Earnest Sweat 00:02
Welcome to swimming with alligators. The VC podcast from the LP perspective, with your hosts, Alexa bins and Ernest. Are you ready? Let’s dive in. So today, we’re welcoming Claire McLaughlin. She’s a partner at TLI bedrock. She oversees direct and indirect early stage investments, usually focusing on material science, defense, deep tech, food and agriculture. She’s held prior positions at places like arts and armed forces, Frank news and MoMA and today she’s going to share with us what’s exciting in her investment portfolio right now, trends she’s seeing in the early stage market, how opaque family offices can be sometimes, and their evolving role in venture capital, and then also lessons learned from both successful and missed opportunities. So with that, we welcome Claire, thanks for having me. Claire, thanks so much for being here. As I mentioned in kind of the brief yet could have been a long bio, because you’ve done so much and so many impressive things. Could you just talk to us about how you got to this seat that you sit in now, and how I did those prior experiences, like places at the MoMA and stuff like, how that’s how you even got here from those roles?

Clare McLaughlin 01:27
Yeah, largely by accident, if I’m being honest, this is the longest I’ve ever been in a job. I’ve been with TLI for almost eight years now, and I met my principal not too long ago, when I was working for the Board of Trustees of MoMA in external affairs, raising our billion dollar capital campaign for new building and endowment and no intention of becoming an investor. Have two highly useful degrees in art history, one in 15th century, Netherlandish painting, which no one’s ever heard of, which is just like the perfect background for every investor,

Earnest Sweat 02:06
I’m sure. Wait, wait, I just, I just love how niche that is.

Clare McLaughlin 02:09
Yeah, yeah. I also spent a lifetime as a professional harpist before any of that. So, like, a really odd background for an investor. I did not work at Goldman and did not study finance in undergraduate, and I think I was largely discouraged from finance because I was always a creative person. And I think especially as a woman, if you’re creative, you’re persuaded out of what are sort of like, harder skills, more serious topics, and ended up being the person in all of my previous roles that was either COO or CEO or running a company, raising money, structuring, and pretty quickly realized in my 20s that all of the creatives were coming to me to actually get things done and execute. So how I ended up at TLI. TLI was founded eight years ago when I started so I was brought in by my principal. He and I had a long standing relationship to find everything in the family office that wasn’t investing or sort of half investing. I did our media practice, starting our charitable endowment, running the endowment, doing all sorts of non profit, arts, media, sort of structuring of those sorts of businesses. He does a lot of work in politics, a lot of work in film and documentaries. And recently won an Emmy, actually, but met my now business partner. He started two weeks before I did who looked at me and was like, You’re in the wrong job. You Yes sir, and went to business school. I was working for him for a few years.now I’m a partner and work with him and have for the last half a decade, but really fell into a love of investing. It’s definitely my forever career, but I didn’t even know why I liked it until I started doing it. I think that’s

Earnest Sweat 04:07
cool, and we’ll dig into that a little bit more, but I have to be creative and all your pre TLI experience, are there any kind of stories, one or two that come up that have really shaped how you’ve approached this world? Do

Clare McLaughlin 04:22
you have six hours? You know, working for the Board of Trustees of MoMA is fascinating, right? When I was there, the leadership of the board was, you know, Marie Jose Kravis, you know the Tisch family, Leon black, Peter Norton. I mean, we’re talking about, you can look at the Board of Trustees. Now you’re talking about some of the biggest titans of industry, and this is their love job, and their thing that they appreciate and the thing that they love to do, but they bring unbelievably savvy, thoughtful business minds to the boardroom, and so getting to witness that, in addition to getting to help with. With a billion dollar capital campaign to do something very real, to build a real business, for real acquisitions, for real endowments that are going to last decades, was sort of an unforgettable experience. And sort of having that access as a young person, I think is really rare, especially in a nonprofit setting. I have a lot of stories about arts in the armed forces and running Frank news, it was largely, sort of running around the world and, you know, wrangling creatives to do something, good for the world, but, but mainly, I think, in my experience in Frank news, it was a long form media content platform, and learning to listen to people and judge their character, and sort of like do the opposite of what I’m doing now, which is listen and let people talk, has been hugely informative in the way that I invest for sure.

Earnest Sweat 05:53
Wow, there’s so many things I can see why. unlike what your business partners first, kind of intuition. I think you have all the tools. Because one is able to listen and actually understand people. It’s like, I see venture is my favorite part is coming from equity research is like, you’re really a journalist, right? You’re trying to find what is the truth. And so your ability to kind of infer from what people say, makes a lot of sense, and then also just shows, from your previous career, your ability to get into rooms have access. And I love the line about getting creatives to do something good for the world, in a sense, you’re trying to get technical creatives to do things right that are kind of changing the role too, so I can see how it all kind of aligns.

