Earnest Sweat 00:13
Today we’re joined by Christopher Johnson, a principal at Knightsbridge Advisors, a firm focused on early stage venture funds and secondaries. For four decades, the firm has been helping their LPs access, and vet GPS and growth investments. We are thrilled to receive the guidance today from Chris. He’s a trusted advisor, having been an economic policy analyst in the Obama administration, an economic and technical consultant with the faculty of Stanford and Carnegie Mellon, and providing GPS and LPS advice at both constellation advisors and Knightsbridge. Chris had such a great background. We’re so happy to have you on today.

Chris Johnson 00:56
Thanks. Happy to be here.

Earnest Sweat 00:58
You both advise GPS and LPs, you kind of have this intermediary position, which are both our core audiences. How did you find your way to this world, especially after doing policy work?

Chris Johnson 01:14
Sure. It’s a great question. So I’m from Maine originally. So I’m actually talking to you today from Boston where the offices are. So after undergraduate, I was really looking to do Applied Finance and public policy work. This was in the W. Bush administration. So I went to work as a policy analyst, using essentially econometrics to large scale data models. It was very interesting. I decided after a few years that I probably wanted to do something a bit more finance oriented. So I went to graduate school at Carnegie Mellon. That was right around the oh, 809 timeframe. So I like to say about two weeks after I wrote the biggest tuition check in my life. Yeah, the economy kind of imploded. So it was an interesting time to be in graduate school. I looked at CMU as a place to both develop more policy as they have a great master’s and policy degree there as well as an MBA program. So sitting through all of the Oh 809 action, I was able to both serve in the White House for the summer in between my graduate school years, and then looked more to Applied Finance. So it was dealing mainly with litigation matters having to do with the Oh 809 blow up, especially around private markets shops. So both hedge funds as well as Clos, which are not, are a bit more on the rise today. But those were kind of off topic for a while and then analyzing from a financial damages perspective or a litigation perspective, what went wrong. I did that for a few years with a fellow CMU alum. Hence, that’s why I joined the shop. I moved further doing that type of litigation work. And then also started being a management consultant, as well as a diligence consultant to both startup asset managers. So people looking to go beyond say two people and Bloomberg to really build an infrastructure to look at alternative investing. And then also providing outsourced diligence to smaller institutional investments, kind of using the lessons learned both in litigation, as well as management consulting. That kind of covers my time, I would say through constellation advisors, all of this was in Manhattan, I moved back here to Boston to New England, and joined Knightsbridge. So I’ve been at Knightsbridge. Now since about 2017, where most of my role is allocating to early stage ventures some growth. But at this point, it’s really been kind of a 360 degree journey around private market partnerships. So I’ve seen how they essentially implode. I’ve helped build them. And now at Knightsbridge, we allocate actively to them both on a primary and secondary basis.

Earnest Sweat 03:56
Chris, that’s, first of all, I can see how your full background helps you in assessing kind of where the future is going given. You know, first of all, I’m an econ major, and I’ve never said I enjoyed econometrics. So kudos to you on that.

Chris Johnson 04:14
Well, I did for a few years.

Earnest Sweat 04:18
I was introduced to Metacat. And I was like, no, no, no, but talk about how just those prior experiences have shaped your worldview within this asset class.

Chris Johnson 04:32
Sure. So I think venture writ large is a place of ultimate hope, going back to my Obama days. But everything has kind of an up into the right attitude that you have to really believe in the potential of both the future but also clearly of your investments to even enter the venture capital asset class. I take my experiences in the you know, in the earlier part of this century, we are one of Hey, thanks can go wrong, right. And as I’m working more and more adventure that if you think of my, you know, my earlier finance experience being more hedge fund in all private markets to kind of narrowing down into venture capital, what I’m trying to do is to really take the lessons learned, yes, things can go very, very right and be very, very good. But we need to think through kind of what potentially could happen if things go wrong, or at least protect ourselves and me, as a fiduciary for my clients to say, okay, how am I risk adjusting my portfolio, or my potential fund or even strategy around that, that I think like venture is definitely a place of hope. But I think it also needs to have some caution.

