Earnest Sweat 00:15
Welcome to another episode of swimming with allocators. This is a special episode. This is our best of season three episode. This is a two part series, and I just want to welcome everyone. Merry Christmas. Happy Hanukkah. Happy merry Kwanzaa, happy Festivus for the rest of us, all those Seinfeld heads out there. But I just want to first and foremost say thanks to everyone for listening and supporting us, whether you’re an allocator, whether you’re emerging manager, whether you’re an established manager, whether you’re just a person interested in venture capital and the people who fund venture capitalists. Thank you. If you told me in 2023 that this would be going on and that we have 85 episodes and now a best of episode, I would be like, You’re crazy. But here we are, and I’m really excited to share, we have a top five list to share segments of some of our most popular episodes this year, and we had a very, very, very, very technical way in which we came up with the top five episodes. Actually was more like venture math, but we took the tallies from all the downloads of our audio listeners as well as those who watch us on YouTube, and we came up with why the valuation is $100 million joking with our top five lists and an honorable mention. So we’ll first start off with this. This first part one is our honorable mention, and then we’ll count down to our top our fourth best episode, our fourth most popular episode this year. And so we’ll start with our honorable mention. So the first segment and episode will features our honorable mention, and it’s from a conversation I really enjoyed with Joshua Berkowitz. And you know, this segment that we feature really encaps, it really captures why this was a special episode. Josh and his family office come from having experience operating in the real estate world, a world that I know pretty well. And he really talks about the effort that goes into developing your venture portfolio, because it’s so different than anything else. And in the clip that we we feature, you know, I asked him why he describes his venture portfolio as a mess, and why it’s an intentional mess.

Earnest Sweat 03:43
So I would love for you all to just enjoy one of my favorite conversations this year, featuring Joshua Berkowitz. You know, in our prep call, you spoke about your portfolio being a mess by design. Can you share what that means and why you embrace it? I just

Joshua Berkowitz 04:03
think it’s a lot more fun to call it a mess than it is to call it diversified or opportunistic, or opportunistic. Sure, yeah, whatever the like professionals like to use to describe the same thing, right? Like, what is a mess? A mess just means diversified. Means opportunistic, it means I want to invest in the things that I think will make money, not paying much attention to what vertical geography stage, sort of like silly classification you want to or box you want to put a manager in. Like, the most important thing I’m like, the most important dialog running in the back of my head when I meet a GP is, are they going to make money? Right? Like, that’s ultimately why I’m doing this. Make money by by helping fund great companies that will hopefully matter to the world. There are so many ways to make money in venture so so many from from going super early stage, super late stage, to international to domestic, to everything in between, doing funky secondaries, doing. An employee buybacks, like you name the strategy I’ve been pitched in and heard it, and I think some make sense and some don’t. If I was worried about like, I need to go find a deep tech manager based in Austin and health tech investor based in San Diego and a farm manager based in Boston that would just tie my hands behind my back and stop me from asking the most important question, do I think the strategy makes sense? Do I think this person is amazing, and do I think they’re going to make a lot of money and so as a result of like turning up, turning off the the Like Box checking exercise, you end up with a bunch of really differentiated funds that are actually pretty different from one another. So I do think they’re diversified. They’re just not diversified across, like the traditional metrics that traditional asset managers or wealth managers or whatever would sort of try to diversify you against, right? Like, the classic is, like, stage geography sector and, like, I don’t think about, which do I have all the sectors covered? I just think about all my GP is awesome.

Earnest Sweat 06:14
And that was our episode with Josh Berkowitz. I love that conversation, and that’s just a snippet of the insights that he provided, so I suggest all you all to go back to that episode and take a full listen, because he reminds us that family offices don’t need to conform or to conventional diversification metrics to have strong returns. It brings it back to just conviction. And so you’ll see that if you go down to the, you know, listen to the entire episode. And so with that, on to our next episode, which actually starts off our top five lists, and our fifth most popular episode features Robin and Kevin who this was an interesting episode, and even has set up. Kevin had experience as an allocator in the past, and now is on the GP side, and Roland is a comes from the asset allocator space, looking at all types of asset classes, and traditionally, hasn’t done much venture. And so we had a lovely conversation with them. And in the excerpts that I’m going to that you’re going to listen to back to back, we first listened to Kevin Russell with how to prove the value of your proprietary network, and both like what he does now and what he saw people did best when he was in the allocator seat. And then Robin follows up with a call to intentionality when connecting networks that typically don’t intersect, which has kind of been a theme this entire year on the podcast as well as you know, conversations I have is that, how do we have more people? How can we have more people be these connectors? I like to say, how can the 1990s and 2000s code switching kids and during their grade school, how can they rise up to actually make these connections as our world becomes more and more siloed? And then the second clip is one in which we continue to talk about they continue to talk about network effects and how in venture is not just about access, but again, this theme of like, how do you build build bridges, even if It involves embracing uncomfort, uncomfortable rooms. And so enjoy these, these two clips, and enjoy just a snippet of our fifth most popular episode in Season Three of swimming with allocators.

