Earnest Sweat 00:15
Today. Our guest is Sean Warrington, head of private investments at the wealth management firm, Gresham partners. Gresham manages or advises about 9 billion for roughly 120 families across the US. Sean cut his teeth in private markets and corporate finance over nine years at the Alfred I DuPont charitable Charitable Trust and a couple years at Lockheed Martin as well, Sean shares with us his unique process for identifying top managers how to be value user friendly. LP, looking forward to hearing that and where he’s actively deploying capital today. With that, Sean, it’s great to have you on swing with allocators.

Sean Warrington 01:02
Thanks. Happy to be here with you both excited.

Earnest Sweat 01:07
So we like to always start out with origin stories, so kind of tell us how you made your way to becoming an allocator. Yeah,

Sean Warrington 01:16
I think, like most origin stories, you know, a little bit of preparation and a little bit of luck. You know, I was that Lockheed for several years, I think, pretty quickly, into that role, recognized investing, you know, had been a passion as I was a child, and recognized I really wanted to find a full time job around investing. So I went through the path to CFA, and did an MBA. So I was ready for a role in investing. Where I got lucky was getting introduced to Dupont. I didn’t know what endowment was, other than the fact universities had them. I certainly wasn’t aware how they were deployed. Unfortunately, I had a really great interviewer out of the gate, a person who ended up hiring me, but he recommended reading David Swensen’s book on the first interview. So fortunately, by the second interview, I at least knew what I was signing up to potentially. But long story short, I did get the role, but I think I got lucky in two ways. One is getting the job, but more, even more importantly, as an LP, I think it’s very much an apprenticeship business, and to be around great people really played a big role, and to frankly, have a portfolio behind me at DuPont that showed me what great looks like. That was all luck, because getting the job was great. I think being at an institution of that quality really helped me become who I am today.

Alexa Binns 02:36
That makes me curious. If you have any other reading list suggestions, if people are looking to invest more as professional LPs, if there’s anything else that comes to mind, whether it’s a newsletter, you know, this is

Sean Warrington 02:49
going to sound too self serving for you folks, but I actually think podcasts are the route now. There’s just so many fans. I mean, I really mean that information is just freely available today. I think in my seat, that’s what I do today, is hear what other people think. And I think people like to share, and strategies are tough to mimic in general, so people can be pretty open about it. That’s my suggestion. I listen to things like this. Yeah.

Alexa Binns 03:13
Were there any learning moments or stories you can share from DuPont of things that have impacted how you think today?

Sean Warrington 03:22
The one that stands out, coincidentally, is my first deal. But I think what made it really impactful, you know, this was a manager that was spinning out of another entity in the venture space. And I think it was pretty quick to the group of us that there was something special. Here they were walking away from big time carry dollars. They had the quiet confidence that we really like to see. They just knew what they did. They owned it. And I was given an opportunity to run it down, and this is my first deal. I’m excited so I ran really fast, built conviction with the help of the team. But I think the big learning was, you know, you’re never alone. On these special managers, other LPs were around the table as well, and it pushed this manager to end up closing the fund, which started off a month early, then it went to two months early. And the fortunate part of that was it ended up being too fast for a lot of other folks, and we’re able to get a really nice ticket into a fund that ultimately became probably one of the better investments as a fund type business over the last decade. And the learning for me was really the conviction. You have to build your own conviction and work things, and you want to work them fast, and you have to be aggressive, because it’s not just finding the right manager, it’s also getting the allocation. And I was lucky to learn that early, and it’s something that has really informed the process that we deploy today. So I put that one out there.

Earnest Sweat 04:48
That’s a great story, and that also, you know, can speak to what you look for in managers and conviction. So this came from another conversation, actually, that we weren’t recording for some reason. But I’m going to ask you, what does conviction look like for you as an allocator, as well as what you look for for fund managers? Yeah,

Sean Warrington 05:08
I think it’s the ultimate question. This will sound right out of the gate, but at the end of the day, we’re looking for a really competitive edge, and I’ll go into what that means. But in our world, we think there’s maybe four things that venture capitalists need to do really well. They need to source deals. They need to pick deals, win the deal, and add value. That’s all obvious, but as an LP, we have to think about, where can we actually grade people like where do we have an edge on understanding this manager? So we think sourcing is probably the single most important thing for us to understand. We can look at the networks that people have been involved in, the people around them, essentially, what is their unique edge where they’re just going to run into a really great deal flow? We want to see that. The next question we ask ourselves, and we think we can grade this one really well too, is what is their right to win the check size that they want to deploy, and what I mean by that, and this is actually where we bring in adding value. If someone’s writing a 250, to 500k pre seed to seed check, that’s a collaborative investment. You can be around the table with a bunch of other smart people and not really get pushed out, and you don’t really have to do a lot to earn that check. But let’s say that the same person in that same round wants to write a million to a million and a half, that is a much different or much bigger ask for the founder. And we think you need to bring a lot more to the table around adding value, supporting the next round, et cetera, et cetera. So then the other question for us is, does the check size that we think they actually can write fit to the fund structure they’re deploying. Those are two things, sourcing and the amount of capital getting put to work that we think we can understand really well. Taste is the hard one. We’re investors, typically in funds, one, fund two, the earlier phases of these funds, the investors at these maybe it’s a solo GP, maybe it’s a team, but they tend to have track records that are interesting, but not realized they’re early. And I think you can get signs of taste, but in reality, it’s blurry, and we accept that, and we do the work we can. But in reality, we know we’re not going to be perfect there. So we want to really get sourcing. We want to really get right to win, and we just hope taste is there. But when you get all three, things can get pretty magical. So that’s sort of how we think about

Alexa Binns 07:29
it. I see that you’ve proudly stated that you are user friendly. LPs, what does that mean to you?

