Alexa Binns 00:13
When you started your career at the UNC endowment, you mentioned that you didn’t really know what to expect or what you were getting into, and what did that open up for you? I just would love to sort of start at the beginning.

Kate Simpson 00:31
in hindsight, it was such an amazing starting opportunity, but I was a bit naive at the time. I didn’t know what I was getting myself into but, I mean, I was a history major in college, so I was very green, very clean slate. The folks at UNC management definitely took a chance on me, which I appreciate, but I did have, you know, a deep and steep learning curve. I remember taking sort of the introductory finance and accounting classes at UNC to supplement my training. I felt just like a sponge all the time, but what a great opportunity to learn from the people I was working with, learn from all the managers that we were meeting with. I definitely listened more than I spoke, but importantly, I was really lucky to have a boss and a mentor who encouraged me to ask a lot of questions. Entertained those questions, you know, starting with the basics, like, what’s an IRR, and how do you calculate an IRR? But, um, but, you know, it did open up sort of this world of institutional investing, that and a career path really, that I really, I didn’t know existed at the time, but I’ve really ended up liking and enjoying

Earnest Sweat 01:52
when you started. Was there a certain asset class that you focused on? Was there a generalist approach or and then also, kind of like, which asset classes did you really find yourself gravitating to?

Kate Simpson 02:08
Yeah, so, you know, at the endowment, of course, we were as a team. We were investing across all asset classes. And from that perspective, it was cool to just take that 30,000 foot view of the world and figure out where to allocate, how to allocate. I learned a lot about all of the asset classes, but I did work on a team that was focused on the private asset classes. So venture capital, private equity, real estate, some natural resources, and that’s where I that’s where I spent most of, most of my time at the endowment,

Alexa Binns 02:41
Does that sort of remain? Did that? Did that send you on the path you’re on today?

Kate Simpson 02:47
For sure, for sure. I don’t think it was by design, but I did gradually specialize over time, but always within private capital, and then ultimately where I am today, and venture capital,

Alexa Binns 03:03
the approaches at parish capital, where you ended up next and then truebridge, are not identical. Would you be able to share with us a little bit about the different approaches and where you’ve kind of come out with your own personal approach,

Kate Simpson 03:21
sure. So parish was a fund of funds format. The strategy at parish was to back and allocate to smaller, oftentimes emerging, both buyout and venture managers. So size was the first screen, and it was really at Parrish that I learned, like, what a good due diligence process looks like. I learned about the art and craft of reference calls. And then, you know, from there, I also, well, let me pause. I also appreciated, because we were a fund of funds, the need to raise capital before you invest capital. So like the importance of that business model. And, you know, keeping our clients, keeping our LPS always front and center, because they are the lifeblood of that business. And then at truebridge, you know, I focused a little bit more on a single asset class, and that was venture. I was there for 12 years, and truebridge was a great seat for venture, both because of the platform, but also, if you think about like the last decade plus, it was a super exciting time for venture, and the industry has just changed and evolved and scaled meaningfully. So it was just an exciting time, and I think it still is an exciting time, but I was proud to be part of that platform at truebridge, proud of what I contributed, you know, to its growth and evolution. I. I came to appreciate at truebridge the role of a platform right where secondaries and CO invest are also playing a role in a portfolio, and sort of the information flywheel perspective that you get from investing across the ecosystem. And I did appreciate the opportunity at truebridge to really go deeper in one asset class. And I think it was there that I found kind of the value of the networks that I had been building over my career, and acknowledged that, you know, the value of a network definitely appreciates and becomes more valuable compounds over time. So right now I’m at Gem, and it’s a little bit of a full circle moment, because, you know, Gem started as an outsource Chief Investment Officer, and that today is still very much the core business. So I’ve returned to this kind of multi asset class investment firm while still specializing in venture, because today I’m leading the venture team and strategy at gem.

Earnest Sweat 06:22
You spent 12 years at true ridge, and as you mentioned, there was a lot going on positively in the industry, and it’s changed a lot. What made Jim just kind of the ideal next step in your very you know, you have a lot of experience in this asset class.

