QED Chronicles: Lessons Learned from a Top VC for Selecting New Managers

With Alex Edelson,
Founder & GP, Slipstream Investors
This week on Swimming with Allocators, Earnest and Alexa welcome Alex Edelson, Founder & GP at Slipstream Investors. During this episode, Alex shares the foundational insights from his days at QED that lead to the inception of Slipstream. He highlights that many of the best-performing funds are smaller, emerging managers rather than big-name brands, yet evaluating smaller funds can be challenging due to limited track records. He defines Good LPs and Great LPs and goes into detail on his evaluation criteria for selecting new managers for the fund of fund. Also, don’t miss our insider segment as Nik Talreja of Sydecar.io also highlights the resilience of VC deals, emphasizes the diversity beyond AI in successful startups, and foresees technology's disruptive impact on investment syndication.

Highlights from this week’s conversation include:

  • Alex’s experience as a VC turned LP (0:51)
  • Insights into evaluating smaller funds (2:20)
  • Characteristics of a good LP (6:44)
  • Role of an LP as a sounding board (8:06)
  • Constructing an LPAC (10:39)
  • Continuing relationships with funds (12:15)
  • Pitch to LPs for Slipstream Investors (14:17)
  • Evaluating Emerging Managers (18:53)
  • Sector-Focused Funds (24:05)
  • Insider Segment: Navigating Venture Capital’s Evolution (25:45)
  • Diversification of Investment Opportunities (28:35)
  • Future of Venture Capital (30:38)
  • Fund Management and Responsibilities (34:45)
  • Active Investing and Fund Sourcing (35:33)
  • Optimal Time for Venture Investment (37:08)
  • Final thoughts and takeaways (38:26)

 

Alex Edelson is the Founder and General Partner of Slipstream Investors. Before starting Slipstream, he worked at QED Investors, a top fintech-focused venture capital firm with $4.3 billion in assets under management. Alex joined as Nigel Morris’s Chief of Staff and became the Chief Operating Officer and General Counsel. He previously worked at a fintech startup and spent seven years practicing law. Alex holds a J.D. and B.A. from the University of Michigan. Learn more at www.slipstream investors.com.

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

Swimming with Allocators is a podcast that dives into the intriguing world of Venture Capital from an LP (Limited Partner) perspective. Hosts Alexa Binns and Earnest Sweat are seasoned professionals who have donned various hats in the VC ecosystem. Each episode, we explore where the future opportunities lie in the VC landscape with insights from top LPs on their investment strategies and industry experts shedding light on emerging trends and technologies.

The information provided on this podcast does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this podcast are for general informational purposes only.

Transcript

Earnest Sweat 00:12
Today on Swimming with Allocators, we’re speaking with Alex Edelson, founder and GP at Slipstream Investors, a DC-based VC fund of funds that invest in pre-seed and seed funds, many of which are emerging managers. And in their poor coasts, slipstream prides themselves on investing in top early stage emerging venture capital funds before starting slipstream. Alex was the CEO and General Counsel of QED investors and chief of staff to Nigel Morris who co-founded Capital One. So with that we’re really excited to be speaking with X revenue. So that is packed into that bio a lot. So you’re a VC turned lp. And you were the QE QE DC. Oh, and General Counsel. How did that experience kind of from the platform perspective or operating perspective of venture help you with their strategy in slipstream?

