Start, Bench, or Cut: Which Emerging Manager Archetype Do You Want on Your Team?

With Earnest Sweat and Alexa Binns,
Podcast Hosts
This is a special DDQ episode of Swimming with Allocators, in which Earnest and Alexa Discuss what they’ve been hearing in the LP community, debate where the biggest opportunities are ahead in venture, and answer Questions from the podcast audience. They discuss how to better prepare to raise your next fund and regions where allocators are actively making new venture commitments. They debate whether early-stage investors should be raising opportunity funds. And propose one question LPs should be asking GPs and similarly, one question GPs should be asking LPs. Alexa surprises Earnest with a game of Start, Bench, or Cut: laying out three common emerging manager archetypes. And envisions a future where high schoolers commonly raise VC funds. Earnest concludes with a new segment answering the DDQ question: is there any additional information? If you love your co-hosts, you’ll love this episode.

Highlights from this week’s conversation include:

  • Themes from Allocators (1:29)
  • Opportunities and Market Trends (5:49)
  • Debate on Venture Returns and Fund Strategies (8:22)
  • Opportunity and Market Bifurcation (13:13)
  • Game: FMK – Fund Manager Scenarios (15:24)
  • Discussion of the value of a founder’s experience and relationships (19:35)
  • Investor Archetypes (20:48)
  • Flight Risk of GPs (22:55)
  • VC Contraction (25:50)
  • LPs and Founders’ Perspective (29:06)
  • Sourcing, Selection, and Support (32:23)
  • Support for Founders (33:11)
  • The AI tool for due diligence (34:05)
  • First-time fund manager’s dilemma (35:19)
  • What LPs should ask GPs (38:14)
  • Nostalgia in the VC industry (42:17)
  • Reflection on the industry’s inflection point (44:34)
  • Final thoughts and takeaways (45:27)

 

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. Follow along and subscribe at swimmingwithallocators.com.

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
On this week’s episode of Swimming with Allocators, you have your hosts, Alexa Benz and I are in a sweat for a special DBQ episode, this is our second one. And so to a kind of level set for those that are not fund managers, something that you will have to go through if you ever do raise any type of fund from institutional investors is you will have to answer all of these DD cues which are due diligence questions. And so they can be very, very long and arteries. And

Alexa Binns 00:48
The stick keeps getting longer. Yeah, everyone

Earnest Sweat 00:51
We talked to them and they say they keep getting longer. And so we wanted to have a kind of fun play on something that all fund managers and allocators have to deal with.

Alexa Binns 01:02
So we’re calling these the DBQ episodes. D number one, we discussed what we’ve been hearing from LPS D. Number two, we got beat on some of the things that Ernest and I have been learning from our own point of view, and then we answered some of their audience questions. So should you have any questions you want us to answer on the next DBQ? Shoot them to us on social media?

Earnest Sweat 01:29
So first discuss, these are themes that we’re hearing from allocators, both from the episodes that you have heard from things that maybe we heard off the record, or episodes you haven’t heard yet. So, Alexa, what was the first theme that you’ve been hearing from the allocators? Yeah,

Alexa Binns 01:50
I think a common one is that your next fund is going to primarily be made up from your existing LPs. I think about GPS and firm building mode. That’s pretty rough news to hear. But I do think there are some easy ways to mitigate this. A maybe extreme example, Jason Calacanis just recorded with us, you’ll hear him next week. And he described fund one for him was 10 million from two was 11. And he’s out in marketing right now raising 100 million. And he’s told us, if you were to do it again, or going forward, he’s going to be focusing on annual rolling $10 million funds. If you are a first time fund manager, you’re getting ready to go out for fun, too. Those were probably friends, family founders backing you. And because they’re not institutional LPs, they aren’t necessarily familiar with the rehab process, they may not even know that’s something they have an opportunity to do or an expectation. So I think it’s on you, as the fund manager to be educating your less professional LPs, and really embracing those smaller LPs to bring them along different to