Kate Simpson 06:43
Yes, you know, gem is a firm I’ve known for a long time, really, since its inception in 2007 I’ve always respected the firm. I’ve respected and liked and enjoyed collaborating with the people at the firm. So, yeah, when they called last year with, you know, describing this role, sort of explaining why and how the gem is growing and evolving. I couldn’t help but be excited about the opportunity, and to entertain the opportunity, and look, it was a leadership opportunity for me. It’s a team I felt really aligned with, and importantly, it’s a firm that I could see myself continuing to grow within. So not always easy to make a change like that after, after 12 years, I sort of had to give myself permission to do that, but I’m glad I was really excited about the team and what we’re building and how we’re investing at Gem.

Alexa Binns 07:53
The outdoor CIO seems to be the stable core of gem, and then the venture is the opportunity to grow and provide more to your clients. How? What are you sort of hearing that they need help with, and what are the things that you’re realizing you can really help deliver

Kate Simpson 08:13
so, you know, GEM has this core, stable, established business. We’re building an adjacent line of business, which is kind of the fund, or the fund of funds, business in certain areas of alternatives, and venture is one of those. So you know, we are. We’re taking what we’ve always done, well, right? The investment research, the manager selection, the discovery of some kind of investor talent early. We’re taking what we’ve always done well and now, you know, packaging that in a different way, so that we are partnering with different types of clients that like what we’re doing in venture capital, for example, and like our approach to the asset class, but don’t necessarily need the fully discretionary OCIO solution. So it has opened us up more to different types of LPs and some of those allocators we consider to be our peers, but they are looking for a partner to help them access different parts of the ecosystem, and happy to tell you more about that, but we’re kind of doing more of the same, but now working with a broader set of clients that I think appreciate our positioning and our ability to execute in venture, because it’s not an easy as it’s never been an easy asset class to invest in. I’m not sure it’s getting any easier today.

Earnest Sweat 09:50
Well, okay, that adjusts my next question a little bit, because, you know, with the. The realization that not everyone has Kate’s network. What advice do you give individuals that are in your position going to a new place to establish a new product around venture in an organization? What kind of things have you learned that have really worked. What are some things you wish you would do better? Yeah?

Kate Simpson 10:25
Yeah. I think anyone who is building any per you know, person or organization that may be building a Venture Program, from scratch or from kind of an early point of entry. I do think it’s really important to align all the stakeholders on the goals of the program and the timeline of the program. I mean, as we all know, venture requires patience. It requires persistence over time, right? These aren’t it’s not an asset class that you can dip in and dip out of easily and I think successfully. So I think alignment on, like the timeframe, the long term approach, and then, maybe importantly, like, what, what the strengths are in an organization such that you know and can determine, like, what, what you want to build internally and what you might want to build alongside external partners. Because it does require, like, I think if you want to build a best in class venture portfolio. It requires, you know, it’s a bit labor intensive, right? Like from, developing relationships to, you know, getting access to some of the managers you might want access to, can take multiple fund cycles. So it does require time, it requires resources, networks. Judgment requires a lot, and I think if you’re an organization willing to build that team internally, then you can situate yourself well for success. If you’re a team that maybe doesn’t have the resources or has a more efficient organization, it might make sense to partner with a fund of funds, or some other, some other partner to help you access and get exposure to certain parts of the ecosystem. And I do think you need to be very intentional about the goals and the relationships you’re building, because I think alignment around all of that will set up a newer program for success.

Alexa Binns 12:53
If I got the sense, maybe as recently as five years ago, your average retail wealth manager would have said, You got to have access. We don’t have it. So this isn’t, this isn’t for us. Everybody sort of understood how hard the access piece was, and venture truly was meant for the Capes of the world, because you needed that introduction. And I kind of feel like everyone has forgotten that, and it feels a little bit like they all think they can do it. Now, are you picking up on democratization or access, actually changing your truth, which is that there’s only so many funds you want to be in, and there’s not room for everybody in those funds.