Sean Warrington 07:35
Yeah, I want to test this back on you two after I go through it. But I think there’s two components to it. The fun, sort of, the cute one is we really want to be approachable. You know, I’m wearing this t-shirt not because it shows the Gresham insignia, but we actually wear this to annual meetings. We wear this through a lot of meetings. Our goal is to be an approachable LP. When we come into offices, we get confused because, if it’s a venture capitalist, sometimes people will think we’re founders of our private equity entities we invest with. They’re like, Who are these jokers coming into the office? It’s all deliberate. The goal is to take things down a notch, make it more comfortable. You know, we think it might help us win allocation at the end of the day, in some cases, because people think we’re friendlier. I think we try to just, we ask good questions, we do real work. We don’t do work. So we just try to make things very useful to us, useful to the people on the other side of the table, and generally make it lighter than a typical LP. That’s one component of it. The other piece is leaving a great taste in everyone’s mouth in every situation we have. So that means both managers in the book, managers that aren’t in the book. We want everyone, even when we turn them down to say, You know what, like Gresham, didn’t give us what we wanted to hear, but at least they were straight. They were honest. So what that means is we have very strong filters. We know what we want in a manager. Back to the last question. If someone misses the filter, we typically know maybe 10 minutes on the call, but certainly within a few days, we’re going to let that person know that, hey, this isn’t a fit there. These are the reasons. Yeah, but, you know, love to talk down the road if things change. The cool thing is, you get a bit of a flywheel benefit, because if you leave a great taste in that person’s mouth and they understand what you like, they actually send you a deal flow. So one of our Hacks is some of our best deal flow comes from turndowns we’ve made just because people know what we actually like. So I think you put all that together and, you know, being honest, transparent, easy to work with, and then more approachable. We think it’s helpful. I’m curious to get both of your perspectives you talk to you’re both in the business, like, does that sound unique at all? Or maybe everyone’s doing it at work, confusing ourselves.

Alexa Binns 09:40
I don’t think people are wearing a big sign on their back that says, pitch me. I think that’s different. I think the fact that you’re showing up to events wearing the Gresham shirt is actually quite different. Otherwise, people are sort of like, we’ll come find you. We’d rather you not find us. Yeah.

Earnest Sweat 10:00
Yeah, I think, I think you’re starting to see a bifurcation when it comes to allocators. Part of it is, you know, where they are in their kind of the maturity as far as, and I don’t use that as a term of like, you know, they’re smarter, wiser, just they’ve been around longer, versus kind of a new crop of allocators, and it might also be sliced into generational changes as well. I think those who you know read from, as I’ve heard other allocators call it the the Bible of David, right? You know, there are some like, still like, that’s all they follow. As well as there’s another group of kind, like zealots, I guess, if I’m using the same terminology or analogy that are trying to go around at a different approach. I think as a venture capitalist and a GP and a future kind of fund manager, I want to bring together a mix of folks who are really thinking about, how do we make, how do we be successful in these next 2030 years, and not just rely on what we’ve done in the past? And so I am looking for value added allocators.

Alexa Binns 11:15
Are you actively vetting managers right now?

Sean Warrington 11:18
Always, always, one of the things we try to implore on people, especially on the manager side, we’re always open for business, because a lot of times our deal flow is not about now. We’re building pipelines that go into effect 2526, maybe even 27. One thing I’ve learned is that this business is very long and sometimes timing doesn’t work, and one thing we’re a little bit unique on, we don’t love to hold positions. If we’re gonna get severely cut back on a commitment, a lot of times we’ll say, You know what? It’s okay, not the right time, but let’s just stay in touch so we build relationships between cycles. So yeah, we are always open for business. It just doesn’t mean we’re thinking about now. Sometimes it’s a future, future decision.

Earnest Sweat 12:03
I see we kind of jumped into it because of my questioning, with the conviction, kind of jumped right into it. But could you give us the overview of Gresham and kind of how it came to be?

Sean Warrington 12:13
Yeah, absolutely. So Gresham, you nailed the entry there about 9 billion across, 120 odd families. Really, what you can think of is a financial quarterback, maybe just sort of white glove approach across asset management, Wealth Management, estate planning, you name it, we just try to make the lives of our clients easier, and at the same time, we want to build fantastic endowment-like portfolios. And that’s really what our team was brought in on the investment side to do a lot of our clients be first generation wealth creators that sold a business that may have sold to our private equity funds. For example, they might be GPS themself. I think what we try to do is work with people that really understand investing and want a portfolio that, on the surface, feels risky in the sense that you’re doing venture capital, you’re backing smaller funds, but you know, when you put it all together, that balance and diversification creates a really powerful flywheel for return and really reducing risk. And I think that’s the beauty of our model. It’s self reinforcing. People come in for the financial quarterback approach. It keeps them there and allows us to invest very long term, much akin to an endowment myself cover the private portfolio for us that’s as low as a $15 million solo GP, all the way across to an oil and gas fund, and everything in between the piece that might connect every bit of that is we do tend to play on the smaller side of things. That would be true both in venture and buyouts, even oil and gas, and we very much tend to work with people earning our life cycle. And the goal is to partner for a long time. We’re a small team. We have four folks, so we’re hoping to get 234, maybe 567, funds with people when things really line up, and that’s the way we enter relationships, is really trying to build a partnership.