Earnest Sweat 03:04
That kind of ties into what I’ve been hearing. And it’s being more prepared when meeting LPS for the first time and understanding the long term relationship path that you’re going on. And so you know, we’ve heard this from a number of allocators. And not to kind of plug our show, I think one of the great things that we’re offering on our platform is an opportunity for you to have that first meeting, really kind of intro meeting, if we’ve all been there where we’re meeting with founders or allocators, and we’re, you know, slotted for 30 minutes, but about 20 minutes is taken up by both sides doing intros, we’re taking away some of that for you. And we’ve actually heard from fund managers, both established going on fun six to those going to fun one are fun to how they’ve been able to listen to these episodes, gain insights, and then, you know, have more thoughtful conversations with those allocators. And so taking both of those sides, it’s really important for you to be as prepared and understand your customer, your customer, which are the allocators and see how you actually fit you know, do they even like your style, whether it’s your construction, your font size? Or are they overweight?

Alexa Binns 04:34
No, totally. It’s like making this a two way conversation. I’ve had a few managers pitch me recently that did a really good job of this and it reminds me YC founders are so stellar at getting the gist out in say, five minutes and that leaves 25 minutes to actually have a conversation. And same thing if you’re pitching your fund to an LP of course You’ve got 15 slides, of course, you’ve got a data room if they want to go take a look. But that’s not what the first meeting is for. The first meeting is just to get to know each other. And see if you’re even on the same page if there’s any alignment here.

Earnest Sweat 05:11
Another thing that I have started to hear from both fund managers and allocators is that people are still looking to deploy, now it’s still my take time, but you have to be persistent. I’ve heard and this, who knows this might be still when this comes out, but even family offices in the energy region, so Texas and Oklahoma, given kind of like, where the price of oil has been, those family offices are now a little bit more active and have a little bit more capital to be able to deploy and private private equity and venture capital. And so it’s about being persistent. And, and looking for where the opportunity is, because there is capital out there looking to deploy from the international markets. I’ve heard of the rise of companies, whether it’s corporates or family offices out of Asia, so in Japan, Korea, really looking to invest more in US venture capital. And part of that is because if you look at their economies, especially Japan, there’s been so there’s not hasn’t been as much innovation. And they’re really trying to get both strategic insights, as well as returns, but last year, insights that they can bring to their own ecosystem. And so, you know, we’ve started to hear that the large funds, large asset allocators that, uh, you know, across multistage, are going more and more over there, as well as if you’re emerging managers who have some relationship connection can speak the language, your edit advantage. So that’s another point. But with that said, I think, you know, all the stuff that we’re learning, I think really fuels the next segment of debate. And so looking forward to sharing what I believe and seeing if Alexa feels the same way?

Alexa Binns 07:31
No, it’s interesting that some of these are things, some of the things that we have not shared with each other where we wanted to be yet and some of them are things that we’ve been hearing from LPS that I slightly disagree with, or maybe have a hot take. Okay, hot take, we are hearing a lot of LPs who are saying for true venture returns, that’s 5x to 8x, you need to go early in the life cycle. So they’re focused on sub $50 million funds. Specifically, they’re looking at seed precede. I’ve got some questions about that strategy. And I know timing the market is not advised. But right now we’re looking at a valuation reset in series and above, where valuations are still pretty high in seed. So if you’ve got limited slots for a new manager, maybe you’re gonna deploy into one new manager, maybe two. And you already know the 2023 2024 vintage, you’re able to look at some of the companies that they’ve put in the portfolio. I’m not sure why you’re gonna go for a precedent or see base fund, when frankly Earnest I’d love to hear your perspective on this because you’re more of a Series A investor growth investor. It seems like you have way lower risk and better pricing at Series A.