Clare McLaughlin 06:48
Yeah, it’s interesting. People have made the argument to me that financial documentation and projections in early, early stage companies are fairly useless, and I fundamentally disagree. I think people tell you about their character in many different ways. Are you over projecting your business? Are you under projecting? Are you caring about cost? Are you caring about growth? Are you copying this model from the internet, and I can find it in two seconds, so you’re building it from the bottom up. Are your numbers static? Do they link out to a sort of thoughtful, complicated system of how numbers are going to work? Even if those numbers are not achieved, which they never are in a pre seed company, there’s always some change. I can pretty quickly use the narrative of numbers to understand who the person is. And when you get a data room, it is that investigative, looking into why people put what they put there, what they left out, I think is a fascinating thing in early stage investing. And I could, I could easily read through a data room and have a good sense of the founder, even perhaps before I met them. That’s fast.

Earnest Sweat 08:00
First of all, that’s a great insight. And I’m sure our emerging managers and people who were soon to be spinning out might use that answer when they’re talking to LPs. But no, seriously, I think any type of way to like every interaction is being able to give you more data points on who that person is. And because it’s about trust, that makes a ton of sense. Could you tell us about just TL eyes, kind of approach to venture and just, I guess, like overall, their platform kind of the investing side.

Clare McLaughlin 08:35
Yeah. So TL eyes, I said, was created eight years ago, the brainchild of my partner, Andrew Siegel and I, in addition to our principal, Lawrence Benenson, TLI is trust, loyalty and integrity is bedrock principles. So TLI bedrock is kind of our thing. I love that we joke that it completely makes sense in our heads. And I think that is fundamentally true. We’re across asset classes, anything from activism to majority ownership of businesses in private markets. I do venture funds and different forms of debt and credit, but really fundamentally, family offices are all entirely different and sort of unexplainable. But for us, it has to do with the changing priorities of the person we work for and with and also fundamentally understanding how we’re going to participate in the market in a thoughtful way. You know, you brought up in the beginning the opacity of family offices, but also the growing role of family offices and how we can participate, knowing who we are, knowing we’re a single LP family office, knowing we’re not a massively known entity on purpose and how to thoughtfully engage in markets is how we’re consistently thinking about our investment strategy.

Earnest Sweat 09:52
With that strategy, you mentioned, you know the role of family offices in your venture. Started at week two of the organization, pretty much, right? And so what were the early thoughts of, like, oh, how should we approach this? Because now you have fund investments and direct investments, you know? How did you come to those decisions of, hey, this is how we will employ our strategy within the asset class?

Clare McLaughlin 10:21
Yeah, it’s a great question. And I was just discussing this with colleagues, what it’s like to come into a well established family office, and what it’s like to form one. Yeah, I would love to tell you that we had a really clear strategy on day one. That would be amazing. That is so profoundly not the case. What the case was at the time was responding to personal investments of our principal and aggregating them and organizing them and thinking about them, and then taking a stand as partners on what we wanted to invest in, why what we thought would make the most sense for who we are as people, who we are as thinkers, and what we think is going to generate the most return. But in the beginning, you have to think about why someone starts a family office right for us, it was a person who had invested thoughtfully into the market and had no structure around it, and who had given enormous amount of money away, but didn’t have structure around it and in funded films and in funded films, and didn’t have structure around it, it was a single individual. So when you’re creating structure and strategy at first, you’re responding to the past, and that takes time. That takes real time and real effort, especially when you’re someone like me, who’s opinionated, and then you start to settle into understanding what the future looks like. And again, I would love to tell you that that happened overnight, but that was the first few years of TLI, and we’re in a really privileged position now, where we’ve worked together for almost a decade. There’s so much trust and so much direction, and there’s a larger team, but we definitely needed time to form what that actually looked like.

Earnest Sweat 12:05
That makes a lot of sense. And so what I’m hearing is like, there’s a little bit of defense and kind of getting the game plan together. When do you start? Like, what were the kind of green flags for your team to start being a little bit more on the offense and saying, Okay, now we can do new investments. Now, what were you looking for? Were you looking for? Hey, we’re really good at this, and we have an advantage, and we could be additive as a family office in these sectors. Or was it just interest? There

Clare McLaughlin 12:37
are a couple of things there. I mean, obviously one of the good things about our business is, at least in its ideal format, it’s a meritocracy. So when you start to do well, you get to do more. And you know, I hope that more offices run like that. It’s one of the things I fundamentally love about investing, is eventually you do have results, and those results profoundly matter in addition to what you said about interest, which was a huge part of it, you know, what we felt that we knew a lot about, could we’re comfortable sort of engaging with and talking about was who we actually were as investors. So I love rolling my sleeves up, getting dirty with the CEO COO, forming the company, going on the board, being the person who you call it midnight, crying like that’s the thing that I really loved, and that led me towards at least a large portion of my portfolio being the earliest stages, because not everyone likes that, and not everyone feels that they’re good at that, and not Everyone is productive at that sort of work, and because that ended up being a creative for our family office, I gravitated closer to those types of investments. It may be in some ways more relaxing to be a Series A Series B only investor, but I think because I had worked outside of the family office world and investing world, starting businesses fundamentally makes sense to me. So that was another factor in how we formed. Our family office is where we thought our talents would be used the best.

