, right, you have to be open minded. And I actually think that’s the biggest blind spot for investors, especially institutional investors, right? Because they don’t, there’s a certain sometimes hubris to the space that we live in. And it’s an understatement to have to think you know everything. And if you think you know everything, then you’re definitely going to miss out on opportunities. So I think one of the biggest things to do is to consistently be talking to people that are out there across a variety of different fields. And a variety of different sectors are a variety of even different asset classes. So even if you’re looking for themes and ventures, there are actually areas across your portfolio that you should be looking at and investment opportunities across your portfolio that might inform what themes you end up looking at in venture. And again, it’s a little bit tricky with venture because you’re really looking to see what’s going to work 10 years from now, what not what’s gonna work 18 months from now, right? And so I think in that, because of that perspective that you need for venture, you really have to be talking to as many people as possible across markets, financial markets, but across policy across regular regulators across global kind of academia economic like it’s just you need to have that viewpoint to say what themes are really going to make me money in 10 years that I should be investing in now? And where is that growth trajectory really going to happen? And where are their headwinds until wins? I’m sorry, that can really push those themes at a pace that would otherwise not be possible.

Alexa Binns 08:44
No, that does seem like it puts you at an advantage that you’re looking at. These are multi asset classes. You know, you’re seeing you’re seeing these trends across the board. Can you give us a little education on how you think about venture capital exposure, as it relates to public equities, fixed income, real estate, real assets, etc.

Alifia Doriwala 09:05
So we manage pretty traditional endowment style models with our portfolios, we’re lucky that we have a lot of institutions that we work with that are two things. One, they’re very financially stable, so they’re able to really look at their endowment as a tool of growth and sustainability for the future for the organization. And part of that is managing the portfolio with an asset allocation that will allow them to do that, right, allow them to have an endowment in perpetuity. Part of that is investing in private ones because you should and if you’re not, you shouldn’t be investing but you should be getting a premium of return and privates and I use privates, broadly venture growth and buyout. And to you know, you really allow you to be investing in a space where again, you just don’t know what you’ll learn from investing in private companies in venture specifically, that will help you make decisions across the rest of your portfolio. So we usually You have I would say anywhere from 20 to 30% Roughly call it allocation to private equity, which includes venture growth and bio, I will say that we have traditionally been very skewed towards venture and a little bit of a barbell approach with venture and buyout today, in terms of the growth areas and opportunities. But I also say that knowing that definitions are kind of all over the place, like there are lots of venture funds that are moving more into growth, right, and lots of growth funds at startup venture funds, and then we invest in accelerator platforms like so I use it all loosely, I think you have to have a plan, and you have to have your pacing, and you have to understand all of that. But you can’t be too rigid, because otherwise you’ll miss out on opportunities. So we look at it holistically. We try to be really somatic and opportunistic within a framework of knowing that we need to manage liquidity. We know that we need to manage all of the idiosyncrasies I would say that come with investing in private ones.

Earnest Sweat 10:57
I am curious about the interconnectedness of the industry in like, you know, a lot of people think of just like GPS fund managers have LPs and founders and, but even these LPs, like yourself, as an outsourced CIO, you also have LPs. And so I’m just curious about this last kind of Bull Run, and now going into whether it’s a VC winter, whatever, how have your clients and prospective clients views on venture changed? And, you know, one view I can have is like, you know, you guys deal with both big and large organizations. Some of them may have felt that they were, I would assume, like kind of left out of the last kind of run, right, whether it’s through their own internal team or whatnot. But now things have changed. And so I’m just curious how, like, have their views changed? And how does that impact kind of like how you all do business? Yeah,