Alex Edelson 01:18
Yeah, it’s a great question. I mean, it’s a big part of why I started slipstream in the first place. Like she shaped the hypothesis and, and, and kind of everything I’ve done. And so yeah, I guess it all started with a few observations there. But like I was very fortunate there to have my to be involved in a lot of things. I wasn’t, I didn’t have a narrow role. And so I got to touch in and engage with a lot of parts of the business. And so I learned a lot about how to build and run a venture firm and what it takes to generate great returns. Now, like a big caveat, there’s not only one way, but like I learned the way that we did it there. And, and that was really helpful. And so yeah, it was mainly like, you know, a few observations that stood out to me. And then I think it was because I was in a unique seat that I got that I developed, you know, the thesis for this. And so, the first was like, man, many of the best performing funds aren’t the big brands, they’re like the small early stage funds, and a lot of them are emerging managers. That was not what I expected as I was learning ventures that were not intuitive to me. And so on the other hand, it was like hard to scale, a venture firm, like, it seems like man, you get these big funds, you have to get more ownership, you have to get you can’t get enough ownership to some point it to some extent, in enough winners and the winds aren’t big enough. And so it’s just hard to generate the returns on these big funds that you see, you know, some of the best performing smaller funds these emerging managers generate and that was surprising to me. And I saw that because we were growing, and we were also working with smaller funds, and we were studying our past. And so you can sort of see those portfolios and how they evolved and how those generated great fund level returns. And the second thing that I was seeing was like, a lot of people seem to struggle to evaluate these smaller funds. And it seemed like that was in part because they had limited track records, people just didn’t know what, how to evaluate them. And so you’re I was hearing from like all these people who have done venture at a really high level of QED and like these founders who have interacted with QED and all and a lot of other venture firms and picked QED over other venture firms in many cases and have worked with QED in many cases for like a long time and had really rich feedback. And so you’re just like hearing all these things about what a good early stage venture firm is and what it takes to generate returns. And what was interesting was like it’s not a track record, it’s like qualitative characteristics. And when you know, the founders, you know, the VCs, you can test for those. And then, you know, the next thing was like, some of the emerging managers were starting to reach out to me and like, thought I could help them, which, you know, was a little confusing, because I was, you know, a lawyer before that, and I worked at a startup that like, didn’t work out. And they’re just like, you guys have a venture firm like you’ve, you’ve done it, like, you raise the font, like, how can I help you? I don’t know what I’m doing. I’m kind of just learning right now. And, and I’m not sure like, I’m some authority on this. And the learning was, like, you know, people think really highly of QED. And in my role there, I was learning and I was developing an expertise, I guess I felt like an impostor. But some of these folks looked at me and thought I could be helpful in building their firms like they thought they could source pick one add value, they wouldn’t have started their firms, but like, did they all know portfolio construction or investor relations, or what information might be helpful to track now that like, might be actionable in a few years. And just like, if you were to step back, it’s like, These people seem to like, I was building a flywheel in that community, like, slowly, and realizing like, maybe I have a role in this community. And then like two other things that happened there. One, we had all these co investments and, and the learning there was like, you know, in the small funds, they’re not going to keep investing in these great companies as they grow. Like in the great companies that invest early, they can’t keep investing as they grow. And they’ll generate these co-investment opportunities for LPs and like, far more LPs, say, they want to do those than actually do them. And that’s commonly known, but at the time, that was very surprising to me. And, it felt like an opportunity. And the last thing was like, I was just developing strong feelings about LPs. And like, we were working with our own LPs, and it was like, man, what’s a? What’s a good LP? What’s a great LP? Like, how hard is that and, you know, I even now I feel like I’m maybe behaving more like a GP than an LP than other LPs. Or I should say, I behave, GP, then then an LP sometimes. So like that, that all really shaped how I think about the opportunity here. And then if I were to say one more thing, it’s like, I just got a sense for, like, how VC firms run generally. And like, they’re small firms with small teams and limited operating budgets. And like, they’re in these big headlines, and they’re in these great companies. And, and they have some larger than life personalities, but really, like, they’re not that they’re pretty small businesses. And yeah, there’s messiness. And there’s just like, a lot of stuff happening. That’s like, sometimes it’s not maybe not best practices, or, but like, it’s effective for them. And it gave me a central idea just like the practical reality of what it’s like, at a venture firm. Yeah,

Earnest Sweat 07:47
that was a question I was gonna ask, what are your strong opinions about? Oh, man?

