Alexa Binns 00:03
Welcome to Swimming with Alligators, the VC podcast from the LP perspective, with your hosts Alexa Binns and Ernest. Are you ready? Let’s dive in. Welcome to the show. Today we have Thomas Knowles, managing partner and co CEO of Gratitude Ventures. This includes a network of 150 family offices, all working with him as a community of investors focused on mission-driven businesses. He’s the investment manager working on behalf of all of these families. Thomas, we are so eager to hear your perspective. Thank you.

Thomas Knowles 00:36
Thanks for having me.

Alexa Binns 00:37
You didn’t start at Gratitude Ventures. This is the latest iteration of your life. Can you walk us through sort of like your LP journey and your direct investing journey?

Thomas Knowles 00:52
Sure, absolutely. Yeah. So the connection to gratitude started in undergraduate. I studied economics and got exposed to microfinance when it was really becoming a mainstream tool in the mid 2000s, and thought it was such an impressive way to use the capital markets to drive social mobility. But at that time, it was really done in the nonprofit sector. And coming out of school, I wanted to earn some high income and then maybe come back to impact down the road, and so started my career actually in the asset management arm of Silicon Valley Bank, SUV Capital. I got the experience of being there through the financial crisis in 2007, 2008, and at the time when I joined, we had about a dozen investment professionals. Grew to you know multiples of that, and then back down to a small team. So just that experience continues to be part of my career today. And then when I got some operating experience, I worked for two technology companies doing corporate development, so acquisitions and investments. And then decided I wanted to get back to investing and really thought about what I wanted to do and how I wanted to invest in that experience of microfinance and having purpose and impact crept up and found our other co-founders at Gratitude Ventures and started the organization in 2015.

Alexa Binns 02:12
We’ve gotten feedback from a lot of our listeners that the historical context is always extremely helpful, and so I would be curious to get your perspective on, you know, from what SBB Capital was doing to where you have come to now. Are there any sort of like thematic shifts or like mental approaches to mission investing that you’ve seen that you can kind of catch our folks up on who maybe weren’t living it the way you were.

Thomas Knowles 02:48
Yeah, absolutely. I think one on the more philosophical side is part of my experience during that time was feeling that venture and entrepreneurship were not being used in terms of the highest value ways, right? It was relatively short term oriented for an asset class that’s supposed to be the longest term focused asset class, and entrepreneurs that were focused on solutions that weren’t really addressing key social and environmental problems. It was you know more, and how can I sell this business to Salesforce in three years? Is an example I give. So I think philosophically, I was just feeling like, gosh, there’s an opportunity to think about using this really finite resource of venture capital and entrepreneurship to address you know more important societal problems. And then yeah, I think from a business model perspective, as we’ll get into in terms of our investment management organization at Gratitude Ventures, there are a lot of similarities. So we have a fund of funds business. We do direct investing. We also are active in the secondaries market, and a lot of those tools were ones that we used at SUV Capital as well. And so I think there’s a lot of merit in having an investment platform that is both an LP and a GP and creates relationships along those lines. And then lastly, I think SVB as a broad organization, Silicon Valley Bank, was very community oriented. You know, they really thought about how they show up in the entrepreneurship and technology sector, and so for gratitude, we also think about really building an ecosystem and a community within the impact investing mission driven space. So yeah, lots of similarities, and I think culturally, it was a great organization. People were very mission driven at that time, and so yeah, lots of learning.

Earnest Sweat 04:42
You know, a lot of people talk about ecosystem building in our industry, but it’s something that’s extremely tough to do. And then when you think about family offices, you know, what’s the saying? When you meet one family office, you just meet one family office. Could you talk to us about the history and the. Inspiration for gratitude ventures, and you know, kind of started out something more of an investment club. And how is it? How did it become what it is now?