Kate Simpson 13:52
I do think there’s some truth in that, and I think that is maybe going to lead us into how the market has bifurcated. But a lot of those top tier brands and firms have scaled meaningfully over time. And you can argue that their brand, their scale, their size, their platform, is a competitive advantage today. And because of that, I think, you know, a handful of those firms continue to be access constrained, but not all firms that were access constrained, I would say, remain access constrained. So I do think there is an argument to be made that access to certain of those scaled platforms is not as hard as it used to be. I still think access is one of the games to play, right if you’re if you’re investing as an allocator in a venture. But as we touched on in another conversation. And I think the other game to play, which as I look at venture today and the opportunity set and where returns are, I think it’s an important game, and in that game is more discovery and identification of the next generation of great venture managers. And that’s kind of the barbell that we’re seeing. That’s kind of the bifurcation in the market. We’re constructing our portfolio to capture our best ideas at both ends of the market. And I think we’re being very careful of firms that are in the middle, because they’re competing with both ends of the barbell, and we think that’s that can be a very tough part of the market in which to invest right now. So yes, access is still important. I think it will continue to be a game on the field, but the discovery, kind of identification of newer talent, and thereby also smaller funds, I think, is also an important game to play, and that’s really where we see more of the alpha in venture going forward. So that’s where we’re spending proportionally more of our time resources dollars, but that’s a really hard part of the ecosystem to navigate, and we think it’s time well spent, and our portfolio will be and our LPS will be rewarded for the time we’re spending that part of the ecosystem. But there’s, there’s a lot of noise. It’s hard to distill the signal from the noise.

Earnest Sweat 17:00
Yeah, it’s quite the market for everyone involved, founders GPS and LPS alike. So for that, that, for finding those that have newer talent, what’s kind of been your approach to, you know, finding the right top of funnel, not the entire top of funnel, but the right top of funnel. And getting to know those managers are there certain, you know, avenues, trusted partners, you know, signals that you look for.

Kate Simpson 17:37
First of all, we do have the philosophy that the more we see, the better the filter we have, and ultimately, the better decisions we’ll make. So we do want to see everything. You know, whether we’re seeing 100% of the market, I don’t know, but like last year, I think we logged close to 600 opportunities, and that’s a lot. So I think that you know the framework we use when we’re meeting and getting to know any venture investor, we’re trying to understand how they source, how well they pick and how they win. And I kind of think of it as you know, you can’t, you can’t pick and win Well, unless you’re sourcing well. So like when we’re meeting with a manager, an introductory meeting, one of the pieces of information we want to walk away with is really understanding how they’re sourcing, like, what are their networks? What ponds are they fishing in? Do we like those networks? Do we want exposure to those networks? Do they have an edge in those networks? So I think in this market, which is, you know, very competitive. Not sure there’s anything really as proprietary deal flow anymore, but like, networks matter edge and networks matter, and that’s what we’re really trying to understand from an initial conversation with with the prospective venture manager, and then the process after that, you know, is a mix of quantitative and qualitative work that that mix, that like art and the science is, I think, what partially drew me to this job In the first place, and what has made it a lot of fun and very enjoyable over the years. The quantitative work, of course, revolves a lot around track record analysis and sort of attribution. That part is not rocket science. The qualitative work is much more nuanced.

Alexa Binns 19:59
It.

Kate Simpson 20:00
It’s information we draw out of meetings, out of reference calls. It’s like we’re trying to put together this mosaic of information and piece together lots of lots of tidbits to sort of either help us build conviction, or, in some cases, you know, pass so you know, I think our process generally is pretty institutional. I’m not sure it looks terribly different from other of our peer allocators. We like the luxury of time, but we can also move very quickly. But I think at the end of the day, we’re looking we’re a conviction, driven decision maker. We’re looking for exceptional people who pick and win exceptionally well.

Alexa Binns 20:48
Source pick and win feels like really helpful, sort of just like the things you want to make sure you clarify and get across in that first 30 minute meeting with you. You’re taking 600 pitches a year. I’ve noticed, for instance, on the VC side, YC alum are fabulous

Alexa Binns 21:10
at

Alexa Binns 21:10
getting their pitch done in the first five minutes of the call, and from there, you can actually have a conversation. And so are there any other items you would make sure, or tips on, sort of like how to approach that first meeting, so that you actually hear what you need to hear, but you also can, you know, make room to hear what’s actually unique about them, or get to know them personally.