Alexa Binns 05:44
Are there some macro economic trends that are influencing your strategy today in venture? Yeah,

Chris Johnson 05:50
So Knightsbridge itself, where, you know, greater than 80% focused on the early stage, we do have some growth activity. And then we have a growing secondaries practice, which we’ve now been at for about 15 years. I think, on the early stage side, for us, from a macro perspective, you know, everyone talks about exit markets. And for, you know, the fund to fund landscape, if you’re investing with sa a series, a manager at this point, if I was able to predict what the exit markets are, say, a decade, hence, I want to probably be much wealthier than I am and to I don’t know that I’d be doing what I’m doing. Right. So I think from a macro perspective, that becomes a little more difficult in that we understand, or we think we understand where markets are headed. But if we could actually time them, I’m not sure that you know, long term venture capital is a place to invest in the near term. So looking at secondaries, that’s more of a growth equity mindset. So it’s more of a three to five year exit horizon. And what we see there are, because we’re, you know, we’re often investing in secondaries from companies that exist somewhere in our fund or funds landscape, we have a much better sense of kind of return trajectory or exit path for those companies. So for us, that’s where we’re much more paying attention to the exit metrics, the public market multiples, and pure analysis in terms of making an investment. So it’s, I would argue, that’s a more bottoms up approach from a portfolio perspective, where series A is much more a top down blind pool relying upon the GP, in their team and track record.

Alexa Binns 07:30
Maybe it would make sense to, we can chat about secondaries now and we can get back to your VC strategy. Can you just share what you’re seeing in the secondary market right now, in terms of activity?

Chris Johnson 07:44
Sure. So we see, you know, bluntly, we see quite a bit of material. So we probably see greater than two to two and a half billion dollars now, a quarter these days, just of opportunity that, you know, people are trying to sell LP stakes within ventures. And taking a step back about three quarters of our secondary work is buying LPs, and about a quarter is looking at direct companies. So the efforts put forth on LPs are really for us looking at what the portfolios are? And what type of overlap or information do we have based on our fund investing? I would say kind of, if you think about historically, the three types, or at least I think about in three different types of people or firms looking to sell in the secondary market, typically of smaller family offices that you know, are probably sub three sub $5 million lots in that had maybe an initial million dollar sub or two $3 million commitment that’s now appreciated some or maybe stay flat. And usually those are smaller family offices looking to allocate a single position. There’s a lot of flow there, especially on newer assets. So I think that’s kind of an indication that many people got into venture over the last 510 years or so. And we’re realizing it’s a, it’s a bit longer asset class than maybe initially anticipated. The second category would be more kind of, I’d say, endowments, US endowment style, where you have say, five to 10 to upwards of $30 million portfolios. And whether that’s one to five or so holdings, LP stakes at a time looking for liquidity. Those are more longer term investors who typically have been in the asset class for some time. And at the moment, we’re not seeing as much in the way of that deal flow. So there aren’t that many of that ticket size. And I think that reflects broadly. If you speak to a lot of my colleagues, other allocators in the industry, especially sitting at those mid to larger size endowments. They’re not necessarily looking at liquidity from ventures and they actually came out a few years ago, like a group of them saying, hey, we’d like to remain in the venture asset. Last, they’re just not actively re-upping at the same pace. So it’s not the case that they’re selling, they’re just not making new commitments. And then on the on the far end of the spectrum are kind of those greater than $50 million lots that are typically asset managers, or other fund to funds potentially winding down, just larger ticket sizes that are looking more either to sell an entire private markets portfolio or an entire venture portfolio for any number of reasons could be a fun to wind down, where, you know, the prior management team is looking to crystallize carry, or the prior LP base is looking to crystallize some sort of dpi. And in that case, you have kind of all over the map in the sense of what we like to do in Knightsbridge is look at smaller lots, potentially more off the run or niche strategies. So we would look at, you know, a much larger portfolio like that, and potentially a smaller allocation to ourselves, and then maybe syndicate with a partner. But I think the whole at the moment is kind of where you’re not seeing as much deal flow as that is that middle ground. And then you’ve I’m sure you both have read significantly about continuation vehicles. So those have been on the rise, I would say over the last year and a half or so that managers are looking to kind of consolidate their winners and push that forward, but then also distribute some sort of some sort of money back to their initial LPs. So those offerings are increasing in nature. We’ve participated in a few, but we’re not heavy participants in GP continuation vehicles. But that’s definitely a growing area of the marketplace. And then on the direct side, it’s a little different game in that there are more and more platforms coming to market like Hive or forge that I’m sure you all have seen our car and made a play at that as well. And then, most recently, Morgan Stanley announced that they were looking to build a private shares platform, as well as fidelity. Actually, I read about this morning. So there are a lot of different places that start up through potentially looking for liquidity. And I think while those markets are clearly not fully efficient, they are becoming more and more efficient, so bid ask spreads are narrowing compared to LP transfers. And so for that reason, it’s a smaller part of our practice, but you’re seeing much more, much more flow on that side. So there’s ever a greater number of private market shares out there, especially for late stage companies.