Earnest Sweat 14:09
That makes sense. And then you personally, as you start to kind of realize this, oh, I’m more suited to the early stage. How do you make the decision of fund investment first to kind of have, like, some rails or an understanding from another person’s point of view, or just go right in, like, how did you make that decision?

Clare McLaughlin 14:32
I inherited a few fund investments, which was really helpful for me, because I had the insight into what sort of legacy funds look like, how what they sent me, how they thought, how much did we actually co-invest with them? What was the relationship actually like? I think it’s very lovely to have a discussion with a fund about how you’re going to co-invest every five seconds and be best friends. But realistically, what does that fund relationship look like? What. Worked, and what didn’t guide me to choose the funds that I ended up choosing. And we have about 2530 in our portfolio now. And what I ended up gravitating towards, in parallel to direct investing, was when I do not know the answer to something, who can I call who I know is going to be not only the expert in that field, but also give me a very honest take about my own decision making. I don’t want to be told that I’m right a lot. And obviously, in addition to that, someone I think is going to make stellar returns, but someone who has different tastes than I do. So if I’m I’ve never been someone that only uses funds as my sourcing mechanism. I source myself, and when I get companies from funds, I’m thrilled, but it’s not what I count on. Yeah, it’s much more for me, thought partners, in addition to obviously believing in their capacity as investors,

Earnest Sweat 15:58
That’s really unique. I know when we had our prep call, you said that, I can’t remember the exact figure, but only maybe 15% maybe of your kind of deal flow of direct deals comes from your fund managers within your venture book that is counter cultural, I would say, to say the least, and I love the fact that you said being a great thought partner is something that you you look for in the fund managers. Any advice to fund managers on how to develop those relationships and how to really do that in practice? Because in every fund I’ve been in, it’s been really difficult on like, you know, sometimes it feels a little forced, or if it’s like the 11th Hour on one of our kind of companies, what have you done to cultivate that relationship

Clare McLaughlin 16:58
clarity? I think I don’t always have that relationship with some of my fund managers. Makes sense. Some of my fund managers want to call me four times a year, and that is very well established by me. I understand this is why we’re in this fund. We have a ton of clarity up front if somebody is not communicating with me where I was hoping to have an open relationship. Let’s say, for example, they’re climate tech investors, yeah, and I really was looking for a partner in that, and they’re not calling me, you know, that’s on me for not doing enough research and understanding, sort of how they relate to their LPs. And also our plan, you know, as a fund, is to reinvest. Fund one, fund two, fund three, fund four. And so it leads us to a decision point, if we want to continue that relationship or not. I’ve made the commitment to be in the fund that I’m in. But if we’re not sort of walking the walk together, perhaps a relationship is a 10 year relationship instead of a 20 year relationship, which, you know, these funds are long. You’re really, you’re really with someone for a decade, but how the first couple of years ago can determine if you’re going to go into the second decade or the third decade? I also think funds don’t typically love a lot of their LPs sometimes, and I think that it could be seen as a little bit burdensome or tiresome to communicate with all of them, and it has nothing to do with individual LPs, likely, but just sort of the volume and the amount of time they have to spend justifying their investments. And I want to be sensitive to that, that they don’t necessarily owe me a phone call every time the market drops that’s on LPs to understand that we’re in it for the long haul. Absolutely.

Earnest Sweat 18:47
Yeah, you’ve, you’ve hit on some things that I’ve observed and sometimes didn’t understand on l, these people are and organizations are literally putting you in business, and it’s on you to be able to have those boundaries and structures of how to have that communication. But you made me think of I was having a conversation with a friend who is a placement agent and has worked as kind of capital formation in the past for everything across the public and private asset classes, and she was leaving a venture firm and saying, you know, there needs to be some changes, specifically like LP management, because there’s a lack of transparency, especially when you think of like, the most transparent have to be like hedge funds, right? But do you have a view on where venture in these next 10 years could be more transparent, given, as you mentioned earlier, these funds last a lot longer, closer to the 1520, year period.

