EP135 How to Access Top Quartile Venture Capital Funds w/Mel Williams

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We're not distracted by what's happening in
other asset classes.

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And as a result, we think we're simply broader
and deeper in the asset class than many other

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investors are.

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We've been generating best in class returns for
our investors for almost 20 years.

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All of our mature funds are generating
somewhere between a 3 x and a 5 x T BPI or

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total value to paid end capital multiple and a
3 plus x DPI or distributions to paid end

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capital multiple.

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We believe we have one of the best networks
across the venture industry, which increases

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our insight and our access to the best
performing investment opportunities.

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And then finally, you know, we've got a team of
over 14 investment professionals with over a

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100 cumulative years of experience investing in
the top performing venture managers and best

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performing venture companies in the industry.

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Tell me about the story about how TruBridge got
involved in the Midas list.

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Forbes started publishing the Midas list back
in 2,001.

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And in 2009, they they stopped publishing the
list as a result of the global financial crisis

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and the pressures it was putting on the
publishing industry, including Forbes.

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We reached out to Forbes in in probably 2010 to
begin a conversation with them about how we

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could be helpful to them in relaunching the
Midas list.

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And today we're really the partner, the data
partner to Forbes for the Midas list.

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I mean, what that means is, is we collect all
the data, We confirm all that data with the

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best performing GPs and the CEOs of the
companies that are really driving performance

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in the Midas list.

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We generate the list, through a model that we
manage every year with Forbes.

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We work with Forbes to kind of vet the list
every year with a blue ribbon panel of industry

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experts and industry advisors and consultants.

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And then Forbes publishes that list and we help
publish additional content around and about the

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list.

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But that's the the genesis of the list and our
role in the list.

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We we've been the data partner to Forbes on the
list since 2011.

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The Midas list, the number one list for VCs,
does that give you an unfair advantage when it

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comes to accessing GP, talking to LPs?

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And talk to me about that.

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Our role as a data partner in the in the
compilation of that list certainly gives us

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access to a level of information that other
limited partners might not necessarily have

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access to.

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It's very granular deal performance and deal
attribution data that other limited partners

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may not necessarily have access to.

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We certainly think that helps us, make better
decisions and be better investors.

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Tell me more about TruBridge's fund to fund
strategy.

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Sure.

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So I think the most important thing about
TruBridge is that, number 1, all we do is

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venture.

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That's our entire focus.

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We have 5 distinct investment strategies on our
platform.

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We have a core fund to fund investment strategy
where we build a concentrated portfolio of very

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best, well established high performing fund
managers.

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We have a seed fund to funds investment
strategy where we build a concentrated

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portfolio of, seed and small managers,
including, numerous emerging managers.

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We have a dedicated direct investment investing
strategy or fund on our platform, where we're

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investing in the breakout winners in our
underlying portfolios and investing alongside

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our managers in those companies.

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We have a dedicated LP secondary investment
strategy or fund where we are investing in, LP

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secondary positions and or directly in
companies through the secondary market.

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And then finally, we have a dedicated
blockchain fund to funds, investment strategy

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where we're investing in and building a
concentrated portfolio of the best performing,

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blockchain dedicated managers in the industry
as well as investing in companies alongside

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those managers.

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So you have a couple of different aspects,
secondary, directs, core, emerging managers.

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How are these all strategic to each other?

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We like to think that our participation in one
of those strategies impacts the other strategy.

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Certainly, being close to some of the most well
established managers in the industry and

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understanding whose seed deal flow they want to
see the most informs, our investing in the seed

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landscape, investing in the seed landscape and
seeing countries, seeing companies at their

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inception, seeing how those companies grow, how
management teams perform, how markets develop

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and customers respond to product offerings,
informs our direct investing strategy.

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And so, you know, they really all layer layer
on top of 1 or the other.

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Crypto and blockchain, arguably the most
volatile asset class in history, even more

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volatile than venture capital.

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Does that somehow change your portfolio
construction, or do you have a venture like

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portfolio construction for your blockchain
fund?

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David, that's a great question.

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I think across all of our portfolios, we
definitely believe in the power law nature of

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venture returns and that a limited number of
companies drive the overall performance for the

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industry and as a result, drive the overall
performance for underlying fund managers.

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We want to get as much exposure to those power
law companies as we can.

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We definitely believe in the quality of our
deal flow and our picking ability.

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Across all of our investment strategies, we
tend to build concentrated portfolios.