Alexa Binns 12:21
I’m kind of curious what it’s like working with those platforms. It’s like, if you’ve been doing this for 15 years, and now a platform is coming to you asking you to participate?

Chris Johnson 12:30
Sure. So the platform itself is, I would say, those on the LP side of the business are pretty rudimentary. And on the direct side of the business, it is easy. I mean, the interface will not eat, you know, e-trade, for instance, it is becoming easier to look at what potential tasks are out there. However, most of these markets don’t actually show you completed transactions. So you can see the asks, and you have an understanding like Knightsbridge would have an understanding what we’d like to pay for a lot. But we’re often not seeing well, what are these prior transactions actually being transacted? That? So I think that’s, it’s a bit of a one sided market in that sense. But the data itself, similar to LP, and even similar to primary fund investing, that data is an extremely limited adventure. So while yes, there may be shares of XYZ company on this platform, you don’t really have an understanding of where those shares stack up? Like common shares are common shares, right? But how many common shares are there? Where if it’s a preferred share, what does the waterfall look like? So it’s really beholden on a firm like ours to go do the research and understand the capital stack before we try to anticipate purchasing an asset. So I think the interactivity is good, I think, you know, if you’re a qualified investor to step onto those platforms, and you know what you’re doing, it’s a benefit. But I think the the transparencies still lacking in the underlying, it’d be very similar to say, buying a preferred share on a share on E trade, right that like you could be buying something but you don’t necessarily know what the financial love, say and IBM are or why this shares preferred versus common. And it’s really holding you to go do that research.

Earnest Sweat 14:13
Your LPs, Chris can look a lot of different ways, whether they’re individuals, family offices, foundations, endowments, insurance companies, pension funds. What are you hearing from current and prospective new LPs that have what they’re looking for in the market, especially the early stage and growth? Yeah, so

Chris Johnson 14:37
I think the very first question I got actually, the very first question I got is often our newer LPS or our LPS who haven’t invested in venture, and they understand kind of the benefits of fund to fund approach to primary investing potentially, you know, diversified well balanced exposure to venture and hard to access premier managers. That’s essentially our elevator pitch. So if it’s that type of LP saying, Hey, I’d like to have access to the venture asset class, how best do I do that? I think it’s a relatively straightforward conversation on if it’s a returning LP or an LP who’s been in venture before and may or may not have had a great experience, maybe in a prior business cycle, or if it’s a family office that was at one point in, then decided to get out and now is looking to get back into venture and maybe missed the prior cycle, and is kind of regretting that maybe not the immediate prior cycle, but the one before the late, the late the late teen profile, they had missed a lot of distributions there and are saying, hey, maybe now’s the time to dip our toe back in the water. The biggest concern for those who have been in the marketplace before is valuation. Right. So if you’re looking at kind of what where marks are, where firms are investing, is it really a Series A investment, if you’re putting x number of dollars at wind valuation? So a lot of kind of discussion I have, especially with professional money managers is, what type of entry are we getting? And then from there, what’s the type of return profile we can expect? And for us, it’s really looking forward to rely upon GPs who have done this before, who have had a team through multiple market cycles, and who are properly managing their early stage portfolio for the next three to five years over that allocation period, to get a pass to exits that would line up with our past performance. The other big question is just why venture? That’s more of a beginner’s question. So if you’re coming to me, and a lot of what I like to think I do at Knightsbridge, too, is be a cheerleader for the venture asset class. So thinking through, you know, in my mind, if you’re looking to capture the portion of the either the US or global GDP that’s growing, you’re looking mainly at venture backed companies, right, I think private assets, especially those backed by venture firms, typically in the case of Knightsbridge, mostly tech, but some life sciences are where really true value is created. I think if you’re more worried about, say, financial engineering, or rearranging decK chairs, on a large ship, you know, venture probably isn’t for you. But if you’re you know, if you are kind of that of that belief, as I was talking about before, where you know, there is a better tomorrow, I think venture venture capital speaks much better to the investor class than, say, an LBO transaction where you’re investing in a widget company that may or may not have high margins and remark that you may or may not understand,

Alexa Binns 17:38
It might be interesting. A lot of our you know, if you’re an emerging manager, you haven’t dealt with higher up the stack LPs, endowments and insurance funds and pension funds. But these are the LPS you work with daily, so anything you can share with what it’s like working with some of these larger institutional LPs?