Thomas Knowles 05:08
Yeah, absolutely. I mean, we started in 2015. I mean, there were some efforts a little bit earlier than that, but with about a dozen families, so it started very small, and you know, we’re 10, 15 years later. So it’s taken a while to grow the community, and we really wanted to create a relatively high bar for folks that were involved, that had capacity to invest, that were really committed to this philosophy of investing, and wanted to participate and be involved. And so all the growth has been very much from referrals and kind of one family at a time, and I think that’s built a really great core group. And we’re now at a point now where there’s lots more folks coming our way that it’s not as much of a referral one by one, and that’s exciting. And then overall, I think the impact sustainability space has gone through an interesting time over the last 10 years, where when we started, there was a lack of awareness. Right, we were even describing this as a different way of investing or operating a business. What do we mean by that? Is it concessionary? Is it philanthropy, or is it for profit investing? And there’s a lot of education and skepticism in those early days, and then really there was a massive wave of interest that came kind of coming out of COVID, which was exciting. But I also have now settled in where we’re now 10 years into I think a cycle within the impact investing space, and now I think the industry is in a more mature space. But yeah, so there’s been a lot of change in the industry, and then definitely within our organization,

Earnest Sweat 06:42
how do you see that change and impact being executed? And something that I’m hearing from some different family offices, foundations, and different organizations is that impact now because technology is touching so is ubiquitous with life essentially, that impact now should be more proactive than reactive. And in some ways, when it comes to like business angles, is like should these organizations and people have more of a seat at the table on boards or investing, and so I think it’s teasing out more than like when I first got introduced to impact investing in kind of 2010 and and in other stages, it was more in kind of just the philanthropic side. What have you seen from your community?

Thomas Knowles 07:37
Yeah, I mean we think about it as really being integrated across all aspects of the capital markets and how you think about running a business, so yeah, there’s the idea that impact is the product and service that the business is delivering. That’s often how people think about it, which is important. Back to what I was saying about the solutions, kind of what are we focused on in terms of is it you know climate or healthcare, education, financial inclusion, like those are the products and services and the solutions. And then there’s also how the business operates or how the investor operates. And thinking about good governance and you know the different stakeholders, whether it’s your employees, customers, people in the supply chain. To your point, you know the board representation is that representative of the end customer that you want to serve. So I think there’s more integration that’s happening, and we really think about it as how do you think about impact throughout the entire ecosystem from the investor to the business to the end customer.

Alexa Binns 08:40
I think Omidyar basically had two funds initially, like an impact fund with very specific KPIs, and then kind of graduated to what we know when we see it.

Thomas Knowles 08:54
Yeah,

Alexa Binns 08:55
and it that that from the outside that sort of makes a lot of sense. That you know, a family office, you’re looking to put your money to work for good, and it’s a little too cumbersome and narrow to force everything into measurable KPIs. When like you meet a founder and they’re doing something you really believe in and can see that it’s going to do good for the world,

Thomas Knowles 09:27
absolutely.

Alexa Binns 09:28
How does that jive with this sort of very formal ESG universe? Like, how do the gratitude families approach things versus, you know, when I think about, like Denmark, like foreign investment strategy, right? Like, like, are we putting too many limitations on getting good done?

Thomas Knowles 09:59
Yeah. And and obviously, I’m not speaking for the over you know the industry in terms of how it should be done because I do think there is merit in the measurement and the KPIs, and we definitely lived through a period where I think there was some real you hear about like greenwashing and and people you know more interested in kind of the marketing advantages, and I think there was some merit to that. So I don’t want to kind of toss out all the rigor around measurement and metrics, but I do think about it for us when we’re underwriting either a manager or a founder. It’s much more about aligning on the philosophical approach, the ethos of the business, what their why, right? Like what’s driving them, because to me they’re going to go off and run their business. They’re going to decide who to invest in and how to operate on a day to day, and the metrics are going to be in the rear view, right? But we want to be aligning with people that I believe are really using the tools at their disposal to you know again align with the ways that we want to invest in our capital to ultimately move in the world, and I think you know for some of our families that sometimes come to this space maybe more from a philanthropic background where they’re used to saying I want to use my philanthropy to solve you know an education gap or something in healthcare, and so they want to do their impact investing very narrowly, focused on solving that issue. And we don’t invest that way, right? We’re investing across different thematic areas. And what we’re really trying to say is we want to identify those best GPs and founders that are building profitable, economically viable, and impactful solutions across different issue areas, and really demonstrate that that’s possible. And so it is a shift sometimes for our investors to get comfortable with that approach when they might be really focused on one narrow impact area. But that’s been our approach,