Clare McLaughlin 19:53
Look, I think funds and directs, if not communicated with, with consistency. And frankness is going to be really honest when things are great and they’re going to be quieter when things are not. And again, it’s a two way relationship. If someone’s fund is not performing as well as it could be, and they call me and I scream at them, they’re not going to call me again. And if their fund is not doing as well as anticipated, they call me and I say, Okay, let’s solve the problem. Let’s look at the companies in your portfolio and see how we can be creative, as you know, outside investors or debt investors, or whatever you need to do. It’s likely that they’re going to call me in the good times and the bad and so how funds can be more transparent in the future. Obviously, technologically, there are a lot of tools that are gonna enable better reporting. But also, this is a relationship business at the end of the day, and if you have the relationship, you do, and if you don’t, you’re gonna have to accept that information is gonna come when it comes. Yeah,

Earnest Sweat 20:58
that makes sense quickly when you’re diligencing fund managers. As you mentioned, every family office is very different. What’s the approach that works from you from fund managers, like, how do you want them to approach and kind of expectations of how to develop the relationship to possibly be considered to be a part of your venture book,

Clare McLaughlin 21:27
I can start with what doesn’t work and move into what works, love it. I when I feel like someone’s reading off a script, I get, I get sort of, I lose energy when someone tells me that they have the competitive advantage and then they’re the best in the world, there are maybe people who do have true competitive advantages are in the best in the world. But it doesn’t read well with me generally. What, what also doesn’t work is, look, I’m closing in two weeks. It’s nice to meet you, but you know, let me know, um, what does work well is sort of the opposite of what I just mentioned, sort of real, true frankness around Look, I’m a first time fund manager. Here’s my background, here’s how I think about things, here’s what I like, here’s what I want to see. But I’m a first time fund manager, so I can show you a track record, but ultimately, I need to show you work really, just someone who’s clear about where they are in their fund cycle, in their career, and someone who’s interested in having a long term getting to know each other period. Because so much of our emerging fund manager strategy, not our whole fund manager strategy, if you have four funds of track record, it’s delightful, but our early fund manager strategy is, again, can we work together as people for a decade? And that takes a little bit of time and tough situations and CO diligence ing or hard conversations or pushing back on why they invest in a certain company or or not another. It can’t really be done over an hour long phone call.

Earnest Sweat 23:01
Yeah. Do you have any favorite questions or scenarios like that? Help you with discovering that like and as you think about it, one of my favorite things to do, you know, pre COVID, post COVID, is always to visit offices while I’m diligence in companies, because there’s one thing when the founder or founding team is telling you something and but then there’s another when you’re walking through that office and seeing is, does it seem like people want to be here? Does it feel like there’s excitement? Does it feel like there’s collaboration? Does it feel like they’re having tough conversations here? So just curious, any kind of like things you like to do to get aside the

Clare McLaughlin 23:43
I had a very, very wise M and A law and then a business school professor who was like a real bad ass Titan. And she said that when she was doing big M and A transactions, she’d always visit the office, visit the factory and see what everyone was doing around management. Were they looking management in the eyes? Were they comfortable around management? Were they happy? Were they putting on a show? She said she never did a deal without visiting, no matter where it was. So you remind me of a very wise person, and obviously meeting people in person is sometimes wildly different. Yes, I’ve had situations where I’ve met someone over zoom and then met them in person and had an entirely different impression of them, which is interesting to think about our early COVID portfolios and sort of how decisions are made. You know, when you’re starting, especially a small emerging fund, the management fees are not going to cover a big lifestyle. It’s going to be the carry Yeah. And so when you think about someone starting a smaller fund or a first time fund, they have to love this. They have to want this for a long time. They have to truly light up when we start. Start to talk about their thesis and the companies that they’re investing in. And so my favorite question generally to ask is, okay, you have the fundraiser right now? What are you investing in? And if someone gives me a boiler plate, or like, I’m not sure, and I don’t know, and we’ll see when I raise a fund, or, like, not getting excited. I don’t get particularly excited, if someone can just forget I’m there and go down a rabbit hole for 30 minutes about all of the companies that they’re dying to invest in and they need capital for. I’m listening and I’m understanding that this is something that they really want to be doing with their life, instead of seeing it as another potential path or option.

Earnest Sweat 25:37
Yeah, I am surprised by the number of peers I have who you know in honest conversations, just two or three of us who actually fell into this. And it’s one thing to fall into this and then not fall in love with it, because there’s other things you could be doing. It’s like, Hey, man, you could be a PA firm. You could be working at a consulting firm and be a lot more guaranteed and a lot less hectic. I’ve always felt like this needs to be something that you absolutely love, love the craft, love the competition, everything the people and the relationships. So yeah, I’m so surprised when people are just like, Yeah, this is the next investment banking type role, or

Clare McLaughlin 26:24
it seems really glamorous, and maybe if you’re certainly, if you’re a partner in a huge fund, it’s extraordinarily glamorous, and that’s so exciting for them. But when you’re starting out, it’s a tough road in the beginning, and to have the grit to be able to walk through the tough road is important. And I think this doesn’t pertain to solo GPS, but are you willing to walk for a decade with the one or two partners that you have? Yeah, I’ve witnessed funds breaking up because one or more people are like, I can’t do this anymore. I want that corporate job. I want that tech job. I want that health care, which is absolutely fine, but making sure that everyone’s on the same page that it’s going to be tough for a while, I think, is extremely important, and if people aren’t acknowledging that, intelligence calls with me. I see that as potentially problematic.