Earnest Sweat 08:57
Yeah, I am extremely bullish right now. And I hate this because we agree. But yeah, and I’m actually I’ve heard well, I’ve seen as well as talked to some other fellow series A investors and you’re starting to see just a variety of points on, like, our opinions on what series A metrics should be. Yeah, and so that’s causing this the same problems we saw in series B and Series C A year ago, like, what is series B? What is the Series C pricing because we were at a whack the last couple of years, you’re seeing that in series A so like for the and this is throwing out even the AI companies that they’re just going to price and whatever they price it, but everything else when you’re having good growth, good companies, everybody’s like yeah, good. to 1 million ARR is that actually the right number? And is it really about whether you have the ability to create a sustainable, enduring business that can grow fast or when the markets are right? And so, yeah, I think the pricing is going to be very interesting right now, especially if you raised a seed in the kind of height of the market 2021 2022. So yeah, I love that I’m extremely bullish on the series. Okay,

Alexa Binns 10:34
So if you are a precedent or seed fund, maybe what you need to do is a tiny little opportunity fund. Like maybe that’s the thing to be raising right now. No,

Earnest Sweat 10:44
I disagree that I think

Alexa Binns 10:48
We’ve learned I’m glad we have something we disagree with. This is more Yeah. Yeah, exactly.

Earnest Sweat 10:52
Thank you. Thank you for saying something wrong, Alexa. So it’s, I completely disagree right now, I think if we look at the ZURB era, where we had, what we had there was like, obviously, cheap capital. But we also had a lot of new managers as well as established managers have scope creep, right. And as I’ve talked to allocators more and more over these last couple of years, I can see their point of like, Hey, I am making a big bet. And risk. Yeah, especially if I’m an institutional find on you, Earnest, you, Alexa, to do what you told me you were going to do to then think when you come back, and you’re actually doing well, and what you told me you would do and then say, but yeah, actually, I want to do all this other stuff. In it, that means I have to diligence, something totally new. And question all these other things. And so I would say kind of like a way to meet in the middle is as you have great companies that you’ve invested in, or even I’ve always argued, even companies that maybe you tried to get in, but missed. If you have the ability and some strong LPS that are willing to do co investments with you, that’s a way for you to like to maintain ownership, or even increase your ownership or make brand new investments. That’s kind of like a middle ground instead of doing an opportunity fund.

Alexa Binns 12:30
Ya know, and I would argue that somebody who does consistently like yourself, knows what you’re up against, versus if you’re a pre seed and seed investor, you don’t see hundreds of decks of other rounds. So I truly would trust the series A you guys to pick among the winners, more than that, more than the insiders.

Earnest Sweat 12:55
It’s funny you brought kind of like, where the opportunity is you were looking at. From a kind of fund manager perspective, I came up with one of my debate topics: from the allocator perspective, where is the opportunity? Is it we’re seeing this bifurcation of cottage industry? And from, you know, talking to, you know, Frank from Morgan Creek about the keynotes, that kind of solo capitalists, those connectors and it becoming a kind of two offerings right now, right? Like, it’s either your asset allocator, really, really big, you’re offering capital, or you’re one of these kinds of cottage industries kind of going back to the old days, and you’re offering relationships and kind of one on one help? Yeah. And so, you know, anytime I go on Twitter, VC, Twitter, or VC, LinkedIn, you see different views on our data on which actually performs better. I’m on the personal and biased view that funds that are 500 and below or it can perform a lot better. It’s just kind of like a math thing. But where is the actual opportunity? I think the next stage is going to be the smaller companies. But, you know, when I also think about kind of where this, this market is going, you think about even the advances of like, if AI is the biggest driver, what’s a better bet? One of the top five cloud providers, stocks or a new startup, like what’s going to lay or I’ll give you the field of startups, yeah. Versus those five companies like, who’s going to perform better over the next 10 years?

