Small Investors, Big Deals Transcript
Good afternoon. Welcome to small investors, big deals.
All right, let's get started. Welcome officially to Small Investors, Big Deals. Thanks for joining. We've got a great conversation planned today. We're all gonna learn a lot. We're gonna put some top venture capitalists on the hot seat. As you all know, there's a lot of action private markets these days. Companies are staying private longer and a rising wave of interest among individual investors like ourselves is swelling as we all wanna participate.
And there's an emerging set of investment products that are catering to this market and that are trying to enable that transformation. Today's conversation should get us very deep in the weeds on these products, on some of the insights in the market, some of the trends that we're seeing. My name's Eric Cantor. I'm your moderator. I'm the CEO of Vincent. We help individual investors get smarter about private markets. And we intend to do that right here today. You can find us at www .withvincent .com.
as in invest with Vincent. Let me provide an overview of the next 50 minutes or so. First, we're gonna introduce the awesome VCs who are gonna be speaking with you today. Then we'll do discussion of some of the top issues facing all investors as we try to navigate today's private markets. Last, we'll open it up for audience questions to see what's on your mind, see what you'd like our panel to speak about. At any point in the conversation, please look down at the bottom of your Zoom screen or your app.
ask a question using the Q &A functionality. Anything is fair game. We will prioritize those. We'll try to answer as many as we can on the call. If we don't get to them, we'll answer them afterwards. At a couple of points in the conversation, we're going to ask you, the audience, questions about who you are, what you think of the things that we're discussing. Let's actually try that now, just for starters. A poll is about to show up on your Zoom screen. There's gonna be two questions. Shouldn't be...
ones that take too long to answer, but please go ahead and answer the two questions on our poll. And they're just meant to give us an idea of who's in the audience and let our panelists cater their answers to our audience members. Let me give you a couple minutes to do that.
All right. Let's share out the results of our first poll. Okay. So we've got quite a few novice investors. We have people who have done multiple deals, but not a lot of people doing it as their day job. So let's keep that in mind. That sounds about right on target. We've also got people writing checks anywhere from one K to 25 K. So right in that $10 ,000 sweet spot is maybe we'll roll focus. We definitely have products.
to talk about that cater to that. Thanks for doing that. Let's move on. We're gonna start the program with introducing the VCs who are speaking today. So for each of our three panelists, we wanna hear about yourself, your firm, what your role is, what investment products you offer, sector and stages of focus, and maybe just one thing that you're excited about in the market right now. Let's start with Jenny Fielding.
Hi everyone. Thanks so much for tuning in. I'm Jenny Fielding. I am the co -founder and managing partner of Everywhere Ventures. We're a pre -seed fund based in New York, but as the name suggests, we invest globally. So we believe innovation's everywhere and we want to be where the best founders are, whether they're in New York or they're in Latsham or they're in Africa. So we have a global portfolio. My background's actually a founder. And so what's interesting is that I started off writing angel checks.
So I was an angel investor writing 10, 20K tax. And now I'm running a venture fund. So love talking about the evolution of that journey. Something I'm excited about is investing in a down market. So during 2020, 2021, things got very inflated. It was harder for people like us to invest at reasonable valuations. And now with this correction, it's just a great opportunity. So I'm excited about what's going on.
Great. Ken. Hi, everyone. Eric, thank you so much for having us. Ken Nguyen, CEO and founder of Republic. We are an investment platform, not a fund, even though we do operate some funds, but the principal business is a platform, kind of like Amazon, where you can go on, find different opportunities and invest. That is having a bit of an upside in.
Whether it's music financing, a Y Combinator or Techstar startup, all the way to more mature startups that are open to the general public, we do have opportunities available only to accredited investors, but by and large, very much believe in a much, much more accessible venture ecosystem. One thing I'm really excited about is the intersection of entertainment and finance, you know, like movie financing.
music financing, but accessible to the retail public. And really can't wait to join Laura and Jenny and Eric on the conversation today. Great. Laura. Hey, thank you for joining and thank all of our panelists and Eric for having us here. This is really a great platform and something that is dear to my heart. I'm at Alumni Ventures and our mission is to democratize access to venture capital. So this
This is my song. I love this. And I love that you're hosting us today, Eric, and the chance to talk with Jenny and Ken about it. So Alumni Ventures is about nine years old. We have 10 ,000 individual accredited investors that have joined us to invest in venture. Our name is Alumni Ventures. So we've built the firm on the platform of individual school funds, started with the IVs and equivalents.
We've broadened and we really have rolled out the Welcome Mat for an individual accredited investor to join us in a portfolio. That's our primary approach to investing in venture -backed startups that are typically led by top -tier VCs. We're the single most active VC in North America, third most active globally. At Alumni Ventures, I'm on the board. I run a couple of our school funds, specifically the Harvard.
and the Dartmouth funds. And we just launched this spring a women's fund that gets me very excited. So you asked what fires me up. I love working with founders. I'm a three -time CEO myself. And in terms of sectors that I see, we're digging in pretty deep on climate right now. And I also am curious about the generational wealth transfer and how that's going to play out.
Awesome. Now let's move on. We can read our standard disclaimer that we do on every conference. Nothing in this presentation should be construed as an offer to sell securities or a solicitation of an offer to buy securities. All investments involve risk and the possibility of loss, including loss of principle and neither past performance nor forward -looking information is a guarantee of future results. Cool.
