162. LP Value Creation, Why DPI is King, and Secondaries as a Means of Exit (Sarah Anderson)

Sarah Anderson of Cintrifuse joins Nick to discuss LP Value Creation, Why DPI is King, and Secondaries as a Means of Exit. In this episode, we cover:

• What is the investment focus/philosophy at Cintrifuse? Can you tell us a bit more about the Cintrifuse model?
• What impact has the Cintrifuse Syndicate Fund had?
• Can you explain how this benefits large corporates?
• What about startups– what’s in it for them?
• Are the corporate LPs hesitant to invest directly in funds– Is that why they come to you?
• Does your diversified portfolio preclude certain vertically-focused corporates from investing in a fund of funds model?
• Does Cintrifuse work w/ other types of financial institutions, aside from insurance? If so, how have you seen them react to the explosion in crypto and disruptive fintech?
• Tell us about your role as matchmaker– how do you get involved and facilitate between VCs, startups and corporations?
• What’s the strategic value-add to a VC fund manager?
• What industry disruptions have you observed and what are the impacts on large corporate companies?
• Advice for entrepreneurs– whether underserved spaces or where they should be focused that they’re not? What message do you want to send to founders?
• In Rob Go’s recent study on fund metrics, he said “In the early days of a fund, VCs tend to optimize for TVPI. But in the long run, DPI is king. You can’t feed your family with TVPI, and you can’t spend IRR.” Is he right and what do you suggest to Fund I and Fund II managers that have attractive paper gains but no distributions to paid-in (ie. a DPI of zero)?
• Let’s discuss reinvesting in startups, I want to talk about doubling down on firms and investing more in their new funds. When Chris Duovos was on we discussed the concerning stats related to persistence. And Antoinette Schoar, of MIT did a notable study on fund returns, which showed persistence of returns from private-equity funds has gone down in the last decade. She said: “If LPs are not vigilant, we’ll start seeing persistence at the bottom. So many LPs want so much to get into PE that they are not sensitive enough to poor perf and keep reinvesting in partnerships that are not deserving” Sarah, what’s your take on the study and her position here?”

Guest Links:

• Cintrifuse
• Sarah on Twitter
• Cintrifuse on Twitter

1. Cintrifuse started in Cincinnati as a Fund of Funds with an LP base of corporations.  These LPs were looking for three things 1) better access to innovation, 2) a tech based economy and 3) a strong return
2. In the past five years they’ve made over 1000 introductions between LPs and startups.  97 have resulted in contracts.
3. Corporates have a desire for innovation but without a dedicated function and metrics, the desire is often not realized.
4. The value for Cintrifuse is in the network.
5. They only work with corporates that actively pursue innovation.  They assess each potential LPs level of activity w/ startups before engaging in a partnership.
6. The Health and Wellness vertical has benefited significantly from startup innovaiton.
7. We are going to see more secondaries as a means of exiting.
8. Many entrepreneurs don’t know how to sell into the enterprise.
9. Entrepreneurs should understand corporate limitations– their systems may not be flexible, processes may not be streamlined and sales cycles can be quite long.
10. Different LPs have different duration expectations for DPI.  Early-stage LPs have more patience for real cash returns.