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And the same is true in blockchain.

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With our 1st blockchain fund, we are building a
concentrated portfolio of no more than 10

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managers, in that fund.

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The way we account for volatility or increased
volatility in the blockchain space is through

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sizing our positions in certain managers in
different ways.

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And we also expect to see more manager turnover
in both our blockchain portfolios and our seed

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portfolios because those two segments of the
venture market are simply less proven, and the

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managers in those segments are less proven than
there are in other segments of the venture

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market.

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You have one of the most enviable kind of LP
portfolios really in the world, not only for

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fund of funds, but endowments.

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Probably a little it's probably today not as
difficult to get the incremental manager, but

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when you were starting out, how did you go from
0 to 1?

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How did you access the those first 2, 3 premium
blue chip venture funds?

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David, when we started, TrueBridge Capital
Partners, both my part, myself and my partner,

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Edwin Poston, were coming from very well known
institutional investing shops where we had

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front row seats at or in the venture industry.

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We had previously invested in many of the
managers you see in our portfolio today in our

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prior roles.

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And so we were able to bring those
relationships from the University of North

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Carolina's endowment and the Rockefeller
Foundation's endowment.

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We were able to we were able to bring those
relationships to TruBridge to help begin

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building our first portfolio.

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And so that was a huge positive for us in funds
1 through 2 or 3.

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We also started our firm in a close partnership
with the Kauffman Fellows program, which is the

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only program of its kind whose sole mission is
to identify network and train the future

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leaders of the venture industry.

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And, and that partnership arguably gave us
connections to and access to some of the best

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performing fund managers in the industry.

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And those are really the two ways we launched
the business and we built the first couple of

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portfolios.

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You're obviously incredibly talented.

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If it wasn't for this advantage of being at the
North Carolina Endowment and Rockefeller

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Foundation, would you have been able to build
the same high quality GP portfolio?

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I think it would have been really difficult.

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You know, without those relationships with the
top performing fund managers, many of whom

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remain in our portfolio today, Without those
relationships and without being able to, secure

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sizable allocations to their funds, I think it
would have been really difficult to start the

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firm.

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I think it would have been really difficult to
get institutional limited partners interested

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in what we were doing.

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And so it would have been very difficult to
launch.

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But, you know, with those advantages, and and
we built fund portfolio funds 12, it's really

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like success built upon success, which has put
us to where we are today.

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You have an interesting forced ranking to your
portfolio where you force rank your funds

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against each other.

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Tell me about how that's done.

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David, because we believe, in the power law
nature of venture returns and because we

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believe in our deal flow quality of, our access
and our investment judgment, we do believe

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strongly in building concentrated portfolios
across all of our investment strategies.

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We believe building a concentrated portfolio is
the best way to generate outsized performance

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for our investors.

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Building part of the process of building
concentrated portfolios is force ranking all of

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our fund managers, every year.

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And so we do go through that process every year
where we force rank all of our fund managers.

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It's a collective group effort.

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Force ranking, helps us concentrate our
portfolio.

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It ensures that we put, as much limited partner
capital as we can with the best performing fund

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managers in the industry.

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It's a great model and it's yielded great
returns for our investors.

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But it's, it's execute, and it does lead to
some very challenging discussions internally

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and some very, very decisions.

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Is this force ranking a way to counterbalance
this kind of LP buys to keep on investing into

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GP over and over?

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And and how does it play out?

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Does that mean that a per a percentage of your
portfolio is always being replaced, or is it a

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forced ranking against potential managers?

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Tell me more about this forced ranking system.

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We're always forced ranking.

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We have about roughly 10 to 12 core managers in
our main fund.

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We're constantly force ranking those 10 to 12
managers.

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We force rank them not only against, each
other, but against potential new entrants into

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the portfolio.

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You do see some manager turnover in our funds
from one fund to the next.

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And it's a result of this it's a result of this
belief in concentration and this force ranking.

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But when we identify a fund manager who we
believe can consistently at the top of the

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industry, then that's someone that we seriously
consider, adding to our portfolio.

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But in order to add a new manager to our
portfolio, it's it's all one for one trade.

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Someone has to come out of the portfolio.

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And so, you know, those are really tough
decisions for for us and ones we take very

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seriously.

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If I look at why managers come out of our
portfolio and why new managers come in, I would

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say the number one reason why, someone comes
out of our portfolio is because we've been able

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to invest more of our limited partners' capital
with, a higher performing manager in the

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industry.