So let's start our conversation with a few data points. We picked a couple of things out just to anchor everybody on the same framework for this call. So for starters, venture is a very compelling asset class. We all probably feel that. That's why we're all here. It's got high returns, especially on longer term time horizons. And that time horizon, that illiquidity is something we're going to dig into today. The asset class of venture really outperforms all other asset classes, at least in this study.
But keep in mind with high rewards comes high variance and high risk. The data also as well here is from prior to the recent drawdown in venture, which is something we're gonna get into in a minute. Jenny hinted at. A lot of the growth for venture backed companies happens in private markets. All of the room under this, all of the area under these charts does, if you're just looking at the charts. One stat I heard this morning was that 87 % of companies that have $100 million or more of revenue in today's market are private companies.
So much of the growth is in those early decades. Great case in point is Rubrik, enterprise data company went public today at a $5 .6 billion market cap after 10 years of being in private markets and raising venture financing. So moving forward in our conversation, what we're seeing is that the most sophisticated investors, those were the biggest portfolios, have really strong allocations to private markets, venture and private equity.
A lot of the performance those investors have seen is what's sought by this wave of individuals that are joining in today, like us. One theme that we'll raise later on in this conversation is whether what's good for the biggest portfolios is also desirable for the rest of us. And speaking of today, we find ourselves in an unprecedented, at least for a couple of decades, moment in this market. We've seen a big drop off in funds raised, in price levels, in liquidity, the actual cash coming back to investors who've invested in the asset class.
really over the last two years now. This suggests to some that now might be the best time in a long time to be investing in the asset class. Yet another theme that we wanna touch on today. So coming back to the investor base assembled to our somewhat experienced investors, what are the products that we have to choose from when we wanna get exposure to venture? We've looked at a variety of them in our research. We invited a couple of those practitioners here today, and we're gonna talk about others who aren't here today.
So with this foundation in mind, let's kick the tires and find out the pros and cons of the different approaches that are available to you as investors to get into private markets today. We'll start with where the market is. Let's start with Laura on this one. How do investments that are in the private stage, free IPO companies, let's call it, fare in markets like the one we're in right now?
Think you're muted.
You just.
Sorry, as investors coming into this market, I think we are advantaged because there's a great pitch book chart that tracks investor -friendly terms and we are at a 10 year high for investor -friendly terms right now. Meaning it's tough to be a founder because valuations are lower, there's preference stacks, there's some terms that have emerged that if you're a founder poses a little bit of a
of a hurdle to get to swallow and to get through, but as investors, it's a particularly opportune moment to invest. So I would say that right now it's a very friendly environment overall. You know, part of what I think is the smart thing to do with venture is to invest serially over time because those vintage year trends work themselves out and...
this steady drumbeat of investing is really what has produced those, those dramatic returns that you showed in the chart where venture has outperformed pretty much every asset class over what was that five, 10, 15, 25, 30 years. So the steady investor into venture is advantaged. And in particular, if this is the beginning of your journey, this moment in 2024 is pretty attractive because of valuations and a series of factors that make this entry point.
particularly attractive. Great. And over to you, what's your take on today's private markets and where we're at in the cycle? Yeah, I mean, I think it's helpful to step back for a minute. We lived through a decade of low interest rates and just kind of this perfect storm of capital being free.
And so what that meant was everyone rushed into the asset class of venture capital. And we saw some somewhat disturbing things in the last few years and at the height of that bubble, shall we call it, in 2020, 2021. We saw everyone investing in this asset class, not necessarily doing their diligence and just a little bit of unsophistication coming in.
As interest rates started to increase, as exits became more difficult, as rounds became more difficult, we saw what we call kind of the tourist VCs leave. And that opened up this really great opportunity for investors like us, because we've been investing now, I mean, all of us collectively, probably each have been investing for more than a decade.
And so, you know, I think it was just a great opportunity for us to come in with not just patient capital, but smart money. And that's actually what founders really need and want. So we're seeing this environment, you know, a little bit harder for founders, which, you know, bites us on both sides because we have a lot of companies in our portfolio that are trying to raise. But as we're making new investments, we think that this is, you know, incredible opportunity. And I'd say, you know, in terms of this very moment, if you look at private markets,
they have historically outperformed stocks in every downturn of the last 15 years. So whether it was the great financial crisis, whether it was COVID, there was a lot of alpha there. So, you know, leaning into that, we're really excited about venture. Great. Ken, your take on private markets today? Eric, two things that make me really excited about this.
the nature, the state of the private market, generally speaking, even though on the one hand, venture capital in terms of the amount being available to deploy definitely is much less than what it was three or four or five years ago. On the other hand, I think that there's a huge untapped potential of capital from the retail public. If you ask an average person, not only on Times Square or whatnot, if you ask an average attorney,
she likely never invested directly in startup or in a venture fund. Truly today, much venture capital and private equity does come from family offices and institutional investors. And the second and related aspect I'm really excited about is that there has been an evolution, basically a trend of venture capitalists doing new things. I mean, each of alumni venture and everywhere fund.
is incredibly innovative in how they're enabling and accessing LP capital and deploying into new companies. And we are seeing that trend, obviously, at Republic. We also aim through our various products to make retail investors or retail investing more easily understandable. So I think fast forward in the three or four or five years to come,
I actually think the flow of capital into startup, into venture and private equity will be drastically higher than what we even had just a few years ago at Emily Tam Hotel.