Earnest Sweat 12:42
Aww. What tactics have you employed to be able to stay rich , whether it’s content services, insights to your community, and what have you learned? Like yeah, what are what have you used and what have you learned over this time,

Thomas Knowles 13:01
yeah. I mean, I think in the early days, what was really important is so we have other co-founders to the organization that were further on in their career. They had already found success as entrepreneurs and investment managers, and really decided to lead with their own capital and time and credibility. And I think that was really important in the early days for other families and high net worth investors to see similar people making this shift again, putting their capital, their social capital, in this direction, and so that I think built a really strong foundation of a community that was peers, right? That there was a shared trust, credibility that they felt like they were doing it together, and that it wasn’t me telling them this is the way to do it or or pitching some idea. It was really much more of us in this together and learning by doing, and and I think that continues to be a really important ethos of our community, and I think along the way, also showing up with an idea of like how do we make sure we’re being helpful to people in the community, right? And that’s always been an important cultural item: how can we be helpful? What are you interested in? What are you trying to solve? What are you grappling with? How do we make important, helpful connections right out of the gate, and you know, we still today our investors, our community members, the value is the community. They connect with each other outside of the things we put together, and that’s really helpful. And I think you just have to create a high bar where you’re creating a community of people that show up that want to connect with each other. So we’ve never had a KPI on like number growth, right? It’s always been you know who’s the right people we want in the community. How do we make sure we’re getting exposure to them, and how do we make sure that it’s valuable once they’re involved in the community?

Earnest Sweat 14:55
Is there a commonality or common thread? Between every family or high net worth individual who joins,

Thomas Knowles 15:04
yeah, similar. There was much more of a focus on people who came from a business and finance background. So we would say early on, hey, we don’t necessarily want to teach people how to think about investing or operate a business. We’re trying to get them to shift their mindset around what it means to invest and operate a business if you’re solving for profit and return and solving for important social and environmental solutions. So the core of the community definitely comes from that business and finance background, but that’s expanded beyond that now. I think that foundation was set and now we’re much more interested in how we bring the right people that are motivated to move capital that also have different perspectives too. I mean, there’s extreme value in people that are coming from different backgrounds and industries and outside of the business and finance world. So yeah, that through line is still there, but not as critical today, the one that’s critical today is the action orientation. Like we do not want to be a community of people that just sit around and talk about these ideas. We’ve always had a view that we need to put capital to work. We need to learn by doing, and so that continues to be an important through line that ultimately we’re about moving capital.

Alexa Binns 16:20
You’re in a very unique situation where you’re hearing constantly about what these families actually are interested in, and I see that in your the different products that you now offer. So maybe you could give an example of sort of like a new product that is available to the group, and where where that came from, or why you decided to add it to what you provide.

Thomas Knowles 16:49
Yeah, I mean that’s definitely an important part of how we think about the synergy of the community and the investment business. And there, I mean, I’ll use the word tension, but I mean there is this tension of interest from the investors and the community, and what we think makes sense to actually do and allocate capital towards, and and we want to bring that input in because it’s really valuable, but it shouldn’t be the driver of every decision we make.

Alexa Binns 17:16
Oh, I would love to hear what you recommend they not invest in as well.