Alexa Binns 14:56
First, I mean, I just bought a bunch of Microsoft first. Okay, well let’s let’s play a game. Let’s play a game here of who the better bet is, I’m gonna throw out three theoretical emerging managers. And we’re gonna play FM K. That’s, that’s for those who aren’t familiar, that

Earnest Sweat 15:24
is flirting.

Alexa Binns 15:27
Bang, marry, kill. I’m gonna describe three pitches, three, three managers. And who’s your long term bet? Who’s good for a fun one? Oh, yeah, just a fun one. And who do you pass entirely? Okay. Like this game? Okay.

Earnest Sweat 15:46
Yeah, you could also do it in a sports thing. You could start bench or cut. But yes.

Alexa Binns 15:54
I mean, all right, folks. Start bench or opposite option number one, you get a pitch from the founder turned Angel. This is First check in strategy. All in the industry. He is highly engaged in 20 deals and the LPs are all fellow founder friends. Or pitch number two is a new substack newsletter publisher. It’s all AI, with a huge social following. Extremely young, maybe minimal work experience, but technical and tons of deal flow and the LPs are the readers. This?

Earnest Sweet 16:37
First of all, I feel like you’re trolling and it’s hard for me not to spew out names. I know. And some people I don’t know. But yeah, continue. Alright, gotcha.

Alexa Binns 16:49
It’s number three. A principle from granting VC going on on his own infrastructure focus. LPs are the old boss

Earnest Sweet 16:59
make? Make it a junior partner and said,

Alexa Binns 17:03
you know why? Why are you stepping on my shit?

Earnest Sweat 17:08
Choices are okay. All right, cool.

Alexa Binns 17:11
We’re playing F M K. easier option. Hi,

Earnest Sweat 17:15
cool. I call DAG finished, finished finished at Darwin finish a thorough it’s

Alexa Binns 17:20
a principle. This is an adult brand name VC going out on his own and the LPS of the old boss and a few relationships, a few LPS from the old firm.

Earnest Sweat 17:32
Okay, so some clarifying questions. Are they all raising the same size fund? Today

Alexa Binns 17:39
They are raising the same United States fund? So the question might be who has potential down the road? But yes, today they’re all raising, let’s say 20.

Earnest Sweat 17:50
Okay, and also precede seed, obviously. Alright, so the first person founder, archetype, second person is kind of like this social community archetype. And third is like the investor type who probably couldn’t get deals done at their firm. And then, alright, so I’m doing start, bench and cut. So awesome. Okay, before I get my answers, this is an awesome game. And we should do this all the time. Second, this also shows why this industry and fundraising is tough because there’s no standard answer. Each of these all the permutations of these three can be for different people. And it’s, that’s why it’s important to find the right people and understand your ICP. So I

Alexa Binns 18:56
would Rs 100 of each of these. Yeah.

Earnest Sweat 18:59
Um, but then also understanding kind of, like, if I’m the LP, like, I’m the ICP for a very, like, it’s probably pretty easy to see who I am going to, like, connect with furs or value more or all that stuff, but just on my experience and what I’ve seen my interest, so I would probably do at the early stage. It’ll probably be the founder

Alexa Binns 19:32
First is your bench. No start start and start the founder

Earnest Sweat 19:37
start the founder because my thinking behind that is she will have the relationships known exactly after you know, all the people who have worked for her who she’s partnered with, in fact, great founders depending on like, I would have to dig into like, what is there? Have they made an exit? I’ve eaten close eggs, all that stuff. They usually have no other great As founders, and so betting on that second person because it’s also my bias that a Series A investor like, alright, earlier much earlier than me is much, much more towards diligence in people and seeing opportunities. And so I’m going to value that more. So digging into the second person, the bench should probably be my community person, because based on the kind of what they’ve been able to do, like, how much reach have they had, who’s been involved? I think I really value that to be able to get deal flow as a Series A investor. Yeah. And then last, and then cutting would probably be somebody who’s more similar to my archetype, right? We have more overlap. And that’s the principle coming from the brand name firm, because the question always there rightfully, or wrongfully wrongfully is, did they get the deals? Or was that their email address, get the deals. And that’s a hard thing to say, but it’s real. So I would want to dig into what Angel things are, then I want to dig into things like, it’s great to have support from your former bosses as well. But were they doing series A and now they’re seeing that might be a leap? But we’ve seen and I’m not going to give people shoutouts that I don’t know. But like, we’ve seen people do it and do it well. And so there’s no shot at them. It’s just like what I would want when I’m investing, especially somebody who’s already an investor. I want people to fill gaps that I don’t have. Yep. What would be your answer?