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So we're, if we our managers 1 through 12, if
we can put more capital, more of our limited

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partners' capital with who we consider to be
one of the top 2 or 3 best performing fund

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managers in our business.

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We're gonna do that.

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And then if I look at, replacing a manager in
our portfolio, to get into our portfolio, we've

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gotta have a really high degree of confidence
that a manager can consistently pour on top of

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the, of the industry.

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And that's usually a result of unique and or
high quality deal flow, unique access or an

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ability or right to win in competitive
situations and, and investment judgment as

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demonstrated by an investment track record.

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And so if I look at those instances where we
have we have brought new managers in our

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portfolio and and an expense of a a manager
coming out, you know, I'll look at, us backing

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Peter Thiel at Founders Fund and his first
institutional fund.

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You know, Peter has unique deal flow.

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He has a very unique and contrarian, investment
perspective.

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He has a very compelling right to win based on
who he is and his track record and his

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influence in the industry.

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And he has a very, he had a very good
investment track record when we backed him.

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I'll look at Ben and Mark at, Andreessen
Horowitz.

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You know, when we backed them in their 2nd
institutional fund, they had incredibly strong

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deal flow based on, their prior operating
experience and operating success and who they

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were in the industry and their board seats,
etcetera.

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They built, a very unique and, and one of a
kind platform, value add platform or services

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platform in the venture industry.

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They were the first to do so, which gave them a
unique right to win in special or competitive

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situations.

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And then they both had very good investment
track records when we invested with them.

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And then finally, I would say the same about
David Sachs at Kraft, which is a relatively new

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addition to our portfolio over the last 5, 5
years or so.

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David has unique deal flow based on his
operating experience and the fact that he's

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widely considered as the best product
strategist in the valley.

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He has a compelling right to win based on his
operating experience.

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And he has he has and had an extremely
compelling personal investment track record

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when he raised his first fund where we were a
big investor.

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So, you know, those are the instances in which,
fund managers come into our portfolio, at the

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expense of someone coming out of coming out of
our portfolio.

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You're not only force ranking your funds,
you're also forced late ranking allocation.

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If you mentioned founders fund, you have more
allocation to founders fund.

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The opportunity cost of that is not just
arbitrarily picking and choosing managers.

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It's also just more founders fund.

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Thank you for listening.

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That's right.

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I mean, our our whole is to put as much of our
limited partner capital to work with the best

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performing managers in the industry.

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So what would make you not want to re up with a
core position?

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The number one reason we we don't invest with
someone who's in our core portfolio is because

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we're able to put more capital to work with a
higher performing manager.

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Other reasons include, team turnover.

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So if we see 1 or more good or very high
quality investors leave a firm or a fund, that

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influences our decision to reinvest with them.

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If we see strategy drift within their portfolio
or their investment strategy.

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So, you know, fund managers who, as a result of
a larger fund, might be investing in in in

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sectors or geos or stages where they have no
real competitive advantage, you know, that's a

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red flag for us.

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00:14:11,120 --> 00:14:16,639
And then finally, you know, we're always
looking at fund size increases and, and not

220
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those fund size increases are met or matched
with an increase of the capabilities of the

221
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firm from a, an investment standpoint, an
investment standpoint, and frankly, a cultural

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00:14:27,294 --> 00:14:30,414
standpoint, in terms of writing bigger checks
into companies.

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00:14:30,414 --> 00:14:37,054
And we've often seen a lag between fund size
increases and an increasing capabilities within

224
00:14:37,054 --> 00:14:38,195
an investment firm.

225
00:14:38,254 --> 00:14:41,649
And And so we're always watching that as well,
and that will be another reason why we

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00:14:41,649 --> 00:14:43,429
wouldn't, reinvest with someone.

227
00:14:43,730 --> 00:14:49,830
Do you have this interesting vantage point in
that you've seen many funds scale, some scale

228
00:14:50,210 --> 00:14:52,309
effectively, some scale not effectively.

229
00:14:52,804 --> 00:14:58,084
What are the best practices for a fund that's
trying to really scale and maintain their edge

230
00:14:58,084 --> 00:14:58,745
in the market?

231
00:14:58,964 --> 00:15:05,620
David, it's really, we think, really building
those investment capabilities ahead of an

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increase in fund size.

233
00:15:06,580 --> 00:15:09,700
And very, I'm not gonna say very few fund
managers do it.