Alifia Doriwala 11:57
It’s a great question. And I should mention that RockCreek, we have our outsourced CIO business, which are endowments and foundations that are about sub a billion and a half, right, that were really their investment team. But then we work with larger institutions on our multi asset side that are like, you know, pensions, endowments, and foundations, that might be 10 billion 20 billion plus. So I kind of see, I think, both perspectives of LPs. on the larger side, I think, to your point, there were a lot of institutions that felt that they actually missed kind of the venture right sweetspot of the last 567 years, pre, pre the last period, and then started to try and really figure out how to invest in venture or should they invest in venture, because the resources for a very large institution to write what has to be smaller checks to venture is just a completely different mindset process and governance and resource, right. So I think that has been a discussion among larger institutions. And some have said, you know, what, we can just never invest in ventures we need to write $300 million checks, will maybe do a little here. And but that’s really not going to be where we’re going to make our money, where there have been other institutions that have said, No, that’s going to be the next opportunity. And we really need to figure out how to tackle that even at our size. I quite frankly, think that our outsourced CIO clients are in the best space and spot because they are at a size where venture really makes a difference in their portfolios, can make a difference in their portfolios, even if they write small checks, and can move the needle in terms of return. But the other reason I think venture is so appealing to many of our clients is because they’re very mission oriented. And so they’re doing all of these things on their programs’ side. And whether you call healthcare impact or not, if you’re like revolutionizing how older people can access Medicare, in the highest returning investment possible, that is impact for an organization that is helping the older demographic, right. So I think there is also just a natural appeal to some of our LP in terms of what venture is investing in, especially the way we look at the opportunities in venture. But I will say that given the last 12 months, we have a lot of debate on certain committees about private markets in general. And venture specifically. And a lot of that is honestly the private equity industry, you know, has not done itself really a service in terms of kind of the marks and the right, like all of the different things that investors that are removed from it just don’t understand, right? If you’re on an investment committee, and you’re looking at a portfolio every quarter, and you’ve never invested in private companies, you don’t understand why your marks are different and a quarter or two quarters lagged than public markets. And no matter how much you kind of try to educate people, it is very difficult for some to understand. And then that goes to the question of value and right and so then it’s a whole conversation. We do a lot of education, in terms of just how private markets work. And then when was the benefit and the advantages to private markets. And

Alexa Binns 15:02
I, that makes me very curious about how much you consider your role of pushing clients toward a direction that they wouldn’t necessarily go on their own, that you felt like still meet their goals, versus letting them set the strategy and finding the right managers within that strategy. Yeah,

Alifia Doriwala 15:25
I mean, I think most look to us to set the strategy within the parameters that they set up, right. So one of the things that obviously is a big conversation is how regular is your spend? What kind of unexpected distributions might you need in the next 1015 years? What is your fundraising path? Right? What is your asset liability kind of mismatch if you’re a pension, so all of those things are important to understand. And then we can set a strategy for you that’s appropriate. But our view and what we tell all of our LPS is, we will only invest in private markets, if we get a premium return for locking up your money for 10 years, there’s otherwise no reason to invest in a private asset class, right? So unless you firmly believe that you can be in top quartile investments, it doesn’t make sense. And we’re not going to force an allocation, if that’s not going to be the path to success.

Alexa Binns 16:12
Yeah. And how are you vetting those managers to identify the top decile top quarter?

Alifia Doriwala 16:19
So we have a pretty broad research team at RockCreek, they have a lot of expertise across both sectors as well as asset classes. And so our team that’s working on private ventures specifically, is pretty experienced and tenured in terms of both relationships, as well as kind of the financial aspect of it, right? Because venture is a funny, funny area, it’s a funny category, there’s not a lot of hard data to go on till you make an assessment. Sometimes, sometimes it is very relationship oriented. But it’s also very visionary in terms of trying to understand how this business model or how this sector will really evolve over the next 10 years. Right. So I think there’s a lot of other types of diligence you have to do versus just a buyout fund, where it’s a little bit different in terms of the analysis. So you need actually, I think , investors that have maybe higher EQ, or like, those softer skills, to really try to get into why would this fund become a top quartile fund? And why does this firm have the expertise to get there, versus maybe a traditional asset class? And I think that’s why a lot of LPs back to your original question or don’t invest in venture because it’s a different skill set. And it’s a different, I think, set of relationships that you have to have to be able to access some of those top companies. Now

Earnest Sweat 17:44
we’re gonna take a quick break to speak with our sponsor, from the co-founder and CEO of Passthrough we have Tim Flannery Passthrough makes fun closing simple for funds, administrators, lawyers and investors. Thanks, Tim, for joining us. Glad to have you.

Tim Flannery 18:01
So happy to be here. This is such a great project, happy to be a part of it. Thanks,

Earnest Sweat 18:05
man. So I wanted to start off with What’s the origin story behind Passthrough? Like, how did you come up with it? What really made it a burning desire for you to really solve this problem? My

