Highlights from this week’s conversation include:
Anurag Chandra’s background encompasses billions of dollars of institutional investing and venture capital experience. He has also held three hi-tech startup senior operating roles reporting directly to founders/CEOs (two M&A exits to public companies). He has expertise in equity and debt and early and later-stage investments and has advised dozens of funds and family offices. His experience includes structuring principal transactions, including SPVs, debtor-in-possession purchases, and asset purchases/acquisitions.
Aduro Advisors is a trusted partner for venture capital fund managers, offering comprehensive and expert fund administration services. Known for being agile, responsive, and focused on making fund operations seamless, Aduro enables fund managers to concentrate on investing. With deep expertise across a variety of fund sizes and strategies, Aduro provides a full suite of services, including fund accounting and compliance. The firm understands the fast-paced nature of venture capital and prides itself on being as innovative and driven as the funds it supports. Aduro doesn’t just manage operations—they help funds scale. https://www.aduroadvisors.com
Swimming with Allocators is a podcast that dives into the intriguing world of Venture Capital from an LP (Limited Partner) perspective. Hosts Alexa Binns and Earnest Sweat are seasoned professionals who have donned various hats in the VC ecosystem. Each episode, we explore where the future opportunities lie in the VC landscape with insights from top LPs on their investment strategies and industry experts shedding light on emerging trends and technologies.
The information provided on this podcast does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this podcast are for general informational purposes only.
Earnest Sweat 00:00
Welcome to swimming with allocators,
Alexa Binns 00:04
The VC podcast from the LP perspective,
Earnest Sweat 00:06
with your hosts, Alexa Binns and Earnest Sweat.
Alexa Binns 00:10
Are you ready? Let’s dive in. Today. We’d like to welcome Anurag Chandra, who is a board trustee for the San Jose federated city Employees Retirement System. He is also a Chief Investment Officer for a small, single family office. Anurag has been an operator, venture capitalist and an allocator advising dozens of funds and family offices and now pension funds. We speak today about the quirks of pension funds, how family offices might think about their venture strategy and best practices for CO investing in later stage investments, thank you. Anurag,
Anurag Chandra 00:44
Hey, it’s a pleasure to be here.
Alexa Binns 00:47
Absolutely well you are embedded in the Silicon Valley ecosystem, and from your days as an operator and GP yourself, are there any stories or lessons learned that then inform your philosophy investing as an LP in venture?
Anurag Chandra 01:05
Oh, that’s a great question. First of all, thanks for inviting me. And I probably should have been prepared with some more deep thoughts, but most of it’s going to come off the top of my head, and I got two immediate reactions to that question. The first is, I wish I’d been an allocator before I was a GP, because I definitely made a lot of mistakes in fundraising, and I’m sure we’ll circle back to that. But one of the things that I think has most informed me when I think about investing in venture funds is that real pattern matching and sort of getting a qualitative feel for the managers and the underlying assets is so critical. We manage over $9 billion across two plans at San Jose. And, you know, without being disparaging, but some of those CFA techniques, and I have all the respect in the world for people who get that accreditation, not easy, but really well suited to public securities, stocks and bonds, where there’s tons of data, tons of historical data, a lot of real time data, mark to market data. It’s a mismatch, I think, to the venture asset class. And this is why I like to speak directly with general partners when they’re pitching for a fund, because they need to be able to ask them about their philosophy, not just the way they construct their portfolio, not the way they think about their investment thesis, but also how they’re holding the underlying assets. I mean ventures taking if you’re an early stage venture firm, it’s a minimum of 12 to 13 years. Probably been pushing 15 years before you get maximum liquidity out of your best performing companies. There’s probably two recessions that are going to take place in that time period, right? If the average is once every seven years. So knowing how to protect your portfolio and downturns are all sorts of things that I learned through the NASDAQ bubble bursting when I was a baby in the industry and then living through the Great financial crisis. And I’ve noticed that a lot of younger managers, obviously, they don’t have that experience, but they don’t always think about what can go wrong, which makes sense. I mean, ventures are ultimately an optimistic trade, but you also have to know how to manage risk.
Alexa Binns 03:13
I’m curious how conversations have been going as people adjust their marks, come back to tell you, tell you how, how they’re thinking about things. Are you seeing those adjustments? Yeah,
Anurag Chandra 03:25
it’s so interesting, because when allocators get together at their secret speakeasies, we all joke about how, you know, you got two or three managers who are in the same company, underlying company, but they’ve marked it differently, right? So for me, having been a GP myself, that is what it is. Everyone has their own philosophy. You can drive a Mack truck through that whole markdown of valuations process. It’s art, not science. Sure, some people are trying to protect valuations, absolutely, but the more experienced GPS, I think, knows there’s a lot of value in just ripping the band aid, maybe not too much, but at least giving the LTE a little bit more of an accurate portrayal. But for me, personally, I think if you’re going to invest in this asset class, you can forget to market on a daily basis, like you can do with a hedge fund. I don’t think you should be paying attention quarterly or even annually, you do want to pay attention to your managers and how they’re performing and how they’re thinking about things, and get a sense for their judgment and their temperament, because each market cycle is different. But I still think that if you don’t take a long term view, you just shouldn’t be in the asset class, and you have to be patient. One of my concerns with ventures, it’s gotten so big, this notion of everyone in their pitch decks telling us that they’re going to get a two to 3x return, they don’t seem to think about the time frame because giving me marked up tbpi on a quarterly basis, and then never when your fund actually starts distributing Re. Casting your returns on a DPI basis to when I first made my capital calls in the first four years. It’s not a great IRR two to 3x right? So it’s interesting that folks aren’t making that connection between DPI and some of the tvpi markups that they’re able to have in the earlier part of their funds life cycle, and so if you’re marking down, not marking down, I mean, I think that communicates a discipline, that communicates a philosophy, which is interesting to me, but the number itself doesn’t tell me much.