Chris Johnson 17:58
Sure. Um, so I think the thing I like to stress with newer GPS and as an aside, I was part of the Kauffman or I am a part of the Kauffman Fellows Program, which deals a lot with newer managers. Really, you know, there are two, I guess, two dichotomies on the family office side. You know, the famous thing is, if you’ve met one family office, you’ve met one family office, right. So a lot of those LPS have very differing either views or needs of venture capital. And it’s very important to understand who is sitting across the table from you before, either you approach them as a prospect, or you continue in your investor relations with them as an LP. on the larger side, I think, you know, it becomes much more about client service. So as you think about a large insurance company, typically the person on the other side of the table from you is a salaried employee who may or may not be compensated on the performance of their portfolio, but at the end of the day, have a reporting line somewhere. And what you’re looking for as a GP, or what I’m looking for, as a GP, is a champion within that organization that really believes in either me or my firm. And so the thought process there is how can I best deliver and assist this person in what they do for a living. And if that person is looking to build a venture portfolio or looking to build a say, in the case of a large insurance provider, if they’re looking to build a strong alternative markets, they have a fixed allocation amongst their investment pool, and they need really, you know, Knightsbridge size puzzle piece to fill out their venture asset class, how can I best reflect venture as being a strong part of their portfolio from a risk adjustment perspective? Again, going back a nice purchase history, we’re 41 years old. So where I’d like to say we have kind of the most conservative LPs and and you know, a non conservative asset class. So what we’re trying to do is risk adjusting our approach in a way that makes sense for LPS, like the ones I was talking about. And again, it’s really more of a relationship base, both with the person and the firm. So thinking through kind of you and your team, what are you looking for when you’re investing in a venture? And how can we best serve that?

Alexa Binns 20:18
No, thinking of yourself in plant services, I think is a huge jump for some of these folks who consider themselves, you know, sorcerers of great startups. Yeah,

Chris Johnson 20:29
for sure. Yeah. And I think like, my participation in Kauffman, and then also, just as an aside, sitting in a fund of fun, I meet with managers probably average about one a day that, you know, the important aspect of all of this is someone sitting where I sit, or even someone sitting in insurance company sets, or an endowment, all of us are serving a client at the end of the day. And in my case, I actually have to actively raise funds, right to, to, to invest to fund a fund, and an endowment case is a little different. And they’re not as participatory in the fundraising aspect. But they still have reports, you know, reporting lines, right. And at the end of the day, they have clients. And what I tried to do in Kauffman, and what I often try to do when I speak with emerging managers is that in today’s environment, money is not easy to come but easy to come by, in any aspect, right? And so thinking through kind of, how does that person how does that person’s life made better by investing in a firm like mine? Or how is on the flip side, how is a GPS life made better by me making allocation is important. So I think these GPS, you know, generally on the emerging side, need to think through that, you know, as my grandma used to say, Money doesn’t grow on trees, right. So thinking through that, you know, $1 means something quite different to different parties. And understanding what that means is really, really important in fundraising.

Earnest Sweat 21:51
Chris, how do you just even tactically, everybody, all of your LPs are coming from different perspectives that you might have longer relationships with others? How do you make sure with all those puzzle pieces you provide the right kind of output for the right, is it all everybody just gets the same product or somewhat slightly different products? How do you make sure you’re providing everything to everyone? Yeah,

Chris Johnson 22:19
That’s a great question. So structurally, Knightsbridge sits on, like what I think is a three legged stool, right? So our 41 years is mainly venture capital fund of funds. And we still do that. For the last 15 years or so we’ve been raising secondary funds, which is, you know, typically a different client base, just because of that shorter duration or shorter term, as well as a different return profile. And then the third and kind of, you know, not as mentioned, part of our business and part of the industry are what we call separately managed accounts, or SM A’s. And those are typically funds of one or funds a few right that a client will come to you and say I have 10, or I have 50, or I have $400 million that I’d like to allocate to venture, I’d like you to manage that Knightsbridge. And whether you know, and then we can talk as to whether or not it’s a discretionary or non discretionary account. So thinking through kind of how I can best serve each of those three buckets is different. While we have clients who are participating in all three, you know, all three buckets or all three legs, of Knightsbridge, we have others that are just solely focused on secondaries, we have others that are solely focused on SMEs, where they have a customized portfolio due to either their focus their sector, their interests, and then we have fun to fund clients who have come back to us for you know, approaching half a dozen funds now that really what they’re looking for us to do is provide an outsourced venture exposure for them. And then similar to many endowments, what we try to do is allocate in such a way that inevitably, future capital calls are met by present distributions, right. So by say, the third fund cycle, often the distributions being made by your first investment or meeting the capital calls of your third and at that point, you kind of maintain a relatively steady state exposure on a cost basis to the venture capital asset class. Also, a lot of phone calls and coffees, I

Earnest Sweat 24:17
was gonna say a lot of phone calls, and is great if it perfectly works out that way with the third fund. For fund managers who are trying to get to know you now, understanding kind of the entire backdrop of what your day to day is, Chris, what advice do you have for them on talking to an organization like yours?