234
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It's hard to do.

235
00:15:11,220 --> 00:15:15,000
Some are able to build those capabilities in
advance of an increase in fund size.

236
00:15:15,220 --> 00:15:19,240
For most, those capabilities lag their increase
in fund size.

237
00:15:19,815 --> 00:15:21,995
But I'll I'll give, you know, an example.

238
00:15:22,774 --> 00:15:28,294
You know, we have seen managers who will double
the size of their fund, which means they need

239
00:15:28,294 --> 00:15:36,970
to double the size of an average check or a
large position in their fund, but they're just

240
00:15:36,970 --> 00:15:38,789
not culturally, able to meet that bar.

241
00:15:39,330 --> 00:15:45,649
And so they end up with a portfolio of, more
companies with smaller positions relative to

242
00:15:45,649 --> 00:15:48,070
their fund size, which is a drag on returns.

243
00:15:48,625 --> 00:15:54,404
And so we're really watching, you know, how
firms build their capabilities as they scale

244
00:15:54,865 --> 00:15:59,764
and do those capabilities lead the size of the
fund as they grow their funds.

245
00:15:59,904 --> 00:16:01,605
The best ones do it well.

246
00:16:02,410 --> 00:16:05,610
Others, there's there's just a lag, which make
which is hard.

247
00:16:05,610 --> 00:16:06,670
It impacts returns.

248
00:16:07,129 --> 00:16:12,750
Given how competitive venture is in getting
into these blue chips, is it a necessary

249
00:16:12,809 --> 00:16:18,115
requisite for you to have that c portfolio in
order to graduate them into core portfolio, or

250
00:16:18,115 --> 00:16:20,615
would you otherwise be able to access these top
managers?

251
00:16:21,075 --> 00:16:29,470
We have found success accessing top managers,
both both existing top managers who are already

252
00:16:29,470 --> 00:16:30,269
well established.

253
00:16:30,269 --> 00:16:32,769
We're lucky that we have the majority of them
in our portfolio.

254
00:16:33,309 --> 00:16:40,430
But we've also had success, identifying top
managers early and, and them in a meaningful

255
00:16:40,430 --> 00:16:42,029
way and growing in our position over time.

256
00:16:42,029 --> 00:16:43,629
And that's happened with Founders Fund.

257
00:16:43,629 --> 00:16:45,144
It's happened with Andreessen Horowitz.

258
00:16:45,144 --> 00:16:46,264
It's happened with YC.

259
00:16:46,264 --> 00:16:47,384
It's happened with Thrive.

260
00:16:47,384 --> 00:16:50,365
It's happened with David Sacks at Kraft,
etcetera.

261
00:16:51,384 --> 00:16:58,024
We we don't necessarily look to our seed
portfolio as a farm team for our core

262
00:16:58,024 --> 00:16:58,524
portfolio.

263
00:16:59,850 --> 00:17:07,450
What we're trying to identify in the seed
market are really talented investors who want

264
00:17:07,450 --> 00:17:09,789
to continue to invest in the seed space.

265
00:17:10,089 --> 00:17:11,609
The the symbol is for us.

266
00:17:11,609 --> 00:17:16,225
We realize that, you know, within that cohort,
there are going to be very talented investors

267
00:17:16,225 --> 00:17:21,505
who are ambitious, who wanna build a larger
firm, with more, you know, more people, more

268
00:17:21,505 --> 00:17:23,924
AUM, and invest across stages.

269
00:17:24,465 --> 00:17:27,525
That's not really what we're targeting in our
seed portfolio.

270
00:17:28,200 --> 00:17:28,839
That's the paradox.

271
00:17:28,839 --> 00:17:32,119
You're looking for the best seed investors that
may not actually make a new core portfolio, but

272
00:17:32,119 --> 00:17:35,179
will continue to stay continue to stay
disciplined in returns.

273
00:17:35,720 --> 00:17:36,460
That's right.

274
00:17:36,599 --> 00:17:43,105
And we have examples of, seed managers who, are
very talented and and and are producing really

275
00:17:43,105 --> 00:17:48,565
good returns, but whose fund size simply
outgrows our seed portfolio and our seed fund,

276
00:17:49,424 --> 00:17:53,039
and and don't necessarily have a home for
those, relationships right now.

277
00:17:53,279 --> 00:17:58,340
Unlike some fund of funds, you also have a
pretty healthy international venture portfolio.