Great. So let's move on. We're talking about the markets. Now let's look at the investors themselves. So should individual investors get access to venture? If I'm an individual investor, do I want to put that in my portfolio? Even if I'm, what if I'm unaccredited? What if I'm accredited? Would love to hear your take on this. You started down this road Ken. So maybe if you want to push a little further, let's start with you. This is a resounding yes for me. And I'm a little bit of a believer in limited,
government control and a more, you know, a patriarchal framework whereby government and rules and regulations can tell certain people that they can do certain things and not other things. So should people have access to venture and venture investing? Yes, in the same way that they should have access to Ferrari and coffee, even if they may not like coffee and may not actually buy Ferrari, but the accessibility got to be there. The...
Mox step though is how do we build infrastructure and parameters to enable people to get the information they need and do so sensibly. And whether something is sensible or not is also subtractive. And I think one of the best tools to educate, to improve sophistication is enabling people to invest and participate in a tiny amount that they can afford to lose.
and learn a lesson. And I was at AngelList over a decade ago. And I can share with you that the biggest seed stage investment that I made was the very first investment that I made when I joined AngelList. And that was a zero five years later. And I learned my lesson. God, I learned my lesson. And since then, tiny amount diversified. So yes, it's a resounding yes for me. Great. Laura? Yeah.
big believer, I think for two reasons. One is from a fairness discipline. And that's exactly what Ken was talking about, that this is an amazing asset class and individuals should be able to access it and to make their own decisions and to join this journey of investing in early stage companies for the long term, because it takes a while for these companies to come to maturity. But I think access is a big part. So the other piece is to really think about as an individual accredited investor, as an individual investor, what
of risk tolerance do you feel comfortable with? How do you kind of get your hands around this? And I think a lot of people maybe stick their toe in the water with an individual investment, as you say, Ken, at AngelList or looking at one shiny object of a company, and maybe they get a little singed and they step back. The approach that I think really makes a lot of sense is this portfolio approach. A lot of people invest in the public markets using mutual funds, right? Because it kind of normalizes. They're not picking one individual stock.
they're doing a mutual fund. So that's the model that we clearly have embraced at Alumni Ventures where we build portfolios that are diversified on stage, sector, and lead investor so that you're really getting exposure to the asset class without taking kind of the tough bits out and really giving you kind of that upside with mitigating some of the downside. And so that approach of using a portfolio is really the place where we've...
you know, grease the skids with the 10 ,000 investors that have joined us and the 1 .3 billion we've raised. That approach seems to resonate for folks who are just kind of getting into the market and realizing that a portfolio mirrors what they've done in the pub in the public markets, you know, kind of from a parallel perspective to what they might've done in a mutual fund. Great. Let's move on to Jenny. What's your thought on individual investor exposure to venture? Should you, shouldn't you? How do you know if, if it's right for you?
Yeah, I mean, as I mentioned, I started off as an angel investor and like Ken, I learned some valuable lessons. So I guess to Laura's point, diversification makes a lot of sense in that same way where you would diversify across mutual fund or even a real estate portfolio, right? Which I think many people are familiar with. So we believe in diversification and that manifests through our funds. So our current fund,
we'll make 90 investments in this one fund. So you have real diversification, not in stage, because we do all pre -seed, so first check in, but really across geographies and across verticals, because we're really looking at entrepreneurs building in all different spaces. So I think it's a great addition to a portfolio, as long as, and this is something that Ken mentioned, education. I think when I started investing,
there really wasn't much information. You had to know VCs, you had to know insiders. And what's great about today is platforms like Republic and others are so much content, so much access, so much education that I think investors have a real benefit now than when we all started. So I'm excited about that, but I do think you have to have the right information. So let's just keep pushing on the investor for a minute before we dig into your products and portfolios.
So I'm an investor, you're saying I should get into venture. How do I think about venture in the modern portfolio? So, you know, back in the day, it was 64, you had your stocks, your bonds, real simple, like, and those both have a role for you, right? One's a little more variance, a little more appreciation. The other one's a little more reliable in a pinch. So now we're bringing in private market exposure. How do I, as a small investor, think about that in my portfolio? Putting aside what my venture is, which fund I'm in, et cetera, just,
How do I think about the asset class? How do I know how much to allocate to it? What am I expecting from it relative to these other assets that I have? Why don't we start with Jenny on that one? I mean, this is a high -risk asset class. To give you some concrete examples, I've had funds that have literally had a 2 ,000X return, and I've had funds that have gone to zero.
So just over the last decade, you have to really understand that that is the possibility. And so I think allocating a small amount for that incredible alpha makes a lot of sense, but I do think you have to think long -term, one, and also just understand the risk reward. So in the assets that you...
mentioned bonds and stocks, like there is liquidity for the most point, for the most part. And in venture, there just really isn't liquidity. So, you know, you'd worry if one of your LPs said, how do I get out of your fund? Right. So they're in it for the long term. So I like to think of venture as again, a generational investment, not necessarily a short -term gain. Got it. Ken, your thoughts on the role of venture in my broader diversified portfolio?