Earnest Sweat 09:41
A lot of people who’ve been on this show or that talking to in private, who’ve been in the business for a long time there, there isn’t going to be like a succinct like, write down the Fair, fair way answer. But that should give people like hope too. It gives me inspiration too. It was like, Okay, I need to be the best earnest that I can be and show that I can out earnest, everybody

Kevin Moore 10:07
I can out earnest. I think I might borrow that. I want to add a comment, though about network, not just not in the VC context, but just in general. Because I think what one of the things I realize is that we all live in these networks that don’t necessarily intersect, and one of the things I’m doing in this phase of life is deliberately trying to connect networks that don’t intersect, right? I’ve had, I have a series of networks that I’m a part of that are not necessarily related, and trying to intersect them and bridge them is one of the things that I’m intentional about. And at this point, when people say to me, may I introduce you to the answer is always yes, because there are so many. You know, if Kevin’s point about you can only have meaningful relationships with 100 people, imagine, then how many real networks exist out there? And you realize that, in particular, when you’re talking about diversity, and you’ll have people say, I don’t know where to find the talent. And in my experience is I’m surrounded by the talent. Why can’t you find it right? It’s because their particular ecosystem and my ecosystem are separate. And I realized that sometimes we have to function as the role, as the connector, as the bridge, and it means learning. It means being sometimes in places where it’s uncomfortable, because it’s not your networks. But you know, this was my experience, for example, working at Albright Stonebridge, which is a completely different animal than all of the chapters that is a national security, diplomacy, global network of people who I have access to that I there’s, there’s nothing natural about me being in that particular network. If I hadn’t made that move to connect with people who are not just strictly finance, and I think to the extent there’s anybody early in their career listening to this podcast, I think one of the pieces of advice I’d be is try to be intentional about cultivating your networks, because at the end of the day, that’s going to be key to everything in your professional life.

Speaker 1 12:36
Absolutely and Erlang, Can I say one thing that I just I’d be remiss if I didn’t say this about the network thing. That doesn’t mean you can sit back and make excuses, because I know there are a lot of people on both sides and of all ethnicities and backgrounds that make excuses, like, I don’t have a network. I don’t know these people now, I will say, and it’s for both Rodin and not trying to speak for rodlin, but I would assume, how dare you. But I know for myself, in order to build the network, I had to force myself into situations and put myself in a lot of very uncomfortable situations. And if you’re not willing to do that, your network is never going to grow. Yeah, and that, think that’s a really important point to say, especially in this climate, what that we’re in right now, that at some point you have to just own up to it and embrace the discomfort if you’re willing to do that, and just ask people out to coffee and ask people for advice, and humble yourself and really try to push yourself in the rooms. That’s how it that’s how it works. If you’re willing to do that, then that network effect can get stronger. What ends up happening is the larger, more established names end up soaking up all the capital and venture and that’s what happened in 2024 70% of all the capital that was raised went to 30 different firms. And when you think about that, there’s no way that talent is distributed among 30 different VC firms in the business that logically doesn’t make any sense. But it’s not an issue with those firms. It’s an issue with how the industry is structured. You need more people in the middle to distribute it.