278
00:17:58,960 --> 00:18:02,100
Talk to me about your strategy when it comes to
your international funds.

279
00:18:02,160 --> 00:18:03,680
That's a great question, David.

280
00:18:03,680 --> 00:18:09,881
You know, we are looking for the best returns
in the venture industry around the world, full

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00:18:09,881 --> 00:18:10,015
stop.

282
00:18:10,015 --> 00:18:18,494
And so, you know, when we, when we invest
outside the US, we fundamentally have to

283
00:18:18,494 --> 00:18:26,150
believe that the manager that we're investing
in in China or India or the, or Europe has the

284
00:18:26,150 --> 00:18:31,529
ability to outperform the 11th or 12th best
manager in our portfolio.

285
00:18:31,830 --> 00:18:33,769
And that's a really, really hard.

286
00:18:35,109 --> 00:18:40,765
Part of that analysis is dependent on, macro
factors, which are, but most of the analysis

287
00:18:41,625 --> 00:18:46,825
depends on a bottoms up underwriting of, a
quality of the investment manager from a deal

288
00:18:46,825 --> 00:18:49,724
flow and a right to win and an investment
judgment standpoint.

289
00:18:50,105 --> 00:18:54,609
And so it's a combination of top down and
bottoms up analysis, but I think the

290
00:18:54,609 --> 00:18:55,410
heavyweight is is

291
00:18:56,450 --> 00:19:02,549
So you have this also forced ranking in terms
of international versus domestic funds, but,

292
00:19:02,849 --> 00:19:04,230
certainly, there are differences.

293
00:19:04,289 --> 00:19:08,529
What are those differences for criteria that
you're looking for an international fund versus

294
00:19:08,529 --> 00:19:09,509
a US fund?

295
00:19:09,825 --> 00:19:15,924
David, it's it's, there's really no difference
in our underwriting for international managers

296
00:19:15,984 --> 00:19:17,265
relative to US managers.

297
00:19:17,265 --> 00:19:24,464
It is the same kind of underwriting lens or or
guideline for international managers for us as

298
00:19:24,464 --> 00:19:25,044
US managers.

299
00:19:25,559 --> 00:19:29,559
You know, it's a focus on deal flow and what's
driving that deal flow and what are the

300
00:19:29,559 --> 00:19:31,980
sourcing strategies or channels a manager is
using.

301
00:19:32,360 --> 00:19:37,480
It's looking at that access or our right to win
and what's driving that and what's the reason

302
00:19:37,480 --> 00:19:38,779
behind their right to win.

303
00:19:39,015 --> 00:19:42,394
It's looking at investment judgment as
demonstrated by a track record.

304
00:19:42,615 --> 00:19:48,714
It's looking at strategy and, and, and fund
managers have, generated their returns.

305
00:19:48,855 --> 00:19:54,730
And, is their go forward strategy very
consistent with their past experience of

306
00:19:54,730 --> 00:19:55,710
generating returns?

307
00:19:56,169 --> 00:19:59,690
And it's a look look at the team and and
whether or not the team is consistent over time

308
00:19:59,690 --> 00:20:03,929
and whether there are 2 or more good investors
on the team and how the incentives are

309
00:20:03,929 --> 00:20:08,255
structured across the team to both, you know,
motivate and retain good investors.

310
00:20:08,875 --> 00:20:11,694
That part of the underwriting of the analysis
doesn't change.

311
00:20:12,234 --> 00:20:19,274
What changes is that geo specific, those geo
specific factors, and those change according to

312
00:20:19,274 --> 00:20:19,774
geography.

313
00:20:21,420 --> 00:20:22,960
But it's not manager specific.

314
00:20:23,259 --> 00:20:26,160
What do you wish you knew before founding
Truebridge?

315
00:20:26,460 --> 00:20:29,440
How hard it would be to raise the first fund
and the second fund.

316
00:20:30,779 --> 00:20:34,140
You know, before I started Truebridge, I sat
down with some good friends of mine who had

317
00:20:34,140 --> 00:20:38,505
started a fund of funds and they shared with
me, you know, they said, if if we knew now what

318
00:20:38,505 --> 00:20:42,605
we or we knew then what we know now, I'm not
sure we would have started our firm.

319
00:20:43,144 --> 00:20:45,484
And, I took that with a grain of salt.

320
00:20:46,025 --> 00:20:47,724
I've got a pretty strong work ethic.