Chris Johnson 24:40
Yeah, I would say you know, bigger picture organizations like mine, and there are a number of funds or funds or intermediaries or other say high net worth channels on a lot of the major banks. Usually those conversations are relatively slow. So right if you think about venture is a relatively fast moving asset class From a deal perspective, it’s a very slow moving asset class from an LP allocation perspective. So, while I have had first meetings with managers who were expecting a check after that first 45 minutes, it is very, very call it extremely rare to get that allocation in a manner like that I in fact, I don’t know that it’s happened, and in my time at Knightsbridge, so, for us, you know, doing what we do on fun to fun side of the business, we typically maintain a pretty robust roadmap over the next three to four years. So I have an idea of where not all of my assets, but a good number of my assets are going based on past pacing of my underlying GPS as well as other GPS that I’m keeping an eye on. So getting into that roadmap or on that radar is probably the most important first step, but the expectation and the understanding that, you know, an allocation might not be forthcoming for this fundraise may not even come for the next one. But if you’re constantly reaching out, we have good back and forth, that’s potentially a target down the road. So the expectation setting on say, an early like a fun one, or a fun to manager is really important. Because you know, at the end of the day venture is an asset class of very successful people, people who have been typically successful either in investing have a great track record, or very successful operators who now think they can be VCs. And in both of those cases, there’s, you know, the failure rate of someone saying to their face that essentially you know, I’m not giving you money in which they translate in, which may or may not be true, as I’m not good enough, is a hard message to take. So it’s preparing yourself mentally to say, Okay, maybe not this time, but maybe next time, and that’s okay. And what that also translates into a lot more meetings that I think are expected from an early first time manager. So it is the case that you’re probably going to get triple digit number of meetings to raise a small to moderate size fund. And it’s not typically the case that like your first five meetings are going to be 10 million each, and then you’re walking out the door to a $50 million.

Earnest Sweat 27:07
Net. Now we’re gonna take a quick break to speak with our sponsor. Next

Alexa Binns 27:11
up, we have our industry expert and sponsor, Dave Thornton, co-founder, CEO and chief investment officer of vested, who provides funding to exercise your stock options. Thank you so much, Dave, for joining us. You also have a partnership with Carta. Yeah, yeah. How does that work?

Dave Thornton 27:29
So we are an API partner of cards. For folks who are not aware of carta is the preeminent cap, table provider and video a bunch of other things. In the private markets, I think they’ve got something close to 80% of VC backed startups that use them to manage the cap table, and maybe half of them use them for 409a valuations. And they’ve got a fund administration business. So they’ve got their tentacles in a lot of places. They opened up an API to select partners in the last year. And we are users of their portfolio API, which basically means your carta user. In other words, you are an employee who has your stock options administered by Carta, because your company is putting carpet to do that, you can come to vesta.co. And before, if you were to tell us about your stock options, you might have had to manually enter them into the website, and you might have had to cognize, the difference between an incentive stock option and a non qualified stock option. And you might have fat fingered a couple of your details and gotten it wrong, and you might have gotten your FMV wrong. Now you have the option to link your Carta, and all the data that you otherwise would have taken 10 minutes to type in or five minutes, but still an annoying amount of time to type in and might have gotten wrong, it will kind of stream directly from the source. And that has been a pretty significant de-friction of our user experience. So it’s been great working with Cardona.

Alexa Binns 28:54
Yeah, for sure. And as you said, things like fair market value that being updated annually, where the the fair market

Dave Thornton 29:01
value is. It’s because it is a capitalized term. It has a defined meaning: it is produced by a third party, it is approved by the board. But when you just say to somebody, what’s your fear about what’s the fair market value of your stock? They take it, I’d say it’s a third, a third, a third in the following buckets. 1/3 is they actually know what it is. And they provide the right number. The middle third is they think it’s whatever price the company most recently raised its round at which is not unrelated, but not even close because that tends to be preferred stock that’s issued to new investors and preferred stock and common stock or different things with different values. And then the last one, the last third is they take it as an invitation to just say what they think is fair. So it is really, really nice to have the opportunity to most of the time stream it from the source of truth. It makes for a lot less follow up from us to the employee than asking for erection? Yeah,

Alexa Binns 30:00
Well, we giggle, but I guess in some of these, you know, marketplaces and so on, the prices are what somebody will pay for it. So, you know, what is fair is fair, it’s nice that you’re actually not having to negotiate any real numbers that you’re working with things that are already predetermined. Yeah,

Dave Thornton 30:19
It’s great. And I like operationally speaking, we don’t get the opportunity to meet 30,000 management teams. And so the traditional primary venture capital approach of doing a full, full forensic evaluation of a company is not on the table if you’re going to run our business model. So we have to use the prices that already exist.