To add on what Jenny just said, within venture, I think there are different risk profiles. And I'll give you an example, the easiest way just to give a hypothetical here. If I have, or a person has a hundred thousand dollars to invest in venture and they got to make one investment, I would not recommend them to go on Republic, randomly pick a deal and put a hundred thousand dollars into it. No, I'm going to say go to Jenny, go to Laura, talk to them because they are
truly expert in this space and they fund invest in a diversified manner and put this flow drama, you know, an investor in some of the funds as well. But if the person decides that, hey, within this $100 ,000, 75 ,000, I wanna be a little bit safer, less risky, and I'm gonna go, and if a venture capitalist like Jenny or Laura would accept them into the fund, but the remaining 25 ,000.
I want to make some bigger bets and I want to try to be a direct investor in a company whose product I actually consume. And I happen to see that on Republic or Comparable Platform, by all mean put a thousand dollars, $2 ,000 and you learn maybe certain things that the experience of direct investing is slightly different, but understanding that that variance, the differences within venture itself, I think is critical.
But ultimately, it is about finding the experts that you believe in and then hopefully learn from them or let them bring you into the fold. I think it's usually the best way to go about investing and do so within the right risk profile that you have for the capital that you're allocating for this particular asset. So this is an interesting theme. Let's keep pushing on this a little bit. So we talked about, yes, venture is good for the individual investor for a number of reasons.
It fits in your portfolio in a certain way. There's the illiquidity, there's the potential outperformance. So now let's get into this question you raised of, am I better off stock picking? Right? Like I want to, I want to invest in SpaceX. I want to invest in this cool startup. I just saw an Angel as to Republic, right? Stock picking, let's call that. Or am I better off finding a manager like a Jenny who's going to go and find these deals for me. And I can just sort of outsource that and not be the expert.
Or is there some other way to build a diversified portfolio, have exposure to something like you'd have with an index fund, like many of us do with our public equities, just like buy one thing and then by that you own enough things that you're fully diversified. Or is there some other approach? So how should I think about that balance between stock picking and portfolio building? Ken started on it, but maybe Laura. Yeah, yeah. So I think of it as a meal. So the center of the plate,
The thing you eat every year, because I do think diversifying by every year is important, is a diversified fund. That's in our case for the alumni ventures, we have these diversified funds that are around school ecosystems or the such. Also have something called an AV foundational fund that is cuts across the school ecosystem. So that's 25 to 30 companies. That's your core main meal. We then offer side dishes. So those are focused funds that might have a theme. So like a sports theme or a...
We have a women's fund or an AI fund. Those have themes. And then the last is what you're talking about is the individual stock picking. So we offer syndications where you can go into an individual company. As you go from the center of the plate to the outside, those have increased risks. If you have a diversified fund, less risk. If you go into a topical fund like AI, might be an amazing return, but you might be at risk because maybe all the AI companies are overvalued this year. And the last bit is an individual company.
So if you also think of sizing your investment in that progression, you might also feel like you can align to what your risk factor is. If you are someone who's really kind of risk averse, maybe you stick with the diversified funds. If you're somebody maybe earlier in your career, you do less of a diversified fund and you pick the individual stocks that have the most variability as a heavier part of your investment. But that's the progression that I guess I would frame it as a meal in terms of.
of the annual allocation to venture. I also wanted to just add another thought for folks as they're thinking about investing in venture, and that is thinking about retirement funds. About a third of our investors at Alumni Ventures use retirement funds, self -directed IRAs. The nice alignment here is the timeline. So if you are thinking about venture, you have to recognize the funds are locked up, as Jenny and Ken said. So if you use retirement funds, then
you've already kind of signed up for this money to be locked up for, you know, until you retire. And so utilizing that capital, which also has a long -term perspective, often gives people comfort to say, this is the long -term asset class in the long -term asset class bucket and gives, gives folks that nod of the head to say it, it sort of aligns correctly. I like this balanced diet of venture allocation analogy here. I feel like I need to eat some more spinach instead of just.
chilly all the time. Jenny, do you want to comment on this question of how people should think about it? Yeah, I'll just double click on what Laura said. The way that our fund works, I mentioned 90 investments, so you're very diversified. And then what we do is we run these SPVs, so single purpose vehicles on top of them as the company is mature.
And so what that means is as the risk goes down, because these companies are getting larger, they're getting lots more capital coming in, lots more revenue, our limited partners, the people that give us money, are able to choose what works for them. And so sometimes they have a certain inclination. They want to be really in climate so they can start as these companies mature.
put more of dollars to climate. Maybe they are operators themselves or they have some type of partnership that they can offer these companies. And so as they start maturing through their A's and B rounds, they can actually have more of an active participation. So I think I love Laura's analogy of like starting with the core, the diversification, and then you're really able to kind of go more specific to what interests you, what your risk profile is, really what your areas of interest are. So that's how we operate as well.
Again, you started this thread. You want to any last thoughts before we move on to the next topic here? Just as a recognition to the wide range of people's risk profiles, the products we offer the Republic does run the entire spectrum. On the one hand, we have deals that people can invest in one off and I highly, highly encouraged people to invest a tiny amount only if they really like and understand the company. Because if you invest, even if,
you know, a seasoned venture capitalist like Laura or Jenny, if they just make a single investment with the years of expertise, the risk of that being a zero is substantial. And I think Laura and Jenny would agree with that. It is over a more diversified portfolio that you mitigate that risk. On the other side of it, Republic does have a digital instrument called the Republic Note. And that one is unusual in that someone can put in,
$10 and it does have exposure to a very large pool of companies that have ever raised on Republic on an evergreen basis. Now, as with something that is new, the first of its type, the UX is still janky. We're still learning from it. We have yet to make a dividend payment. But the thesis now is actually in practice and the hope is that down the road,
It is going to be one of the most diversified. What it doesn't have though, is the expertise of venture capitalists like Laura and Jenny. So I can't emphasize enough that if you're gonna deploy a large sum of money, you gotta look at a track record and the venture capitalists, the experts behind it. If you're gonna invest a small amount, have fun with it and learn with it to the extent that you can.