Alex Edelson 07:51
No, I think I think a good LP is an LP, who is responsive, who wires quickly? Who’s transparent? I think a good LP knows that for the most part, it’s, it’s they’re trusting the VC the GPS to do their job. And they’re not like asking for tons of their time and questioning them and saying, like, I think that’s a good LP, it is a trusting, deferential, responsive, transparent, fast moving partner. I think a great LP is someone who challenges the fund managers, who pushes back constructively, who if they want to meet other LPs, they want to help fundraising, they can help with that. It’s people who have data and perspective and insights across a longer period of time, that’s useful to the manager as the manager is going through difficult situations, unique cases, edge cases, like, you know, sometimes in a fund managers life, like they may only experience like, some of these unique cases, like maybe once or twice, and then, as an LP, you might see a lot of examples of these like weird edge cases.

Alexa Binns 09:22
What is your GP coming to you to ask about these days as a good LP who has that broader umbrella perspective? Yeah,

Alex Edelson 09:32
I mean, it’s so many things. And I don’t mean to act like, Oh, everybody needs Alex’s help. Like, they’d never do this without me. How could they ever make it? Like, that’s not really what I mean, but I’m a sounding board and a friend, and I constructively challenge them.

Alexa Binns 09:50
When corrugators like you said, like, you were talking to a lot of them.

Alex Edelson 09:55
Yeah, so I have so the most recent topics have been things like Yeah, like recently there was a, we have limited reserves in this fund. Should we do an SPV? Should we do across fund investment? That was an interesting question. Another one is like questions about how to create momentum and urgency in a fundraising process. Like, should we build structure around this? Like, we don’t want to, you know, arbitrarily create urgency, we don’t want to mislead folks into thinking they have less time than they do. But like all these fundraisers are languishing and how do we avoid that? Like

Alexa Binns 10:30
a mortgage payment? Is that urgency?

Alex Edelson 10:35
No, I don’t recommend people talking about that. And first of all, I don’t think maybe often as fundraising like LPs, that might be a fit for a particular GP. Recently, I mean, often actually talking about portfolio construction. Reserves, for example, is a common one, like, someone says, we’re going to put, you know, 50% of our fund into our top five companies in the portfolio. And I’m like, Okay, well, like, have you ever done that? Like, do you ever track that you’re doing that, like, how early? Do you think you’ll know? And like, well, you know, at the time they raised their next round, and, you know, how long and from what I drive think it takes folks to know, and it’s obviously unique to them? Like, there’s no one answer that’s generally applicable. But in most cases, you know, it takes a long time to know whether you have a company that’s likely to be real, set aside a company that’s likely to generate DPI like it’s meaningful. And so, yeah, like we talked a lot about like, Okay, well, then what’s the reserve strategy? And how big are those rounds? How much allocation do we think we can get in them? Like, what? What needs to be true for us to preempt a rat? Like, would we ever do that? Like, how have you seen that work and not work? Have you seen examples of folks building ownership between rounds? And how have they done that? And those are common questions that I’ve gotten, I guess, in the last? I don’t know, it recently, with

Earnest Sweat 12:06
all the talk about value add from LPs, what advice do you give for fund managers on ELPAC? Construction?

Alex Edelson 12:16
Oh, that’s a good question. I think that the people who you want on an ELPAC are people who know and understand ventures, which may or may not be someone’s largest LPs, I think it’s common to have like the largest LPs on the ELPAC. And I think you want people who know a lot about venture, and can help you think through the issues that you bring to an LP decK, and who the other LPs can feel comfortable with representing their interests. But I think size is relevant. And I think if someone who’s like a very big LP wants to be on your ELPAC. That’s something you should seriously think about. And it’s hard to say no to that. So yeah, that’s what I think. I think it’s people who are long term committed to the asset class, who you think will be involved in multiple funds. This is not just like one fund and done. And who really know the asset class,

Alexa Binns 13:21
having helped QED scale, and here you’re talking about, you know, re-upping into fall on funds? What do you think makes that work? What, what are the funds that you want to continue recapping in because scale serves you? And then

