271. LP Turned VC, Mistakes When Pitching to Allocators, and Managing Limited Partner Relationships (Marcelino Pantoja)

Marcelino Pantoja of Tribe Capital joins Nick to discuss LP Turned VC, Mistakes When Pitching to Allocators, and Managing Limited Partner Relationships. In this episode, we cover:

Walk us through your background and path to VC
Refresh on the thesis at Tribe?
Talk to us about the mindset of the allocator — what are their key objectives and what do they care about?
What are the biggest mistakes you see emerging managers making when pitching LPs?
Let’s say an aspiring VC has a few years until they will raise from institutions… what should they be focusing on in order to create a really compelling offering in the medium term?
Let’s say an emerging GP is raising from institutions imminently… what advice would you have for them?
Do you think it’s significantly easier for an institution to make an investment in some coming from a large successful Tier 1 fund, spinoff, vs. a successful operator or angel?
What are the key challenge areas that the LP is really going to scrutinize on the spin-off and what are the areas under scrutiny for the operator?
Sometimes it’s hard to get information on LPs from a distance… do you have any advice for fund managers that are trying to pre-qualify?
What is the difference between a good LP and one that may be a problem… how does a GP determine that early enough to avoid bringing on the wrong types of LPs?
In what ways is your job similar and different moving from LP to VC?
How do you compete against other firms for deals? I understand the value-add but the value has become competitive with a larger number of firms… how can you continue to win and do so at a price that makes sense for the return potential?

Guest Links:

Transcribed with AI:

0:00
Marcelino Pantoja he joins us today from San Francisco. He is president at Tribe Capital. An early stage venture fund focused on using product in data science to engineer in of one companies and investments. Prior to tribe capital, he was a director at Kosta Noah ventures and a senior investment associate at the Stanford endowment. Marcelino, welcome to the show. Yeah, can you talk us through your background and your path to, you know, this world of venture and investing? Of course, well, I actually am kind of unusual in terms of I find myself in venture capital, I actually started out the Investment Office for Stanford University, where I spent six years there, as part of a team, a small team called the separate investments division. And the way it works is that the school has a large endowment, and 24 is probably $20 billion today. But they also had these non assets that had to be managed by a team inside the Investment Office. And that was actually my team. And they were about the size by the time I left for about three and a half billion dollars in size. And they came about for a variety of reasons, like a large part, part of it was like a trust program. And another part of it was the hospital assets. But for my responsibility, I was mostly as part of a school and department funds, where they had these investments in startups, a large portfolio that no other endowment had. That’s how I got my introduction to venture. And having to me, not only all the VCs on Sandhill road, but also see them work and how they invest in startups. I spent six years there and to and then after that, I actually worked and helped a founder of Khosla ventures, Greg says, to help build this firm, and spent about four and a half, actually five years in total, helping do that. And then now, I spent actually a couple of years after that to advise a few funds, and now part of the team here at tribe and I’m thrilled to be there. But that’s, that’s what makes it unusual is that I’m one of the rare few LPs that women to the GP side venture. That’s right. So at Stanford, was it a lot of direct investing as well are mostly funds? Well, the endowment does have investment of funds, and not just invention, but in private equity, absolute return, public hedge, hedge funds, fixed income, the whole, like all of the asset classes. But there was this unique direct investment portfolio that I’m aware of right now, no other school has. And they were started before the Investment Office was even formed back in the 90s, where the Stanford alums decided to pull their own money and invest in their own deals, and the way that it work in small amounts. But over the years, and over decades, essentially, it has outperformed and done really well, and has given a lot to this specific Stanford entities that supported one of them being the Department of athletics, for example, and another one being in the business school, and, and as well as the engineering school. But what I saw there is that it was done in order to support the specific schools and departments and to provide funding in order for those departments to be successful. Got it and good yet, you know, you and I catch up with some frequency. And, of course, we’ve had Jonathan Sue on the show, GP a tribe, but for the audience’s benefit, can you give us like a quick refresh on what you guys are doing at tribe capital, of course, and if anything, I would encourage your your listeners to to actually go listen to Jonathan’s podcast, he does give up he will give a much better overview of what tribe does, if and if I would, I can,

3:33
I can at least do is share what it is that appealed to me about tribe when I first met them, and what was it that I saw that was different. And I, I, I want to say that because of my time at Stanford, I was able to see a broad number of venture funds and how they actually work not only because of the funds that Stanford invested in, which of course, they share their reports, he we’ve written many memos on all of them and and it allowed me to really understand them and get to know them better and understand how venture works. But that gave me the context and then even further working with Greg which I considered it more as an apprenticeship and venture learning work with a customer Yes. And and to give you some background there actually, and this will provide context why I when I saw the tribe, I thought I saw something special and I do believe that it is something special there is that with Greg keys, he 13 years ago started health ventures and for now many, many people that know this, especially those outside of Silicon Valley. Sutter Hill, Maine is a quiet bond or firm I should say that but has done really well investing in startups for over 40 probably now 50 years

4:49
and if any snowflake as well, right?