321
00:20:49,019 --> 00:20:54,299
I was very comfortable believing in myself, but
I didn't realize how hard it would be to raise

322
00:20:54,299 --> 00:20:56,240
fund 1 and fund funds 1 and 2.

323
00:20:56,380 --> 00:20:57,920
And why was it so difficult?

324
00:20:58,140 --> 00:21:03,554
You know, when we launched TruBridge, the
venture fund to funds market was a a very, well

325
00:21:03,554 --> 00:21:05,075
served and competitive marketplace.

326
00:21:05,075 --> 00:21:08,375
There were probably over 40 US based venture
focused fund to funds.

327
00:21:08,434 --> 00:21:14,054
And so standing out in that crowded marketplace
was was difficult.

328
00:21:14,755 --> 00:21:19,170
We were lucky that we had a partnership with
the Kauffman Fellows program that gave us a a

329
00:21:19,170 --> 00:21:21,070
kind of a unique hook with limited partners.

330
00:21:21,210 --> 00:21:26,009
I'm not sure we would've started the business
if we didn't have that that mark, because every

331
00:21:26,009 --> 00:21:29,309
limited partner wanted to hear the story at
that point in time.

332
00:21:30,170 --> 00:21:35,414
And then when we went to raise Fund 2, we were
raising Fund 2 into the teeth of the global

333
00:21:35,414 --> 00:21:36,394
financial crisis.

334
00:21:36,934 --> 00:21:41,994
With fund 2, it took us over a over a year to
get to the first close, first close on fund 2,

335
00:21:42,054 --> 00:21:44,634
and it took another 2 years to get to the final
close.

336
00:21:45,174 --> 00:21:48,154
And so, you know, those were very, very years.

337
00:21:48,670 --> 00:21:52,369
And a lot of people doubted, doubted venture
and doubted venture returns.

338
00:21:52,910 --> 00:21:58,529
And it was really hard to find, you know, what
really were contrarian investors at that time

339
00:21:58,910 --> 00:22:03,664
who were willing to bet on innovation and
willing to bet on venture and the returns of

340
00:22:03,664 --> 00:22:05,445
venture relative to other asset classes.

341
00:22:06,065 --> 00:22:11,505
Those 2 years improve you as a fundraiser, as
an investor, or was that just really poor

342
00:22:11,505 --> 00:22:12,005
timing?

343
00:22:12,545 --> 00:22:17,799
It was certainly fortuitous timing, which we
out of our control.

344
00:22:17,799 --> 00:22:26,359
I would like to think that, it it certainly
hardened us as, fundraisers, and gave us, you

345
00:22:26,359 --> 00:22:30,599
know, the the word to keep our heads down and
our nose to the grindstone and to plow through

346
00:22:30,599 --> 00:22:37,744
it till we got to success, it did, set the
foundation for what our portfolio looks like

347
00:22:37,744 --> 00:22:45,149
today because we as a result of our first one
or two closes in fund 2, which was raised in

348
00:22:45,149 --> 00:22:50,849
2010, we did have capital to commit in an
environment where a lot of institutional

349
00:22:50,990 --> 00:22:52,450
investors were pulling back.

350
00:22:52,669 --> 00:23:00,054
And, we had a lot of foundations and endowments
at that time who were going to some of the who

351
00:23:00,054 --> 00:23:04,634
were investors in some of the best performing
GPs in the industry and were asking those GPs

352
00:23:04,774 --> 00:23:07,994
not to call capital or not to raise their next
fund.

353
00:23:08,294 --> 00:23:13,710
And the fact that we had capital available to
commit in that environment, allowed us to get

354
00:23:13,710 --> 00:23:16,670
into some fund managers that we might not
otherwise have gotten into or it might have

355
00:23:16,670 --> 00:23:17,890
taken longer to get into.

356
00:23:18,190 --> 00:23:23,309
And so I would say the biggest benefit to us
from the global financial crisis was was having

357
00:23:23,309 --> 00:23:28,484
capital and really solidifying, the quality of
the relationships and the portfolio we have

358
00:23:28,484 --> 00:23:28,964
today.

359
00:23:28,964 --> 00:23:35,065
Is there always this friction between easy easy
to raise to raise, easy to deploy?

360
00:23:35,125 --> 00:23:36,904
Are these kind of inverse relationships?