Alexa Binns 21:39
I think I started the founder too, because they actually have run a business. And I think this is more than just sourcing and selecting, I think like, day one, if you’re taking money, you’re starting a company. So I think they’re going to be better at processes, I think they’re going to be better at understanding differential differentiation, etc. If I could pair them.

Earnest Sweat 22:06
How did you say I can’t change the rules, but then like, you’re changing the role of AI?

Alexa Binns 22:10
I think it’s a bigger toss up for me between two and three. Do I cut the community or the lifetime investor? But truth be told? If you only get to cut one check, it’s going to founder Yeah,

Earnest Sweat 22:26
yeah. And so for to kind of close out, you kind of brought up with that last archetype, the spin out of the principal, or I even think the junior partner or GPS. I wanted to throw out a statement that I think VCs customer bases should really think about more. And so those customers obviously, like LPs and founders. But my hot take is, I think the biggest flight risk in our industry right now are 30 something and 40 Something GPS

Alexa Binns 23:07
going Earnest

Earnest Sweat 23:08
I will repeat, I think the biggest flight risks are 30 Somethings and 40 Somethings, GPS at funds. I think that you know, I’ve had friends who were upfront, I’ve had friends who’ve just been talking to them. And even people you think are sitting pretty at their firms. And I won’t give details at first because it’s so easy to just guess when people are, but that is waiting for the moment that there’s a better market to either jump ship to another firm or Team up with friends. And so I think it’s something that’s not really talked about, but I’ve actually heard, and I want to hear your opinion, too. I’ve heard that founders have started asking these people in these archetypes, Hey, I like you. But this is if you’re a seed investor or a series, an investor or even a series B investor, we’re looking at anywhere from seven to 12 years, right? Of a relationship. If I take this check from you, will you still be here in two years? Yeah. Because I like us. And I like you. Yeah, but I don’t really like anybody else to do it this far. Yeah. I am 100%.

Alexa Binns 24:32
People are asking me for advice on fundraising. Who are those people right now? Who Yeah, you would assume that they are quite happy working for some gray hairs. And in fact, they’re more excited about going and doing their own fun. Yeah.

Earnest Sweat 24:49
So my advice would be, I think if you are an allocator or a founder, you should really be The asking the, you know, you should be asking these people, you should be asking, you know, potential partners VCs, you know, what, what, are you looking to be here for a while, like I would love to develop a relationship with you, or really diligence, the entire firm so that like, if somebody does move for a better opportunity or a new opportunity or whatever, you feel comfortable that you’ve established a relationship with all that. All those people?

Alexa Binns 25:30
No, I think that’s great advice to check in with everybody on how long they’re planning on sticking around. Yeah, interesting. Okay, I’ve got one final heartache. Oh,

Earnest Sweat 25:43
I don’t think he put this on here. But okay, cool. It’s not on the rundown, everybody.