Alex Edelson 13:41
I think the most important thing when it comes to this topic is that folks are open and transparent with each other to the extent they can be. Like, to the extent you can talk about your plans and for growth and how you’re thinking about your fund size, you know, that that can help you align with your LPs. And you can talk to them about that and talk to them about their strategy and their expectations for returns and their typical check sizes and what they’re looking for when they invest and how long they stay with funds when they invest in what causes them to not re up with, with a fund and and I think, you know, when you when you have that dialogue upfront, then you can kind of work together because some of these folks are looking for very different things, right? Like some of these LPS in the same fund have different goals, have different strategies, and have different sort of strike zones for what they’re investing in. And so my hope is for any GP LP relationship, then like, If this goes well, we’re all thinking this is like two to three funds. If it’s, if it’s less than that I would, I hope that the LP is open about that, like, Hey, you’re right at the edge of whatever strike zone is my strike zone. And if you get much bigger, like, I’m probably not going to be able to invest in that fund, I want you to know that as soon as possible, ideally, before I make this first, this investment in this current fund, and if you choose because of that, that like I’m not the right fit for you, because I’m probably not long term like I respect that. And you should find someone if you can, who’s a longer term LP. I think having conversations like that at the beginning of a relationship is really helpful. So the kind of advice that you’re talking about now in the fundraising environment is also relevant to one of our big audiences as well as other allocators. And, you know, anecdotally, I’ve actually been surprised over the last 12 months of all the new funds that have started to arise. So the next question is like, what was your pitch to the elbow? Yeah. Because so many, so many times, you know, LPs as fund managers, why do you need to exist? What was your Yeah,

Alex Edelson 17:44
What a good question. And it’s funny, like, on your prior point, I have seen fund to funds and to the market over the last year or so. And I think it’s great. And they’re all different, like everyone has a different angle, a different strategy. I think it’s great for the ecosystem to see these folks entering. Yeah, like, it’s funny when I think about like, Why does Why does slipstream exist? Like I think about it in a few ways. Like one of them is what I talked about initially, it was just like, with a wreath. One reason I started this is because I felt like when I looked around, I was like, I don’t see a lot of folks who are doing this, who have the experience that I had acuity and have that perspective. And so they just have different backgrounds. And it doesn’t mean they’re not good at this. And that doesn’t mean they don’t know what they’re doing. Like there are so many great LPS out there. But I did feel like I had a unique perspective because QED has been such a successful firm, consistently over the evolution of a category over the evolution of over like during, like a lot of change in venture. And they have continued to succeed. And so, so I did feel like you know, maybe I have a perspective here. And as I was seeing these folks who I thought were great. Not always being able to fundraise. I was like, Well, clearly there’s an opportunity like, does that mean like slipstream needs to exist? Like, I don’t know. But it felt like there was a big opportunity there. And that maybe I was uniquely positioned to take advantage of it. But yeah, like I stepped back, and I think about this from different projects, like some of these are if you want exposure to some of the highest performing funds and ventures, it is hard to get it. You could say like, Hey, there are big brands, there are tier ones. And some of those are like consistent performers, and they’re doing well. And that’s certainly true. And like, it’s hard to get those funds. And certainly for many LPS who aren’t that big, like they can’t meet the minimum check size. And if they are big, like there are, it’s hard to get in. And so, so part of it was like this is just like a way to offer exposure to hopefully the top performing funds in the asset class. that many people just aren’t getting. There are plenty of reasons for that. There are 1000s of venture firms, it’s hard to, if you can’t, if you don’t have time to like sift through 1000s, or at least hundreds of veterans, I think it would be hard to figure out which are the best ones. And, and that takes a lot of time. And then, and then it’s hard to evaluate these funds if you don’t have much of a track record. And I think folks struggle to evaluate them. And then I think, look, some of the best funds are capacity constrained, it’s hard to get into them, even if you could evaluate them, even if you could identify them, like you have to get into them. And that is not always so easy. And then the last is like there are some groups that are just so big, they may know these are the best performing funds, they may want exposure to these small funds, but they’re too big to be able to get exposure in a meaningful way. So it’s like if I have the right size fund, and I can fully dedicate myself to meeting as many as I can. And I have a framework that I feel confident in and I have a network of venture firms and other founders and operators to help me test for that, then I’m, then I might be pretty uniquely positioned here. And so that’s sort of why I think slipstream has a place in the world. And