Kate Simpson 21:41
Yeah. I mean, there’s lots that we try to cover in that first meeting. I think one of the other topics that’s really important for us right now relates to fun math. It’s part of the reason we are focusing on smaller, kind of earlier stage funds. But we do sort of obsess over the fun math. And by that, I mean, right? We’re asking questions. There’s a targeted fund size. We’re asking questions. And want to understand portfolio construction, what, what is your target ownership? How many positions? What is your reserve strategy? So what’s, what’s the first what, what percentage of the capital is going into that first check versus follow on checks. And we actually, we build our, you know, for those opportunities that advance in our pipeline, we do build our own model. It’s like the, we call it the what you need to believe model. And the purpose of that is to sort of overlay the fun math with a practical range of outcomes, and for us to feel like it’s a reasonable expectation that a fund can generate a 3x or a 5x or if things go exceptionally well, it can generate that right tail skew, right?

Alexa Binns 23:31
anything you can share on what it what is reasonable like, what you think is fair to believe, if it’s, you know, one in 10 is a unicorn, if you’re investing in a or, yeah, you know, are there any shortcuts that our GPS could use?

Kate Simpson 23:52
I mean, it is dependent upon, of course, like fund size and ownership. It all works together. But yes, we want to see the ability of one strong outcome, not necessarily a deck of corn, maybe it’s a unicorn, but one really strong outcome that can return the fund or multiples of the fund. And again, it comes down to it more comes down to ownership relative to fund size. You know less about valuation, quite honestly at that stage, but

Alexa Binns 27:49
you’ve described your barbell approach. I wanted to double click on that, on what early means to you, when, and what the growth or late stage, like, if you have any definitions around that, or how you think about the early and the late,

Kate Simpson 28:09
yeah, lines. Lines are a little blurry, of course. I think as a general rule, we think of early as pre-seed and seed, and maybe some as anything later than that is kind of just later. You know, we have a dedicated portfolio at gem for seed and micro investing, and our threshold for that, for that vehicle is sub $200 million venture funds. That’s the line that we’ve sort of drawn in the sand to differentiate between small funds and not as small funds. And then, by definition, most of those funds are focused on initial checks at the pre seed or seed stages.

Alexa Binns 29:03
Any advice for allocators who are just starting to understand how tricky this asset class is? Why don’t you want to be in the middle? Can you help coach them on why you’re focusing on one end or the other?

Kate Simpson 29:17
Yeah, and I would, yeah, we’re not, we’re not, not investing in the middle. And I’ll define what I mean by that. It’s just, I think we’re being mindful of the competitive pressures that are in that middle. I mean, for example, over the last few years and even right now we’re seeing really interesting people or teams spin out from established firms with the idea that there is maybe a void in the market or an opportunity in the market to create a new series, A. Brand. And I love that thesis, and I think there is merit to that approach, but I think some of those firms are finding it hard at their fund sizes to get the ownership they need to make it all work. It’s just, it’s nothing. It’s nothing. I think it’s a phenomenon that’s impacting everybody in the market. I’m not necessarily calling out like a specific firm. It’s, I think, generally, you know, focused series A firms that are investing a couple 100 million dollars are still having to compete with the multi billion dollar funds at the series a stage, and that is not always an easy place to play, whether it’s because of the valuations maybe some larger firms are willing to pay, whether it’s the brand and the credibility that comes with partnering with some of those larger brands. It’s just, it’s a hard part of the market to compete in, and at the same time, right, if they’re trying to go earlier at the seed in the pre seed stage, then that market is no less competitive either. So I just think there are, I think, firms that do well in that part of the market, and that may become the brands and more skilled platforms over time. They have to start somewhere, and they’re, you know, I think some of them are off to a great start.

Earnest Sweat 32:51
one thing I was excited to talk to you about, because you’ve seen a number of cycles in this asset class, because you started working at 10. But I, I was curious, what looks familiar from prior cycles, and what is just like, truly like, No, this is really different.