Earnest Sweat 05:33
What do you think about given all those dynamics you mentioned on transparency from fund managers, like, how can that be improved? And how can you apply, especially dealing with such a large allocator like a pension fund, how can you apply what they’re accustomed to, from the public markets to to kind of like to provide that? Hey, I have a perspective that’s long term, and you can trust me with your capital.
Anurag Chandra 06:00
Oh, that’s a great question. You know, again, you have so many different types of asset classes that play in a big portfolio like the one in San Jose, and they’re playing different roles, so ventures falling into the alternative asset bucket. And what I tell folks, and it’s not easy or comfortable for folks who make VC manager selections within these large institutions comfortable, but your job is to seek alpha, right? And with alpha comes risk. So what’s happened in venture capital is everyone’s turned it into you never get fired for buying IBM. Let me have a safe name. I’ll probably be gone 10 to 15 years from now, when we actually know the results. So as long as it’s a Sandhill Road or brand name and I can get access, I’m in good shape. Those funds have gotten really large, which really brings into question their ability to deliver moic, right? So the smaller funds are better situated, in my opinion, we can get into that a little bit more, if you guys would like and there’s more risk there, particularly if it’s a newer manager, everyone wants to do the David Swenson Yale Model. I’m not even sure Yale does the David Swenson Yale Model anymore. He was investing in people who were in their early 30s on their first or second fund, and knowing that he was taking a certain amount of risk because he was relegating the alternative asset part of his portfolio to a level that they could bear the risk. And we’ve done something similar at San Jose. So I tell the person who manages the venture for us that, look, your job is to get us a 4x return on this, not a two to 3x maybe even better than 4x and I know the other side of the coin is you might come back with point seven. Or the nice thing about ventures, it’s durable enough. If you’re picking responsible managers, you’re not going to get a zero. But this idea of trying to, you know, buy an index or just continue to mute your returns for the purpose of safety, I have all sorts of other things that the CIO and his staff are investing in through the asset allocation we do in my committee and at the board level that provides us that risk abatement, right? So that’s not what I’m looking for in a venture. So to come back to your question, Ernest, I don’t need, we don’t need the venture managers to sound like the public folks, the real estate folks, or the energy folks that we have in our portfolio, what we really need them to explain is why they’re going to generate meaningful alpha over the long run. And for being impatient, tell us why we’re being impatient. It’s okay to have a peer to peer level conversation with your limited partners, but I do think communicating is important, and I think the idea of four quarterly reports in an annual meeting that’s usually just a cheerleading event probably isn’t enough to develop that trust and transparency that you were referring to
Alexa Binns 08:55
for those Safer Brand names. Do you think they can hit 4X? Is that?
Anurag Chandra 09:06
No, I don’t. I mean, just one person’s opinion. I think I’m not an MBA by background, but I know that in business school, they’ll tell you that scale is inverse to returns, and so you know, the larger and larger you get, you do start to play out your strategy. I have done some simple math, and I won’t pick on any particular funds, but you know, some of them even do a 3x share based on the ownership percentage that I’ve noticed that they have across their portfolio and their investments. You know, these are funds that are in the billions of dollars. They have to generate several hundreds of billions of dollars of exits multiplied by their ownership percentage across their entire portfolio, to provide a 3x and again over 15 years, which is, that’s an okay return. So it’s a real challenge.
Earnest Sweat 09:59
Much? Yeah, I’ve heard recently from, you know, anecdotes of GPS, at large, multi stage funds that, you know they’re saying no to, you know, early stage series, a companies that are having meaningful, meaningful growth, but maybe don’t have, like, the buzz to potentially get to a $5 billion exit. And so it’s really stretching. What is, what is venture backable? What is a venture backable exit for those types of firms, which I think that makes a huge opportunity for what you were talking about earlier, the newer managers.
Anurag Chandra 10:37
Yeah, I completely agree with you. I’m seeing something similar. And I think that is an advantage for the smaller fund managers. They can do really well at smaller outcomes. I mean, that’s just simple math, and there will be a lot of really high quality companies that can generate, you know, a unicorn should, should, should mean something still, but when you’ve got, when you’re managing a unicorns worth of capital in your denominator, it doesn’t do much for your returns.
Earnest Sweat 11:06
So for you know, what we’ve seen over the last couple of years is a lot of emerging managers, you know, haven’t gone to the more institutional funds first, and you know, they have to develop those relationships. The other group that you advise is family offices. What have you seen in trends for having them well positioned to actually find that alpha?