Thomas Knowles 17:21
Yes, yes. So, and and you know, and there’s just the general idea of behavioral finance and where trends go and what people are interested in. So, yeah, I mean that we see that in our little community as a sample size of what’s going on broadly in the investor ecosystem. But yeah, I mean, an example of a product that came together actually last year, which was a really challenging time for the solar industry. Is we ended up putting together a yield co focused on investing in small commercial solar and storage products projects in primarily low income and energy communities in the U.S. and and it was a a match of an area that our investors were interested in, which was kind of a yield generating lower risk product relative to our more traditional venture and private equity products, and then us seeing a gap in the marketplace where you know smaller commercial solar and storage projects weren’t getting financed by the larger investment firms, and where we could bring high net worth individuals and family offices into that ecosystem, where they were kind of right size from a check size perspective. So I think that was a great example where we were able to educate our community on the opportunity set, even amidst all the changes happening in the renewable energy space, and bring a pool of capital that was really helpful to a part of the market that was under-served.

Alexa Binns 18:45
Is there anything that you are hearing a lot of people are interested in that you are advising against?

Thomas Knowles 18:51
It’s I mean the one of one of the topics that and it’s changed names, but kind of nature based solutions, natural capital, investing in biodiversity-I mean, incredibly important-and there’s elements of what we do that touch that theme. But I think there’s a lot of interest from families in figuring out how to allocate capital there. And our view today is that the ecosystem around the investment opportunities is still emerging and pretty nascent, and so there needs to be some more work on developing. You know, what are investment products? What is kind of the risk-return profile of those investment products? So that’s one where yeah, we’re kind of taking that interest in and saying here’s some maybe some other ways to express that interest in some existing investment opportunities that have a more clear kind of risk-return profile, but yeah, that would be one that comes to mind.

Earnest Sweat 19:46
Is there any kind of growing impact thesis amongst your team and the community on how to approach data center investments and also data centers overall? Right, what could be the. Direct results of more of them popping up.

Thomas Knowles 20:03
Yeah, I mean maybe to broaden out the question a little bit. There’s what’s happening right because of AI is this just growth in energy demand right, which has its drawbacks or its concerns or its questions. But in some ways, it’s continuing to put wind in the sails around the renewable energy space, which was having more headwinds given the administration view on some of the areas around you know wind and solar, for example. So that’s been really interesting. Where you know because of the data center boom and AI demand, you know renewable energy is kind of getting pulled through, and that’s a good thing, right? That’s a positive to continue to have that industry and those technologies mature and scale. But there are some questions on how do we as a society deal with just this massive growth in energy demand and do we have the technologies to really scale up in a responsible way? And our view would be, you know, hopefully more renewable sources versus our current non-renewable sources. And what’s the timeline of, for example, getting nuclear to a place where it’s commercially viable when the energy demand is happening yesterday? And so those disconnects, I think, are things that we grapple with.

Earnest Sweat 21:45
Yeah, it’s like throwing them, throwing them in space then, or throwing them under water. That won’t have an impact on things. In switching gears, in our prep conversation, we also spoke about your presence of investing in emerging managers-I believe it’s around 30 plus managers with a dedicated pool of funding. Could you just walk us through that program and the process, what it looks like?

Thomas Knowles 22:18
Absolutely. Yeah, it’s always been and will continue to be an important part of how we think about allocating to managers. We do believe that there’s real value in emerging managers from an alpha perspective, from building the ecosystem, from cultivating new talent into asset management, and so it will always be an important part of our investing for those reasons. And then there’s also some real benefits to us in terms of the relationships that we develop with those emerging managers. It is different when you’re first checking into a fund, one of an emerging manager. That relationship doesn’t fade very easily, right? It’s a really important one, and so that has real benefits where we’re able to bring those managers into our community, and our community benefits from learning from those managers. They show up; they’re super engaged, and that’s really valuable. And then for us on the investing side, we do a lot of co-investing with those managers and learn from their sector expertise, or maybe they invest at different stages than we do. So there’s ancillary benefits to not only kind of the core value proposition of investing in emerging managers, and it’s evolved over time. I think it is part of the market that ebbs and flows as there’s, you know, more bearishness or bullishness around asset management, and so we’re kind of coming out of a period where I think it was really difficult for emerging managers. I’m optimistic that that’s going to shift over the next couple years. Just as people are seeing the value of being invested in a venture consistently through a long period of time,