Earnest Sweat 27:15
Now we’re going to take a quick break to speak with our sponsor

Alexa Binns 27:19
and Yidan, you are a tax expert. This is never has your expertise been more sought after than it is today. I think we’re everybody’s in the tax Alpha game at the moment. Could you help describe some of the work you’re helping your GPS do to think about how to optimize after tax distribution for their LPs, sure.

Jason Kropp 27:48
So tax is obviously a major, major issue and definitely the most interesting issue. And I’m just kidding, it is not the most important issue, and many people tend to fall asleep, but it actually is a very important issue for GPS. And the reason is, and again, this, this is not a new, a new, you know, piece, this piece of news, but the LPs are eventually ending, and that includes the GP as well. We’ll get distribution after tax, right, or they’ll receive some distributions in an exit that is going to be subject to taxation. So optimizing tax structures, both of the LP level, the GP level and the company level, could easily become very, very profitable in terms of net return that is being allocated or distributed, distributed to the GP and the LPS. And you know, in today’s world where jurisdictions are paying very close attention to issues such as IP for example, you know, where is the location of IP? Where is the IP being created? Where are the values being created? And they’re not doing it for the sake of studying. They’re you know, countries are doing this for the sake of taxing those rights. And you know, so you take that fact along with globalization generally, in the fact that you have scattered workforce and companies that are in these centers in different jurisdictions, innovation that is sprouting all over the world and in different countries. Everybody’s trying to grab, you know, and try to tax this value creation. So as a company, you’re potentially subject to multiple, you know, tax, taxation in multiple jurisdictions which could, which could be very, very inefficient. That is a valuation question. So if, if your company is not structured well at the portfolio level, the value of the company will inherently be lower because its IP is going to be subject to higher taxation. The investors know this, the buyers know this, right, and at the time of an exit, that tax inefficiency will be heavily negotiated and negotiated, creating a haircut to the value of the company. So as a GP, you want to be aware of that. You want to know that a company with foreign IP is going to probably be subject to a lower valuation, right because of this inefficiency relating to the IP. So there’s a real question, do you want to move the IP to the US? Do you want to be onshore? It is somewhere else, maybe that you want to divide it like there’s, there’s a real question at the GP level that you should be asking your companies, and then there’s the same question that the GP should be asking relating to its LPs. Hey, am I creating a structure that is most optimal from my LPs, from a tax standpoint, once there’s a distribution or an exit, so that I can tell them, hey, you know, we exited this company. We all made a lot of money. And guess what? I have great news for you. It’s all qualified Small Business stock, and you don’t even need to pay the federal tax for this. That’s great news. And the LPs are they? They’re becoming more and more knowledgeable about these things by now. They know about this. And as a GP, you should expect those questions from your LPs. Hey, are those investments eligible for qsbs? What is the tax rate associated with this? Hey, you just recycled an investment. Do I need to pay the tax on this phantom income? The good answer would be, no, you don’t. It’s a Qs based rollover. You’re fine. LP you don’t need to pay these taxes, right? So that that’s one area, and the second area I’ll touch just quickly is, you know, foreign LPS investing in US GPS, which we see a lot, the better way to approach this issue is without having to discuss the many, many international tax, tax reporting, tax withholding issues, is for a US GP to set up a structure in advance that can accommodate non US LPs, and essentially be able to cater it to them. You know, by saying, hey, look, you know, we have many non US LPs. We resolve the tax issues by setting up this structure which your console can review, and if they have questions, we are happy to answer. But guess what? All of your issues are issues we thought about. We address. They’re ready to go, and all you need to do is essentially wire the money, sign the documents. What is the money, right?

Alexa Binns 31:43
What is that kind of structure? Is that a product? Is that a separately managed account? What’s that look like,

Jason Kropp 31:50
right? So good. So it’s a little, it’s not a product, and it’s not a separately managed account. What it is is essentially a vehicle through which the non US LPS invest. And that vehicle could be a US vehicle that is a standalone, separate vehicle. It could be a blocker. It could be a foreign vehicle. Could be a Cayman entity. It could be a Swiss entity. Could be a European entity. It could be a, you know, an entity in Singapore and hawk or Hong Kong, depending on the region that your LPs are investing from, but that those structures are not new. They’re not novels. They’re they’re moved, they’re they’re kind of like a breathing and living creature because the tax laws keep changing on us, but, but ultimately, there’s nothing new under the sun. It’s just a matter of being proactive and taking the extra step in setting up the structures ahead of time so that you look professional and ready when the LPs are asking those questions, which they will ask. Yeah, if

Alexa Binns 32:41
you need a refresher on qsbs, obviously you should talk to Mr. Nestor. You also Earnest has hosted a QSB s specific Riverside live on this topic. So we’ve got a podcast episode on it, if it’s something you’re curious to learn more about. And back to you, Jason, I am very curious to hear, what are the things that you’re discussing with your founders today? If, if there’s a few things that they are knocking on your door for, what are kind of a hot topics?