Speaker 2 14:33
You know? I think that this is, I think this is a great question, right? So if I, if I take it from a perspective, I think you’re right, Kevin, I think managers and GPS don’t understand, in general, the resource constraints the back on on the part of allocators that may lead to check the box thinking capital to the biggest players. You know when. You have billions of dollars to move, it’s difficult for you to focus your limited resources on writing a $10 million check, right? And you know, those are structural issues that won’t get addressed immediately. But I would say two things for LPS. The one is, there are knee jerk negative reactions to things like fund to funds, I think, because of what happened in the GFC, where on the hedge fund side, where no one was protected from made off, and fund to funds didn’t do the work that they claim, that they were doing, and that, I think, has infected the entire ecosystem in a way that’s been detrimental. And so I think one LP is rethinking that negative knee jerk reaction. Yes, there’s an extra layer of fees, but that’s because you don’t have the resources to feel the team to do this. And yet, we all know that there’s a world of opportunity outside of the 30 major venture funds that Kevin was just bringing up, I don’t suggest a venture issue. I think this is true systematically. So that would be one rethink. It’s negative knee jerk, extra layer fees. I’m not paying for it. Sometimes you actually should pay for it, because you are not equipped to actually execute on the smaller end of almost any market you’re in where there’s typically a lot of opportunity. I think the second thing I would say LPS need to do differently is they need to widen their aperture a little bit. Yes, it’s true that you don’t get criticized if you know one of the oligarchy firms loses you money, but there’s a lot more opportunity than what’s safe and convenient, and challenge yourself to think a little bit differently than you have historically. Period.

Earnest Sweat 16:54
Yeah, that’s amazing advice, and I think it definitely needs to be. You know, people need to widen their perspectives, as you mentioned, because there’s true alpha out there and an opportunity, kind of changing gears. Kevin, where do you I assume I know that your answer, but want to know some details behind it. What trends do you see in venture capital in 2025, and beyond? And you know, are you overly optimistic or bearish on it over these next this next decade,

Speaker 1 17:35
the future of venture capital, to me, isn’t an industry like a technology that’s going to change everything. I think the future of venture capital is a wider representation of talent and founders that are in the market, that are going to bring new ideas and new applications to technologies that need to be applied in different markets and in different ways. And I was listening to a podcast of a guy who said that he was talking about this in the cruise industry and very random cruise industry. But the reason why certain of those cruises go really, well is because of the diversity of staff they have on board, and the net that net NPS scores, where people are really, really high, things are just going really, really well, but it had a lot to do with who was on the ship. So I think, as if the VC industry is a ship, who’s coming onto the ship is what’s going to make that better, and I think the technology is what’s pushing that forward and making it we’ll see that in 10 years be a totally different landscape hopefully.

Earnest Sweat 18:53
I hope you enjoyed those clips of Kevin and Robin. It was a great conversation, and I really admire what both are doing, both from the allocator seat and GP seat. And you know, the critique of capital concentration and a call for more middle market allocators should resonate with anyone who’s frustrated by what’s going on and the status quo and how capital has been flowing over the last couple of years. If you’re if you that resonates with you, you should listen to the whole episode if you want to get any insights on your approach to relationships and diligence of GPS, you should listen to this episode as well. Our fourth most downloaded episode is another gem. And last episode of this part one of our two part series, but this episode featured Jason Howard, and when I think back to that conversation and

Earnest Sweat 20:18
the interview itself, the words that come back to me are intentionality.

Earnest Sweat 20:25
I’m someone who tries to be very intentional in all the things that I do and how I’m thinking about things long term and in the short term. And Jason exemplifies that and his story of building new catalyst, strategic partners, and how he’s used time and experience from you know, brand, household brand names, before launching this platform that provides capital and operating support for next generation private equity, growth equity managers. And so we have two clips, one that he describes the archetype, the type of manager he looks for, and explains why they lean a little bit more to buy out and growth while looking to future in the future, experiment with venture. And then he also gives a fantastic explanation and kind of primer on what GP seeding is and what both founders of firms should be thinking about, as well as any allocator that’s looking to get into this aspect of the business. So with that, I want you to enjoy a snippet of all the the insights from our episode featuring Jason Howard,

Alexa Binns 22:10
and in the case of some of these fund four or fund fives, where they’re looking to launch new strategies, are there? Can you give us some examples of what are some of those trends you’re seeing? What which strategies are looking more interesting today, we

Jason Howard 22:25
have a number of people who may have built an existing platform where, let’s say they’re in the buyout space, and there’s an opportunity to build a strategy. Maybe they their strategy has scaled up, and there’s an opportunity to create a new strategy at a lower entry point in terms of company size, etc. So same type of strategy, same areas where they’re seeing deal flow, but their current fund is just too large to pursue those types of opportunities. So that’s an area that can be interesting for us. We’re also seeing opportunities where managers say, Hey, we’re doing this in is this area, but there are adjacencies to what we’re doing that tend to make sense for creating a special product to pursue those types of opportunities. So you could have a manager who’s doing lots of opportunities in the buyout space, but then there’s an opportunity that’s adjacent to that. Let’s feels a little bit more like infrastructure, but there are commonalities in terms of what is consistent and when that manager is pursuing and their original strategy. We’re looking for those natural linkages, but we can also see opportunities like that. The typical one that people often talk about is, hey, I have a firm I want to launch a credit platform to pursue opportunities in that same industry. I’m sure there’ll be opportunities for those in the future as well, but that’s a key topic for people in the industry. Those are the types of opportunities that we’re seeing