361
00:23:37,204 --> 00:23:41,045
I might think those are inverse relationships,
but I think we've been through a unique period

362
00:23:41,045 --> 00:23:46,279
of time in the venture industry from, let's
call it, 2012 to 2021, where we were in the,

363
00:23:46,279 --> 00:23:52,039
what was called the, you know, 0 interest rate
policy, where it was both easy to raise capital

364
00:23:52,039 --> 00:23:56,220
and easy to deploy capital, because venture
returns were high.

365
00:23:57,244 --> 00:24:00,865
Your better performing venture managers were
scaling their platforms.

366
00:24:02,044 --> 00:24:06,125
Venture backed companies were staying private
longer and as a result, providing more

367
00:24:06,125 --> 00:24:09,105
opportunities for private market investors to
invest.

368
00:24:09,400 --> 00:24:13,179
And so that was a unique period of time where
it was easy to raise and easy to deploy.

369
00:24:14,039 --> 00:24:16,779
But I think, otherwise, your your culture.

370
00:24:17,319 --> 00:24:23,265
What investors should be accessing venture
capital through fund of funds versus direct?

371
00:24:23,805 --> 00:24:25,744
Give me granularity to that.

372
00:24:26,045 --> 00:24:31,484
So because we believe in the power laws of of
venture returns and and the fact that, a

373
00:24:31,484 --> 00:24:35,805
handful of companies drive returns for the
overall industry as well as, at the manager

374
00:24:35,805 --> 00:24:40,779
level, we believe it's really important to
invest in the best performing managers.

375
00:24:41,160 --> 00:24:46,119
You are either an institutional investor who
who are has those relationships and are

376
00:24:46,119 --> 00:24:50,785
comfortable with the amount of capital you have
invested with those managers and your

377
00:24:50,785 --> 00:24:55,445
portfolio, in which case, we think investing
directly makes a lot of sense.

378
00:24:55,664 --> 00:25:01,424
You might be an institutional investor who has,
access to those types of managers, but not at

379
00:25:01,424 --> 00:25:06,190
the scale you would like, and you're having
difficulty scaling your investment into those

380
00:25:06,250 --> 00:25:07,390
high quality managers.

381
00:25:08,170 --> 00:25:13,309
And we have a number of institutional investors
who invest with us simply because our portfolio

382
00:25:13,450 --> 00:25:18,384
looks a lot like their portfolio, and we're
simply giving them more access to the same

383
00:25:18,384 --> 00:25:20,964
managers, the same high quality managers in
their portfolio.

384
00:25:21,904 --> 00:25:28,704
And then finally, you've got a, a large subset
of of institutional limited partners who simply

385
00:25:28,704 --> 00:25:32,325
don't have access to those high performing
managers.

386
00:25:32,880 --> 00:25:36,900
And that makes investing directly in venture, a
little tricky.

387
00:25:38,400 --> 00:25:41,059
You know, you've gotta be in the industry every
day.

388
00:25:41,279 --> 00:25:46,500
You've gotta see 80 to 90 percent of the deal
flow to understand what good looks like.

389
00:25:47,444 --> 00:25:49,384
You can't come in and out of the industry.

390
00:25:50,804 --> 00:25:53,444
It takes a long time to build relationships to
get access.

391
00:25:53,444 --> 00:25:55,625
And when you can't get access, it's usually
subscale.

392
00:25:56,244 --> 00:26:00,720
And so, for those limited partners who don't
have those relationships and don't have that

393
00:26:00,880 --> 00:26:06,980
portfolio, the investment of time and dollars
and opportunity cost to build that portfolio is

394
00:26:07,039 --> 00:26:13,539
is and we think for those investors, you know,
a fund to funds like ours, makes a lot of sense

395
00:26:13,845 --> 00:26:19,224
because we can give them immediate access to
the best performing managers in the industry.

396
00:26:20,404 --> 00:26:26,404
We have sometimes gotten pushback on, kind of
the double layer of fees, which, you know,

397
00:26:26,404 --> 00:26:29,384
investors are usually critical of fund of funds
for.

398
00:26:29,990 --> 00:26:34,809
We overcommit each of our funds by, you know, 5
to 15%.

399
00:26:35,750 --> 00:26:44,795
And so our our, net returns, net to limited
partners, returns for our first 4 or 5 funds,

400
00:26:44,795 --> 00:26:49,214
which are our mature funds, are higher than our
gross returns as a result of this

401
00:26:49,674 --> 00:26:51,454
overcommitting practice.