Alexa Binns 14:00
And, how did you come to that strategy? What’s, what’s the sort of thought process on, on, focusing on those it’s like sub 25 million.

Sean Warrington 14:09
Well, we will do sub 25 million. I wonder where we got there. You know, look, the goal is always, how do we create the most Alpha while taking the right amount of risk, like at the highest level? That is the goal. And we’ve looked at the environment over the last, really 10 years, and look a lot of capital has come into spaces like venture capital. We all know it. And I also think there’s a different way people win deals, maybe than it was 20 years ago, where you don’t have to be part of a large branded firm to be successful, you can have a brand yourself. And I think even the bigger firms tend to be, you know, a handful of people might be driving a lot of the best results of those firms that have sort of the halo that makes the overall business great, sort of, we said, you know, maybe we can find people who are focused more on the pre seed side of the equation. But have the same really interesting halos that would also work in a big branded fund, if we put those two things together, and maybe we can create some interesting and exciting deal flow. You know, the rub is, these are smaller funds, and we’re still a pretty big ticket, so we certainly have to undersize an allocation with a $15 million fund, so to speak, relative to maybe the classic venture fund you’d invest in as an LP, there’s a lot of work that comes with that, but honestly, we have fun doing it. There’s a bit of a flywheel around you know, as an LP, when you have a lot of great, smart GPS around you, they’re your best source of deal flow in some ways. So having a few more takes more work, but it also means our pipeline fills faster. So I think you put it all together, we think we’re getting the right risk doing that, but we accept that there are some risks you take as a solo GP that you may not get at a larger multi stage. It’s all relative, so to speak.

Earnest Sweat 15:57
Are there any macro trends that are influencing your venture strategy as we speak?

Sean Warrington 16:04
Yeah, I think I just alluded to one, which would be the capital influx that has gotten us smaller earlier. The other one that makes us nervous and changes our return goals is the exit environment, and I think we all know it, but it feels unlikely we’re going to see the big time m a deal the $5 billion plus mega cap tech company buying out, you name, the startup that just feels tough for regulatory reasons. I hope we’re wrong, but we’re sort of expecting to see fewer of those. That’s one, and it’s just unclear on the public markets, we think that’ll turn back on, but we don’t know what the valuation environment’s gonna be. And when you put together a sort of lack of m and a valuation environment that we’re just not certain about, what that means to me is longer holding periods, potentially, and for us to get compensated, we need higher Moix, all right, higher multiples. So I think the bar for us has forced us to go even earlier and lower valuation, so to speak, trying to make up the Moak that way our IRRs work. The problem is like you move one piece of it, the other side moves to you go earlier, you’re holding even longer, which we do recognize, but that’s probably the biggest trend in our mind. I mean, look, venture is an asset, asset of consistency. So it’s not like we’re going to pick our spots year to year. To year, but we are evolving the types of managers we seek because of that environment.

Earnest Sweat 17:29
Yeah, to that point, Sean, I heard from an early stage investor who was talking to someone who was at a mega fund and trying to convince this megaphone to kind of look at their good deal. And they were saying, No, it’s good. But if something doesn’t have a clear vision for a $5 billion exit, then it’s not interesting. And so that’s a huge gap from the days of like, hey, it needs to at least get to a billion unicorns. And so if everything between 500 million to 4.9 9 billion is just not a venture backable company to a large group of a large amount of the dollars in venture, that seems like an arbitrage, right there,

Sean Warrington 18:19
That’s our view. And look, we’re excited by the secondary liquidity that’s helping solve it, but that may be only in the most that’s like the halo companies that have that. So, you know, we’re trying to be nimble, but, but we agree. We think there’s an opportunity being small, so that’s where we’ve put our capital.

Alexa Binns 18:36
Interesting. And I saw, I saw you at a tweet about opportunity funds if they’re back. Are you? Does that play into the strategy? Or have you not seen any lately? Is this just out of the

Sean Warrington 18:50
Do we hear about them? People ask us about them like this is one place where I think we do have a fairly firm view. We’re not believers in the Opportunity Fund concept. And I think the reason why is somewhat straightforward. If we’re backing someone who we believe is great at presidency investing, that is a certain skill set, the hard part for us is to expect that same person to also be great at later stage investing. And I know there’ll be a few people in the world that could do both exceptionally well, but it’s a little bit of life’s too short to think that we’re going to be the one that identifies that person. So we sort of put our hands up and said, no, mas. That’s going to mean a few deals that we probably can’t do, and that we don’t need to be in every great deal. But we are sort of holding the line on opportunity funds that it is hard to be successful at. And there’s a reason why some of the great multi stage firms have different teams. And you know, we respect those groups, so we tend to believe them.