Anurag Chandra 11:30
It’s a great question too. You know, I’m not going to be the first person, I’m sure to say this to you guys, but the old saying in family offices, when you’ve met a family office, you’ve met one family office, and it’s really true. And so if you want me to try and give some demographics, I would say, just as a rough rule of thumb, if you draw concentric circles outside of Silicon Valley, and obviously you hit the ocean pretty quickly to the west, but just keep going Midwest and then all the way to Europe. The further away you get from Silicon Valley, I think there is this weird dichotomy. There’s a real fascination with the mystique of Silicon Valley and the ability to generate great returns off tech innovation, and then also a real reticence and a lack of faith in their own decision making abilities, which is what typically drives those families toward access plays. Maybe they pick a fund of funds. They’re just trying desperately to get into the brand name funds, because it just screams security to them. The converse is, you know, around here, and I’m based in Silicon Valley, there are a lot of folks who’ve gotten incredibly wealthy, and they’ve got family offices. They’re a little bit more comfortable. Many of them are tech entrepreneurs who’ve made money and understand the game, but they have a lot of selection, and they tend to be really discriminating. There’s even a school of thought that says, hey, my personal life, if I’m an entrepreneur, my sweat equity is tied to tech markets, so I need to diversify the rest of my wealth. So these are sort of the typical like the psychograph of families as I’ve seen them. Now, I’ve been able to help some families internationally. There’s a family in Mexico City that I helped. Went out to Dubai. I had just been working with the Polish multifamily office. And so, you know, education takes a little bit of time. You try to give them a bunch of exposure to meeting managers. I will say one of the families just really wants to be in brand names. I will say some of the other ones are more amenable to my philosophy, which is smaller funds with experienced managers. So there’s a variety there.
Alexa Binns 13:51
I’d love to hear more on your philosophy.
13:53
Yeah, would
13:54
Do you recommend it?
Anurag Chandra 13:57
I mean, I really look I think, I like smaller funds, and I think that folks who are, I mean, if we want and these are going to be ballpark, but a fund that’s 100 million to 300 million in size, I think, has the ability to drive the type of moic I’m interested in when I wear my San Jose hat. Keep in mind, we are an underfunded pension plan, like most pension plans are, and so we really need alpha to help us. I mean, there’s several ways a pension plan gets solvent. It raises taxes, it raises benefits, or, sorry, decreases benefits, it increases dues, and then there’s investment returns. We were left with a pretty big hole in the ground when I joined the board eight years ago and took over the Investment Committee, and we got very lucky that we hired a world class CIO, and our returns over the past five years have been phenomenal. It’s been a turnaround. We were the second worst performing plan in the country, and three years later. We were actually number two just for that one year, but we just got our five, three and one year numbers, and we’re top decile and so and so we’ve done that with one thing in mind, which is understanding our risk budget, like what’s the most amount of risk our portfolio can take without doing injury to our stakeholders to make sure that they get their pension checks on a monthly basis, and then trying, trying to fill that underfunded divide as much as we can. And so whatever role ventures are going to play in that portfolio, it really has to drive that moic and alpha. And it’s been hard for me with, I mean, the amount of data that I’ve gotten after wearing an allocator hat that I was never able to access, that I was able to access when I was a GP, is amazing. I mean, I’ve learned a lot about what I did for the past 20 years as a GP. And, you know, I think that fund size really matters. You know, I have also been interested in in trying to look around the world to see if there are other emerging geographies that might pack a punch, the way Silicon Valley has the data so far, hasn’t been that great for a lot of other geographies, but that’s true until it’s not right. I mean, that could change. So always on the lookout. You know, the advantage in some of the other geographies is that VC managers tend to get lower valuations than the frothiness that you experience in Silicon Valley and on the margin that matters, if your portfolio is cheaper across all the investments, you have a better chance of driving returns. Now you know the benefit that Silicon Valley has is the ecosystem here is just so built out and developed that once you back a company, not only are you helping the company, but you’ve got all of these second and third and fourth generation entrepreneurs. You’ve got tons of capital. You’ve got two world class institutions locally in Berkeley and Stanford. I mean, just that, it’s amazing. Your entrepreneurs will come back after six months with all this progress, and you know, you haven’t really been that involved with it. That’s the dirty little secret. The venture capitalists usually out here rely on a lot of extended friends and family with a pay it forward kind of mentality to help build companies. So, so, but to me, that’s an interesting theme. You know, I have my heritage as an Indian, and I’ve been following the Indian markets since the mid 90s. It’s in the last five years that I felt that the ecosystem is probably getting to a place where early stages are worth a look there. So I have made a personal investment, my wife and I have it in a small fund there, yeah, so you just but, I mean, that’s not for the faint of heart. I always remind people that the folks who were investing in ventures in the 70s in Silicon Valley didn’t have all this data. They didn’t have all of this pattern matching. They were doing it driven largely on some themes and then a hunch like taking risk, and I think you have to have the temerity to do that in other markets as well. I
Earnest Sweat 18:07
was gonna ask something else, until you said that. So I’m gonna, I’m gonna go with that threat. Do you think, inventor, we’ve lost that, that nature to take risks and go on hunches. And yes, I understand we evolve with more data. But like, what do you think has been missing the last 1015 years?