All right, let's see what our audience thinks of this. Let's do another Instapoll here. In the audience, it should pop up on your screen. Do you agree that individual investors should be stock pickers or diversified fund allocators or finding GPs? What do you think is the right approach for individual investors to get exposure to the private markets? Let's give them a couple seconds to think about it. We have a hybrid option. We have a none option also. Let me vote.
All right, we got some results here. Let's see what we got. Wow, okay, hybrid. People like this idea of, I wanna have my, what was it? My meat and my spinach or my diversified funds and my stock picking. I like that. I like that too. One thing we haven't talked about much yet is stage and sector, which we're gonna get to, but I like people's thinking here. So next question.
And by the way, I see questions starting to appear in the Q and a, which we will go to in a minute. I would encourage everyone to ask questions and ask the hard questions. We promised feet to the fire. We promised hard hitting. Let's get to that now. So let me start with a tougher question. I'm an investor. I'm in an elevator with you 60 seconds. I want to know why your product is the best approach for me to get my exposure to this asset class and be very specific. Why don't we start with Jenny?
I love this question. So the origin of our fund is that it's backed by founders and operators, 500 of them. And they are really the source of our deal flow, our diligence, and ultimately the support of our large portfolio. So we have a very differentiated approach. And yeah, I think that's what makes us unique.
Ken? Well, we're a platform that's truly open to both accredited and non -accredited. Even if you only have $10, but want to learn more about venture, we have products for you. The note is one. But if you want to deploy $100 ,000, we do have partners, again, like Jenny and Laura, and funds that we run. So it's kind of like a one -stop shop, irrespective of your risk profiles and...
the amount of capital you have to deploy. So that's definitely one major differentiator. Laura? So the center of our fairway is the individual accredited investor and building portfolios and venture for them. So that is all that we do. This is the focus of what we do. And we've been doing it now for nine years. And we've got 10 ,000 investors and 1 .3 billion raised. We've invested in 1 ,300 portfolio companies. We are a top quartile performer versus
venture capitalists like Sequoia and Andreessen. And this approach that we use builds on the network of alumni ventures, which is this network of multiple schools and has built it to a community of about 650 ,000 people that we lean on as we vet deals and as we connect those startups into the community. So I think that the answer is, you know, this is the center of what we do and we love building for the individual credit investor. Right.
So a couple more questions coming in from the audience. Talk to me about research. Maybe not as your investor customer, but let's say I'm your cousin calling you and saying, hey, I saw these really cool VEST and platforms. I was on this virtual webinar the other day and like, I want to invest. What kind of research am I supposed to do? How do I get comfortable with risks, rewards, who I'm dealing with, what the terms are? How do I get out of the hood on this to really make good decisions about how to build this allocation? And again, tell me as your...
friend or cousin, not as somebody who's buying something from you. Why don't we start on this one with Ken.
Probably have three advice. The first one is obviously read up as much as you can, but only invest in things that you understand. Either you consume the product, but if you understand the business. The second one, if you don't actually understand it, even if you do, is follow a guru. You happen to read up and learn about Jenny and Laura and trust their voice. So you're relying on someone else's expertise. And the third scenario,
where you don't have enough trust in a product or your knowledge in a product or a guru, I would say to the extent that you can spend a tiny amount to just get in and learn like Bitcoin, crypto. Many people are still on the fence on whether is it real, is it not real? Do I really understand it? $2, go on CoinBedge, open an account, buy a tiny bit.
just to experience it, why wouldn't you, if you have that ability to participate with an amount that you don't mind if you lose? So those are the three ways, the three avenues that would recommend my cousin to approach this. Jenny, diligence, research? Yeah, I mean, I think, you know, the thing about venture capitalists is they're pretty noisy. So that's an advantage to anyone who wants to, you know, diligence an individual investor or a fund.
I would say, most LPs by the time they meet me, they say, I feel like I know you Jenny, because I follow you on Twitter and LinkedIn and we're kind of building in the open, so to speak. So we're very transparent about the highs and the lows. We celebrate a lot of our portfolio companies as they're doing well. So there's a lot of actual public information out there. And then of course, if you are...
interested in investing, there's a lot of diligence and data rooms and all those types of things that you can go through. And what I recommend is there are these things called benchmarks, and they're open to anyone. So you can look at PitchBook, and you could look at Cambridge, and you can find the benchmarks of where these funds should be according to their vintage. So then you can go back to the fund manager, and you can ask, when did you start your fund? And what type of multiples do you have?
And do you have returns? And so these are all very simple questions that if you're going to invest, those managers will have to answer. So I think you do a little bit of public and then you do a little bit of private and with the combination, you can come out with something good. And I think that the problem I see is a lot of people just follow the hot topic, right? And so...