Earnest Sweat 24:36
Now we’re going to take a quick break to speak with our sponsor

Alexa Binns 24:42
on the show today. We have our stellar partner and industry expert Shane Goudie, leader of Sidley’s venture funds practice, and now host of the podcast Talk VC. We highly recommend you listen. The other one I wanted to ask you about is the one big beautiful Bill Act rewriting everything. Around qualified QSBS,

Shane Goudey 25:05
yeah,

Alexa Binns 25:06
and you know what we should keep in mind as a sort of VCLP audience.

Shane Goudey 25:12
Yeah, I think that we’re in a world of secondaries now, and so I think the thing that people lose sight of is that those are just dangerous to QSBS treatment, right? And so, you know, the minute that a security becomes a secondary security, any ability to claim it from a QSBS standpoint goes away. So, you know, while there is tremendous attractiveness in a lot of the secondary opportunities out there, I think that to them, and a lot of it is that these businesses are just so big. QSBS isn’t even a thing, right? So, you know, some of that activity, you know, just doesn’t QSBS doesn’t even enter the radar screen. That’s not even a bullet.

Alexa Binns 25:51
Did they ever have a 50 million under evaluation? Yeah, exactly, right. So

Shane Goudey 25:55
some of it’s just it’s just not even something we think about. But as you start to plan for, you know, even things like warehousing, right? You know, this is, you know, a lot of what’s going on in the fundraisers these days is just because the rapidity of the deal opportunities is happening in advance of a fundraising closing. You know, a lot of times the managing company or management management company or you know one of the managing directors or some affiliated entity may warehouse the investments, and you know that’s you know as soon as that thing gets transferred into the fund, there goes the QSBS on it, right? So I think it’s just being mindful, and you know God forbid we go down the rabbit hole of is Carrie QSBS eligible, right? And you know I know I only bring it up just to be you know really funny, but you know like those are the kinds of things that and it’s not a nothing issue right from a tax perspective. So, you know, a little bit of as same as it ever was, just in terms of like true emerging early stage kind of companies, and how to manage your ability to continue to have QSBS status, but again, in a world where some of this access is just happening through secondary and other different channels, it’s just being aware of the playbook and you know how to you know whether the one big beautiful bill will solve much or any of that is still up for debate. But I think it is just mindful of the tax advantageousness of how you move through the world in doing these investments. QSBS is an element of it, but we’ve seen just from a planning perspective things like management of the three-year long-term capital gains period for the holding of stock, and how does a GP manage you know that kind of opportunity for themselves in that you know the think the kinds of things that we’re seeing GPs do with being able to take in kind distributions when everybody else is getting cash, so that if it’s an under two year or an under three year stock they can hold on to it, tack that holding period, and then when they decide to sell it, you know, have long-term capital gains or doing things on the allocation side. So it’s not even just QSBS. It’s really a lot of these things that you know pre generate out of the tax piece that you know the savvy, really good fund managers are keeping track of, and their counsel is right behind them, or frankly, more often way ahead of them. So, you know, but but but as we counsel, you know, the funds that we, you know, bring online, like when we talk about warehousing, like this is this is the kind of topic we talk about. It’s not just, you know, it can be regulatory issues because you know secondary securities in a venture fund is a bad thing, not necessarily, but if you get basket, like warehousing could be that, but there’s an exception for it, right? So it’s just a lot of counseling on some of this stuff. So I’m hopeful that some of the elements of the big beautiful bill, you know, maybe loosen some of the grip on some of the restrictions for QSBS. I think that’s possible, but we’ll see. It’s still all up in the air at this moment, and I think people are still, you know, trying to get the cart before the horse on some of this activity. And frankly, QSBS just becomes the fifth consideration in a list that’s very, very long.