402
00:26:51,515 --> 00:26:54,974
And so there are the effect of, our fees are 0
for our limited partners.

403
00:26:55,115 --> 00:26:58,494
And you're able to overcommit because all your
capital is not called?

404
00:26:58,640 --> 00:27:03,460
We're able to over commit because we invest
across a 4 year commitment period.

405
00:27:04,080 --> 00:27:07,779
We get capital back early, which allows us to
fund capital calls later.

406
00:27:07,920 --> 00:27:12,480
We have certain strategies with our core fund,
either, you know, direct investments or LP

407
00:27:12,480 --> 00:27:16,954
secondary investments in some of our funds that
allow us to return capital earlier, which funds

408
00:27:16,954 --> 00:27:19,674
cap capital calls later through recycling.

409
00:27:19,674 --> 00:27:25,035
And and so that gives us the ability to recycle
capital, overcommit the funds, and 0 out the

410
00:27:25,035 --> 00:27:26,130
impact of our fees.

411
00:27:26,210 --> 00:27:31,009
Fund to funds is technically a double fee
layer, but people don't look at it as an

412
00:27:31,009 --> 00:27:32,789
efficiency in terms of staff.

413
00:27:32,930 --> 00:27:37,970
If you're investing $10,000,000 into the
venture category, you're paying 1% management

414
00:27:37,970 --> 00:27:38,210
fee.

415
00:27:38,210 --> 00:27:40,069
That's a $100,000 a year.

416
00:27:40,234 --> 00:27:45,775
You're not gonna get anywhere close to even one
person to help you internally, and, typically,

417
00:27:45,835 --> 00:27:50,335
you know, you would want a group of people
doing venture to do it right.

418
00:27:50,875 --> 00:27:51,914
I I think that's right.

419
00:27:51,914 --> 00:27:54,930
I guess it's another very, smart way to look at
it.

420
00:27:55,009 --> 00:27:55,250
What would

421
00:27:55,250 --> 00:27:59,170
you like our audience to know about you, about
TruBridge, or anything else you'd like to shine

422
00:27:59,170 --> 00:27:59,890
a light on?

423
00:27:59,890 --> 00:28:04,049
The one thing I'd like your listeners to know
about TruBridge is is number 1, venture is all

424
00:28:04,049 --> 00:28:04,710
we do.

425
00:28:05,090 --> 00:28:06,369
It's a 100% of our focus.

426
00:28:06,369 --> 00:28:09,190
We're not distracted by what's happening in
other asset classes.

427
00:28:09,855 --> 00:28:14,494
And as a result, we think we're simply broader
and deeper in the asset class than many other

428
00:28:14,494 --> 00:28:15,554
investors are.

429
00:28:16,335 --> 00:28:20,595
We've been generating best in class returns for
our investors for almost 20 years.

430
00:28:21,799 --> 00:28:27,640
All of our mature funds are generating
somewhere between a 3 x and a 5 x TVPI or total

431
00:28:27,640 --> 00:28:34,759
value to paid in capital multiple, and a 3 plus
x DPI or distributions to paid in capital

432
00:28:34,759 --> 00:28:35,259
multiple.

433
00:28:36,015 --> 00:28:40,335
We believe we have one of the best networks
across the venture industry, which increases

434
00:28:40,335 --> 00:28:43,634
our insight and our access to the best
performing investment opportunities.

435
00:28:44,414 --> 00:28:49,615
And then finally, you know, we've got a team of
over 14 investment professionals with over a

436
00:28:49,615 --> 00:28:55,369
100 cumulative years of experience investing
in, the top performing venture managers and the

437
00:28:55,369 --> 00:29:01,690
best performing venture companies in the
industry, and and who are solely, dedicated to

438
00:29:01,690 --> 00:29:04,269
working hard to to generate encourage for our
investors.

439
00:29:04,329 --> 00:29:04,815
So.

440
00:29:05,294 --> 00:29:06,014
Thank you, Mal.

441
00:29:06,014 --> 00:29:12,095
Look forward to, I haven't been to, UNC game or
or college basketball game in North Carolina,

442
00:29:12,095 --> 00:29:12,414
period.

443
00:29:12,414 --> 00:29:16,335
So I look forward to catching games sometime
and, seeing hosting you in New York.

444
00:29:16,335 --> 00:29:17,234
Thank you, Mal.

445
00:29:17,294 --> 00:29:18,595
We'd love to have you anytime.