4:52
Exactly right. But yeah, you don’t see them publishing blog posts or or Twitter game or Doing anything public or promoting itself actively,

5:03
but,

5:04
but it’s done really well, if anything, it practically invented the venture capital, the venture capital industry in a way, in a way, or at least actively contributed it to it quite a bit. And when I saw Greg and heard and found out that he was going to start his own shop, of course, I volunteered to help them to help build the firm and, and it was helping, he did all the work. And I was impressed by how someone who came from a firm that never has to fundraise itself, it’s already established, for him to then go out there, and essentially take that entrepreneurial path of building something new at a time back in 2012, when new fonts were not as common as they are today. Now, there are over 900 emerging fonts out there, as opposed to them. And yet, it was the experience there that helped me see further not just on the the side button on the GP side, what it took to build something new and different adventure. Now that gives a context on why when I met when I met Ted, Arjun, and Jonathan for the first time in 2018, and then they shared what their, what their investment thesis in their investment process was going to be. And I was floored right from the beginning. And the reason I was floored is because they it’s, they call it the quantitative approach to product market fit. Yep. And to me is, they are using the data from a prospective startup in order to evaluate the company. And the meaning they’re actually using that raw data from the company itself that they share with them. And with that, take the time to analyze and understand the company itself. And whether the product works or not,

6:42
other in a managed way

6:44
to Yeah, in a systematic way, right. And, and the reason that I was flooded because no other fund was doing this, or at least at 2018. This is a couple of years ago. And this is at a time when startups have been the era of big data, the talk behind it has been going on for a very long time. And yet, this is the first time I’ve seen a venture fund actually using those very same tools that startups use to build it internally. And to actually use it and to use it in order to understand startups and be able to, to evaluate them. And then of course, the team itself, which is made up of data scientists, as well as entrepreneurs, or working together to understand it’s a which makes it much easier to infer me and make sense that this team actually has the background. It’s like a doctor being able to trust another doctor’s opinion, if you look Yeah, about how people how they’re doing, it’s much easier to trust their, their judgment, and what they’re doing. And to me, seeing that for the first time and not having seen it in the other fund. I knew this was something incredible, of course, took a couple of years before I finally joined them. And then I can go into it later, but as to why but that’s that’s what less what I saw if I tried, but I think it’s what they’re doing especially

8:02
well, like, like the good lasting partnerships and relationships, they usually take time. Exactly, you know, Marcelino, you’ve got very unique and long term expertise on the allocator side. And that might be a good place to start. And then we could circle back to some tribe elements. But you and I talked about this quite a bit, I’d love for you to share some of your lessons learned and best practices, you know, as an allocator. And maybe that’s where we can start. Maybe we can just start with sort of the mindset of the allocator in the LP, you know, what are some of the key objectives and, and, you know, what, what, to institutional allocators, you know, truly care about?

8:46
Of course, well, for the past few years, a couple of years, I was advising a few files, and this is after I left castagnola honestly, at the time, I thought I was going to go back into the endowment world. And I wanted, which I actually in a way I wanted to do so and I wouldn’t have actually joined I wouldn’t have gone into venture if it wasn’t for Greg and the opportunity that I probably would have been a lifer at Stanford itself. And, and at the endowment, excuse me, and, and the thing is, is not that I care about what allocators think, actually, and maybe some people that have met me have gotten that far apart, or they got that impression about it. But the reality is that only care really about one, one Alec specific type of allocator more and not and and although I have friends and other other LPs, and other types of institutional LPs out there, and I’m more than helpful, and I think that their jobs was very important. The ones that I cared the most are endowments. Of course, I worked that one. But I also benefited from the endowment itself where I went to school, and I was there David Swensen I, well, I grew up. I grew up without resources. I actually had I grew up working with my dad for many years there while still going to school, and because their immigrant parents from Mexico, I’m the firstborn here in the US. And even then I still had to go to work with him and make ends meet. And what were you doing to my father? Well, he’s a bricklayer, and he’s a really good one actually got that bicep bricklayer out here in a small town. Tracy’s a little bigger now but, but here in the Central Valley, but that’s what I did with him with me and my brothers, we would go to work every day and, and those were the work that I would do with him is that is besides talking to clients, because of course, I can speak English fluently, but I actually cut bricks, makes make cement clean said set up the set up what we need to do in order to build sidewalks, fireplaces, patios, pools, or anything brick ready fences, we did all of that. And I have to tell you doing, doing carrying bricks and, and wheeling around wheelbarrows of cement is heavy work. I had calluses for a very long time. And to me, school was very important and the my parents emphasize how important school was because this would get me out of doing this kind of work for the rest of my life. Now, there’s no shame with that, what that work is, it’s, I have, I still have family and friends who do construction work. And my, my brother, my brother is one of them. And, and, and it’s honest work. And it’s good work, actually, it’s actually really good work for for those who are in the trades, and that don’t go to college, they do really well with it. But for me, I still want it, I just wanted to have some quite simply an office job. So I’m out of the sun during the day. And, and not as physically exhausting. So I go to school, but at the same time, we didn’t have the money to do it, we just did not. And the only way I could have afforded that because there was a scholarship available at the at the endowment funded in order for me in order to pay for medical school. And the scholarship that I was specifically created was a donor gave it to the school, specifically to fund scholar athletes that come from backgrounds such as mine. And that that’s because I was able to because I wrote I actually walked out on the rowing team at Yale, they I had that scholarship that supported that supported me if that and allowed me to go to school there without having to work at the same time, which is a privilege. But if it wasn’t if that fun wasn’t there and Swinson didn’t do and his team, by the way, it is if they did not invest it in a way that would normally grow that fun to preserve that, excuse me, but also grow over the years in order to continue to support not just me, and students be before me, but also scholar athletes after me, it just wouldn’t have been possible. And I didn’t really under appreciate it even then in college until I got my job at Stanford, where I saw how hard it really is to actually make money and to invest it and to not lose it. And the various many opportunities out there. And that’s when I saw it firsthand. And that’s why I cared about how they invest like that kind of allocator the endowment allocator why a matter to me because they’re supporting not just faculty, not just schools and buildings, but also specifically student scholarships to allow students like me in the future to be able to go and afford it. So you