Alexa Binns 29:16
Well, I can see how council ends up easily helping you avoid some of these giant potholes, and you know it really matters who you’re working with. You lead this practice. Why would you recommend that GPS choose to do their fund formation work with you?

Shane Goudey 29:35
Yeah. How long do we have? No, no, no. So I think we keep it simple, right? I came here over two years ago because, you know, a lot of the venture landscape from a legal representation standpoint just became about kind of vacuum sucking in a lot of different relationships, and not really about the service element of. At all, so I think that we at Sidley have crafted the venture funds practice to be client serving for one, and I don’t think enough law firms do that. I think it’s about pelts on the wall. I don’t think it’s about the relationships with the LPS. I don’t think it’s with the GPs and the LPs. So it’s. purpose built by design. It’s really concierge service for a venture fund, and just the ability of a firm like Sidley to have not only just the fund formation because our our slice of our funds practice is 150 plus lawyers, and the Sidley funds practice is doing hedge and private equity and real estate and credit and you know all sorts of really really interesting things under the asset management 10 and this venture funds practice is sort of the newest kid on the block but it is very fundamental for what the firm is doing from a venture ecosystem representation standpoint, and you know we have an incredible emerging companies practice led by you know some of the most amazing titans in the industry. But you really need to complement that company side representation with the fund side, and so we here have been able to marry that. Now that’s that’s a that’s a DNA that exists in other firms, but if you don’t complement that with world-class regulatory and tax and credit and you know VC financing and all this other expertise, and not just having one person that does it, but having a complete complementary team that really can be again from that client service standpoint, you’re not waiting in line for 300 other funds to get an answer on something. We, you know, we’ve been very purposeful about the relationships that we’ve taken on, and you know, we’ve we’ve gotten a lot of really great interest in, like, you know, it’s fun being the new kid on the block. And you know, the Sidley name is, you know, one of the titans of the industry, but not necessarily in the venture space, until recently. And it’s fun for me. This has been the most fun I’ve ever had in my career to be a business builder and to sit across from VCs every day, who that is their job is to build businesses and kind of be able to now find a little kinship with them in doing this. That personal relationship and that commonality of experience is pretty damn fun. So, we just take a practical approach, right? You know, while Sibley is a massive firm, a lot of people think of massive firms doing complex things and, you know, not being able to meet costs. You know, for us, we’re able to keep it simple, stupid. You know, be very targeted with our advice and our approach, but then also do it at a price that matches really any other firm doing this work, you know, with a sizable practice. So, you get really the best of all worlds, and I and I think that you know has been a message that sold really really well for a lot of people who came with me onto the platform for my prior firm, but you know now now we’re brand new clients to Sidley, and and whether that’s through brand new introduction or maybe through another partner here at Sidley, it’s just you know when you when you have a fire on a mountain top, people tend to look, and that and that that for me has been just tremendous opportunity for us to succeed, and you know we’re we would be delighted to work with any venture fund manager of any size because we really do we we represent funds that are $10 million first time funds to ones with you know 5 billion plus so it it runs the full gamut and because of all this other expertise that we have we’re able to to meet kind of the meter of what RBCs expect of

Alexa Binns 33:42
us, and now back to our LP interview. Given the mix of fund level investments, direct investments, what kind of check sizes are we talking about? Like, I think a lot of folks will say this is like fees on fees, and they don’t really respect the work that these managers are providing, but I think when you put numbers to it, it sort of starts to make a little more sense. When you realize this, this is actually cheap labor.

Thomas Knowles 34:14
Yeah,

Alexa Binns 34:15
Can you give us a little sense of what your LP commits are like, what you’re looking to deploy into individual co investments or follow on.