Earnest Sweat 19:52
When with the structure of Gresham, have you guys, how much influence does each family have? Have on kind of what type of venture portfolio they’re seeking, do they already have ideas? Are they open?

Sean Warrington 20:08
Is an excellent question. I think this is where we differentiate from a lot of wealth management pros and cons to this answer, because we have families that truly have views that would cross any spectrum you possibly pick with 120 families, you have every view in your portfolio, so to speak. It actually gives us the ability to take none of those views. I mean, look, we collectively listen. But I do think we have the luxury of recognizing, no matter what something we do might, you know, if someone’s on the left side and someone’s on the right, you’re not going to make both happy in certain deals. It means we can actually invest directly for them. I mean, they’re with Gresham to get fantastic investment results at the right level of risk. I think it lets us be very honest and true to that, because we don’t have to buy into one person’s particular view. So, and this is why I said as a pro and a con, if someone comes to Gresham and they want to pick the managers they invest in. You know, we’re going to politely let them know that they’re not the right we’re not the right fit for them, because if we want to be competitive with the very, very best VCs, and you both will understand this, we can’t come to the said VC and let them know that we have 120 separate sub docs that need to invest like that’s not tenable for really, any GP, certainly not the best. We need to come with a single pool of capital, a single check where we can speak to that money. It needs to be pre raised. We need to be able to give them very clear timelines of what Lent will be done by and back it up and be ready by then. That forces us to build pools of capital where our clients invest into it. Makes it very friendly for people on the GP side of the equation. I think it makes it very easy for our clients, but for the ones that do want to make individual decisions, we just may not be the right fit for them.

Alexa Binns 21:50
Yeah. What’s that look like from a sort of structure and operation standpoint? Are these individual funds that you’re you’re funding with different LPS annually, or,

Sean Warrington 22:00
Yep, yeah. There’s two ways to go about it. There’ll be a few groups that run the Evergreen structure, pros and cons to it. We’ve gone down what looks like an SPV. Maybe you almost saved us a fund to fund. But every couple of years, we go to our clients, raise the entire pool of capital before $1 gets put to work, and then we deploy that money over the next couple of years. Essentially, the beauty for us on the investment staff is we know what our budget looks like before writing the commitments. So we can size the positions correctly. We can come to GPS and let them know that the money’s ready. The beauty is, it comes from our clients, so it’s not really a fundraising exercise. It’s really asset allocation. Each of them have their own liquidity models that suggest maybe you commit a few million dollars, the next person might be 10, et cetera. So it’s built ground up by their particular asset allocation goals. We just have the luxury and privilege to deploy it.

Alexa Binns 22:55
No, I think it’s been a big question mark for wealth managers and Ras on, how do we do this? And do you have any thoughts on sort of like, what? Why? Basically, like, why has this worked well from a client standpoint to like, what are the clients liking it? Is it working for them?

Sean Warrington 23:15
I think the clients that have been with us for more than five years love it. It’s very clean. The model that we deploy is very clean and evergreen. Structure can get a little messier at times. The one nuance of our approach is there’s a lot of paperwork. You have to have a phenomenal back office team, because every couple of years, there is a new pool of capital. There’s a whole bunch of K ones that come along with it. So there’s a lot of process in between us making a commitment and our clients on the other side. That’s what Gresham does exceptionally well. But the beauty of it is, I think every client can get their own distinct pool of capital. There’s no intermingling. They own a percentage of the vehicle they’re in. They could change every couple of years if circumstances change, like maybe they sold another piece of their asset or their business, they can deploy more money. You know, that’s the positive. The rub would be if it does take time. Our model, if you start with us today, we let clients know it might be eight years until you can really think of this as a mature private equity portfolio, whereas with an evergreen structure, you could invest $1 tomorrow and you’re fully invested. We like our approach. I think as the investment team I came out of the classic foundation, this feels very similar to investing like an ENF. That’s the model that, you know, I like to think I grew up in, and it feels very similar. But I think the clients that have stayed with us come to appreciate it as well.

Earnest Sweat 24:40
Now we’re going to take a quick break to speak with our sponsor, and on the show today, we have industry expert and sponsor, Braughm Ricke, founder and CEO of Aduro Advisors, which leverages best in class technology powered by the industry’s top professionals to provide premier fund accounting services. Thank you, Braughm for partnering on the show. Well, putting your kind of true hat ventures and hat back on and all the things you’ve learned from from that point on, curious on, best practices for emerging managers, like, what advice would you give them in terms of setting up their first fund, first or second fund, and are there any pitfalls they should be particularly cautious about?