Speaker 2 33:16
Yeah, founders today, I think it’s not rocket science on how to create a company filing some paperwork in Delaware and signing some documents that can oftentimes be generated on a document generator. Seems really easy to founders. What I find is that founders, who are smart and sophisticated, are not accepting that that is necessarily the best way to go. Of course, we could efficiently create those documents, but you need to be really thoughtful about setting up structures, you know, allocating equity between founders, and being strategic and thoughtful in making all the decisions that the founders make when they set up a company. Then beyond that, it’s being strategic and helping, you know, first time founders to learn and understand and and be able to take ownership of cap table, governance, decisions, economics, what the company, you know, will hopefully look like in three years, and how we actually get there, rather than just sort of letting inertia run its course and perhaps take us to a place that we didn’t want to go. So helping founders to be strategic, even about strategy is an important thing. You know, IP strategy, for example, is something that is different for different kinds of companies. A strategy might be to do very little, to do the basic blocking and tackling of getting IP assignments so that, you know, the company has what it needs. Another company might seek to, you know, develop a very comprehensive and well conceived patent portfolio, perhaps with international reach. So the answer there is not a one size fits all kind of approach, but it’s to be strategic about what makes sense for the company. So, that’s one of the things I love about working with early stage companies. It’s that there isn’t a. A right answer to every single question. It’s it’s a calibrated answer based on years of experience and an understanding of the market and understanding of what investors are looking for now and what they will be looking for in 235, 10 years, and helping founders to calibrate and align their goals to that environment for that particular company,

Alexa Binns 36:28
And now back to our LP interview,

Earnest Sweat 36:33
at the beginning of the podcast, I named some of the areas that you look at that excites you right now, and you know, what kind of trends are you following for this next decade?

Clare McLaughlin 36:48
Oh, next decade. Ask Me, in a decade, I really care about the pace at which technology is moving and energy infrastructure is moving and making sure that the general public is not gypped. And here’s what I mean by that, you know, fraud and fraud detection and understanding who you’re speaking to online. Is it a person? Is it a bot? You know, understanding how you’re being influenced, understanding, structurally, how things are moving so quickly and profoundly change the scope of your life is extremely important to me. And technologically, there are a lot of companies that it’s extremely important to you too, you know, how do we protect against financial fraud. How do we, you know, keep information safe? How do we have people understand that, you know, when they’re talking to a human being what it’s like, or when something is being altered, what it’s like. And same goes for energy infrastructure. I’m, you know, hugely bullish on the future of computers. Whatever that means to people. Obviously, it’s 2025, everyone thinks that AI is the only word to say. But fundamentally, when you increase the compute capacity, you need to increase the energy capacity. And so what does that look like, responsibly? What does that look like from a foot on the ground? Actually? What does energy transition look like? That’s what I’m really excited about, because there are financial goals in that, and there are also goals in that where we can, you know, move the economy thoughtfully forward, and technology thoughtfully forward, and, you know, blow things up less, which I’m, I’m particularly interested in. And as it relates to the defense portfolio, we’ve been very, very thoughtful and had very, very long internal discussions about what we do and do not invest in. And there are lines that we simply don’t cross, even if it’s the potentially most lucrative company we’ve ever seen, we’re very, very comfortable missing companies if they don’t align with our mission or values.

Earnest Sweat 39:02
Wow, that. I can see why you guys have the name you have, because that is extremely intentional and thoughtful. But with that, how does that shape your investing today, to kind of shape the world you all want to see? I would assume that it’s a special type of founder, special type of fund manager who’s thinking about all these changes, like I think about it too, where, with so much automation, and you know, we, since the 70s, have shifted from being kind of like large corporate, responsible, like entities to, hey, almighty shareholder, and that’s it. And so that’s why we’re seeing already, like the economy is kind of supposed to be good, but we’re seeing a ton of layoffs because they have all this automation. What are the people supposed to kind of do and equip themselves? So what do you think? How does that shape? All those things shape, not even bringing in defense and kind of what a new version of a cold war might look like. What do you guys think about, like, how does that impact the day to day of investing?