I think Laura mentioned Andreessen and all of those. It's like, those are the folks that get a lot of media attention and the like, but you really have to unpeel the onion and figure out how good are their returns. And that's something up for debate. So I would suggest if you're gonna be investing in some of the large folks, really do your diligence. Don't just go buy historical brands. There we go.
Laura, what do you have to tell me about research and diligence? Right. I mean, I love what Ken and Jenny added. I'd have two more ideas for folks. So one is podcasts. I feel like I learned so much on my walks, on my commute. One that I like is Invest Like the Best. I think obviously what you guys do, Eric and Vincent, I think is part of the education of folks who are trying to expand the horizon and understand. So I'd encourage folks to learn there.
What I can offer from Alumni Ventures is we do master classes, we do Venture 101, these are on -demand webinars, they also are new ones where you can ask questions. When we offer these, they don't sell out because obviously webinar, more people can come, but the hunger for people to learn is enormous. And in those contexts, it's really, we do ones like for instance, the master class on discovering and understanding a deal.
We literally unpack an example and we're looking for each of the dynamics of what's going on in that particular company. And it's almost like a class that you can just consume at your own leisure. Because we do believe in educating folks is critically important. So that's what I would say. I mean, consume those podcasts. Learn, listen, maybe even go in your... If you're in a city that has startup activity, go to Techstars, go to an event that's held that you can kind of soak up the startup community and see,
what that energy and that vibe is. And maybe that'll help inform you as you research and you listen and you learn about this exciting asset class. How long is your commute? Oh, you don't want to know Eric. There's just too many podcasts. You must have a good long one. So Eric, this is the funny bit. I have an hour and a half commute each direction that is changing in three weeks to 20 minutes. So, yay. The podcasts are going to go, it's going to be very limited. Let's go to another good question coming from the audience. I'm actually going to just,
amplified a bit. The question was two part, but I'm going to make it three parts. So can you talk about power law? This is a concept that I think venture investors should understand. So somebody wants to answer that off the cuff. That'd be great. I think we could just define that. Number two, whether to invest in follow on rounds after seed. So I think I would expand that number two and say,
What do I need to know about different stages and sectors? So we're talking about venture here in like a fairly aggregate format. I'd love to know a little more specificity from each of you on what excites you or scares you on different stages of the venture lifecycle, right? Cause we're talking about 10 year life cycles here and there's early and there's late and also sectors. Some of you are in AI, some in FinTech. What can you say about that? So with that, why don't we start with Ken.
I think power law refers to the fact that the bulk of the return on a fund comes from a tiny fraction of the investments within that fund. And I don't know that, I mean, for me, that's almost like a fact. I don't know that there are funds that are so broadly that every single investment.
you know, returns equally or similarly well. And because of that, I think it emphasizes on the principle of trust diversification. If you are going to make one or three or five investments only and hope that you're gonna get rich by having a 10 X multiple, you're gonna be sorely disappointed. If you're gonna do that, make sure that you have the return on experience. That is you investing $10 and get to call yourself.
you know, an investor in this, you know, copy and but, but don't expect true financial return. And Eric, I forgot what the related question to that may be, but maybe I'll pass it on to. Yeah, sorry about the multi -part question. I was asking about sector and stage now that you've very capably defined power law for us. So any sectors and stages where you think what we're talking about applies more or less.
sectors or stages where you're more bullish, less bullish, where you're more focused or less? It's more applicable rather than sector, but on stage that is the earlier the investment strategy is, power law would apply more powerfully. And when you move all the way to pre IPO, then the risk of total loss is going to be much lower, but you're unlikely going to get more than a 2X or 3X return. But venture, particularly early stage venture is where power law.
does in fact apply strongly across the board in my homework, isn't it? Gotcha. Laura, stage and sector. Yeah. So I'll take the Sage piece because I think about this a lot. So when we construct our portfolios, it's one third growth, two thirds seed in A. Why do we do that? So the one third growth, as Ken just said, you can underwrite a BCD for a 10x return. It's
not likely to be the thousand X return when you're entering at that point, but it also is perhaps less likely to go to zero. So we do about a third of our investments building off of the 1300 companies in our portfolio in that growth. But what gets me fired up as a personal investor and like, where do I like brighten up and just get excited is seed and A. So that's two thirds of our work. These are the companies that are just swinging for the fences on seed. You know, you're past the angel, past the friends and family round.
You're talking about a strong lead investor that has expertise in the category that's going on the board if it's A or providing a lot of counsel and guidance if it's seed. So you're really kind of amping up where this company could go because of the experienced lead investor that's involved at that juncture. And yet you're coming in when, as Ken said, the power law is definitely in place. So those companies, gosh, those can be the thousand Xers, those can be the hundred Xers. They can definitely be the ones that go to zero.
But you think about it from a portfolio approach and you get that power law return and allows you to look at those in total and say, amongst these, you know, dozen seed and A companies, if we get some of those that are really going to knock it out of the park, that returns the whole fund. So if your question is about passion for me, seed and A is really where I get fired up. But part of that is because I love the potential that these companies represent and the
ambition and the excitement that teams bring.