Alexa Binns 21:26
what’s right sized. Like, how do you get that access? But you can still take institutional LPS money? Yeah,

Alex Edelson 21:33
It’s a really good question. And it’s something I think I’m thinking about now. I think there’s no one answer. But for me, I want to be small, I want to stay small enough so that I can get into most funds that we all hope I hopefully every fund we want to get into. And that even small allocations in funds that are oversubscribed are meaningful to us. I think if I needed to write five or 10 or $15 million checks, to move the needle on the fund, that might be hard for me to get that size of an allocation in the best funds.

Earnest Sweat 22:13
So you also mentioned that this type of fund manager is really hard to evaluate, what have you learned and what kind of criteria or secret sauce Do you feel gives you an advantage in evaluating emerging managers,

Alex Edelson 22:31
so I’m typically looking for four or five things at a high level. So those are some competitive advantages unique as a team that seems sustainable, like that’s often related to sourcing picking, winning and adding value. And, and, and it should be a true infant one like it’s true. In front five or 10. Like, you know, QED is an easy example here where QED started investing in 2008. In FinTech, before FinTech was a category was a word at a time when people thought this sector was too small to justify sector focus fund. And they had this Capital One founding experience and like no one else had relevant operator experience or domain expertise like they did. I mean, there are other people investing in companies that are considered financial service companies, they are so uniquely positioned, as long as they’re good to founders and founders love them, then they generate this amazing flywheel in the FinTech community. And that should be true today and fund eight just like it was true in 2008, like in fund one. And so that’s an example of a unique competitive advantage that impacts sourcing picking, winning, and adding value. That’s the first thing. The second thing is just like, high enough ownership relative to fund size, that if they do well and get some winners like the fund should do well. And if they get a big winner, then the funds should be a really great fund. The third thing I’m looking for is the best VCs of the next stage. Trusting these trusted GPs wants to see their companies invest in their companies and wants to stay close to them. That’s really important to me. The fourth thing is that founders think they’re great. They think they add value. I mean, often, I think it’s common to say that VCs don’t add value, and it’s probably true in most cases, they probably don’t add that much value. I don’t think that’s what the founders would say about the funds. We’ve invested in that. I mean, we’re looking for founders, we’re looking for founder feedback that’s pretty specific in terms of how engaged and valuable the VCs are. And the last thing is just like folks who are hungry and gritty and resilient and who understand how long of a game this is, and how hard it is, how much work it takes and who are really motivated. Maybe they have a chip on their shoulder. For some reason. But if you were to step back, you’re like, you know, what, what’s happening? What’s so special in each of these funds? It’s like, they built some strategy around whatever is uniquely helpful, or whatever their unique superpower is they build their strategy around that. And I think about, you know, a few different frameworks that that framework is one of them. And then I think about like, you know, the six tools, venture capitalist. And it’s like, can you source picks when adding value? Get liquidity, get portfolio construction, right. And so I guess I think about each one of those categories, too. And yeah, when you’re like, Well, what’s so special? What’s the special sauce? I don’t know, I think it’s just that I learned a lot of QED about how, one way to win and venture and the type of feedback you hear from founders and how rounds come together and why certain people are getting access to those rounds, and why certain people are missing out on those rounds. And how VCs are working with their companies after they make an investment and how they sourced these companies and how they get liquidity and how they think about liquidity. What you know that that’s, I don’t know, I don’t know if it’s special. But it’s unique to my experience. Well,

Earnest Sweat 26:17
yeah, it sounds like you’re doing exactly what you’re expecting to find and fund managers, right. You’ve structured a strategy around your perspective and what’s unique about your person. Yeah,

Alex Edelson 26:30
I mean, what’s interesting is like, I’m in their shoes, too. I have to raise capital too. And I have to think about what’s so special about slippery, why should anyone pick slipstream over some other investment opportunity? And this needs to be Yeah, uniquely tailored to whatever is special about slipstream.