Earnest Sweat 23:59
in all private markets, we’ve seen a lot more competition, which I think is also created more complexity for even allocators. How do you approach that? More competition and trying to find true alpha without with respect to any asset class, because we have a lot of allocators that are also listening in, and they’re always looking for kind of like, what are the best and brightest thinking?

Jason Howard 24:27
Yeah, so you’re right. There’s been a proliferation of choice for for LPS, and in that environment, particularly when you combine that with slower distributions in terms of capital coming back to LPs, and you also combine that with some of the externalities that are impacting many LPS in terms of their organizations, their decision making, what their capital needs are in the future, that can be really hard. And so what it’s leading, I think a lot of. LPs to do is monitor situations for longer where they may have committed faster historically, and they’re also thinking more about which are the relationships that are truly differentiated and potentially up scaling and up increasing the quality of the managers that they have within their portfolio. So that’s what we’re seeing. Do I have a magic bullet in terms of like, success for a recommendation for allocators? No, but I think what allocators are doing today is figuring out where do they really believe they’ve received performance historically, then going down more deeply, looking at the managers and seeing, hey, was this manager in an industry where essentially the rising tide lifted all boats, and was there a real differentiation for this manager? So you could start to do analysis on how did this manager perform, not relative to the overall benchmarks, but relative to the benchmarks of managers who had their strategy, did they outperform relative to those strategies? Also, it’s very typical for LP is to really focus in on how managers generated their returns. Was that more for margin expansion or for multiple expansion or on debt pay down, otherwise, really focusing in on how managers generated their returns is super important, and then stepping back and saying where we are today with the team that they have today. Because, by the way, sometimes the people who created that performance in the past are no longer at those firms, but based on where the managers are today, is it likely to that performance is likely to persist? That’s what we’re really focusing on, and we think other LPs are doing the same.

Alexa Binns 26:52
I’d love to circle back to the conversation about GP seeding, and what’s so valuable about that first partnership, that first check many

Jason Howard 27:02
GPs are historically, what we found is LP capital alone isn’t always sufficient to help a manager scale. And what I think GPs are looking for is, is there an opportunity to de risk their fund raised, particularly in this marketplace, is there a desire? Is there an ability to help provide working capital, to provide staying power, to withstand, to withstand the 18 to 24 plus months that it takes to raise the capital and build a team and start doing deals and pay the fees and costs on deals, particularly if deals don’t consummate, having the capital to be able to do that is critical, and so that’s what GPs are looking for. But they’re also looking for a real strategic partner who can be thoughtful, a thoughtful advisor for them as they are building. So sometimes they’re questions that GPs have. They don’t necessarily want to go to the ELPAC because their ideas aren’t yet formulated, or they’re just trying to brainstorm. And they a lot of times, GPS feel like once they go to the elpack, it needs to be buttoned up, ready to go, etc. And oftentimes, GPs are looking for someone who can help in that way. So that’s one of the areas that we really want to lean into and be supportive of GPS and help us are thinking through opportunities. And to be honest, I’ve worked with many managers who are now managing multiple billion dollars of capital and success wasn’t always linear. Doesn’t look like that externally, but I know that based on a number of the situations that came up and the things that the managers had to deal with. But that’s okay, and being able to have a partner that you can speak to and can help navigate, or can help give advice on how other managers have dealt with situations that were the same, more serious, less serious, et cetera, I think can be helpful in the marketplace today, again, going back to the gaps that we want to fill in the marketplace, that’s what we really want to do. And a lot of times, LP business models are not typically set up to do that for managers. Yeah, and that’s not a negative on LPS. LPS are busy. They have a focus on deploying capital in a way that’s efficient and monitoring those investment opportunities. What we’re looking to bring to the marketplace is something a little different, which is working and advising these managers in a more active way to help them as they’re building and scaling these firms.

Earnest Sweat 29:51
What are some specifics that you know go into that being a strategic partner, I know you, and from your experience, you’ve seen a. Lot of different managers and a lot of different spaces. But what are kind of the three things you always want to make sure that you offer managers you’re partnering with?