Alexa Binns 25:50
Final heartache. We’re hearing from folks. Okay, Josh Wolf, quote, on Twitter, massive, massive contraction in VC coming. And my take is that this is not an emerging manager reset, or even a VC reset, I think this is a blip. And that we should expect to see emerging managers first time funds continue to explode up into the right, overtime. I think my context for this is at the dawn of the micro VC era. My sisters and I invested in Mike Rothenberg’s first fund. It was a 5 million phone one and his pitch was, I’m 29, I’m going to invest in my own friends. What’s crazy is that it was a unique strategy at the time. And right now everybody who’s a first time fund manager is 29. And investing in there. It’s become so much easier to get a fund up and running in those past 10 years. And a lot of that is thanks to the tech platforms that are our sponsors. And they’re making setting up and managing a fund super easy. But I think what that means is, I’m not kidding, we’re gonna have tons of high schoolers, starting VC funds, everybody in their moms and their moms and their grandmas and their babies are going to be starting VC funds, as time goes on, I don’t think this is a new trend. And with that, I think the business model might change. So you’ll have some GPCs, who are firm builders, going for, you know, growing assets under management going for management fees, but I think others are going to be opportunist, opportunistic and time bound. So you can imagine, in their second year as a GSB, they get together a $15 million fund from their network to invest in their classmates and with the intention that they’re going to deploy over 24 months. And then they can hand things over like a parachute or an envoy to manage the thing for the final eight years. So like this question, there’s a lot of focus right now on graduation rates. And I think like, that’s, that’s kind of missing the point that some of these managers potentially don’t want a 10 year commitment. They’re not looking for a marriage. And I think actually, LPs are going to start to appreciate, I would probably go in on that. Today, I am not announcing my friend, a friend of high school VCs. But, you know, stay tuned, maybe that’s next week.

Earnest Sweat 28:30
That’s funny. That sounds awful to me. But I’m also becoming a middle instead of becoming a middle aged man. Now. I think you’re probably right. I’m not sure if there’s a market for that maybe as we have more democratization of, of kind of venture and access to it and have more retail investors, we’re starting to see a lot more are i A plays, right, and I think we have some that are some of those more established programs going to be guest in the season. So that’s exciting. But I do still for the like level up, if we look at the LP stack, as you get higher and higher up, those individuals are still going to be looking for not investors, because I think what you’re talking about is we will have like a proliferation of investors, but not, they’re not they’re gonna be looking for fund managers. And so the question is, like, do you want to be a fund manager, which is a very different thing. So I think that’ll probably happen and it just it’ll, we’ll start to see kind of like, even bigger asset allocators and multistage funds and then more of this kind of like, you know, what does that do to seed and it sounds like series A is just going to be awesome cuz that’s gonna be the first institutional investing group or majority institutional investing group. So maybe I do like it. Actually, I changed my mind. I,

Alexa Binns 30:14
I don’t think it’s great for the retail investors, I think you still have power law. And I think it’ll be really hard as a person dabbling in your son’s senior year VC fund. So I don’t know if the returns will be there. But I think that I think the kids are going to try it. And by kids, I mean, all of us, I mean, everybody’s starting a VC fund. You don’t set out to be a bottom 90% fund. Right. So

Earnest Sweat 30:50
actually, to that point, where this all originated your point from the tweet. And actually, what I kind of heard from that tweet listening, when you were saying it was that the contraction, I think is going to come from all aspects, right? It’s not just the graduation, like you mentioned of emerging managers, we’re gonna see a lot of those that are between fun four and fund eight that are going to stop. And we’ve already talked about a lot of those firms who have decided not to raise another fund. But even you know, talking to large funds of funds that have been around for a while talking about do they still want to be in the business of like the asset allocators, and multistage. And so this is why you’re starting to see those bigger players, that we all know the names are going to more international potential LPs, as well as going to places that they never went to even in the country to ask for money. So everybody’s filling it. From all aspects of the industry. Now, we will start answering a few questions that we have that we gather from our listeners. As a reminder, if you have any questions for us, you don’t have to wait until we ask too late on our social media, right? Before you can always just say you can find us on LinkedIn or Twitter and just say, hey, here’s the questions that I think I would love to hear your perspective on. So Alexa, you want to start us off.