18:25
Well,
Anurag Chandra 18:26
I might say that the LPs are less willing to, I mean, that’s tough, because there are emerging manager programs. There are fund to funds that are focused on smaller funds, and people who are kind of raising even fund one, but fund two, fund three. So there’s definitely activity there. Look at the entrepreneurial level. There’s still a ton of risk takers, at the risk of having come across sounding negative about venture. It’s just there’s so much stuff has been sorted into a venture, and it’s like it’s on its third or fourth generation. It’s not your grandfather’s or father’s venture capital anymore, but the entrepreneurs I still I mean, if you think about the themes that are out there, and I’m just gonna eat some off the top of my head, I’m probably gonna miss some, and some people may disagree with the ones that I talk about, but definitely, AI, that’s an obvious one. Autonomy robotics and all of that. Space tech is another one that’s really interesting. Computational Biology, which, much to my father’s chagrin, who taught medical school, I know very little about right? And I’m gonna give Facebook and Zuck a shout out. I think people are prematurely writing about the death of AR VR, it’s not an area that I know well, but I think that’s also thematically, something that could generate internet, internet levels of wealth that we saw in the late 90s. And so there are great entrepreneurs who are attacking these really large opportunities. And I think there are ventures. Firms who are right sized and situated to be able to capitalize on it. But you know, if you’re sitting on billions of dollars, and you’re gonna wait to write a check only when you can write at least a $15 million check, and you’re kind of less sensitive to valuation because you are just playing for that deck of corn, that model, I think, is fraught with barrel. Like to be honest with you,
Alexa Binns 20:23
It’s fun to hear where the opportunities you think are still lie. Are there things? Are there risky spaces that you don’t want to go to?
Anurag Chandra 20:34
Are there risky spaces that I don’t want to go to? I tell entrepreneurs. So now I’m putting my GP hat on when I meet with entrepreneurs directly. Sometimes I meet fabulous people who are brilliant, way smarter than me, and I have to tell them, Look, I would love nothing more than to find a way to back you. But you have to understand, I’m in the business of making money for investors, and I look at everything as belonging on a continuum between science projects and commercialization. And if you’re just too close to a science project, I’m not the right source. You know, I’m sorry. You might be upset with me when you leave the meeting, but I have a fiduciary duty, right? And it’s really hard. And so what are some of the industries that feel that way right now. One of them certainly is quantum computing. That seems like it’s hard for someone like me to be able to really sense where we are on that continuum. So I have to err on the side of caution. So that would be one example. I think, sorry, you just made a thing. I think the other thing that I’m a little bit nervous about, and this is terrible to say, is capex heavy projects. We came out of cleantech 1.0 just putting a giant crater in the ground. A lot of money went in, but not much came out. And we need innovation there, for obvious reasons, and you want nothing more than the back of the truck and investing in climate tech. But again, I mean having fiduciary duty, right, getting the money back out there for a meaningful time period. A lot of those business models, certainly during 1.0 the whole financing stack and how the life cycle of those companies would develop was unknown. So yes, the 1.0 folks were taking similar risks to starting a networking company in 1973 or starting Genentech in 19 or, can’t remember the exact years, but later, 70s and absolutely that same level of risk, but the capex is so massive, right, that it kind of gives you cause for concern, you
Earnest Sweat 22:41
mentioned a couple times already on how, like, wearing the allocator hat gave you a different perspective on your you know, starting out as a GP, could you elaborate on those things that you’ve learned that you love to share? I think it’d be great for our audience. Yeah, yeah,
Anurag Chandra 22:56
There’s something I’m going to say to you guys that I’ve heard myself say 1000 times, so I feel like a politician with a stump speech, but I went to school with my wife, who left being an attorney and is now in the philanthropy and nonprofit world. And there’s an old saying in philanthropy, which is, when you go to ask for money, people give you advice, but when you go to ask for advice, people give you money. And I think this idea of showing up six months before you, you know, maybe three months of pre-marketing, and then, boom, you hit the ground, and now you’re raising money for 12 to 18 months. I personally think that if you are in that mode, you are communicating it through your body language and almost metaphysically, where, you know, ask for a tin cup. You know, money, money, money. I need money. No matter. You know how patient you may try and come across in the meetings, the dynamic just kind of sets up for a transaction. And if you don’t have an established LP base and you’re trying to establish one, I think it’s really important to build relationships. Asking for advice is always a good thing, but also providing information. I think LPS get a lot of comfort when they feel like the GP. They get a sense of how the GP is in the market, sort of the perch that they occupy, where they are in the ecosystem, the asymmetric information that they’re able to grab. I tell GPS that if you come out of an LP meeting and you find out that the LP is interested in X, Y and Z, anytime you see an article around that topic, email her, right? I mean, there’s no reason not. It’s not untoward. If anything, it’s going to be well received. So little tactical things like that. But broadly, strategically, you want to really be in the long term relationship building process, which I know is a challenge for first time funds, but by the time you’re a second time fund, I really think it’s important to be out carving out a certain amount of your time to say it’s just meant for relationship building.