Jenny? Yeah, so I guess you talked about stage and Ken talked about power loss. So I guess what's left is verticals. For the most part, we're generalists. And we believe at the pre -seed, you're betting on people, not products. And so we have seen some of our best companies pivot into other verticals. And so to be too vertical specific at the early stage doesn't really make a ton of sense for us. So we want pretty.
well diversified verticals, whether in our case, we do climate, we do health care, we do FinTech, we do automation, SaaS. So, you know, probably have five or six areas that we concentrate on. And then anecdotally, it's kind of funny because generalists went out of fashion a few years ago and everyone wanted to get into, as the market was raging, everyone wanted to be in FinTech. And so they were backing all these FinTech funds and then hard tech came up and everyone being hard tech.
So now it seems, you know, from talking to a bunch of LPs that everyone's kind of back to generalists because they've realized if you were super concentrated in FinTech and obviously we've seen FinTech get really hit in the public markets, you know, that could have really impacted your return. So I feel like the generalist has come back from what I've heard. So we're in favor for now, but, but, you know, who knows how long that lasts. What about AI? I heard that's going to be big. Yeah, maybe just a little. Cool. We've got time for a
Couple more questions. So let me put this one on the table. I'm an investor, I'm getting excited. I'm hearing about all these different options. What else do I need to know to know that I'm ready to be starting to play in the private market space? I'm thinking about things like fees, liquidity, any regulatory type things I need to worry about, taxes that I'm gonna now be subject to. What's kind of the dirty laundry I need to just be aware of before I start playing in this space?
Clean laundry bit? Yes, please. So QSBS, qualified small business stock. So this is something that folks don't often know about, but I'll throw it out there. So it's an Obama era law that was designed to encourage investments in early stage companies and holding those positions for five plus years. So if you were investing in a company and it qualifies under the QSBS guidelines, so it's things like domestic, there's a...
Couple of other things, but in our portfolios, it's probably like 90 % out of the gate are QSPS eligible. And that company exits after five plus years. You pay no taxes on the gains up to $10 million.
Laura, can you clarify if that also applies to investors investing in a venture fund or whether that only is applicable? So there's always fine print, Ken. So that's a great point. So I don't know all other funds, but I'll use our example. So if you are investing in, say, our women's fund and you come into the fund before the fund invests in the company, then you are eligible.
So for instance, we have an incentive structure for people to join the funds at the early stage of our fundraise so that everyone is able to benefit from any QSPS, no tax outcomes. Now, obviously, to back to the rest of your question, there's things like you gotta be patient, right? Cause none of that kicks in unless this company takes five plus years to materialize. And that is pretty realistic for venture. Most of your exits are gonna come in that five to 10 year period. But it's something that...
people don't think about much in terms of venture and it's a huge hidden benefit that can apply. If you're, you know, in our case with the platform, we have about a hundred people in the back office and we make sure that sort of those, those reporting elements, you know, are given to you. We kicked out literally 35 ,000 K ones on March 23rd. So, you know, we have that reporting, but QSBS is, I would say pretty exciting bits about the tax implications that folks should know about.
Eric, if I may follow suit with a fact toy or a tidbit that's less exciting, but important to remember, I think for a new investor, the question is, are you an accredited investor or not? And loosely defy a millionaire, but there's a more fine tune. All you have to do is Google a credit investor. If you're not an accredited investor, it's certainly that you're not allowed, that funds like Alumni Ventures and Everywhere Fund would not be able to take you in.
as a matter of law, unfortunately the law is so and so you have to resort to platforms like Republic. If you are an accredited investor, some funds require you to be of a higher level, co -qualified purchaser. So five million rather than one million. Those two distinctions are very relevant and is worth quickly looking up the definition and the suitability as applied to you.
Great. Jenny, any last thoughts on laundry, dirty or clean? Your choice. Yeah, I mean, I think you guys touched on some of the big ones. You're going to get a lot of these things called K1s, even when for years where they're zero and just aggregating them can be challenging. So we, for our investors, use a platform called AngelList. And so when we have investors or LPs that are doing many,
SPVs and the like, it all gets aggregated. And so you get one K1 package, which is really great. So I guess, you know, the one thing I would say is, you know, if you're investing in managers and people kind of all over, they're all using different back offices and different systems. And so just don't underestimate that you're going to be kind of having to figure out how to get all of them, chase them and make sure the timing works out. So. Yes, you will.
Good question coming in from Andrew is an interesting one. He's talking about early stage, but we'll broaden it. He says, so much of the due diligence in VC investing is centered around getting to know the founder and the team. How can you do proper diligence if you don't have that direct connection, i .e. via syndicated SPV on everywhere or a deal in Republic or a fund through alumni? I would add to that, the late stage as well. In other words, if I want to get on the cap table of SpaceX,
I don't get to see the financial reports. I don't get to talk to Elon. I'm just buying probably an SPV into an SPV into an SPV. So Andrew's question, how do you really get this information about these companies if you don't have direct access? Start with Jenny there.
I'm not sure. I mean, I think it's you need to trust the manager. So we don't open our funds or SPVs into people outside of our LP base. So I think maybe someone else could could answer that.
Again.
I do agree that particularly, you know, in early stage seed and series A investing, much of it is assessing the founding team, the energy, the expertise, the integrity, the resilience and hustle and a lot of it got to be done in person. On the other hand, obviously not everyone, very few people, I mean,
folks like Laura and Jenny's one out of a billion and that have their credibility and founders introduced fellow founders to VCs like themselves. So you manage to become part of the Everywhere Fund ecosystem or the alumni venture ecosystem. Maybe you get to meet them. I do think that there's merit and this is a little bit of a subjective thing. Early data on outside because we of course are a platform buying large. We do have funds, but...
and much of the activities on the platform means people are looking at data online and make investment decisions. And there is something to be said about underrepresented founders comprising a much more significant percentage of the deals that get funded. I think sometime behind a computer screen, all of us and our subconscious biases are less so.
