Monique Woodard, Fund of Funds Panel & The Pro-Rata Yacht! | E2018

Venture Capital Performance and Challenges

• There is a large difference in returns between the best and worst venture capital investors. (4m51s)
• It is difficult to achieve returns of 2 to 3x over a long period of time with large sums of money. (5m48s)

Emerging Managers and Fund Size

• Over the past 15 years, 92% of unicorn companies had an emerging manager or a syndicate lead who was an angel investor on their cap table at the earliest stage. (7m32s)
• Less than 5% of those same small emerging managers invested beyond the seed round in those companies. (7m55s)
• Emerging manager funds should not have reserves and should instead focus on finding exceptional companies. (12m17s)
• Small funds often lack the capital to invest further in successful companies and raising additional funds quickly can be challenging. (12m26s)
• The success of smaller funds is often attributed to the law of small numbers. (16m43s)
• A $150 million fund with three partners requires $67.5 million per partner, with different performance expectations for various fund sizes. Smaller funds need higher performance levels compared to larger funds. (17m20s)
• Smaller funds align more closely with Limited Partners (LPs) and General Partners (GPs) due to higher reliance on carry rather than management fees. Larger funds can afford to be less aggressive in performance. (17m43s)

Emerging Manager Landscape

• Since 2018, 2,991 funds have been raised in the U.S., with 1,650 unique managers. Many of these funds have similar backgrounds, with 60% attending Ivy League or top schools, 55% being former founders, and 77% having worked at large tech companies. (18m46s)
• Emerging managers are attractive due to better returns, but differentiation is becoming harder. Most managers fit into one or more high-achieving categories, making selectivity crucial. (19m41s)

Venture Capital Trends and Challenges

• Top venture companies show high deal returns, driven by innovation rather than economic cycles. The current wave of innovation, including AI, is expected to continue creating value. (21m30s)
• Successful emerging managers typically have an edge in deal sourcing, investment selection, or value addition. (22m53s)
• A fund of funds requires a minimum of 30 companies per fund to identify outlier performers. (23m53s)
• Venture capitalists are increasingly finding it challenging to differentiate themselves based on sourcing or value-add strategies. (25m41s)
• The influx of individuals into venture capital during the peak years has led to concerns about oversaturation and potentially insufficient work ethic among some managers. (25m7s)

Secondary Opportunities and Fund Management Software

• A discussion took place regarding secondary opportunities in companies, particularly in the context of cryptocurrency ventures. (29m9s)
• Michael Kim of Sand Hill Road established a $100 million fund with the specific purpose of acquiring limited partner interests in smaller funds. (31m5s)
• Runway is a financial management software designed for startups, offering features such as financial modeling, reporting, and data integration. (32m59s)

Monique Woodard and Cake Ventures

• Monique Woodard is the founding partner of Cake Ventures, a pre-seed and seed stage generalist fund that invests in companies accelerating the intersection of technology and demographic changes. (34m17s)
• Woodard’s first close was $5 million, and she completed three more closes for a total of four before the fund was fully closed. (37m17s)
• 49% of Woodard’s investors are institutional or institutional adjacent via fund of funds, and only 9% are individual investors. (36m0s)

Fundraising and Investor Relations

• Most venture funds do not provide returns to their initial investors before needing to raise capital for subsequent funds. (40m21s)
• It is important to identify and cultivate relationships with your ideal Limited Partner (LP) persona early in the fundraising process. (43m3s)
• Building a strong operational foundation, including timely audits and reporting, is crucial for attracting institutional investors. (44m35s)
• Investors should provide context when expressing excitement for a company they invest in, explaining why they are excited and what value they bring. (46m38s)
• Fund managers should remain true to their initial fund strategy, consistently investing in the stage and sector they initially pitched to investors. (47m15s)
• Fund managers should be fully committed to their fund, avoiding distractions or backup plans, and demonstrating unwavering dedication to their investors. (50m19s)

Venture Capital Performance and Liquidity

• In an episode of the podcast "All In", Chamath Palihapitiya presented data showing that it is difficult to achieve high performance and liquidity in venture capital, and that it takes time to see results. (5m14s)
• Investors should work with a professional or treat angel investing as a full-time, serious endeavor. (6m20s)
• A survey by AAA found that 73% of US drivers consider themselves to be better than average. (3m11s)