Thomas Knowles 34:26
Yeah, I mean we do, so we do have a view of trying to be accessible. That’s always been important. We recognize that the type of investing we do, both from our philosophy as well as investing in private markets and primarily in venture, that’s a small part of any allocator’s allocation, right? It’s kind of a percent on a percent, and so our view has been we want to get people involved, build trust, and take a long view on those relationships. So we’ll invest anywhere from 250,000 on the low end up to a. Few million in our strategies. We have kind of a multiple product approach to our platform. So the idea is that families can invest in multiple products that are complementary versus having one dedicated venture fund, for example. So that’s kind of how we think about bringing our investors in. Ultimately, how that shows up to our investments is on our early stage, really seed series A. We’re typically investing about half a million to a million in rounds of three to 10 million. So we’re not typically leading or one of the largest investors, but want to be meaningful to the cap table. And then on the fund manager side, it really can range from half a million to a million, which can be meaningful for an early stage fund one venture fund manager up to a few million for a more established maybe non venture private market manager and I and I think that is a place where we feel like we have a strategy that makes sense where we can be collaborative in the ways that we invest and meaningful to either the cap table or the LP base for the fund manager, so I don’t imagine that shifting dramatically over the next few years. I think we feel like we’re kind of in the right place in terms of where we play.

Earnest Sweat 40:32
Do you have any examples of how, whether it’s from the community or outside voices, that it’s led you to an opportunity that you all weren’t aware of,

Thomas Knowles 40:43
for sure. One that we’ve been highlighting recently is we had been interested in investing in fintech and financial inclusion, and had struggled to really find the right opportunities in our early stage venture portfolio. And we a new investor joined the community that was a founder of a fintech company and got very involved in saying I’d love to help you guys think through that and and help source investments and ultimately sourced an investment and helped us win that investment and then now as an informal advisor to the company and the company is you know, growing and scaling well, and it’s a business that helps bring retirement advice to low and middle income Americans, and so just a part of the market that hadn’t really been addressed. And that’s one example, but there’s many. But you know, when that can happen, where someone actually adds value to our process, and then more importantly, the entrepreneur, the fund manager that we’re investing in, like I really want to continue to work with this person. That’s a huge differentiation for us in the marketplace, and I think that you know what I talk about with our portfolio companies often is, you know, there’s a lot of the firms that talk about community and having active investors involved, and they can add value. And I think what we see is this mission orientation, the alignment around the impact that these companies and fund managers are having. People show up in a different way. They show up with you knowing they’re more engaged, they’re more committed. That mission kind of holds people more accountable to be value added, and so that’s been fun to see, and I think is an important part of how we operate.

Alexa Binns 42:21
Thomas, have you seen an uptick in people investing out of donor advised funds?

Thomas Knowles 42:28
I’m smiling because yes, the hope of donor advised funds moving into impact investing has been out there for a long time. I mean, it continues to just grow and grow. Yeah, where

Alexa Binns 42:40
Is it yours? Where are people giving you money from?

Thomas Knowles 42:43
Yeah, I mean it’s yeah, I don’t know what the latest numbers are in donor advised funds. Definitely over 100 billion. It’s probably maybe double that now, but it’s a massive amount of capital that, yeah, you would think. So this, you know, donor advised funds are a form of a foundation where people are taking the tax benefit of gifting capital to a donor advised fund. Different from a foundation is they don’t have a mandatory distribution. So, the foundation has a mandatory distribution of 5% annually. Donor advised funds do not have that, so they can continue to grow and grow. You know, these are typically invested in money market funds or passive ETFs, most of them are managed by Fidelity and Vanguard and Charles Schwab. But ultimately, this is philanthropic capital that’s supposed to be put to work. So, my first hope would be that it actually gets put to work for philanthropic reasons, as it should, versus sitting and clipping coupons for the large asset managers, and not. But my second hope is that at least while it’s waiting to be put to work, is that it’s invested more aligned with an impact mission versus a non impact mission, or oftentimes maybe invested in things that are counter to what that donor even wants to do philanthropically. But it has not happened yet.