And it's still early for us to say decisively that behind a computer screen, not knowing founders face to face is necessarily, you know, has more merit than in person. But that is something that we are keeping in mind. And I thought I put it out there on everyone's radar for your feedback on that point.
Did you want to chime in on that one, Laura? So a couple of thoughts. One is, I think all of you probably know DocuSign, right? And it's now acquired by Dropbox. I spoke to a researcher there, just building on what Ken was saying. And they, so for folks in the audience, a lot of times founders will send their decks on DocuSign, not on DocuSign, sorry, DocSend. What am I saying? DocSend and...
DocSend can then analyze how investors look at those decks. And DocSend is doing research that understands how a diverse founders deck is viewed versus a more traditional founders deck. And the information they're getting is provocative, disturbing, and really sort of speaks to what you're saying, Ken. So I think take a look at their research. It's coming out soon. And...
And to recognize that backing diverse founders is really important because those ideas are coming to light with people who are as passionate, if not more, and as fiery, if not more, about what they're building. And so those, I personally love that opportunity. It's part of why we launched a women's fund at Alumni Ventures. I couldn't be more passionate about the topic. So I think that...
I saw some of the questions in the chat that were questions about diverse founders. And that's partly why for my personal time, I love what we're doing with the AV Women's Fund to try to address that funding gap. And as a founder, I mean, just kudos, mad respect for you and Jenny, because you guys are diverse fund managers and building.
and having the immense reputation as venture capitalists that you do, I think, do wonder for the venture capital sector as a whole, because of your own lens in looking at founders to select outside of the Silicon Valley boy club norm, so to speak. Amazing. We got three minutes left here. So we're going to do a speed round for the last question. Before we do that, I just want to ask one more question to the audience, another Instapoll. How are you feeling?
right now about the opportunity to get an adventure. Bullish, bearish, something in the middle. Just want to take a quick poll, pick one of these answers. Give you 10 seconds there, and then we're going to jump into our final question. By the way, while we're waiting for this, I'll just mention that there's been a lot of great questions in the Q &A. We're not going to have time to get to any more, but what we will commit to is to grab them, stick them in an email, and send them out to everybody who attended within the next couple of days. We can team on that.
All right, let's see the results of this poll. Our audience is bullish. Okay, a little bit of neutral, but very, very solid results. 59 % on the bull side. Okay, last question. It's a two -part question, but bullet point, two parts. I'm going to ask each of you one thing that you are looking forward to in the market. So take out your crystal ball or just tell us about something that in the broader market you're waiting to see, you're excited about. Number two,
anything for your company. We're going to drop the contact links into the chat again, just so we can see what your companies are and how to find you. But an event you're having, a fund you're launching, conference you're going to, let's start with Laura. Great. So I am bullish about climate investing. I think longitudinally I've been doing venture for a long time. And the thing that was amazing about the Inflation Reduction Act is it unlocked.
all sorts of opportunities in climate that I just haven't seen before. So I am, as a member of the planet, I am excited about that. And then in terms of learning more about AV and maybe I'll plug the women's fund just cause I'm close to it, but it's av .vc slash women's. If you are interested in investing in our other funds, you can do things on the av .vc sites. There's a foundation fund that might work for a lot of folks. That's av .vc slash AV foundation. Awesome.
Jenny, something in the market and something in your fund or your firm? Yeah, I guess I'm looking forward to everything not being called an AI company. And instead, we can pass that to companies are going to be powered by the best technology for them. And so potentially that is crypto or it's AI or it's something else. But having built my company in kind of the mobile age, like we don't refer to things as mobile anymore. So I'm hoping we get.
pass this, have to add the word AI at the end. And then, yeah, best way to follow me is on Twitter. I always post all the things I'm doing, where I'm going to. If you're in New York City, we're hosting a ton of things for Tech Week, New York Tech Week. So come see us there. And that's it. Ken, last word. I am most excited about real world asset tokenization and what by that I mean. Just
technology, blockchain's ability to compliantly break down any asset revenue stream, piece of art down to millions and billions of pieces and then compliantly facilitating it and allow people to come in in tiny amounts. Imagine the Mona Lisa owned by a hundred million people and that amount becomes very affordable. So I think the world of private markets is moving in that direction. And harking back to my firm belief that retail capital,
in small tiny amounts coming into the ecosystem is gonna be the tie that lifts our boat. We do a ton of things at Republic, virtually online, I mean, in person. I hope that whether you're a retired dentist, a family officer, a first year student, that you just come and browse and find opportunity that with a tiny amount you can participate. And Eric, I think you have an upcoming
virtual event with Benson about the Republic Note itself. So hopefully there's an opportunity to engage with you all on that as well. Amazing. This has been great. In closing, just want to thank our panelists. Thank everybody who gave us their time for the last hour. It was a high energy conversation for me. I hope it delivered on what you expected. There will be follow ups, the video recap, the contact information for everybody on the Q &A responses. And like Ken said, let's...
Look for that next event and ones beyond that. Thank you and goodbye.