Alexa Binns 24:56
You know, it’s something I love. Of the question, what was interesting to you about this where, rather than talking about yourself as a as a pitch, it works for founders, I think it works for GPS, to invite the LP, or to invite the the venture capitalist to share with you some of their thinking, and then maybe you get a chance to present a counter argument that shows you’re also very clever on this topic, or, or, you know, maybe you really agree, and that’s exactly the thesis you’re going to be investing on. But, you know, giving, assuming that your LP or your the VC you’re pitching has also thought about this is not this is probably a good place to start, for
25:46
sure.
Earnest Sweat 25:49
Now we’re going to take a quick break to speak with our sponsor and on the show today we have industry expert and sponsor Braughm Ricke, founder and CEO of Adoro Advisors, which leverages best in class technology powered by the industry’s top professionals to provide premier fund accounting services. Thank you, Brom, for partnering on the show. one thing I would imagine you do contribute to a little bit is the numbers when it comes to performance, right? Yeah. And whatever performance means in a ton of different metrics,
Braughm Ricke 30:18
yeah. And we’re doing that, we’re, we’re starting to kind of provide benchmark data for our clients, right? And so, one of the beauties of having our own technology stack is we have the capabilities to kind of synchronize that data and provide a benchmark, you know, you know, for a vintage fund of that size, what, you know, what is the average dpi, right? And so, and we feel like it’s a unique set of data versus a Cambridge or somebody like that?
Earnest Sweat 30:44
Yeah, I would assume that data is extremely helpful in a fundraiser. Well, depending on what the data says, but I’m sure it’s helpful when it comes to fundraising in such a climate like today. Abby, do you have any kind of, like, very high level thoughts on how that data and how people should be thinking about prisons, presentation of that data when going through this tough fundraising climate.
Braughm Ricke 31:09
Yeah, absolutely. I think that, you know, having a better set of benchmarks. And what I mean by that is ones that are more applicable to your firm and to your structure. You know, Cambridge is, you know, very much like the sequoias and climbers of the world. And, you know, we feel like we have a, you know, kind of a unique viewpoint into a separate part of the asset class. And so I think that our ability to provide our clients with that set of benchmarks that fits more of who they are and who their firm is is quite useful to reference back from a fundraising perspective, and so we’re actually having quite a number of clients start to utilize that.
Earnest Sweat 31:54
Have you seen any emerging kind of investment themes that are starting to gain a little bit more traction? Or a better, even better question, you can answer that, but even the better question is, do you anticipate any specific themes that will be more popular over the next 10 years?
Braughm Ricke 32:16
Yeah, I think that, you know, it’s easy to default and say AI, right? But, you know, it’s funny for me. You know, we’ve got a number of clients that are quite successful that were doing Away before everybody was talking about AI, right? And so I think that we’re starting, what we’re starting to see is as more and more of a narrow focus in each manager’s investment strategy and investment thesis, and I think that that will continue so as the market becomes more bifurcated and there’s more and more managers and access to capital becomes more and more available, I think that It’s easier for managers to think about, you know, creating a very narrow focus for their firm as opposed to a generalized, you know, investment thesis. And so I think that’s the biggest theme that we’re seeing. I know it’s not necessarily a specific theme, but yeah, you know, that’s, that’s what we’ve noticed.
Earnest Sweat 33:15
So Brahm, I wanted to kind of jump into the kind of regulatory changes that have to do with our industry. Have those kinds of shifts impacted both the US and globally, how are they affecting fund administration and compliance for VCs today?
Braughm Ricke 33:37
Yeah, I think that you know, as we work with more and more VCs that rely on us for a lot of the operational kind of backbone for their organization. It just creates more and more of a not necessarily, dependence on their service providers. Fund administration being one of the key components there, but definitely necessitates us being the group to facilitate the answers for how they can solve for those new regulatory requirements. A really simple one. California is a great example. So California with their new reporting requirement coming up next year, and again, it’s a reporting requirement that, in true California fashion, will capture basically every VC, right? So it’s like, if you have an investment, or have ever done an investment, or have stepped foot in California, basically right when, when working for a venture like you have to report back your underlying portfolio data back to them. And so we’re utilizing our technology to help facilitate and make that much easier for our clients. So we have a solution for them before, you know, before they even have to really kind of consider it. And so I think more of a dependence on their fund administrator, you know, providing them with the answers or solutions, or at least, you know, being able to get them to the right person to solve. For those, you know, new regulations. Dynamics.
Earnest Sweat 35:01
Are there any regulatory concepts or laws up for vote in any part of the country or world that you think GPS should be kind of like attuned to
Braughm Ricke 35:16
nothing right now, I think the big one that was in the works has been, you know, put on pause for the time being. And so, you know, nothing kind of on the immediate horizon, which is good and bad, right? I think, I think the world in general is just in a little bit of a state of limbo this year. You can say that, yeah. So, so we’ll, you know, well, it’s a lot of wait and see if
Earnest Sweat 35:41
you are a GP or LP looking for fund administration, please go to aduroaddvisors.com and now back to our LP interview. You know, there was a rush for people to raise money over these last five years. And you know, for there was a lot of new LP capital there. But, you know, taking your advice to heart to really become, I think what emerging managers want to be is institutional. You have to take the time to build those relationships, kind of moving towards, back to kind of the pension fund world. One question I had was, how does the pension fund, when you get there, determine how much they wanted to be in venture? I’m sure that might have been a, like, already a program established, but like, how do you even iterate on that?