Alexa Binns 30:36
Yep, the same number, the tax man uses any parting words for LPS?

Dave Thornton 30:43
Only if you’re interested in thinking about high quality index style exposure to venture, so think of this as smart, smart beta, we are now about to start launching a bunch of these products in earnest. And we are very, very open to feedback, we can programmatically put a lot of capital to work helping out the employee base that I just described. And it’s an interesting time to kind of be one of our early LP partners in the new business model. Thank

Alexa Binns 31:11
you so much, Dave, to start working with vested, you can please email investors@vested.co. And mentioned this podcast. And now back to our LP interview.

Earnest Sweat 31:21
Chris, have you ever received deal flow from the outside of the fund to fund kind of funnel? And for more that kind of like, special purpose, or I forgot the exact term but like one of your dedicated funds from one of your LPS from

Chris Johnson 31:39
the SMA, for sure. So yes, I think people approach Knightsbridge thinking the fund to fund is our only strategy or people and by people, I mean, veteran managers, newly rancher managers, thinking that fun, it’s either fun to fund or bust. And for us, while I appreciate cold emails, warm intros are way, way easier. So getting a nice introduction from either a current LP of mine, or, or a current VC of mine is, is quite quite a bit better than trying to just call the email me because I, my spam filter cannot keep up with the number of emails that come in every day. And I just hesitate to say, it’s hard, it would be hard, very hard for me to reply to everything. And actually, as an aside, I had dinner with a group of fellow LPS a few months back and one that was the head of a very large family office was saying if I took the time to the end of the day, to say, you know to write, you know, even one sentence response to all the inbounds, like that’s really time away from my personal life. And at the end of the day, is it really that constructive? So the thought process around cold emails is difficult for someone to do MIT just because of all the inbounds I get. So warm intros are much better, I would say just generally, versus just trying to send me an email and then replying to that email like five times, which, which is the case I have one that I just keep notes on? Because it’s like, I think it’s in the double digits now or I’m just like, okay, like, I don’t know what to do with this anymore? Is it getting a little weird? Have

Alexa Binns 33:17
some empathy? Chris is busy, he’s very, a lot of people want to be with him?

Earnest Sweat 33:25
Or, or make it about your life to catch up? So he has kids that I don’t know.

Chris Johnson 33:33
Find another way.

Alexa Binns 33:35
D is there anyone you’re actually looking for right now, you know, if this was a push versus a pull, opportunity, um,

Chris Johnson 33:44
I’d love to speak with people. And this is more thought process than like, I need someone in this sector. But I’d love this speak with managers who are thinking beyond the current gen AI craze and thinking about what potentially the next step is. And this is like more armchair economists anything but it seems like so many dollars are flowing to infrastructure, which may or may not be a good thing from an early stage perspective. But thinking through kind of what comes next, I think is not as well defined. And if you think about kind of, who I think about, it’s more of a cloud infrastructure framework, where you have, you know, the notable big winners, right? Googles, the Amazons, the Microsoft’s of the world are also appearing to be the notable big winners have aI infrastructure. But if you look at kind of all the companies that were built upon cloud infrastructure, there’s a lot of value creation that right and you can look at knights ridges website to see some of the firm’s exposure to I’m wondering what kind of the next generation of firms that you know represent kind of the cloud players or the snowflakes to the world? What will those look like in AI? And any thoughts there could be potentially interesting. Awesome.

Earnest Sweat 34:59
Yeah, that makes a ton of sense and that’s kind of our job to be thinking about what’s yeah what what’s it what’s a complete? Like? Always like this is allocated is a complete No, no. Other than emailing you 15 times straight without a response. What’s complete? No no when first meeting with an alligator yourself, Chris.