13:35
get, ultimately you were able to join the endowment, the team at Stanford and learn more about the way that they approach approach investment in order to not only preserve but, you know, expand the base and, and do more of what, you know, truly can drive change and what’s important to the endowment. Can you tell us more about kind of what you learned, as some of the fundamentals of, you know, the way that you invest and make decisions as an allocator?

14:09
Of course, well, when I first got the job, I got it as an analyst, which is actually what’s unusual at the time. And my first real job out of college, I was actually an assistant to a paralegal at a local law firm in Palo Alto, a well known one called the Ws gr there and, and my job was to make sure that in any venture financing, I would have the cap table correct in terms of numbers, who are the investors and and the number of shares that they got, and I put it into this proprietary software there. And then I would actually print out not only the closing volumes, which was these big binders of all the other legal docs for it, as well as print out the stock certificates of for each of the investors three carlu being This is pre Carter. And it was a special stock certificate paper, they had to be in the printer blue for preferred stock, and green for common stock. Wow. And making sure that it’s put it in in put it in there and they look like dollar bills, if you will, like these large how old money used to look like old paper money is solid, like back in the day. And I had to make sure that it was all done correctly and then ship them off by now that six months of that was enough for Stanford to hire me to overlook this direct investment portfolio analysis and to oversee and work with VCs there. And this is because this is what this is oh seven, when venture, which was pretty much a backwater venture has always been a small asset class. Even today, it still actually still is, although many. And many of its successful companies that were funded by venture are now a big part of the public markets, right? yet. yet. When I came in, at the time in venture there, I also went through a period, especially for the first couple of years, where the stock market crashed, the great financial crisis happened. And I saw not just Stanford but also many other schools and many other institutions out there lose a lot of money, more than half of their portfolio. And that gave me a first hand and perhaps made me a little more conservative in terms of mindset of what happens when you’re trying to do the right thing and how you allocate the portfolio manage it. And yet, circumstances out of your control truly can ruin you or, or a bad position, especially for school rights given special what’s going on right now, which is not talked about because public market has been doing well. But for a lot of schools out there there are but budget wise, are in a crunch. They’re spending a lot of their principal, or at least a lot, a lot of their endowments or resources in order just to survive. I saw that firsthand back in LA and and that gave me that gave me that first experience of thinking about how you need to invest, and how you take risks. When you’re investing in order to of course, try to grow your portfolio. But without taking too much of an unnecessary risk. Sure, where you potentially lose a

17:13
downside protection to

17:15
right. But But to answer your question on how on how allocators think about how they invest their portfolio, they have an investment objectives. And I’ll talk about a demo specifically, although, though you can each different LP have their different investment objectives, or just yet at the same time, somewhat similar. Yeah, and that a major part of it is that for the endowment, they need to make at least a percent a year. That’s, that is 5%, is paid out to the school every year in order to keep his nonprofit status. And that’s, of course that but it’s not just for that, of course, these endowment funds were created to support specific scholarships, specific faculty salaries, specific buildings specific a specific activity, each and every one of these funds. Now, it’s 5%. But then they also have to keep up with inflation, especially with higher education, inflation, inflation, which tends to be a little higher. So you added 3%. On top of that, that’s 8%, just to stay somewhere even every year for the rest of that school’s existence, which technically is forever. Now, for some schools, they have their budget is, is current by more than half by the endowment. Some other schools maybe are around 10%. But if it lands more around 20 25%, for the rest of its existence as a percent every year. Can you do that? Who can do that? And also, how many people are able to pull that off? Like how many, especially stock pickers out there who would like to think that they’re great investors, whenever they you know, when have they been able to earn 8% every year for 30 4050 years, or 100 years? Or beyond that, to grow these to grow, especially these large endowments out there, and to make them exist perpetually,