Clare McLaughlin 40:11
I mean, that’s a massive question. The first Yeah,

Earnest Sweat 40:14
but it’s you Yeah, you can answer, you know,

Clare McLaughlin 40:18
I can talk about, sort of the fun companies we get a look at and have the privilege of investing in, and why I think they’re sort of moving the world forward. But before I do you’re talking about especially in public companies, but it’s very prevalent in private companies. We just don’t get a look at their financials, which is growth at all costs. And you know, what does shareholder value actually mean if the American public is not benefiting from that, especially since, you know, large portions of most companies are not owned by, you know, the general public, now it’s a much more efficient market. And that question, I think you’re relating back to, okay, great. We’re going to invest in new technology, whether it’s automation, robotics, etc, but what does that actually mean for the good of people and humanity, if, if that efficiency is not good for humanity? And it’s a tough question. What I try and think about is simple solutions that make sense technologically, that don’t have a stance on humanity. I think if you’re pro or anti humanity, you’re not necessarily considering people, unless you’re sort of vehemently defending privacy rights, for example. But perhaps it’s best illustrated through a direct investment we just made in a company called akkash systems, where, you know, servers, it essentially makes a better server. And servers are not going away. The amount of server capacity and server land and server usage is just exponentially growing. These hyper scalers and public companies are saying, Great shareholder value. I want to sell more cloud computers, but Ash is using lab grown diamonds in servers, to preserve the life of servers and to make them, you know, anywhere between 10 and 20 degrees cooler in use. And what that does is actually heavily removes weight on the grid and uses less electricity, and it makes for a better server. So it’s, you know, a fabulous founder, a PhD, and probably someone that’s about 100 times smarter than I am in material science, and can really understand exactly how to do this, but it’s a simple problem, yeah, make them break less and make them use less energy, period. It’s not, it’s obviously hearing them talk about it. It’s entirely esoteric, and it’s technology. In its technology and complex. But it’s actually not. It’s simple. And so that’s what I’m most attracted to in this sort of energy technological transition, rather than perhaps the sort of shinier companies that are making human beings more efficient. I’m not entirely sure what that does for me or for for people,

Earnest Sweat 43:05
yeah, yeah. And I know that we could probably have a very long conversation on all the things I brought up in that very massive question. But I think ultimately, yeah, it’s, I think what’s going to be needed in putting on this on other venture capitalists, including myself, is with so much change happening, being, will we truly, I think the firms who have this will be the most successful as well, but being bridges and translators, Right and connecting, you know, the market knowledge of CPG in the Midwest, or transportation in the south, like all these companies and people have experience in these areas with the development of technology or partnering together, and then we’ll start to see, you know that that pie grow, that’s that’s truly my, my belief and stuff I’m really interested in, because I do think efficiency without all parties being included, leads to less eradication of jobs and more people doing higher level jobs,

Clare McLaughlin 44:13
right? I mean, we saw this in, you know, the beginning in the last decade of the gig economy. Yeah, you have to educate people on how to participate in it, and now we’re going through another transition. And you know, if the general public doesn’t know how to engage in the next technological revolution, they’re not going to be able to participate, and they’re not going to be able to evolve, which continuously happens, right? It happened with automation in the early 20th century. It’s happening now. I think fundamentally, a lot of industries are still very analog, and there’s a lot of opportunity that isn’t concentrated in ultra hot Silicon Valley companies. I was looking at a company that is a. Mapping sidewalks, and they do that for municipalities to have better ADA using iPhones, and before they were manually doing this that is so seemingly simple and somewhat boring, and it’s a really important business that a lot of municipalities need and want, and that business requires jobs, so it’s sometimes extraordinarily fun to look at things that are again going from no automation or no technology, and even using something like an iPhone is game changing. Yes, so I don’t think it’s just sending satellites into space. I think there’s a lot in between. Yeah,

Earnest Sweat 45:43
so, you know, you as an investor and allocator, you know, have been in this game for a while. You know, kind of the main role that, like, investing is never perfect. It’s never, kind of like, as the script goes, de, can you learn? I mean, can you share, like, a time where, like, you know, it obviously was a bad investment, or a bad fund investment, and kind of what you learned from it, yeah,

Clare McLaughlin 46:09
oh, I missed it. I make mistakes all the time. And I think in the beginning of being a venture capitalist, it’s hard to have confidence. You know, wins are generating confidence, but it takes a minute to get a win. Oof, another sort of six hour topic. I think one mistake that I’ve made in the past that I’m sort of actively improving is curiosity is great, but decisiveness is better. And I’ve been really, really interested in investing in funds that are direct, but because of, you know, where our liquidity needs are, what our priorities are, it’s not possible at the moment. And instead of me saying no, I say, you know, let’s check back in. Let’s check back in. Let’s check back in. And I think I could use more with it’s a no for now, and I need to give someone that clarity, because what I’ve heard generally from funds is a maybe is so much worse than a no, because fundraising is difficult and it’s a slog, and you need to know how much money is hard circled, because you need to be able to move forward with with fundraising. So I’ve been trying to be faster and more thoughtful to nos, and I’m generally fast to yeses, but trying to be faster there as well as mistakes I’ve made on investments. Oh, absolutely, I would say, early in my career, I fell for people with a lot of great ideas. And great ideas are great, but great executors are much better. And I, sadly, I think I believed what people were telling me in the beginning of my career, and I believed that people didn’t do things like fake numbers or lie to you or sort of like, treat investors as if they’re stupid. And that has happened to me, and those were heartbreaking instances. I’ve had two or three where, you know, numbers were not reported, and you know there was overselling and under delivering to the point of To the Point of lying and and you really learn from those mistakes. Those are hard mistakes to make, and you don’t want to not trust people, but very, very, very much trust but verify now and and I’m always asking as many questions as I can, and that’s on the investor, you know, are you really, really, really, profoundly doing your homework, or are you, are you looking at a great idea and saying that sounds that sounds great. I’ll take it, you know, and that those were mistakes I made in my early career, for sure.