Chris Johnson 35:29
So one of my favorite stories of all time is so I started at night’s toy. As I mentioned before I started my career in hedge funds and Manhattan private equity, relatively sharp elbowed right, I was wearing a suit and tie every day, a different lifestyle, and a venture. And like right around the first year work at Knightsbridge. As I mentioned, this is back when we were in the office more often. So we were in an office with a brand new analyst. He was less than a month into the job. And we took a meeting with a person who was passing through Boston, because of where we sit, a lot of managers come to the Boston area to speak with the endowments. And while they’re here, they often meet with us. So I’ll often kind of leave and open up a couple hours in the afternoon just saying, you know, every week saying someone stops, and that’s fine, they can stop by our offices too. Anyway, great meeting decent, probably not a fit for us, I gave the preamble about why it’s not a fit for probably not a fit for us before we even started writing. That’s a pretty high hurdle. But, you know, still love to hear the pitch if you’d like to, you know, give that to us. And at the end of the meeting, the guy goes, What is $5 million to you? And I’m like, what? And he just kind of stayed in that line of reasoning for about two or three minutes. And it was just really, really awkward. And it was like, you know, okay, all right, great, good meeting, thank you. And he leaves our offices, my analyst is like, are they all like this? He’s like this, this would be great. And I’m like, no, no, that’s definitely not how it works. Wow, I appreciate the ask. But if the task is immediate, and you’re not getting positive vibes from the table, it’s probably that afternoon. So that would be a big no, no. Number one. No, no, it’s really awkward. Um, I think the other big nonno for me is going back to king of the cold emails is often the point personnel on a lot of databases like PitchBook, and pre Quinn and others like that. Please, please, please look at your audience before you send emails, I’m kind of giving you to figure out what Knightsbridge does based on our website, or any kind of generic elevator pitch like you gave me at the beginning. But I still get kind of like cannabis farm pitches, oil and gas pitches or multifamily apartment building pitches. And, you know, the flavor of the moment is private credit. Which we really don’t do. But all the same. These are like taking a second now of my day in my inbox just thinking it through. So the big no, no, for me is not doing the research before you step into the meaning and understanding how a fund to fund may be different than an endowment or a family office. So we’re just thinking through kind of what the different flavors of LPs are really, really important.

Earnest Sweat 38:24
But also a benefit or insight is now any allocators out there who do a lot of different things in private. Hey, if you’re looking for multifamily deal flow, Chris, can I help you?

Chris Johnson 38:37
I’ll just keep forwarding you to send me an email to be forwarded to my family, but I don’t know why you get these emails, like I’ve unsubscribed so many times. I’m just like, yeah, no, I’m good.

Alexa Binns 38:47
We recently launched a fourth stool at night. Yeah, exactly.

Chris Johnson 38:52
Yeah. Got it. Get it down to the basement, don’t worry about it. Is that?

Alexa Binns 39:02
Is there a piece of advice you’ve received in your career that’s been meaningful?

Chris Johnson 39:07
I think the big thing for me is, you know, time is valuable, you don’t get that back. And on the flip side ventures a very long asset class. So the relationships you make in this business are very typically very long lived. And it’s very much a repeated game, that on the LP side and the allocator side, you know, my networks are pretty broad. We all talk, we often switch chairs. So there’ll be, you know, people moving from an endowment to an endowment or an RA to an endowment or vice versa. And once you kind of have a toe in the venture ecosystem as an LP you typically have an affinity funnily towards it for quite some time. So I think both spending time with Metro managers is important, but also understand that it’s a very long time horizon within venture and that, you know, memories are lost. on both the GP and LP side, so you see a lot of the same faces. And if the venture cycle, you know, fundraising cycles are ideally about three years apart, hopefully, can we get back to that? That means, like, if you’ve raised three funds, you’re in it for a decade, right? And often you’re approaching the same people over Yeah. So I think that’s really important to know that, you know, it’s first impressions matter, but it’s also life and depth of relationships are quite important to know,

Alexa Binns 40:28
I actually think that’s been one of the biggest pieces of feedback we’ve gotten for doing this podcast, thank you for coming on that now. Knightsbridge. And you are real entities. You know, you’re not just this list? You’re not a name or an email in a database? Where people I don’t think necessarily feel like they see the human behind them, for sure. The easy 5 million bucks.

Earnest Sweat 40:58
Yeah. Easy. Yeah. What is it? What’s it to you? Why are you being stingy? On the flip

Chris Johnson 41:06
side to like is on the secondaries, you know, part of my day job? Like, one reason we’re able to purchase LP, interest is often there’s turnover too, right? So I read something like the average CIO, and an endowment has like six years. And if you think about it like a primary fund, that is not unheard of to go to, you know, 15 classes, that’s like three people, right? It’s a parent. And then two step parents have a single fund. And ideally, if the gap is still there, you’re maintaining relationships across that spectrum. So that was a bit eye opening for me as we as we were diving deeper into secondaries world and as the flow is picked up there, you’re really seeing assets being sold that you know, the person who made the investment decision, and often even the documentation around that investment decision aren’t available 12 years later, right? That actually