19:16
right now, that’s the other aspect is the US is quite large. So it’s, you got to move the needle on a pretty significant, you know, base.

19:26
Exactly, exactly. Now, no, I don’t envy. I don’t MD allocators that pension funds who have much larger and AM’s out there, they have to deliver especially in a sovereign wealth funds who have to invest in opportunities and put more dollars to work, and which becomes harder and harder. But at least with venture and for those endowments that do participate in there, they have at least a greater chance to do so. And that is for those fund managers to go back to your question about how emerging fund managers how they can talk to these kinds of LPs. Why do they They go into venture itself is for that reason to be able to grow their endowment and to support their causes as to why they go into venture.

20:12
Right? Right, you can find a lot of alfen in venture and you can trade, trade liquidity for it, if you can have incredibly long hold periods. Right. Let’s talk a bit about, you know, emerging managers. So we’ve got many endowments that have a emerging manager program they allocate to early stage venture capitalists. What are what are some of the mistakes that you’ve seen the emerging managers, you know, making when they’re pitching LPs?

20:40
I think one of the mistakes that I’ve seen is that, and, and I call it a mistake, because the advisor is actually out there that’s shared with them. And they’ve been told about this many times. And yet, they don’t necessarily, they don’t take the time to think and process why this is the case. But they don’t find out what the LPS that they’re talking to, what their investment objectives are. They don’t even ask questions on what their what’s in their portfolio? or What is it? Like when, what is it that they’re looking for? When even having that conversation? Know your buyer? Right, if you will? And it’s, I haven’t figured out why I think the answer is because many of the emerging fund managers tend to have more of the startup experience or take more, or they use a lot of the methods and tools of what startup founders use, weight actually works for them, as startup founders to build something fast and just iterate and, and have a minimal viable product, in order to just get started. Which it which is, which is kind of funny, because then they want, they’ll go through the trial and errors, make mistakes, and then perhaps even even hurt certain relationships that could have that could have happened, but no longer will, because they just never understood what those LPs are thinking. And that’s the key thing about LPs is that they’re not looking to just put money to work, they want to partner with an a fund manager that can grow their, the asset that they have to manage over time, and to do it in a consistent in a repeatable, consistent manner. Over time, they’re always looking for those fund managers. But the emerging funds don’t have that experience or knowledge and adventure. Unfortunately, there’s no, it’s really shared how to build a fun, everybody talks about investing in startups. And which is, by the way, that’s the main activity, don’t get me wrong on that part. And I mean, that’s why I’m part of the team here at tribe because I’m, I want to learn from them as to how they invest in startups. And, and I believe, not only I believe, but I seen it that they do it really well. But but you also have to manage it fund. As a fund manager, you’re still a money manager, you have a fiduciary duty, and you have to have a model as to how that works. And then you have to see when you’re talking to LPs, whether the fund and your fund strategy they have and meaning your investment strategy fits within their portfolio, right? For example, just to use a very obvious example is if you’re an emerging fund manager, and you’re talking to Stanford, you’re pretty much ignoring the fact that Stanford already has a full venture portfolio, because isn’t the center of the venture capital universe? Yeah, right. It’s just, it boggles my mind as to why they would now you you want to go and talk to them, especially if you’re doing something different and unique, right, and you actually have an investment edge, because of the way it’s an investment edge that actually makes sense, because of the way you build it. And you have an investment process. And you have an investment philosophy, that that actually is understandable and, and yet at the same time can see how that connects to investment outperformance. But if you’re, but if you’re a new fund manager is still figuring all these things out. You’re you go knock on their doors and talk to them, and try to see if you can pitch them. If you’re not really recognizing where you are, in your situation, as well as in the context of the venture capital PGP world. And for a lot of them, it’s as simple as when, especially when they’re talking to an LP, all you have to do is just ask them about their portfolio. Ask them about what is it they’re looking for? And what have they seen? as well as just getting to know them, then no, or at the minimum? If you don’t want to spend the time. Just ask about their investment process. Like how long does it take to evaluate a fund manager? And how long would it take to if I’m a fund manager, like how long would it take for you to get to know me? position.