Tim Flannery 18:19
Co-founders and I all worked at Carta previously. And while we were there, they helped stand up the Investor Services Group, they launched the investor portal, they helped launch the funded ministry strategy, which is right when I joined. And when we were doing that we were cartas fund administration businesses, the fastest growing fund admin ever. And we’re working with all sorts of new launch funds. And the way you onboard new launch funds is somebody hands, you execute subscription agreements. So my partner Ben was running teams of people that were trying to decipher people’s handwriting and try to understand what to do with unanswered questions, and then how to get this into our systems. And it was a nightmare of a problem. And it wasn’t just us getting up to speed on this. It’s anybody who needs to deal with this process. So the first problem with subscription documents was that all the data was unstructured. You couldn’t take information you had in your systems and use it. You couldn’t reuse it, you couldn’t extract it. And then you have these coordination challenges. So how do I as a fund manager? No. Where are my LPS in the process? How can I actually move people along? And then when something does come back? How can I coordinate my law firm, my compliance team, my fund admin, my tax, everybody’s got a different group of folks that needs to go work around the race, and they’re all looking at different information. And then from the investors perspective, it doesn’t matter if your investor is a university endowment or an individual investing in their first fund. Subscription documents are confusing. And so even professional investors fill these things out incorrectly because there is no standard. And so they answer things they’re not supposed to and they miss things they are supposed to answer. And all of this results in starting all over again from scratch, which means that you’re just going to be in the market way longer than you need to. You’re running a far less efficient process and you’re putting poor foot forward sometimes with the first official relationship you might have with your LPs. And so Passthrough was started to fix that originally.

Earnest Sweat 20:05
Yeah, just oh look for you first started on the electronic subscription document. core product. Have you seen, like, the need for this use case grow, as we’ve had, like, you know, the black swan event of COVID? And how that’s impacted fundraising, right? Both fast and now, you know, kind of slowing down. So why is it made? You know, the need for just that movement in the market? Was it made it even more necessary to have Passthrough? And have you seen it impacts kind of like, how you guys look to find your ideal customer?

Tim Flannery 20:49
When we started about three and a half years ago, electronic subscription documents were a curiosity. Maybe people use Docusign. But that’s about it. And then all of a sudden, the world stopped being able to print things and exchange things in the office because we had a massive global pandemic. And so then how do you solve all this stuff electronically? So COVID initially was an accelerator to our business, it was how do you actually coordinate all this stuff when you can’t get people together to exchange documents, and so great, there was a ton of funds being formed, all of the law firms were completely overworked. So if you wanted to go find the partner that you wanted to work with, you might be lucky that they could squeeze you in; otherwise, it was gonna be really difficult. And if you were working with them, it was hard to get everybody’s time and attention, because nobody could actually run this process efficiently. And so we launched in the face of that, and we had fantastic uptake. Now, as the markets have turned over the past couple of years, we saw that about 40% fewer funds were formed in 2022, compared to the prior year. We look to be at about the same pace this year. Now, it’s less about how can I make sure that I am running as efficiently as possible, because I’m competing for all of these dollars that are being spent freely? Now it’s how can I run the most efficient process possible, because I need to be in the market for as little time as possible, so that I can quickly close my fund, and go out to actually do the really hard work. People are spending so much time right now getting investors to commit to their fund, why would you introduce more friction at this last mile. And so we really solve that last mile challenge, so that you’ve done the hard work, you’ve convinced somebody to invest? Let’s bring them in. So you can actually focus on running your fund and making good investments. You

Earnest Sweat 22:26
what really resonated with me was that adding like you don’t want more friction, especially in a time now, when you know, you mentioned you know, you want to raise as quickly as possible. I don’t think that’s really been mentioned in many sentences in our ecosystem, like raising quickly, over the last 12 months, I’ve actually heard of anecdotes of individuals like losing out on LPS because they were trying to get too many. They didn’t have the immediate documents ready. And so that really speaks to the need for the product. Thanks to Tim and the past 13 To find out how to give your LPS a better onboarding experience with Passthrough go to Passthrough.com backslash swimming. And now back to our LP interview, what or when you come into like emerging managers and just managers overall, I think this next iteration or congrat correction is really going to have consolidation impact on all types of firms. With all that change, what do you think for emerging managers versus existing managers? What are you looking for? For this next 10 years? I could throw out some things maybe it’s like, generational change, like discipline, a unique perspective, what are some of the things that your your team is looking for?