Earnest Sweat 41:55
makes it kind of a question for me, we’re seeing kind of like the movement on seats, both from GPS and LPs. Quick aside, one friend told me that a question that founders are asking kind of like late 30s, early 40s GPS is like, Are you a flight risk? So like, there’s like a ladder? Like, there’s like a fear there. But I didn’t think about it from the allocator. So I don’t know if that trend is accelerating more, and people are changing more. So I would love to know that. But then, um,

Chris Johnson 42:30
I would say, that’s a great question. I don’t have any numbers. I think conceptually, it was easier to change seeds and a zero interest rate environment, right? Where people weren’t paying attention as much to dpi, they’re really just looking at markups. And could you have an interesting, say, folk sub five year track record, and then go hang your own shingle and raise, say 1020 $50 million? I think that has become extremely difficult. But on the flip side, we’ve invested with any number of managers that have gone through either single or multiple generational transitions. And I would say beyond values, which is a minority of the decision making process, it’s almost always economics. And the question in my mind, and a lot of our diligence is looking at both the leadership of a GP that we’re making an allocation to, but also who’s coming next. And what that potentially looks like in the future as a fund to fund and I think this is true of many allocators that, yes, we’re making an investment decision on a single fund. But part of our analysis is, you know, is this a potential for a second or third fund allocation as well. So if you know, your entire team makeup is transitioning from one fund to the next, it’s not typically an investment for Knightsbridge, because we’re also, you know, investing in you as a front user person, but also us as a firm, right? So we want to see that, what’s, you know, we’ve had this multiple times, because we invest in spinouts, we often look at the product, you know, the prior shop. And if we’re reopening with the firm that the person departed from, we want to see who’s remaining and what those individual contributors look like, as well as what the new contributors doing, say, on the spin out opportunity. So it’s yeah, it’s definitely something we think about from you know, we don’t necessarily call it a flight risk, but we say, you know, what is your strength to the team? And are you being, you know, for at first principles, are you being well compensated? And if you’re not, or, you know, it’s not as prevalent today because of zoom, but back when they’re in person meetings, it was very obvious who was driving the conversation. Like, I’ve sat in GP meetings where, say a principal we introduced at the beginning of the meeting, and then that person will say zero words for the next hour, and you get an idea of okay, like, I’m, I’m glad I got to meet the new principal. I don’t know if I remember that person’s name, but I can see who’s driving the bus here. And then on the flip side, going back to kind of that repeated game I know you know what you allocate, you know, your attribution looked like from a performance perspective on this fun. I may have said no, on the next one, you have different personnel and you’re sending me an attribution file, I would highly recommend it looks very similar to the previous one. And it’s been, there’s been more than one occasion where it’s not. So for someone sitting through a computer game, you kind of understand what’s going on, right? That’s like, oh, no, I actually sourced that deal.

Earnest Sweat 45:27
You’re saying? You’re saying I can’t put all the bad deals on the person who just left?

Chris Johnson 45:34
I wouldn’t suggest it. I mean, unless it’s all new prospects, no worries. If you’ve called me before, you probably might want to check out your Excel file.

Alexa Binns 45:46
This has been so fun. Chris, any final thoughts for this audience?

Chris Johnson 45:52
Yeah, I mean, I think you know, tough times will get better. I think, you know, people see fundraising is difficult right now, I think it may have swung too far. The other way in the prior environment, it shouldn’t be easy, but it won’t be impossible. And if your difference is valid, and your track record is strong, someone who will allocate to you eventually may not be me. But there’s enough capital out there looking for interesting ideas and ventures that, you know, it’s not the end of the day. The other thing I would say too, is discover what your MVP is for your fund size. So yes, you may be trying to raise 200 million. But is it a strategy, you can do clay at 175. At a certain point, it may make more sense for you to try to go to the market and start building a track record than to remain, you know, fundraising ad nauseam. And there’s that that’s a decision I don’t have a specific answer to. But thinking about trying to get in the market and show your abilities on the investing side as soon as possible, would weigh on me as an early stage, you know, allocator and should weigh on you as an early stage investor, if you’re able to find those deals, you know, go to it sooner rather than later. Well, Chris,

Earnest Sweat 47:02
Thanks so much for spending time with us and sharing all the knowledge and great anecdotes as well. If you’re I was gonna say if you’re interested in socket, Chris, I’m sure those people know how to get to you anyway. So then let him get Yes, let me be the filter. I’ll take all the oil and gas in real. Yeah. But seriously, thanks, Chris, for being on. You’re

Chris Johnson 47:31
You’re very welcome. Speak to you guys soon!

Alexa Binns 47:37
See you later, Allocator!