Alexa Binns 32:23
Okay, so from sure ventures Gopi. He’s asking of the three S’s sourcing selection support what matters most. And I think we could put a little Earnest spin on this and say specifically with the entree of AI in venture, as you know, when you add in the co pilot in this job? Does that affect what’s most important between sourcing selection and support?

Earnest Sweat 32:54
That’s a great question. I think it’s always going to come down to selection. Like, obviously, if you don’t have the sourcing capabilities, then yeah, you’re dead on arrival. But let’s say you do get that that’s only part of the battle. You can find all the great deals and have the best anti portfolio but that’s not going to bring in more allocators to invest in your fund. Or make you intriguing when people think about what’s the secret sauce of an individual. They’re really asking, how do you select from the pools of sources that you have? And so this is probably when you’re thinking about starting a fund, I would say think about what is unique about your selection strategy.

Earnest Sweat 37:20
So AI, I think it can help fill the gaps on different things, right? It can help you draft, you know, diligence memos, at a faster pace, you can even create certain things to be able to then source. And use, you know, AI as well as with kind of like a lot of these data sources on like, Hey, these are the type of companies that fit my thesis best. So it can help with timing, and kind of like a lot of the grunt work that a computer can do a lot better. But when it comes to actually assessing talent, you’re still we still have to go back to real intelligence. I think that’s all in every industry, like you still need. There’s certain things humans can do still, and assessing things and getting a feel for things and having that commitment and conviction. These are not things that AI can do. Alright, so our next question was from a first time fund manager, and their situation, is they close to a million dollars? were originally going for more. And their question is, should they just close and then go back to the market later? When is the market better for $25 million for a bigger fund to appeal to more institutions? So it’s kind of this idea of like, Get What You can now prove it out? And then go back to those that you were in discussion with?

Alexa Binns 39:26
Yeah, yeah, we’ve had a couple lps on the show to talk about your via Minimum Viable fund. So maybe you just figure that out. Can you pay for your mortgage? Is this enough? But I don’t know why. Something about this question bores me to death. I just don’t even care what you decide. Like, I give zero apps, what you do

Earnest Sweat 39:58
I I did not see that coming. Okay, so somebody is going to be the bad cop? I’ll be good. I think you should. I think you should consider, do you know your situation? You know, is it first? Is it first clothes? Second clothes? What are you trying? It’s kind of like when you talk to a founder, and they’re like, I’m gonna raise a 300k bridge? And it’s like, for what? What are we bridging towards?

Alexa Binns 40:37
Is the story going to be that different?

Earnest Sweat 40:39
Is it gonna be that different? And so really kind of ask those questions of what did you try to get to? What narrative? Are you trying to, to say? And then, you know, if you do just stop now, first of all, and this is hard for me to do, I’m like the worst at it. But like, be grateful and celebrate that you were able to get 10 million more than a lot of people and go to work, make the best, like investments that you can, and then have a story on how you’re going to grow and why you’re gonna grow. For this for this next fund. Again, it’s about are you an investor, or a fund manager? If you’re a fund manager, you’re able to start from something and then grow that into something else?

Alexa Binns 41:26
Oh, good thing you have Earnest.

Earnest Sweat 41:30
That’s what I’m here for.

Alexa Binns 41:34
Okay, last question, open LP posed. What should LPS be asking about GPS? And I’d like to flip that and ask, what should GPS be asking LPs?

Earnest Sweat 41:45
I think they should be asking, are you deploying capital now? Because one of the most frustrating things from founders we hear is when they start to really enjoy getting to know a fund manager. And then here, the fund manager hasn’t closed their fund. Yeah, and can’t really deploy anything. That’s frustrating, starting to happen more, even from LPs. And so LPs, be upfront, like you tell us to be upfront with founders, you all should be up front with fund managers. So that’s one second, do as much research as you can. But if you can’t find it, I would even ask, what do you feel that you’re underweight in or overweight in? Because that can give you a sense of if you fit or you don’t fit. And if this truly is about developing relationships with a long term, maybe they’re overweight in your category of series, a b2b software. Yeah, but they’re underweight in consumerism, you’re like, Well, I have a very good friend, Alexa, who you should meet, starting those relationships, and then Alexa is gonna blow them away, then they’re gonna think more highly of you as well. Right? So those are the two things I would ask. Yeah.