Anurag Chandra 36:36
No, that’s a good question. Yeah, that actually, we hadn’t had a program for many years, what happened with the San Jose pension plan? And some of this is speculating, but well educated speculation, because I wasn’t there, but I think after the great financial crisis, they went into a real conservative crouch, real defensive crouch, lot of absolute return, all sorts of things to try and generate a decent, low, low single digits or mid single digits return without being subject to all the volatility that we’d seen during the great financial crisis. And a couple years later, unfortunately, the Federal Reserve, not unfortunately, but unfortunately San Jose didn’t really appreciate the Federal Reserve was just going to make sure risk assets were valuable for the next 15 to 20 years, and so we missed out on a bunch of that. Really, what drove our Venture Program was the hiring of our new CIO. So, you know, we did an exhaustive search, and landed on someone who I’m so excited that we were, I have the good fortune to work with him. And he had a few things that he wanted to do when he joined. And of course, you want to give your new CIO their mandate and a little bit of a honeymoon period, also to try out their ideas. And he had a very simple attitude toward venture capital. He said, Look, we’re in the heart of Silicon Valley. In fact, if you go way back in Silicon Valley history, San Jose built Silicon Valley, not Palo Alto, not San Francisco. And you know, our teachers, our firefighters, our policemen, et cetera, et cetera, were integral in all of that growth and development. So we should be benefiting. And so he repositioned and approached the Investment Committee, and then also the full board, which is the one that determines our strategic asset allocation, and said, I’d like to add a Venture Program. And when I earlier on, when we were doing that, there were more trustees than just me who had some experience in the venture capital world. So our CIO leveraged our experience. He had his kitchen cabinet. Many people find this surprising, but I wasn’t necessarily advocating venture. Ventures are tricky, and if you’re going to do it, you gotta do it right. I think a lot of people do it halfway. And so that was my only admonition, was, if you’re going to do this, it’s going to be a small part of our portfolio, but it’s going to be a disproportionate amount of work for you and your staff. But I agree, if we do the hard work, there’s Alpha there. And so we ended up adopting the program. It’s maturing slowly as any new program would. I think the CIO decided to take a little bit of time out when we were having some of the gyrations in 2022 and in early 2023 but you know, that’s a thing. I tell people, we should have a 3040, 50 horizon. We’re a venture plan. Sorry, we’re a pension plan. And so you don’t want to miss out on vintages, per se. You don’t want to sit out for as long as we did our sister plan in California, CalPERS much bigger sister than we are. You know, they sat it out for a while, and they’re regretting it. So we want to make sure we’re consistent, deliberate and thoughtful.
Alexa Binns 39:58
And how are they? Are investment decisions made?
Anurag Chandra 40:01
Yeah, so we’ve largely, I think one of the things I’m most proud of since I took over, I became a trustee and joined the IC and became chairman, is that we have really delegated almost all of the authority for manager selection to our CIO. One of the things we did is we engaged in a comprehensive review of our governance, our investment policy. We hired a risk consultant to figure out how much risk the portfolio could take. And a lot of what we did is we went to school off the Canadians. The Canadian pension system, I think, is the gold standard, certainly in North America, they’re probably globally I like to joke with people that I’ve always drafted off of others. I copied notes from my friend Susie in eighth grade. So just continuing with that theme, we found people who were doing it. Yeah, exactly,
40:55
Where’s Susie at? Exactly?
Anurag Chandra 40:56
I believe in best practices, that we call them best practices for a reason. We adopted as much as we could, and some we can’t do. There’s certain innovative things that Canadians do that’s just a little bit harder to do, I think, in most American pension systems, but certainly ours. So we got pretty close. The risk stuff was terrific. We determined that we could take more risk in our portfolio than had been taken over the past 1015 years, and that’s really helped us with the returns that we’ve generated. And then specifically with venture, you know, we keep close tabs as a committee on the decisions that are being made. We feel like, since it’s a newer program, and I hope this doesn’t sound pejorative, but sort of a little bit of training wheels make sense right now, but we have a rock star team. I always say we’re small but mighty. We punch above our weight class. I wouldn’t trade our team for any team in the state of California. No offense to our peers, and they’re doing really good stuff. So it just probably will be a matter of time before there’s more delegation there too.
Earnest Sweat 42:06
I would assume, with your pension plan, as well as other pension plans, for an emerging manager or even an established manager, to establish, you know, to have those relationships, it’s going to take some time, any kind of best practices on how to engage.