Alexa Binns 28:16
If the edge is specialization in a specific vertical, QED is like a heralded example of like, you’ve got the top guys in their industry, investing in tech that they can feed into their network of, of banks, etc. Are you now more or less interested in specialists? When you see sort of the hot air come in and out of some of these areas? Like yeah,

Alex Edelson 28:52
I mean, so it’s a good question. Like, I’m I my interest in Sector focus funds hasn’t changed, as the market has evolved. Because what I’m thinking about is, when in what sectors does a sector focus fund have an advantage? So if you’re like, hey, we’re a FinTech founder. So go talk to a FinTech founder, Phil. Hey FinTech, what would you value having a FinTech focused VC? Or, or over a generalist? And in certain sectors, the answer is we would really love to have a sector focus fund involved. That doesn’t mean they need to lead the round. But like someone involves who really understands the sector and maybe has a different perspective understands the business maybe can add value after investing in certain ways, like through introductions, like you mentioned, and in other ways, maybe they can find like particular talent like hey, we’re a lending company and you go to QED and cuties like Man, we have so many people who can, you can hire as like, chief credit officer. That’s really valuable. And then there are Some sectors where I’m just not sure where I just don’t think sector focused funds have much of an advantage. And so that’s really guiding me. The sort of trendiness, or trajectory of a sector doesn’t impact my interest in whether I should have a sector focus fund or not, but it could impact my interest in whether I want exposure to the sector like my thoughts on where we are in the evolution of the academy. Now we’re

Earnest Sweat 30:27
gonna take a quick break to speak with our sponsor. On the show today, we have an industry expert and sponsor, Nick taqueria, co-founder and co si car.io sidecar helps you start and run your fund or SPV. So you can focus on making deals not spreadsheets. So you all have a unique perspective, seeing what individual and you know, different deals are being done by your managers? Is there anything whether it’s kind of like news headlines, you know, VC Twitter, that you find yourself with a counter opinion on or more nuanced take on all the time? Let’s get to that last part. Yeah.

Nik Talreja 31:31
Yeah, you VC Twitter is a world on its own. And I think there’s frequent fluctuation in opinions and a lot of strong, you know, a lot of strong opinions that aren’t, aren’t necessarily granted in a new reality, reality changes very quickly, right? So look, what we’re seeing is that the reality hasn’t changed as rapidly as people expect, like, in good times, and bad, like, I think there’s a lot of there was a lot of rhetoric over the last couple of years around a boom, and like, hey, everyone should become a GP to now no one should be a GP, right? Or, hey, like, venture is a great asset class, venture is a terrible asset class. And I think that sort of that, you know, that type of dialogue can sometimes remove quality opportunities from the table and quality players from the table, which is unfortunate. But what we’re seeing is that in a time that may be perceived as challenging, deals are still getting done, there’s still momentum, people are still building founders, still coming out, trying to change the world in a positive way. And investors that may have been sitting on the sidelines, during a pretty, you know, frothy period of time, are actually out there, they’re still investing. And I think there are a lot of deals that you may not be reading about, because they’re backing companies that have investors that really care about them that are happy to double and triple down. So they may not be making the headlines that you previously read about. But there’s a lot of deals getting done. And I think that’s something that may be a counter opinion. Still, though the market has largely received some positive momentum lately over the last year, that was certainly a counter opinion of like, hey, venture, still a good asset class, maybe better than ever now. Because valuations are down, companies are still raising deals, they’re still getting done. And if you’re sitting on the sidelines, now’s the best time to get in, during that, you know, trough period. So I felt very strongly about that counter opinion about myself becoming, you know, more active as an investor and inviting others to the party. What