24:50
Always a shock to me that to hear about fund managers that don’t ask these questions right. They get on a call with founders and they’re disappointed When the founders do no research on their firm, and ask no questions about do you lead? Do you co invest? Do you have reserves? You know, what’s your decision timeline? Like, it’s such a disappointment to the GPS out there. And then they get on the calls with LPs. And I hear these stories about pitch, pitch pitch, and they don’t ask any questions. And I, I think, go ahead, sir.

25:22
Well, I, I think it’s because they, their main job is to invest in startups like, and to support them as well, which I completely get, like, fundraising should not be a main activity. And by the way, I have no fundraising skills. If you think about it, the only skills I have that I’ve acquired, that I’ve learned, especially through practice with Greg castagnola. And then through observation at Stanford, especially the best ones is that is how to build a compelling fund of fun, they’re so compelling that an LP would want to partner with you, for a fund manager out there, that’s what they need to know is how to build that kind of fund, in order and then how to find and talk to, and build the right relationships in order to have the right partners, as investors into your fund over time. And for many of them just don’t have, they just don’t have that knowledge.

26:18
Let’s let’s talk more about that building a compelling fund. So let’s say it’s an aspiring VC, and they have a few years until they go out and raise from institutions, right. So they have some time to think about what it means to build a really compelling, differentiated fund, you know, what advice would you have? Or what do you think they should be focusing on, in order to create that compelling offering, you know, in in a few years,

26:46
for, it depends on the context of who they are, but let’s assume that they’ve had they have a few years under their belt at a venture fund, and then they’re messing with startups, and they building a track record of some sort. Right, and the one thing to do is to be aware of what kind of LPs are out there and start talking to them and getting to know them, and just be a known entity, if you will. And that could be whether it’s just having conversations, and being able to interact with them and, and have been friendly with them. Which, by the way, I don’t actually do a good job of that I I’m actually much more introverted. And, and I have not, I don’t know how to be that, for example, with close friends and, and to do as a charity. I’m not terrible at it. But I know one thing that I’ll say instead of what works for me, or what is what has been working for me over the years, and is that for many of these, I know venture but for many of these allocators out there, they have a job and they have a career as investors for themselves. There are different types of investor, they’re looking for fund managers. And yet, they’re also looking for market information in order to further to better understand the portfolio. And let’s say if I was an emergency fund manager, that is I’m starting my own fund right now. And I was investing in startups right now, the minimum things that I can do in order insert, considering my personality, and I am and yet, how do I build a relationship with with allocators out there, I would share what I see on the ground, I would talk to them and give them mark, talk to them and give them market information about how the world is changing in terms of seed funds, pre seed funds, or later stage funds, how venture has changed in the last 10 years. And it’s for and it’s going to a different direction that not many are recognizing or are recognizing, but behind, perhaps a little belatedly, these are the kinds. These are the kinds of things that help them do their jobs, and become smarter and look smarter around their team members. As they look focused on venture interesting, that’s what I urge the Magellan fund managers to do in order to build that relationship that’s essential. And no, and then to then later be able to pitch them. Because in the end, the when an advocate is looking at a fund manager, they’re not just looking at the investment strategy in the portfolio. They’re also looking at you, you the fund manager, they’re looking at your personality and who you are. Why Now why does that matter? Because there is about trust, essentially, can they trust that you can manage their money and store it in an effective, consistent, repeatable way? over time? Or, like you could? Let’s say you are a really great investor, but because he had delusions of grandeur, I’m not I’m not saying anybody out there is pointing anybody but let’s say you have delusions of grandeur and you and you want to build an empire, you want to become somebody because you’re getting more and more money, you want to be able to you’re raising more and more and more from a larger group of investors out there to put it to work and and you’re charismatic. And you can get people to follow you. But then it turns out that, you know, the investments you made didn’t do as well as you thought it should. Because of that empire building that you did over time allocators are looking out for that. They’re also looking out for a type of people where they may be good ambassadors, but they have certain personnel, they may not be as ethical, for example, or they do some things that is just considered wrong, they don’t want to take that risk, because in the end, that does affect their portfolio in the end it at in terms of the outcome, and, and there are countless examples of those, right, they need to take time to get to know you to see that, that that you are able to invest, invest effectively able to invest and manage our money. And that takes time to be able to build that trust that to know that. So let’s,

30:56
let’s say you, you’ve had the benefit of time, let’s say fund managers have spent some time building relationships, building trust, being a known entity being out there, you know, creating some edge, and they have a differentiated thesis or model, something that is saleable. They’ve got you know, a product that can be sold. Now, they’re going out and they’re hitting the trail, and they’re, they’re raising money. What right, what advice do you have for the GP that’s, you know, trying to close a fund and trying to do so in a timely manner, so they can get back to what they’re good at? Which is investing that capital?