Alexa Binns 43:15
Yeah. Is there anything that I see the committee might be hung up on? Or might be, you know, something that they might bring up? And so you can practice together? Addressing whatever the conflict, you know, whatever the confounding elements of your strategy are? So you can actually talk through it with them? And maybe, maybe the answer is, oh, it’s not gonna be a fit? Or maybe the answer is, oh, cool. Now that we’ve talked through it, I think that is a good argument. Why this does

Earnest Sweat 43:47
This is a good fit. So one thing that happens a lot of times in life on DD cues is there’s usually a box at the NFU that answers your life away. 50 pages of like, is there any additional information? So we want to have a segment called additional information? Where one of us provides kind of some parting thoughts that may or may not have anything to do with what we’ve spoken about. So I’ll do the first one. We’ll see how this goes. And, Alexa, feel free to laugh if you find something funny if you don’t find it. Alright, I need to call something out that’s really popular right now. Sure, it’s having a lot of adoption faster than PCs, cloud computing and mobile combined. It feels like a real platform shift in our society. And I need to call out what’s wrong with it before it becomes so mainstream. I mean, from teenagers to grandparents, everyone is talking about it and can soon enough. And Enough is enough. Even though it seems like we are headed into a world where always seeing and hearing and consuming will be unoriginal, maybe even artificial. Oh, I just realized you might think I’m talking about AI. No, that ship has sailed. That is definitely going to be infused in every aspect of our personal and professional lives. Although I promise I didn’t use chat GPT to write any of this. This is real intelligence. Anyway, back to my point. I want to point out something more on the undercurrent, but it’s there if you notice it. I’m talking about nostalgia. It’s at an all time high in the 2020s. From entertainment from the entertainment industry, bringing back new stories of my childhood favorites like Teenage Mutant Ninja Turtles to X Men, others being taken aback with a Barbie movie, or new generations joining the conversation of once popular TV shows like friends, overrated, Martin, underrated, and Seinfeld, unquestionably the greatest show of all time. Hell, I’ve even seen it in consumer tech. With the rise of non smartphones and wired headphones becoming more popular. Look, it’s even got me. And lastly, I can’t forget how even the political arena has become nostalgic, nostalgic, and has resulted in us having the same two presidential candidates that we had long ago in the fall of 2020. But the venture capital industry hasn’t been shielded from this shift. I want the old thing back on the train here. We’ve had very prominent investors move back to their former firms, with other founders turned investors turning back to becoming founders as it seems the clock is striking almost midnight. We have also seen the trends of capital deployment and fundraising returning back to the good old days, or I should say, not so good old days for some, the class observe emerging managers are struggling now to raise fund one or fun two capital raised by underrepresented and female founders has returned back to the days of 2016 and 2017. The Untold Story is that so many women and black and Latinx investors that broke into the industry as associates, principals, junior partners, are now still on a website but no longer work for those firms, and fear that they might not get back into the industry. While the industry is clearly at an inflection point where there are some firms going back to being one on one personal relationship focus while others are becoming bigger and bigger and bigger, and providing capital as an asset allocates allocators. So what’s the point of nostalgia to learn from the past or have reinvented or keep doing the same thing? Instead of making things great again and VC? Let’s make them better. I love it or it is

Alexa Binns 48:28
I think you’re hitting on something here that does feel like a reversion to the comfortable. Yeah, reversion to how things have been.

Earnest Sweat 48:40
So hopefully we can help with this platform to not make things more transparent and make them better.

Alexa Binns 48:46
My high school fund of funds is going to be the first of its kind and we’re only going forward. 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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