Braughm Ricke 25:23
Yeah, I think that, you know, leveraging service providers, you know, such as fund administrators, lawyers, you know, banks to a certain extent. You know, going full, you know, on, you know, having your fund audited, etc. I think those are all good, important things to put into place from the get go. Yes, they might be a little bit more expensive from a cost load perspective for fund one versus when you’re on funds two or three, but really establishing those good hygiene, I guess, right from day one, and really also thinking through what path you want to take your firm on. And what I mean by that is, you know, is this a, you know, multi generational, multi partner, you know, kind of platform that you want to build out? Or is this, you know, I have, you know, 15 years left to do investing, and this is going to be the structure, and this is what I’m going to do, and then once I’m done, it’s I’m done, right? So once I’m done, the firm is done, right? So kind of establishing which course you want to take your firm on from, from the get go, that can change over time, absolutely. But I think that having a good understanding, and it is a good idea of that, I mean, when you look at like, Foundry Group, right? So somebody that we know really well, because they’re here, you know, close to where I live, you know, they knew from what they posted back in 2000 you know, seven like that, that, like, once we’re done, we’re done, right? Yeah,

Earnest Sweat 26:53
yeah, it’s key to have it. I used to think of it as, like, Are you the Rolling Stones, or are you kind of like the LA Lakers, right? You’re going to keep going. You’re going to wait until somebody else is, train somebody and take the talent, right? Or is it like, this is the band, and we were done. We’re done now. That’s good because I think most people think that emerging managers, that line of thinking only applies to kind of like the narrative and vision that you tell in allocators, but it also influences so many other parts of your business too, right?

Braughm Ricke 27:28
It informs how you build your business and how you structure it. From a, you know, staffing. You know, who you hire. Are you hiring associates and growing them into partners? You know, how many partners are you having? I think it instructs a lot about how you build your business from the outset. Yeah.

Earnest Sweat 27:48
So we’ve seen also, kind of something that they should think about, is this operational outsourcing, like we’ve seen an uptick on piece milling different parts of your back office, even if it’s, you know, within the same kind of arena of fund management, what functions do you see are most are most commonly outsourced today, and how do you assess the risk and benefits of like getting it from different people or just getting it most of them functions from one group? Sure,

Braughm Ricke 28:17
yeah, I think that the more you can rely on one group the better, right? You know, because everybody has a finite amount of time to manage all of these different relationships. Looking at our client base, you know, we have 600 clients, about 80% of which rely on us for their management company work, which is effectively their operating entity. And I know that’s the entity that’s paying the bills, paying the rent, paying the salaries, etc. And they’re looking to us for everything from payroll services to accounting platforms, expense management platforms, et cetera. They’re looking for us for advice and answers there.

Earnest Sweat 31:25
I know that data is really important for you and your team. I was curious. Has conducted any recent research or published any insights on fund operations or just general kind of LP or VC trends,

Braughm Ricke 31:43
yeah. So we’ve been, you know, again, leveraging our ability to utilize our core technology stack and our core technology platform to look at our data. So nothing from a, you know, kind of research on fund operations specifically, but more looking at, of course, benchmarks, net, IRR, gross, IRR, tdpi, DPI, breaking that out by sector, by stage, by fund size, by vintage, for the benefit of our clients, which is something that we’re starting to provide back to our clients on a regular basis. We have our next report coming up next month. So really focused on, how can we leverage our data for the benefit of our clients, but then also starting to look at, you know, market trends. You know, how many of our clients are actually doing distributions? I think in the first half of the year, we had something like 130 or 140 you know, individual distributions occur in the first half of 2024 which that’s probably a little bit contrary to out there, right? And so, and, you know, and yeah, there’s a lot of, you know, smaller ones, but, you know, they are, you know, kind of adding up from a DPI standpoint over time. And so looking at that for the benefit of our clients, and also thinking through, you know, how can we be at the forefront of providing that to the marketplace as well, and kind of looking at, you know, ways that we can be a thought leader in, you know, the broader marketplace, not just for the benefit of our clients.

Earnest Sweat 33:09
Yeah, on the reverse of that, have you seen, you know, you’re providing the insights and data, have you seen your clients use that to, like, make better decisions from an operational perspective,

Braughm Ricke 33:25
yeah, I think so they’ve used it from, you know, a lot of times, benchmarking themselves, right, not just against the, you know, the hard and faster, you know, the quantitative net, IRR, you know, where do I fall within this specific vintage year? But thinking through, okay, you know, I’ve, you know, did a distribution this year. Where does that kind of stack me up against the other, you know, 600 clients, or whatever it is. And so I think that utilizing that data much more from a you know, comparison standpoint for themselves is helpful. And, you know, thinking through, you know, what are other managers doing? Okay, I’ve got a realization coming up. Are other managers, you know, focused on getting that out the door, getting that back into LPS hands, or they focus more on, you know, recycling and thinking about, how can we reinvest that into the portfolio for, you know, better returns down the road, right? And so like, where is that focus, right now? Where should I be focusing? You know, what do LPS want,

Earnest Sweat 34:19
If you are a GP or LP looking for fund administration, please go to aduroadvisors.com and now back to our LP interview with that structure. Is there anything unique for this, for our GPS, that going through a process with Grisham, they should know about that’s