31:36
Are you referring to more like how do you get them to, to just sign up and say, Yes, so? or?

31:42
Yeah, I think the question is, GPS have to run a sales process. Right, right. So the last question we talked about was, how do you think about this strategically, over the long term your funds in your relationships? And then this question is more, how do you run a sales process, effectively, to get this thing done, and, you know, whether it be fill the mouth of the funnel, do a good job, you know, being a steward of the conversations that you you do get, you know, creating some urgency and some velocity in that funnel process, and then helping remove sort of the barriers that are often in the way that can prevent an LP from, from having any urgency and making a decision when they can often just drag their finger?

32:35
Well, if they’re dragging their feet, that should tell you something in the first place. Okay, putting a putting that aside. And I will say this, acknowledging that I have that background of a former LP, I’m, I understand how they work in their process, that also acknowledging my personality, and I am where I rather be transparent about things. I’m not trying to sell anything here. And by that, I mean, saying that it’s better, or I’ve seen, or at least, I’ve seen that it’s better just to have a frank conversation and acknowledging and saying, look, this is where I am in the process, and to ask whether they can actually come in or not, to have that open conversation, if it is that they’re interesting, of course, this is assuming all those things I just said a minute ago, which is that this is a compelling fun, with a compelling strategy. And there is actually an actual portfolio here. And an investment model that does work and will work and that it has an investment niche, you have all of this covered, they should be and they usually are transparent with you as to whether they will come in or not. And, of course, they still have to do their own due diligence, they have to cross their doctor i’s and cross your T’s and, and spend the time to get to know you as well, especially if you’ve met them maybe a little sooner. You’re right that I do have an advantage here in helping tribe, in this case, where a lot of the LPC talk to them. And I’ve talked to them for years before that. And we are able to have more that more open and honest conversation, which I prefer. That’s my way of working. So that because of all those things, those things that you’ve said earlier, are covered, or at least, I’m confident that they’re covered. And I’m confident because I have that LP training, having done my own due diligence before joining the team in the first place. I actually spend the time to get to know them well. And in addition to all that other work before being part of the team here and for fun and emergency fund managers out there if you’re finding that they’re dragging their feet or they’re saying no, it’s there. There are many different ways of saying no and not all of them are actually many of them will say I will never say the those that word but they will say it in another way. And you have to just acknowledge them and look for others that are more interested. But but but by the way, that doesn’t mean that they’re saying no. Now, that’s the other thing about what I know if I could add another mistake that emergency fund managers make is that is that, for some of them, they want to get to know you, them may mean that it could happen perhaps later in your fund cycle and your where you’re at as a firm, right? They can, they can say no to your fund one or two. But after having seen what you’ve done, they’ll come in and fund through your fund for and use an emerging fund manager needs to take the time to understand that and share that with them. Though by the time fund 3.4, which will come it should come if you continue to outperform, that they’ll come in, that’s great. You have to know that and and put that in, in your sales process like that you still need to be engaged with them.

35:52
Talk to us a bit about you know, what are the challenges for LPs when they’re evaluating a spinoff, so somebody that came from a large, let’s say, you know, established fund, versus, you know, the the operator type or or the angel that, you know, raises their own fund, you know, what are, what are some of those key areas that the institutional investors are going to be pressure testing with each,

36:20
they will always have the question of whether it’s the fun that that made them successful. Let’s say that, let’s say that a person that came out of established fund was successful as an as an impressive track record, they will want to know whether it’s because the fund made it possible, or whether it’s that person that did it, they actually did the work. And they will try to distinguish that because, or maybe it is that person, but now that they don’t have the resources that being that at large, established fund that or the axes or, or the sourcing ability, because they no longer have that brand name behind them. They will always be one of the biggest questions out there. And, and they will take the time, or at least it’s been my experience that they take the time to try to understand that and get to know that. And my new allocators don’t just look at venture, they also look at other asset classes. They those that look at venture, even for the larger, larger diamonds have to stay where the area that I know best for better. They tend to be fund managers in the private market, excuse me allocators in the private markets. That is they’re looking at private equity funds as well. And not just a venture. And that is one of the biggest. That is one of the colors or perspective about venture and how they see things there. And it’s always been, it’s always thinking about how they’re gonna look at it that way, which is if somebody that came from an established fund, whether it’s because of the fund that that’s successful, or on their own, or on their own, and maybe for people that are in venture and just see adventure, 20 minute startups 24 seven, and that’s all they ever think about may find that absurd or silly or, or, or, but it is how they usually view it when they look at that now for but I’m not sure I answered your question. Your question is, what is a challenge for an allocator? looking at somebody coming from established fund versus somebody who

38:26
I think you did? I mean, if an allocator is looking at a spin out, right, they’re assessing the attribution, and they’re assessing, you know, was it you that really drove some success? Or were you the beneficiary of the fund behind you? And, you know, can you do it on your own? I mean, I think that that was a great answer. Hey, have you thought about maybe the other side of it, like the non spin off? You know, the, the operator that’s raising a fund or the angel that’s, that’s raising a fund?