Earnest Sweat 45:24
I’m sure a lot of organizations are doing in your position a lot of co-invest in secondaries. I’m curious. Let’s start off with co-invest. What is the process there? Is it only for the fund managers that you currently work with, or is it an opportunity to meet new relationships? Talk to me about how you all approach co-investing.

Thomas Knowles 45:54
Yeah, I mean when I say co-invest, it is talking about specifically investing alongside a manager that we’re invested in. We do have a really robust approach of trying to build a network of deal flow partners more broadly that we share deals with and investments with, and that’s an important part of our sourcing and diligence process. But yeah, I think for for co invest for us, given we are a bit broader from a thematic standpoint, to be able to leverage, as I was mentioning, some of the expertise and the fund managers that we’re invested in and co-invest alongside them in a category where they have real depth of expertise is one piece. The second is getting some later stage exposure. So as I mentioned, most of our investments are at the seed Series A stage, but we do do about 25% 30% of our investments at the Series B plus and or private equity stage, and we think for our investors, which again are mostly individuals and families, it’s a nice add to the portfolio that creates some maybe near term liquidity or just some less risk in the in the portfolio. And so we’ve taken an approach of kind of building a portfolio that has those early stage, higher risk, higher return potential bets, but then adding in some later stage exposure and the fact that we can do that through our fund manager partners makes it doable, right? We couldn’t be sourcing directly across all stages, so that’s how we think about the co-invest piece.

Alexa Binns 48:00
Where are some of the opportunities you see? Half half of your practice is investing in climate. The rest have social impact, like education, healthcare, financial inclusion. If you’re suggesting where what rocks we should be looking under for the next decade of venture returns, what opportunities are there? Are there any trends that sort of have unlocked for some of these areas?

Thomas Knowles 48:29
Yeah, I mean one of the exciting ones, which was more historical, I would describe it as somewhat of a challenge, is a lot of the companies that we invest in. I’ll take education and healthcare as two sectors. If you’re thinking about how do you improve an outcome or have an impact in those areas, oftentimes it’s not just with software technology. Often you’re required to have people, soft services, maybe even hardware involved, and so a lot of the companies that we invest in, most of the companies we invest in, are not just pure software businesses, and that’s historically been a challenge. Where they’re maybe lower margin, kind of the scalability is a little bit lower, and so it was harder for them to raise follow-on capital or kind of tap into mainstream ventures for some of those reasons. And AI has been a huge transformation for that those businesses and those categories where they’re able to embed AI into the core product, really improve margins, have much broader accessibility, still very focused on the quality of outcomes, but really change the profile and the unit economics of these businesses, and so for for our portfolio, it’s been a huge benefit to just see growth that was going to be harder come a lot quicker. To see you know the efficiency of the capital that they’re raising and putting to work, and so I think that’s going to create a great opportunity for some of these maybe harder to invest in historical categories. And I think other venture firms are seeing this and are investing more actively. But I think that’s going to be a huge benefit for the categories that we invest in, and just you know, a very optimistic view on some of these categories being improved in a way that was much harder before AI.

Earnest Sweat 53:17
Well, we started this conversation about your community building, and I wanted to end it with an invitation for folks to get involved, or you know, if they’re interested in gratitude ventures. So, if you’re a family office or an emerging manager, how do I get in touch with your group?

Thomas Knowles 53:42
Yeah, we do have open cores on our website, and we review those. Go right into our Slack channel. We review them on a weekly basis. So again, back to that access piece. It’s always important to us that we’re taking people that are interested. Our view is again, we want more entrepreneurs, more family offices investing in the impact investing space and mission-driven businesses. So we’re here to help and navigate whether it’s our community or our investments is a second order question, not not the first question. It’s kind of how we can help you navigate this space. So yeah, reach out through our website. Also happy to connect on LinkedIn or you know, happy to share my email. We do a lot of events throughout the year. We do in-person events all throughout the country. We do virtual events, and many of those events are kind of more open to the broad ecosystem. And so, happy to find ways where we can actually invite people to connect into the community directly and meet other folks, if not just connect with me and the team.