Earnest Sweat 33:19
Are you seeing people leverage on your platform for specific types of deals? Are you looking normal? Is it going with the wave of what we’re hearing about, like just AI? Or are you seeing more of a variety of companies,

Nik Talreja 33:38
It’s a variety of companies. I think the notion of like, you know, sort of AI, or whatever’s trendy at the moment, there definitely is a large group of companies that are building in that space, because there’s excitement around it for good reason. There’s interesting technology being developed that can be applied in new ways. However, I think the reality that we see of deals getting done is while you might expect it to be 80% of the companies that are raising, it’s a much smaller percentage of actual companies that are building in the space that are actually able to raise from very great investors. We do see that more in the late stage. So like, for example, we have like open AI, right, which is like of course, like a, you know, pinnacle of AI, right, or other companies similar to that, like anthropic, those institutions will see a lot of secondary opportunities being raised in and around that those companies but on the ground level, as far as getting in at the seed stage series, A, et cetera. It’s still a very diverse set of organizations that are raised and still see a healthy amount of Life Sciences, healthy amount of consumer technology, healthy amount of energy transition. On top of course, trendy terms like AI.

Earnest Sweat 34:48
Have you seen an increase of SPVs done on your platform? And do you think that’s in line with just the market overall?

Nik Talreja 34:59
Yes, We’ve seen an increase in the number of ESPYS in our platform by a very large order of magnitude. No, I don’t think of syndication the market overall, I think we just like we’re building a technology that is somewhat disruptive to how people have normally done these things that we do. As a result, we’ve taken market share from our competitors. And we’ve created a new market for those that previously couldn’t start a business and do what we do. In doing what you do, doing what I did, creating opportunities for their community to invest in things we’re passionate about. I think that the market is in a period of correction, we just happen to outpace the market because of technology.

Earnest Sweat 35:37
What does that correction look like for the next 10 years? Do you think?

Nik Talreja 35:42
I don’t know man, that I don’t have a crystal ball, it’s hard to say, I can tell you my personal our personal embedded sidecar is that the technology that we’re creating, right of like simplifying and standardizing people create investment opportunities, is something I believe is over the next 1020 30 years, going to be from what is now a small slice of the market to a majority of the market of how transactions happen, for a couple of reasons. One, there’s a wealth transition, right generation wealth transition from an older generation to a younger generation that is more technologically savvy, that is reading about things like commercial real estate and energy or investment opportunities they want to make through technology platforms, rather than calling someone on the ground and like investing through a broker, right, that requires technology behind the scenes to support those types of investments which require standardizing how these structures operate.

Earnest Sweat 37:19
Absolutely. One thing I’ve also been impressed with is just how streamlined and intuitive the user interfaces are.

Earnest Sweat 38:36
Nick, you’re clearly out ahead of the future of venture capital. For those interested in using sidecars software, please visit sidecar.io backslash allocators. And now back to our allocator interview. Something that has come up a lot over this these last couple quarters has been a term I think we forgot about liquidity. And so I know on This Week in Startups, you talked with Jason about whether venture capitalists should consider every funding round as a potential opportunity to buy or sell as an LP. Tell us your reasoning. For your position. Yeah,