Anurag Chandra 42:22
I think you gotta have thick skin and be willing to hear no a lot, because so many pension plans struggle with first time funds, right? So if you’re a first time fund, and you get an audience with your typical pension plan, there are some notable, uh, examples of pension plans that are, and I’ll just say institutional capital that is willing to work with a first time fund, and that’s fantastic. They’re few and far between. So most first time funds probably have that list of, like, 2030 names. I don’t even know if it’s that big. So you know, you do whatever you can to get in there, because there may be a path to near term capital, but with the rest, you’re investing in a long term relationship. You’re almost investing in you’re raising your fund one, but you’re talking to an institution that may not come in until fund two or fund three, right? And other than having insane returns in your first fund, I don’t know how you’re going to get their attention anyway, so it’s a good hedge to create that time and space. And it comes back to what we talked about a little bit earlier. You know, share information, ask advice, and build a relationship. Because I’ll say something else that might be a little bit I don’t know if it’s controversial, but some first time managers listening to this podcast will love to hear but I’m also on the selection committee for raise global so for the last three years, I’ve been reviewing a lot of pitch decks, no exaggeration, but since last night and before this call, I’ve already had three unsolicited emerging managers reach out to me, either by LinkedIn or get my email to say, hey, We’d love to spend 30 minutes with you. And you know, it’s remarkable how much everyone sounds like each other. You know this notion of differentiating and standing out, it’s really hard. And your follow up question is going to be, well, what do you do to differentiate and stand out? And you know, I can only illustrate by two examples. I had kids who just went through the college application process, and I said, I don’t know what makes a great essay. I can’t tell you what to put into your personal. I mean broadly, I can, but I know it when I read it. And there’s this old, famous Supreme Court case about pornography, where Justice Potter Stewart said, you know, I can’t define it, but I know it when I see it, it’s the same thing, right? The definition of pornography a definition of a great pitch deck. But you know, they do pop, and part of it is stylistically in the way it’s written, but partly, you really get a sense that the. The general partner has conviction around the theme, and you know, because ultimately, you’re buying into someone else’s passion that they’ve identified some kind of a white space that they’re going to exploit and generate superior returns for you.
Alexa Binns 45:19
Yeah, it’s a question I don’t hear in many decks, is, you know, why am I a top decile GP, right? You know, to recognize your competition and talk about why your strategy is actually a stronger strategy. True. Could you give us a little background on the raise? No, we haven’t spoken about it on the podcast yet. Yeah, sure.
Anurag Chandra 45:49
So raise global is, I think, but I’ll hedge a little bit. Here’s one of the premier conferences. It’s held annually. It’s almost always at the Presidio, or maybe it’s always been at the Presidio, and it’s held in late October. You know, we solicit applications from first second time funds. There’s occasionally third time funds in there tend to be smaller, I’ll safely say, someone 100 million. There’s a fairly large committee, and we each get assigned like 3040 decks, and we go through them, and there’s a pretty rigorous and exhaustive rating and ranking process. And then, you know, a select group is invited to present at raise global at the Presidio, so they get an audience with a lot of LPs in the room, and it’s a great event. Ben Black and his team have done a really nice job with the raise.
Alexa Binns 46:44
Were there anything that you saw like too many, it’s interesting when you’re receiving that many decks and submissions. Were there any trends in terms of like, Oh, lots of people are pushing in this direction, or a lot of people are selling themselves in this way?
Anurag Chandra 47:01
Yeah. So the first thing I’ll say is I try not to read like five at a time, because I think if you read 20 at a time, you’re doing a real disservice to the 19th and 20th for the following reason. First of all, there’s always a you know, maybe you’re tired and you start reviewing things a little bit more quickly, but even if you have the discipline to give everyone their fair hearing, it’s remarkable how much the decks are the same. So it’s blah blah blah for Latin, it’s blah blah blah for Denver, it’s blah blah blah for climate. It’s blah blah blah for consumers, right? It’s but, but, you know, everyone’s got the obligatory slide where entrepreneurs are saying, I’ve worked with so many VCs and so and so added more value than anybody else. And I don’t know that I have a solution to get out of this where everyone comes across as the same at that level. Which is why I think if you can really display a high level of conviction for what you’re doing, and your real deep belief in the white space as I described it, that’s the best you can hope for. Because as an allocator, again, I don’t make manager selection decisions for San Jose, but I’m ultimately involved in the process, and then we’ve got this single family office that I’m helping, and quite frankly, the families I’ve been advising have been more active than we have, so I kind of have a front row seat with their activities, and you really ultimately betting on the people. There are some folks who are just caught up in the name brand. Can I get into SpaceX? And those folks, those are the folks who are just playing the secondary markets, and there’s a lot of that activity, but at the earlier stage, folks who are bought into venture as an asset class, I got to be patient. I can get outsized returns versus private equity, versus the S, p5, 100 versus private credit. Those folks, they really it’s hard to differentiate a first well, if it’s a first time fund where the team had a great track record coming from another platform, or a really great Angel track record, that’s an honest Angel track record. I sometimes kind of question when I see people trying to cobble together and create their fund zero. That can be a little suspect at times, but for the folks who are legit, of course, you have an advantage already, because people are thinking of you as a fund two or a fund three. But if you’re truly a first time fund, you’re an operator with a great operating background, and you’ve got a network and you’ve got an instinct for a specific space or product type. You know, if that comes across, that can be really compelling, because I’m going to try to diversify and find five or six people like that. So, you know, claim Elaine, so you know, and really go for it. Yeah.
Earnest Sweat 50:00
When you’re advising family offices, you know, how do you start working? Working with them? Is there some type of criteria and trying to see kind of how they want to approach this asset class?