Sean Warrington 34:40
a great question. I spent a ton of time on the process piece before I went on a vacation, right before I joined and really sort of put myself in a corner and said, Okay, let’s think about, how do we continue investing as well as we were at DuPont, at a new entity, and maybe, how can we even do it better in some ways? And. I think the process was a place where I saw an opportunity, and I worked with Ted. I worked with Joe on my team. Collectively, the three of us are the Investment Committee, so Ted’s the CIO Joe would be my counterpart in Publix, and myself, we are the three person Investment Committee, all investors on the team. We run a lean process on people, and the beauty of that, and what I realized is we could take that on the other side and work with GPS much more transparently than they’re used to. And you know, I think a lot of the larger institutions, the more established groups over time, have built great processes, but they tend to have more steps, and they tend to be more opaque, and there’s just less control for the decision makers, the people actually in the investing seats at those entities. That’s an advantage for people like us at Gresham to where we can just be quicker. It doesn’t mean we don’t do our work back to the building pipelines. We meet people early, we do our work ahead of time. It means we can actually give a commitment, baked and ready and worked and diligence fully to people that aren’t even raising money yet, and that’s allowed us to be a lot more successful, in my opinion, on the allocation side. So I think the process we have has us doing the same work. We just do it ahead of time. And I like to think the certainty we can provide GPS around timing is going to be helpful and hopefully win the day on allocation. And our experience thus far has

Earnest Sweat 36:22
What I’m hearing, Sean, is that first deal you ran on and how that had such an impact on you. And you’re just saying, hey, we need to have a process that anybody is able to do this to take advantage of the market.

Sean Warrington 36:36
That’s exactly right. Ernest, that was a big learning for me, that you still have to do your work. So I don’t want to make light of the diligence. There are steps you have to take as an LP. The question is, when do you do you don’t have to fit within the GPS actual process. Most times you let someone know, hey, we’d love to do work a little bit early. That way we act more like a re up frankly, we’re gonna act more like someone that’s even ahead of the RE ups. They love it. That makes it easier for them. They just have less people doing references. You think about if you’re a GP and you have a CEO who has to do 15 references across two months like That’s painful. If we can do that work six months early, it’s just easier for everybody, and it positions us really well. So that’s exactly right. Ernest, that learning I had in that first deal has really formed where I am today, and I think it’s allowed us to build a great book and win the allocations we need.

Alexa Binns 37:25
That’s in contrast to plenty of people, I think, get frustrated when they find out or you’re actually not raising right now. What are, why are we chatting? Interesting? Is there anything in particular you’re looking for? It’s great to know. It’s like, it’s, it’s cool, if you’re not even in fundraising mode six months, 12 months early, anything else in particular that you’re on the hunt for right now,

Sean Warrington 37:48
maybe at first, a high olicon. Then I’ll go to the detailed piece of it. I do think LPS today needs to be nimbler. I think the markets have become institutionalized like buyouts. And I actually think the market’s better. I think buyouts have improved through institutions. Institutionalization. Venture feels in that process, there’s just more capital chasing. It actually could be a good thing, but I think what it means as an LP, you just have to be nimble, or things that may have worked for 30 years may need to be evolved. So at one level, I think we want to be nimble. Or today as an LP, what that’s played out towards? I think we’ve all experienced the sectorization. I’m making a word up here, but the sectorization of venture capital, where GPs have gotten even more focused on very specific pieces of the ecosystem. They’ve tended to be around B to B, SaaS and look, we love B to B. We love sector focused funds. We’ve done a ton, we’ll continue at a time. We’ll still do a lot of enterprise. But we did look at our portfolio and say, Wow, we have a lot of sector focus and a lot of enterprise. Where are the generalists? Where’s the consumer in our portfolio? And that did take a step back. And again, we’re not changing. This isn’t a full turn. We will continue to do a lot of the same. But we did say, you know, there is a place for generalists in this world. So we tried to think more thoughtfully about that. We have looked around the consumer space saying maybe we need to do a little bit consumer, and I mean software consumer, not product consumer. Think that’s probably the biggest sort of shift thing we’re looking for. But at the end of the day, I gotta go back to that point around what we look for in general, edge is always the key. So I think if we found someone that’s doing a sector focus B to B, SaaS fund tomorrow that had extreme edge there, we would do it. You know, that’s so I don’t want to take away from that. It’s not a change. It’s just an adaptation. Maybe the way to think about it for us

Alexa Binns 41:00
any pet peeves or anonymous stories of what not to do,

Sean Warrington 41:05
you know? And this isn’t, I don’t really put this in the fall to the GP, but I think a lot of times LPs, and it goes back to the process question, but I think LPs are forced to speak ambiguously a lot and and I think sometimes there’s just a language misunderstanding between an LP and a GP and GPS can be like, Oh, if I just talk to this person every two weeks, it’s gonna make a difference. I could tell you, as an LP who looks at a lot of funds like we’re bombarded with stuff, and I think the way we do this won’t be true for everyone. That’s the problem is we’re all different, right? You’ve met one LP you’ve met, sort of one LP. But I think in our case, like, if we’re working, we’re gonna let someone know, hey, we’re gonna spend the next month thinking really heavily about you. But we’re also telling us we’re not working. The problem is, if someone tells someone, hey, we’re not working, we’re busy for the next three months, and they keep bugging us that we actually met. What we said, what I try to remember, though, is sometimes other LPs might respond to it. So we just try to step back and say, we get it like there’s a bit of miscommunication. But I think that’s the one trying to actually read between the lines of what an LP is saying. I recognize the difficulty in that, but I think over touching can actually be a negative at times too. So I’d say the right cadence is important. It’s like dating. I tell my team that all the gplp interaction is almost like dating in high school. If that makes sense, like you have to have the right balance of communication. And if it gets oversighted from the LP or the GP, it can really create a sort of a bad situation. So we try to think about that a little