Kate Simpson 33:19
That’s a great question. I mean, obviously this cycle is defined by AI, right? We’re in this exciting time. I don’t know what inning we’re in, but it still feels pretty early, like this, early innings of this paradigm shift. And you know, you can make comparisons to past shifts like the move to mobile, the move to cloud, which were also at the time, very exciting and driving a lot of innovation, driving a lot of Investing, today does feel like its magnitudes bigger in terms of like the opportunities, but also like the valuations of companies that are being created on the back of of AI innovation. So it feels similar, but different in terms of like the magnitude i i think also, with any sort of paradigm shift, you have behaviors that come with that, right? You have this feeling of exuberance, you have FOMO behavior. You have companies that may not have a durable differentiation, or like you have like this, the me, the me too, sort of phenomena. But again, like what’s different today is the size of the outcomes. I think we’ve been in this trend now for a while, of companies staying private longer. So. Scaling in private markets instead of public markets. So I think, and that has changed, probably what growth stage investing looks like, right? You have much more capital available to invest at the growth stages today than you used to. I think, if you think, if you think we’re in a new era of trillion dollar private companies, which, you know, I don’t know whether that’s going to be the new normal, we’ll see, but if you are, then that that does change the calculus for for growth stage investing, you know, perhaps to generate interesting returns. But because of that, right bigger outcomes, companies staying private longer, it’s helped the secondary market emerge as a real asset class, as a source of kind of pre IPO, pre MNA liquidity, that feels very different today and that you know. So I think there are some things that feel familiar but, this is definitely the industry has evolved in ways that feel very new and different as well.

Alexa Binns 36:20
Yeah, it does feel like the secondary investors, like, have been invited off the porch, and now they’re allowed to eat at the dining table.

Kate Simpson 36:28
Yeah, yeah. It’s, it’s a, it’s, it’s well capitalized. It’s more acceptable, right, for, you know, early stage investors to take tips off the table. For founders to take tips off the table much earlier than would have been the norm or acceptable, you know, 1020, years ago, for better or for worse, it’s very normal and very acceptable today, which is both, you know, something to be mindful of, but also an opportunity for investors to you know, both enter and exit private companies at different stages,

Alexa Binns 37:08
you’ve given us a lovely looking backward crystal ball. What are you seeing as the most interesting opportunities in venture where? Where would you focus people’s time or interest?

Kate Simpson 37:23
Yeah, I mentioned this earlier, and it’s, it’s, it’s where our team is spending proportionally more of its time and energy and resources, and that is making sense of, I think, the smaller end of the ecosystem where you have a lot of talented investors investing smaller pools of capital, sort of doing the craft of venture investing, and in a way that is setting them up for excess and sort of generating right tail SKU, if several things go right in a fund. But that’s not easy. It’s, you know, we have, we have the philosophy that we want to see everything in the market, like I said earlier, and that’s that’s not easy to do. We can do that because of the resources we have at gem, we have certain people on the investment team whose mandate it is to source opportunities. And I think that’s a unique setup at a gem to differentiate. And I do think it’s an advantage, because it’s their mandate to know who’s raising when who is spinning out to start something new, who’s not happy and might leave their current role. It’s really the value of having sort of eyes, ears, boots on the ground. That takes work, that takes people good resources, but that, to me, is the most dynamic and interesting part of the market. We see a lot of new firms, a lot of people leaving and doing new things. It’s chaotic, but dynamic, but it’s also where we think great returns can be found if, if I’m looking forward

Earnest Sweat 39:26
one one last question, what’s, what have been some of your favorite venture fund managers? What has typically been the through line of maybe two or three characteristics? You’ve always noticed

Kate Simpson 39:42
That’s a great question. I think one one through line is knowing their strengths and staying sort of focused and disciplined around those strengths. I mean, we. Work with a lot of ambitious people who have, you know, big, big goals. And I don’t, I don’t, I don’t begrudge that. And you know, in some cases, I welcome that, but I do think there’s a lot to be said for first things, focused, staying disciplined, knowing what you’re good at, and really leaning into that over time. You know, I can, you know, think of a couple of you know, now, brands that are very hard to access, but they’ve stayed very true to to their roots, to their origins, to what they’re good at, and they’ve built a really nice brand around that, while still staying relatively small. And I think that has had a great playbook and set up for firms to scale, to a certain extent over time, but within a framework that still feels focused and disciplined and true to what they do. Well,