Anurag Chandra 50:15
I think I frustrate some of the folks, because they come to know me as someone with venture experience, and so they’re really looking to talk about ventures. And I always tell them, Well, we got to abstract this out a little bit, because I don’t care if you have, you know, half a million dollars with a Schwab broker, or you’ve got multi billions of dollars, everyone has to understand what their risk profile is or and what their goals are, right? And there are some folks for whom, if they lost money in venture, it wouldn’t matter, and they’re kind of treating it more as it’s exciting, it’s sexy. They want to be involved with the cutting edge. There’s other folks for whom, you know, if they’re going to allocate seven or 8% of venture, it’s really got to do its part in the portfolio asset allocation, similar to the way an institutional investor like a pension fund would think, you know, I think there are examples of sovereign wealth funds and really large, large family offices where they’re particularly if you’re Norway and you’ve got a gas station or the Middle East, you’ve got this gas station that’s just pumping out petrodollars every month, your cost of capital calculations a lot lower. So quite frankly, being in a brand name fund, where you have to write a minimum check size of 50 or 100 million dollars, and you get to be associated with that brand name fund that’s going to do some of the best deals, right? So that’s fun, right there. That gives you a non financial reward that I think is completely legitimate and appropriate. But if you’re looking at venture to drive alpha, because you have to hit certain return goals and return profiles, you know, then I’ll usually guide people, as you already know, I have a bias towards smaller funds, but I have to ask those questions first, because, you know, if someone just approaches me and says, Hey, can you get me into Sequoia, can you get me into benchmarking? Can you get me the lightspeed? That’s, I am not an access guy. I mean, do I know people with those funds? Sure, but that’s, I’m not adding much value there in those kinds of conversations, if you ask me.
Alexa Binns 52:25
And another thing that I think a lot of folks come to you too, is for your expertise on direct investing, co investing, any words of wisdom or recommendations on how to do it right or where things can go wrong.
Anurag Chandra 52:42
I’m a big fan, so, yeah, institutions and families both. I’m a big fan of direct investing, right for some of the obvious reasons, right? If you can direct invest, you can get around the two and 20, you’re getting direct exposure to the underlying assets. It’s tricky. I think the one thing I caution families about is, if the three of us were to co invest with a private equity firm doing a buyout, we’re going to pursue, like, the exact same share class, same instrument, completely aligned, buying the company together in venture. Often what you’re doing when you’re co investing with your GPS is they’ve written a c check or a series check, and they’re bringing you in at B or C, and you’re not aligned. That’s not to say that your general partner isn’t showing you good deals, but you’re just you’re not aligned, and you have to be careful about that. And speaking as a former VC, you love all your children the same right? It’s only after the fund is over, where you know who succeeded in life, who maybe didn’t succeed in life. And so it’s really so you have to have your own qualitative feel for the underlying investment, your own ability to diligence it. And a lot of people don’t have those capabilities. I think if you’re large enough, you can hire for it. And I don’t know if some of the families I work with are large enough and haven’t been hired for it, so that’s one thing that I advise is, yeah, definitely invest directly. I also don’t think you have to invest directly only with your GPS. I mean, sourcing is a family. It’s so interesting, because most family offices, as you know, I haven’t shared the name of my principal on this podcast, because, you know, they’re demure. They don’t want to be advertised, and, more than anything, they don’t want to get bombarded with a lot of requests from folks who want their money. So it’s tricky, but I think you can build an operation, and I think you can execute toward direct investing. And you know, if you’ve got good GP relationships, and they’re good at building relationships, they’re a source of due diligence for you as well. They should be there to help you and give you some of their thoughts and extend their resources to you. Yeah.
Earnest Sweat 55:00
Was there, was there anything that you think you know through our conversations, we’ve seen kind of all the insights from all your different hats you’ve worn that you think we’ve missed, that we need to that you want to chat about?
Anurag Chandra 55:14
No, you guys are really good at asking questions. So if it isn’t obvious, it probably should be. This is my first podcast. I’ve been asked to do podcasts.
Anurag Chandra 56:19
I also want to give you guys props. I have been invited many times, but I’ve just always said, you know, I’m like, What do I have to add into the ether? There’s a gazillion podcasts and, and, you know, there’s, I look, I live in this I live in Silicon Valley, which is the home of self promotion. So, and, and, you know, I come from a family where, professionally, there was no self promotion, so it always feels a little bit awkward, and I’ve gotten better at it, but like, no one needs to hear from me on a podcast. But I was like, No, I think this is going to be a good conversation, which is totally right. It’s what it’s turned out to be.
Earnest Sweat 56:52
So many insights, man, thank you. No, no, it’s really helpful to your audience. No, so helpful. I want to thank you personally for just joining and continuing. I knew our conversation was going to be good after we met in person and even when we talked on Zoom for the first time. So thanks for joining. Yeah, I
Anurag Chandra 57:11
got the same exact vibe. And Alexa, I hope we meet in person soon.
Alexa Binns 57:15
Absolutely not, we feel quite lucky that we were the first and hopefully not the last.
Anurag Chandra 57:23
It sounds great. Thank you guys.
Alexa Binns 57:27
See you later, Allocator.
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