Earnest Sweat 48:44
Yeah, all right, I definitely did as well. Another thing, especially since I started out at Prologis and we were co-investors, and at the very beginning, they started doing some lead deals, but assuming every tier every investment made by a tier one firm is always great.

Clare McLaughlin 49:06
I made that mistake as well. Yeah, my wonderful business partner early on, who came from tier one, was like not so many failures, and they can afford those failures. And if you’re saying, you know, what an incredible, famous investor that’s investing with me, I think you’ve already lost the plot. Yeah, I think, I think that can be a big mistake, because they don’t care as much as you’ll care when you have a portfolio that you can’t back. And I call it losing with dignity. I’m gonna lose. Venture capitalists always lose. I would love to meet a venture capitalist with a 100% success ratio, but I haven’t met them yet. But if I lose, I want to know that I did everything I could. I did as much research as I could. I did as much, you know, work next to the founder, as I could before. Lost, and if I lose, I lose,

Earnest Sweat 50:02
yeah, and we don’t want to just talk about you losing, but talk about one of your investments, whether it’s a fund investment or direct investment, that was really successful, and it’s on his way, probably. But you know, what were the things you kind of gleaned from that?

Clare McLaughlin 50:20
Oh, I definitely do play favorites in my profile. I have a few that I’m extraordinarily proud of. One in particular is a company that’s essentially, if signal actually protected you and you had sort of closed pods of communication, and were able to actually, you know, put files in and, know, someone took the file out or screenshot of the file. It’s an incredible tool for internal teams, executive teams and sort of private communication. It’s called kibu, okay? And it’s now being used by massive executive teams and massive corporations. But one of the successes that the company had, and I was, you know, I had a privilege to witness, is that’s not, that wasn’t what I invested in. I invested in a different tool. There were similarities, of course, but it was supposed to be more of a consumer tool, and, you know, it’s going to be sort of more widespread. And actually ended up having a totally different use case, and getting to watch the founders pivot, but keep their North Star the same, which is to protect people from mist and disinformation and watch them become successful and have these massive, huge clients, but still retain that moral framework around what the company is. Companies like that have been my biggest successes because it’s just so rare for me to invest in a company from day one, and it has to be the exact same company, you know, 10 years later. But the companies that can pivot and grow and honor their investors and honor the company along the way are definitely my favorites, more than the exit or anything like that. It’s like getting to watch that process. That’s my favorite

Earnest Sweat 52:01
part. That’s so cool. Is it just a follow up to that? Have you seen the kind of characteristics that you saw in the beginning of that founding team that has led them to be more adaptable, but still have a North Star?

Clare McLaughlin 52:19
Yeah, they’re complimentary. One has a rain cloud and loves paperwork, and the other is an absolute dreamer and truly believes this is his mission in life. I love but they’re very ethical, thoughtful people, and have a great relationship. I love it. When founders are able to straw and strong man each other, and then you know, with the CEO, with the founder, he feels that this is his life’s work, yeah. And that kind of conviction is rare, but it’s something that I look for and hope for.

Earnest Sweat 52:53
Yeah, it’s contagious, too. You have so much experience of like that you’ve shared, and also gave me an idea for a podcast we can host, called six hour conversations, but

53:05
Let’s ask massive questions.

Earnest Sweat 53:08
Yeah, it just will be at a bar, though drinking as we and as people listen to a six hour conversation, but you know, as we’re taping this last week was upfront Summit, which I like to call VC homecoming. But I was talking to a couple of peers that were there, and they said that there was an influx of individuals that were always around the industry, but now working in family offices. So I want to ask a parting question, what advice do you have for people who are now entering? Maybe they’re a service provider, maybe they were a junior investor and now they’re working at a family office. What advice do you have for them on how to make the most of it and be a great kind of LP citizen in the ecosystem?

Clare McLaughlin 54:01
It’s a great question. And again, you know, family offices are so different, but I think if you run a venture fund, you have a mandate. You have 10 years, you have to get a certain number of dollars out the door. You have checks to write, you have companies to invest in, period, and that’s great. But if you’re in a family office, you have so much more flexibility and creativity to create the world that you actually want to see generally. And you can push new strategies. You can push different timelines and encourage anyone who’s in the family office world to embrace that gray area. You know, we’re not in so much structure. And so what are you going to do with that lack of structure? I think it is a big question for all of us. That’s

Earnest Sweat 54:40
great. Well, Claire, it’s a pleasure always just talking to you the few times we’ve talked before, and a few more We’ll talk after. We’ll talk a lot more after. But I’m just glad that we were able to, like, have our conversation in public, and people can hear your brilliance and your insight. So thanks so much for being on fire. Thanks

Alexa Binns 55:00
for having me See you later. Alligator,

Earnest Sweat 55:03
after portfolio, tile investing with a smile.