Alifia Doriwala 23:50
Yeah, and we work with both larger firms with smaller firms. Right. So I think we see the balance between having both in your portfolio and what one can bring versus another. And you take different risks, you take risks across anything, you there’s no free lunch, right? Like, if you want to make money, you’re gonna have to take a risk. So you take a risk, and both, but they’re different types of risks. I do think that one of the things that has been not as great and a little bit discouraging over the last 12 months is that we have not seen as much of an inbound of emerging managers in the venture space as we did the previous 18 months where quite frankly, every day, we had a kick ass team in here, a lot of them are of diverse backgrounds. And they were able to raise maybe not, you know, $200 million funds, but they were able to get a fun one out of 5075. And that was enough to get them a track record, which then just helps with fun, too. It’s a snowball effect when you go out to LPS because then by fund three, a bigger LPS gonna look at you that has kind of just I would say shutdown, so a lot of emerging managers in the venture space have either just delayed their fundraising strategy or put it on pause, and not even gone out with their next fund that otherwise normally would have. And I think the danger is that we’ll have a lot of venture funds that were able to raise, again, these 50 $75 million funds 1824 months ago, they’re gonna get back to the point where they shouldn’t be raising another fund. And there’s not going to be a lot of appetite from LPs, like there was for the first round. So what do we look for in that kind of category of potential investments, we do look a lot for kind of where your edge is or your expertise, so you can’t be everything to everyone, right? And, quite frankly, if you’re just going to come and say you do Tak, it’s like not that interesting, right. But if you say that you have a doctor and all these other like medical industry professionals in your advisory board, giving you advice about a specific area within medicine that’s going to be disrupted because of this, this and this, it gives you a little bit more of an edge, versus other funds that don’t necessarily have those expertise or aren’t focused. So I think that there will be more of a trend. And what we look for is now more of a focus, versus maybe five years ago, where it was not that it was easier to make money, but it was maybe easier to make money and a broader type of portfolio. And that also aligns very nicely with how we want to be able to integrate impact into our portfolio so that we can be very mission aligned with those foundations and endowments.

Earnest Sweat 26:30
And believe it just a follow up on the for the larger firms, I think we’re going to have a lot of change to right the the jerseys might not on the front may not change the names, but I think the names on the back likely will just with time and you know, it’s going to be harder to make money. And we’re going to see who really wants to do this. So what do you think is going to happen for those more established firms? And what do you think allocators need to be looking at when identifying that because, you know, somebody could argue that if there hasn’t been a constant development of the bench, that their best days could be behind them. And I

Alifia Doriwala 27:09
I think that’s 100% True. And we were actually just talking about this yesterday with somebody about how you have to be so smart and thoughtful and kind of looking ahead 10 years at any point in time, to be able to do succession well, and to be able to have LP so comfortable. So you feel comfortable, comfortable as an LP, if you’ve been talking to that same GP, even if he was in a junior partner role for fun, one is fun to write. And then when you get to fun for fun five and the original partners are taking more of an advisory role or things like that, you’ve already been by then talking to those that are probably making the investment decisions by that. So you also understand and know who’s actually making the investment decisions, I think what happens is when it’s all of a sudden, like, oh, okay, completely new team, then you’re basically starting from scratch, even if you have the same firm and one, or the same resources. And so I think that that is really, really important and actually very much under appreciated in venture. You know, I think it’s been so not easy, but it’s been easier for bigger firms to raise money. And so they didn’t really have to think about that, right? It was like, take care or whatever, whatever brand name, you want to say, it’s been easy for them to constantly be raising money for a new fund or Kleiner and all right, like all of these funds that have a very, very reputable name for a reason. And then all of a sudden things switch. I think that’s a harder or people leave, like what we did see also about five years ago, in that timeframe, is that a lot of really, really smart GPAs were like, I don’t want to be at the bigger firm anymore, where I can have kind of a midsize firm. If I leave today. I have the track record, I have the LPS because I’m the one talking to them. And so that I think has been interesting and also affects some of the bigger firms because you could make the case in venture, the bigger you get, the more your returns just go down.

Earnest Sweat 28:57
See that’s proof that at ATMs, young investors they are the LPs are paying attention to what you say

Alifia Doriwala 29:04
yes, 100%. And whether you stay or whether you want to invest with debit, another firm that they start

Alexa Binns 29:15
the sort of new opportunities, questions of like following somebody to their new firm, etc. You all do a lot of work at RockCreek on emerging markets. Has your team, your local teams got any insights or anecdotes you could share on what’s happening with ventures abroad?

Alifia Doriwala 29:33
Yeah, it’s a great question. And I think there’s a difference between investing in emerging market ventures as part of a global portfolio or a US manager that’s kind of trying to do right, China and India and all that versus going to a venture fund or a fund manager that’s actually in the local countries. So like, first of all, I would distinguish between those two strategies. and maybe you want a little bit of exposure, it’s fine that that’s somebody’s kind of branching out. But that’s not their bread and butter. And actually, we ask because every time I do hear a fund manager in the US investing in Brazil, like, oh, wait, like why, and there’s usually a good reason. But it’s not necessarily what I signed up for. So we do really look for emerging markets exposure that is on the ground and venture, I think that there are certain countries that are definitely more of a higher potential in the next five to 10 years, to be ripe for venture versus others. So I think you actually really need to pick your spots. And you have to be able to really understand the currency impact of investing in ventures in emerging markets, because you can have the greatest portfolio and the greatest founders, but if the currency goes against you, your returns will be cut in half. And we’ve seen it time and time again. So I think investing in emerging markets is much more difficult and risky because of that, not because there’s not a ton of interesting and smart founders and talent and companies to invest in. And quite frankly, a lot of the innovation is happening in Brazil or in countries in Africa, when you look at payment processing, right, like Fintech is a huge area in those. And they’re leapfrogging all of the legacy technology that you have here. So you could argue that the growth is even faster. But I don’t think that LPs, especially in the US have really been able to figure out that piece around the currency impact. Are