Alexa Binns 42:38
a bit. You don’t want like, 6789, 10, unread texts or unrest,

Sean Warrington 42:44
exactly I would translate it into like an email number, but I think there, but there is, there is truth to that, right? We’re fighting for allocation. Like, if I email that GP like six times in a week, like, we just seem desperate, right, obviously. So it’s sort of thoughtful you want to do, like a thoughtful catch up. I think the same goes for a GP trying to woo an LP. I think there’s a thoughtful amount of communication, and overdoing it probably puts one in a weaker position at times. Absolutely,

Earnest Sweat 43:12
I just read this book called Super communicators, and it was speaking about just like, the intentionality and how like to, you know, if, if you’re on the same kind of wavelength, how our brains start to just kind of mimic each other when it’s intentional and genuine and so so many times it feels like, in our world of gplp, you know, interactions, it’s so forced and not real. And you have to remember, it’s just, it’s like any other relationship you’re developing

Sean Warrington 43:40
Exactly. We’re just, we’re just, we’re just humans at the end of the day. And that’s where I think that approachability and, yeah, I gotta read that book. Earnest. That sounds like a good back to the book question. I think that’s the swimming

43:51
with alligators reading list.

Earnest Sweat 43:54
Yeah, I have quite a large one now. So I wanted to ask a kind of a reverse question, what do you think GPS should be looking for when they’re building their LP base? Like, if they have a choice of like, all like, people are sending them tons of emails right to get in, what do you think they should be considering?

Sean Warrington 44:14
Yeah, I love this question. We do get to answer this one from time to time. I think if the recognition for us GPS is one smaller it is probably better to a point. And I think sort of 10 to 15 feels like a really good number of LPs. If I were a GP, that’s a very manageable number. You wouldn’t want any one of those singular GPS to be too much of the capital. So maybe your anchor’s 15% I think folks getting 2025, 30 can be a problem. I think the issue that GPS needs to think about is twofold. One, the pack herd mentality of the people on the other side of the table. So let’s say that you have one LP you anchored you, and that same LP is going to bring you another. You know. 50% of your capital base, that will sound great like boom, easy button. You’re raised, and you would like that fund to raise very quickly. The problem is, what if that first LP has a problem with your next fund, what does one thing’s gonna happen to the other 50% of capital that, to me, is a real risk. So if I’m a GP, you wanna diversify, both by number of names and both where those names came from and how those people think. Groupthink is a problem for LPS. Is a problem for everyone in different ways. And I think LPS have it around commitments as well. Think about that. And two, I think a question I would always have if I’m a GP is trying to understand who is your deal champion, and whether they’re going to stay at the institution, because a lot of times, you may have a deal champion who is sort of on this path to grow and change. And the thing that’s not discussed a lot is our industry does have a fair bit of shifting around in seats. And the problem is, when you inherit a book as an LP, you don’t have that relationship. So we, you know, we always come to the table, and when people deal with us, you’ll have myself and Irene. You might have myself and Marie. May have Irene and Maria. There’ll always be two people that you had a ton of contact with. And it is very intentional and deliberate, because we want it to be in a world where, and look, we’re not going anywhere, but we want the GP to feel comfortable that there were multiple touch points. We always have our CIO even sometimes after the commitment, well, hey, you know, come have dinner with us, just so we have that. That’s what I would do if I were a GP, if you want to know a few people, a few decision makers, and diversify would be the two main points.

Alexa Binns 46:36
And how do you like to work with other LPs? What’s that community like?

Sean Warrington 46:42
Yeah, it’s, oh, it’s awesome. I think the LP, like, the thing you don’t know coming into industry is, is how cool the community is, and, you know, maybe a little bit of color. Like, one of the reasons it’s so much fun is, yeah, there’s not that many people that do it, and there’s even fewer who do it well. And you tend to be in a lot of the same managers. So you bump into these people all around the world. And that’s the other part that’s cool. Sometimes you’ll be in, you know, China, for example, and you’ll have a weekend where you’re just hanging out. So you really get to know people. And I think the thing is that you know LPS chat. So as an LP, what I like to think about is that you have different generations of your network, and when you’re in your early, late 20s, early 30s. The goal is to build it, and at that point you’re just going to add as many people as you can, and you’re just trying to source managers. I think a lot of LPs make the mistake of at that age and that range of using the network to build conviction. I think conviction has to be built internally. One and two, if you are a really good manager, you just told 10 other people, probably not the smartest thing in the world. But what comes out of that phase, though, is you find a ton of deals, and you track them down, you figure out how to build conviction, and then you actually a handful of years later, you probably have your ride or die group, your three to five people who you really have trust with. And now you can really talk deals, and you can talk about things that you love. These are the people you pull in on that hot deal that you happen to find where, you know, there’s an extra, you know, 10, $20 million check available. I think most LPS sort of have that general view. I mean, you look at our team, we have a four person team. We do a lot. One of the reasons we can is we think of that network as an extension of a team, and it really plays a huge role in the sourcing side of what we do. So literally, before this call, I had 230 minute sessions with other great LPs, just chatting deals. And that’s just the way the business sort of works.