38:55
Sure. Okay. Well, for that part, and, and perhaps I should preface all of this by saying that this all comes from, from a former institutional allocator or I think about how institutional LPs look at the world, right? Even for the many family offices out there, that tend to be much more flexible. They do hire quite a few institutional LPs, as well. And whether that they work that endowments or whether they like that work that consulting firms like Cambridge associate associates and others, there is that training mindset that, that permeates or even many of the family world, family offices world out there. And so, in terms of high net worth individuals, if you raise from them or if you have wealthy friends and you raise from them, it’s that’s a completely different process, which I’m not as familiar with. But for an institutional LP, what they’re trying to do is to assess your ability to build an a fund and firm in a portfolio, and to do it in a systematic and systematic manner, where you achieve investment and performance. And that’s what matters to them. Because they have to be able to see that you constructed a portfolio. I mean, when can you invest in startups? Can you actually attract the right startup opportunities? Let’s get that all the way. But then after that, can you build a portfolio that actually makes sense within the stage in the area that you’re in? And can you make an argument for that, because in the end, when a allocator, an LP, excuse me is looking at you and talking to you, it’s not them that you actually had to convince, they actually had to convince their own investment committee, and their own investment team and investment staff and, and to be able to say that this that this fund manager is the right person to back or to be with and support them. And if you’re someone who hasn’t come from an established fund, yet, demonstrate that ability to build that kind of portfolio and do it, show them how it’s done in a systematic manner, that you are a fact that you are building a kind of firm that is institutional grading institutional quality, then you will, you will actually be very appealing to those LPs because then they can easily mark to easily sell you make a case for you, internally within their own teams. And within their own I see in my new for, especially for endowments, many of those investment committees there. They have, they have sophisticated investors on their boards, who just who are, right, they’re ruthless or cunning, they’re, they’re the they are the top of their worlds. And, and they don’t, it’s that they may not be their money, but they care, they care about that school. And they really care about how they manage that dominance manage and a message on behalf of that school as though it’s their own money. And if you’re not building institutional quality, like Berman’s from Holly light portfolio, with an investment strategy, they’re not that institutional, really, what it who cares, throw that part of it away. But if you’re not building something that actually makes sense, and you can see and demonstrate the numbers, how it will outperform, then they’re not going to bother with you.

42:22
Stronger portfolio construction as well.

42:24
Yeah. Right. Right. Like, don’t get me wrong, it’s venture, still one out of 10 will outperform and I get the whole, the whole, like, try to access the best companies and all that, yes, but, but if he can’t even build the kind of portfolio, that will give you that chance to be able to get that performance, and then to demonstrate it to an investor that is knowledgeable by venture and knowledgeable about investing in general, so that they can make that argument to their own teams, you won’t go You won’t go anywhere with those institutional piece.

42:59
Got it? Got it. From my, you know, experience, I understand that public institutions have to disclose, you know, their investments in funds, right. So, to a certain degree, if you’re a fund manager, and you’re vetting public LPs, you should be able to do some reconnaissance, you know, online to figure out what they’ve done, who they’ve invested in, etc. Do you have any tips when it for emerging GPS that are trying to do some pre qualification, you know, they’re trying to do some vetting from a distance, you know, before they actually get meetings to see who are the LPS that are a good fit, you know, size and scale. And, you know, so they’re not spinning their wheels on institutions or LPs that are just out of scope?

43:53
Well, it depends on the as an emerging fund, if you’re going to be less than $50 million in size, that’s not worth your time to even do that kind of work. Because they for public funds, they need to invest in funds. And not only that, of that size or or higher, but they also they tend to want to invest with people that have established funds, if you will. And a lot of that time, it’s just not a good if you spend any time to understand that I don’t want to say is wasted effort, because eventually you’ll get there. So if anything, you’ll do it, but do it over time. But if you’re just trying to build a fund in the first place. And again, you cover all your bases, which we’ve mentioned earlier. It’s better just to it’s better just to ask when you’re meeting with them, and you have that meeting with those help institutional LPs they do meet with, just ask them, what kind of funds are invested in right even as names if you can, and some do share some don’t. Right? But The, it’s better just ask directly in order to at least get that kind of information and then try to be knowledgeable about what that means. And what I mean by that. If they mentioned a few Sandhill road names, and then you ask whether they invested in any emerging funds in the past few years, and they haven’t mentioned even one, or maybe they mentioned a couple of names that were in the last 10 years, that are considered establish, but they were new when they were first allocated to it. And you’re knowledgeable enough to know that, well, if they mentioned Sandhill, road names, meaning established names, they probably have an established portfolio. Now, these are not hard and fast rules. But if you if they mentioned a few names of established names for the last 1015 years, that they’re always looking to add something new, then maybe that’s maybe something that you can go, you can actually have a an effective conversation with. And that’s what I mean by that is, it’s better to ask and then talk to them. To to them about knowing what kind of funds they are. And so that can give you a good sense whether that conversation will be productive or not.