Alex Edelson 39:15
yeah, it’s a great question. Companies getting traction is great. needs to happen. markups are great. But in my view, this is all about returning capital to LPs. So I have an LP anthem to our LPs, like at a multiple of the amount they invested like that is why we’re all here. And so my hope is that that is always on people’s mind because that is the goal. Also, VCs are really long games. And it’s relationship based, and it’s artisanal. And there are these relationships built between founders and VCs. And I think it can be hard sometimes for folks who have been along for these journeys with founders for a long time to take money out. And I often hear folks say, well, like from a relationship management perspective, like it’s very, I’m not. I don’t really feel comfortable selling to the secondary, like selling, trying to sell a secondary. And I, and I, I just want people to be thinking about it constantly, and maybe pushing themselves on that, like, I’m not here to tell them what to do, I would never do that. Like they are close to their companies. They rent and manage their firms, like, I’m not second guessing them. But I do think it’s important for folks to be thinking about whether they’re buyer’s or seller’s because another reason is, like, they should know. And my hope is, they have a lot of information about the companies and they have an opinion about the valuation of a company at a given time. And if they feel like this may be as good as it’s gonna get, we may be approaching about as good as it can get for them. My hope is like, maybe there’s going to take action and generate some liquidity from that investment. And also, like, if they feel like it could get a lot better, like, hey, this company is being valued at 100 million. I think this company is on the path to being much more successful than this. Like they’re very bullish on this, they’re a buyer. Well, what does that mean? Like, maybe that means they should be following on, maybe that means they should be trying to do a co investment, like bringing this opportunity to their LPs, I would love to be co investing in companies that the GPS that we’re partnered with, I think are on a great trajectory and have a lot more growth ahead. And so, so yeah, my hope is that we are always thinking about it because generating returns is the goal. Yeah,

Earnest Sweat 41:43
I think what you’re getting at is, and I understand some of those VCs who may feel a little bit uncomfortable, but when you’ve, you know, put on not only an investor hat, but now you’re a fund manager. This is this, this is the responsibilities that, you know, entail in that role. And so I’ve seen people get, as emerging managers get really active, and seeing what different LPS you know, what their appetite for continuing and not essentially being a broker based on that within specific companies, or even full LP positions, because they are active fund to funds that are trying to do more secondaries. They’re even like secondary strategies that are emerging, merging a lot for an appetite to take on things. Yeah, I

Alexa Binns 45:07
Are you actively investing right now in new managers? And if so, how do you like to source or here? Yeah, I

Alex Edelson 45:15
I am actively investing. And it reminds me of your first question about the operating experience from QED, and how it informs the strategy now. One thing that I remember very vividly is like when you should start fundraising to make sure you’re never out of the market. And hopefully, so that you have a good sense for your fund size when you start investing. So you can get your portfolio construction right. And so, yeah, so I’m thinking about that right now to make sure like, we’re ready with our next fund. As soon as we’re done investing out of the current fund, there’s no time out of the market. So yeah, like, hopefully, my question, my answer to your question will always be yes, we are always actively investing. We are now the second question. Yeah, I mean, there’s no wrong way to hear about mentors, like, I want to meet great funds. And I think it’s helpful when I meet them through someone who I know and trust, that could just motivate me to move a bit faster, but I’m looking at everything that comes in, I get cold and down through the website or on LinkedIn, like I, I, I respond to everything, I may be a little slower to respond to some of those. But there’s no wrong way it could be through QED, it could be through a founder, I know it could be through another LP, it could be through a fund we’ve invested in that’s a great way. But there’s no wrong way,

Earnest Sweat 46:39
is now a good time to still be in venture,

Alex Edelson 46:42
I think this could be one of the best times to invest in a venture in the last 10 or 15 years. But I should say like, there’s, if you’re gonna commit to the asset class, it’s hard to time it. So I’m not suggesting like, hey, the way to do this is just like, wait for the great times, like, you know, put all your money and then and then, and then just stop investing when it’s not looking good, because this is a long game. And it’s hard to know, now, when the best vintages will be, but I do think there’s good reason to think industry averages will be high, like performance metrics will be high, sort of industry wide, in this period of time, like over the next few years. But another way I think about this is like there’s not a bad time to invest in great funds, like you’re, they’re investing in particular founders who are running particular companies. And if you have opportunities to get in with great funds, during what you think is a bad vintage, I would say that’s a good way to do it. Because there are great fund managers who will do well in all market conditions. And there are great founders who will do well in all market conditions. And there will be great companies that will do well in all market conditions. So I say that with a big caveat. But yeah, it does feel like this could be a very good time to get exposure to the asset class.

Earnest Sweat 49:22
Well, Alex, thanks for being on. It’s been a true pleasure, man. And thanks for all the insights and your opinions and for what you’re doing.

Alexa Binns 49:40
See you later, allocator!

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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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