Earnest Sweat 48:33
So, you know, putting your crystal ball, what do you think the venture landscape will evolve to over the next five to 10 years?

Sean Warrington 48:43
Yeah, that’s a hard one. We’ve talked about a couple of them. You know, I think the exit communication part, that’s the piece. I think the biggest wild card, I think I would love to put it back on you two after this, and that’s where we’re spending the most time trying to think of exits and how to generate returns. I think the biggest question in our mind is whether the valuation that people are pricing things at in the private world, and how that translates into the public when that turns on, is probably the biggest wildcard out there right now. And who’s to say, we hope it translates really well, because that means we all just do great. It’s just unclear to us what the outcome there is. But the problem is, Ernest, it’s tough. We don’t really have a strong view of the market today. I mean, our North Star right now is just backing exceptionally good investors and trust in their judgment. Love to hear, what do you two think? Where do you think the market is? If you have an exit view? I’d love to hear that would be very helpful. I’ll get very helpful. I’ll get my pencil out. It

Earnest Sweat 50:16
Yeah, I think, yeah, still going to be a little cloudy for probably these next two, three years, but we’re really going to see what people are made of. I think we’re going to have an influx of more spin out funds. And I think the opportunity is, actually, we’ve had, like, the influx, as you mentioned, Sean, of verticalized funds, but I think we’re going to have more generalist funds that are stage focused, right, and not trying to, like, basically the unbundling of the multi stage fund, and I think that’s because of what we’ve mentioned before, of like, what is venture backable has changed so much and is so dependent on your fund size, to be quite honest. And so I think there’s going to be an influx of those types of funds, whether it be, you know, focused on A, focus on B, focused on, see something like that. In the meantime, we’ve got to figure out this, this pricing. There’s going to be a lot of contractions and of funds and companies, especially since two, three years ago. We told everybody, just make it to 24 and we’ll be fine. So

Sean Warrington 51:39
yep, figure

Earnest Sweat 51:41
it out.

Alexa Binns 51:43
There has been an interesting argument for when I say consumer I generally that you mean consumer tech as well, but the consumer brand investors that I speak with regularly, they do feel like they’re able to focus on liquidity. And there’s, there’s less mystery around the m&a market in consumer packaged goods and that’s, that’s part of their pitch right now, that you know it’s not, you’re not reliant on seven giant companies. We’re not sitting back waiting for the FTC to figure out what their rules are, that there’s a lot more landing opportunities for those kinds of businesses if they’re priced correctly. So that’s, that’s one thing I’ve seen in terms of arguments of like, where to put your capital now that there’s actually some liquidity, because there’s some M and

Sean Warrington 52:35
a very interesting thing, yeah, that would, that makes sense. There wouldn’t be regulatory concerns about selling a great makeup product, I would imagine the same way for AI,

52:45
exactly.

Earnest Sweat 52:46
Yeah, it just hit me, Sean, that we’ve been going about, I guess, 41 minutes here, and no one’s mentioned AI. I think contractually, we’re obligated to say something about AI. Any thoughts on it? Yeah, right.

Sean Warrington 53:00
That’s a good job, by the way, awesome job that we were able to make for 40 minutes. I mean, our new Well, we think it’s amazing. I actually think it’s going to make a really big positive impact across our private equity book in total. I think our buyout book in particular will be the huge beneficiary of a lot of the great work that startups are doing today to improve efficiency. So we think it actually spans a lot of what we do in terms of the venture book, like, like every LP we have our folks doing the AI rounds. I think we’re a little bit less excited about the extremely high value rounds. They might work great. It’s just tougher for us to understand that valuation question. If someone needs a $20 billion type outcome to make the math work. It doesn’t really feel like the venture outcome is tougher to reach. So we’re sort of looking for people that might be uncovering something a little around the margin that has AI, but isn’t like a core, foundational model that someone’s chasing, that said, Look, we have some dedicated funds in this space. Like we’re like, just like every other LP who’s chasing it, we’ve got our bets, so we’re excited about it, but we do think some of the prices are a little scary,

Alexa Binns 54:13
and any final thoughts or words of wisdom, maybe for the family offices, who would be potential clients or GPS,

Sean Warrington 54:22
yeah. I mean, I think the final thought is, we’re open for business folks, both family offices, that need help. I think if someone’s looking to build a really great venture portfolio, it’s a place where you need help. This is a tough space. You folks know it really well, and I think there aren’t that many LPS who do it well, and I think we have that, and as a GP, just reach out like I was. I was being very serious. We will try to respond to essentially every email, even the ones where they’re like a random hedge fund doing something so far outside of my space, I still have no interest in responding. But, you know, all kidding aside, like we will, we have a response. We hear things out, but when we say we’re not. Interested. We mean it. We have strong filters, so just trust us on that. We’ll let you know. If we’re excited, people will find out.

Earnest Sweat 55:09
Well, thanks, Sean, for all the insights and great stories. If anybody wants to reach you, how should they reach you? They can easily find you.

Sean Warrington 55:19
LinkedIn, you know, I’ve got a goofy smile picture on there. Sean Warrington, easy enough to find. Send me a message. I’ll respond.

Alexa Binns 55:37
See you later, Allocator!