Earnest Sweat 31:36
Are there any kind of parting thoughts you have for our key stakeholders, which are like, you know, emerging GPS, or, you know, Junior Junior GPS, and then the other audience is other allocators? So I’ll start with, like, the VCs, any advice you have for them, especially at this moment? And with all this change happening in the market?

Alifia Doriwala 32:00
Yeah, I mean, I think the reality is that it’s gonna be a tougher fundraising market for a little while, right. And so you have to be really smart about your fundraising strategy. And you really have to be able to articulate your difference. And you have to know your competition, like you’d be surprised at how many funds that are starting out, don’t really know who they’re competing against for their dollars. And for an LP, if you can come and tell me, yeah, I know, you have X, Y, and z in your portfolio. But this is why I’m different. It makes me a lot more interested than if you just give me your standard pitch. So gotta do your homework, you have to know who you’re talking to. And you actually have to be very strategic about when you go to certain investors. So do your homework, because you might just get one chance. And that one chance is all you need. But if you do that too early, or you do too late, right, it’s not going to work. So you got to do a lot of homework versus, you know, yes, you have to pound the pavement. But I would really be smart about how to do that and have a strategy around fundraising, and have a timeframe, versus just being like, I’m gonna go and throw everything I

Alexa Binns 33:01
can out and no. Industry, what is that sort of domino that you use that you see work in terms of how you would line up for those meetings?

Alifia Doriwala 33:11
I think that Alexa, it’s a good question. I think there are definitely investors that while they might not write you your first check, they can be very helpful in telling you what other LPs want. So that’s one thing, but there is also a segment of the market that can write the first check, right. And there’s nothing wrong with going to friends and family and getting a particularly meaningful amount if you can, to start off with. So I think being smart about that initial capital, and then maybe making one or two investments if you can, and then going out to like the traditional LPs, right? Because I know a lot of the LPS out there down instantiations pensions, they say that they want to, you know, have Nutella, they want to look at, you know, funds, and then you find out like, oh, they don’t do fun ones. They only do fun twos or threes, or oh, they only want to write this size check or oh, they don’t really invest in the sector. I mean, I get a lot of cannabis funds, like we’re not investing, and be the best investment opportunity out there. But like we have a lot of patients, we’re just not going to do it right. So I mean, great. You can send me the email, but it’s not gonna go anywhere. So really, like do your homework about who you’re talking to in terms of who you’ve talked to first, and then save those kinds of bigger tickets for last, because they’re usually the ones that will come in after you’ve gotten certain investors.

Earnest Sweat 34:30
And then for all the other allocators, right, those that might have investment teams on their own or looking for some kind of outsourced CIO services. What advice do you have for them?

Alifia Doriwala 34:43
Um, you know, I would say that many of them are potentially disenchanted with privates right now, because it’s shorter term considerations. Yeah, right. Marks had been bad and private in the last two quarters. But then again, the marks were really bad and the public markets. So last year, last two quarters the last year Right, but people forgot about that will deliver out about. And so I do think that as an allocator, you have to be looking longer term, you cannot be short term in terms of noise. The IPO market will not be dead forever, like it will come back. So to say that you’re not going to invest in privates. Oh, and the biggest biggest challenge we have seen is you just have committees or you have a governance structure that’s like, I want to get out of private life, you get out of it for three or four years. And then you come back to it. And we’ve seen this and it is the worst way to invest. Better not to invest, make a lot more money, if you just don’t invest in the asset class. So unless you have a strategy for investing in the asset class, you also have the proper governance to continue to do that. It’s not worth your time. Well,

Earnest Sweat 35:44
Thank you for that advice. And thank you for just you know, joining and being on I learned

Alexa Binns 35:51
so much as the episode thank you, Olivia. It’s just a pleasure.

Alifia Doriwala 35:55
Thank you so much. Talk to you guys later this weekend.

Alexa Binns 35:37
See you later, allocator.

Earnest Sweat 36:00
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The Hosts

Earnest Sweat

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

Alexa Binns

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

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