Jason Howard 30:08
Well, it honestly depends on where a manager is on their maturity. What first fund, first time funds may seek, is oftentimes different from what a fund three or fund four may see the fund one, they may have more of a focus on operational infrastructure and getting that set up and identifying a great talent to attract to the team or LP introductions, or helping them think through how to position their initial product in the right way. Those are the types of pain points that we commonly saw working with with GPS. When a manager gets to fund 234, at that point, they’re having a different conversation, which is, again, do I need help launching a new strategy where I see opportunities, but they just don’t have enough time to go and develop that idea more fully. Is it they need to reposition their LP base because a lot of their LPs were emerging manager LPs, and they may not continue with them going forward? Are they trying to figure out succession at that point, because succession and transition ownership to the next generation, and is that something where we can be helpful? Those are the types of things that arise at various points on the maturity for a manager, and we want to be thoughtful and figure out ways to be helpful to managers at each stage of the process

Alexa Binns 31:42
and and you’ve shared with us the benefits of seating for the GPS, if you’re an LP, I’m curious, what are the benefits of having somebody doing some seating on your behalf?

Jason Howard 31:52
Yeah, so it’s a great point, and I think having seating as a part of a LPS portfolio can provide attractive complement to other parts of the portfolio. I think the key opportunity is, if you are CDC manager, it has a potential of doing two things. One, it has a potential of providing some downside mitigation, because in addition to the LP return, you’ll receive some type of economics in the manager that can help buttress whatever the return is and so on the downside, that can be positive and an additive to an LPS portfolio. On the upside, also, if a manager is successful, and you also have some economics in the manager that can also provide some upside performance relative to whatever the base return is from that underlying LP commitment. And so there’s a potential opportunity for generating alpha, for doing the same thing that many LPS do anyway, which is make LP commitments, but the requirement for doing this is being able to write large checks, being able to be early, being able to have resources to support managers. And those are the things that I think are critical. One of the things, as in terms of advice I would give for GPs who are considering this is identify partners who they really believe can provide more than capital, because there are a lot of providers out there, good sources of capital that are mostly financial in some ways, and that can be a fit for some GPS, but other GPS may look for something different. So that’s where, again, we think that we’re bringing something to the marketplace that’s additive. And by the way, there are a number of great firms that are doing amazing work in seeding. We appreciate that, because when you have smart investors and when you have well regarded firms seeing the same opportunity and going after it, that helps to validate the market need. And the other thing, I think, and you all see this a lot in venture, I think that there is a real opportunity to partner together with other seeders who are doing really great and innovative things, because that hopefully is better for the GP. In that sense, the GP gets the same thing that a great founder gets, and when they have a great company and 234, great venture firms surround them with ideas and network and thoughtfulness about building businesses and product market fit, etc, that’s the same opportunity that we see when great seeders work together and help to come alongside a manager and help them build something special.

Earnest Sweat 34:42
Thanks to Jason and the time he took that brings us to halfway mark of our year end countdown of top five most downloaded and popular episodes of season three of season swimming with allocators. I. Today we got to go back and listen to Joshua Berkowitz on being optimistic yet disciplined, from Robin and Kevin on building and distributing networks, and you just heard from Jason Howard on what makes a next generation fund manager stand out, and our next episode will reveal our top three. That’s three top three episodes from so many good episodes of swim with allocators and so looking forward to sharing it with you, with those in before the new year or during the New Year, and I would be remiss if I didn’t take some time and provide some Thank you. So thank you

Earnest Sweat 35:57
to our co host, my co host, Alexa bins, for doing an amazing job with questions and and she does a lot of the logistics of the podcast as well to our production team,

Earnest Sweat 36:16
Johnny and team at heard media, Which is like quite as is kept building a strong presence in this very weird niche of technology and and venture capital and our partners this year, TASH and Jeremy at SVB and Shane and the rest of the team at Sidley. Thanks so much for all your support, your amazing expert analysis and interviews that we did throughout the season, and we wouldn’t you all so And last, but not least, our audience. Thank you for attending our dining with allocators. Thank you for listening to the show. And if you missed any episodes, the ones we featured, or just as you’ve missed in the past, go back. They’re up there, and it’s evergreen learning there. So with that, everybody has a happy, happy holiday season, and looking forward to sharing our top three episodes in part two of Best of swim

Alexa Binns 37:40
with allocators, see you later. Allocator