46:09
That’s great. That’s great. Marcelino, in what ways is your job, similar in different, you know, moving from LP to VC,

46:19
in similar ways is that we’re all investing, we’re all trying to put money to work and make money off of that, of course. And, of course, we have different objectives behind that as an LP, you’re not necessarily trying to become super wealthy from it. And in reality, the only way to truly be super wealthy, is to start a startup and be successful at it, which the chances of that are, are slim, of course, as, but as an LP, it’s more of a profession and a career. To do it over time, as a venture fund manager, you actually have a greater chance to do it, to build wealth of your own as well as to do it on behalf of your investors. And, and that’s where it is different. In a sense, you’re, you’re taking a higher risk, as I mentioned, investor, but a higher known risk, and a model that is understood and, and you understand and that practice at Farnell type, and which I’ve seen what the team that I, that I’m part of part of now. And that’s what differences that LPs are willing to take a risk, they’re more conservative thinking, but they actually are willing to take a risk, especially if they decide to back you as a venture investor, because they’re providing the capital to you, as startups where nine out of 10 just don’t work out, that’s a risk, that’s a risk, you’re only going to do if you’re only going to earn multiples that are similar to private equity funds, where the risks are lower, then are in this business place, gain equity, and I can just take it to them and they have in terms of allocation is much higher, they can easily put more dollars to work there. Right. And, and, and that’s where a different I don’t want to go more into detail. But it’s, it’s the venture fund manager definitely has much more of a risk orientation than an allocator. Does. I definitely saw it firsthand, with Greg. And, and here even with the team. It’s, it’s, it’s because we’re closer with the startup founder. It is there. And and that’s what we do.

48:33
How do you know, at tribe, the the early stage venture environment has gotten much more competitive, right, there’s, there’s just more overall firms? And it seems like there’s a lot that have been founded in the past, you know, three to five years in your general area in the Bay Area, you know, how do you guys compete against other firms for deals? I mean, I understand your value add, and you guys have, you know, become a very competitive firm getting into like some really big logos. But how do you continue to win and also do so at a price that makes sense for, you know, the return potential, you know, in light of our conversation about risk?

49:14
Well, I think one thing is I will encourage your listeners to start to go to Jonathan’s podcasts, he tells much more into detail on onto what it is that we do that differentiates us, but I’ll share my perspective from it. And what is it that I find appealing about it is that if one thing now as a founder today, that I know if I’m a founder right now, is that try works with data, meaning they work they work with a prospective company, they take a look at they asked for the raw data is kept confidential Of course, and but then a report is created to them which we call a bar report that analyzes not only their company but also their product. And under and how users are engaged with that product. And, and whether there is product market fit or not whether there’s potential for growth or not. And when the team does that, they are able to do it quickly, almost immediately, because they built a tool internally to process that information. And as a founder, you’re building something new, right? And you’re creating, you’re creating something in a way, maybe from scratch, but you’re creating something that you do have a few users on. And it’s easier to do than it was 1015 years ago, where you can just have a laptop and an AWS account, and you go live in an instant. But you don’t necessarily have the knowledge, or the frameworks or even the experience, to know how to build the right kind of company, or whether you even have product market fit or not part of market fit or not, because you’re too busy just building it in the first place. But if you can go to a team that not only has that background and experience, but actually has built a database of if you a database of blueprints of how successful software companies eventually begin to find product market fit and then exponentially grow from that, wouldn’t you want to work with that kind of team? Now you can, you can go work with certain partners, they have all that knowledge and do have that knowledge all inside of their head. But coming from the academic world, I rather see the evidence I rather see what’s that was the information there. And I read it see it on paper, where one, if I do have a startup that is working in the early stage area, and yet somebody can take a look at it, and assess it, and then compare me to other startup that they’ve seen the hundreds, if not 1000s of startups at the scene in the past, and, and be able to benchmark me there. That is incredible insight to have, and to have them freely provided. So as a founder, if I was a founder, I did all this work, I shared my company data with them. And they gave me that report. And now let’s say tribe decided to pass on me, I still get an insight, not just from the report, but the founder the excuse me, the partners here at tribe, talk to me and share with me, why is it that what’s it what they found out about me interesting, and perhaps a pass, but now I actually have a like a blueprint, where I know what to focus on, in order to build a product and to grow the company itself. That’s something that, for me why I wanted to join the team is because it’s something that’s done differently than that I’ve yet to see another firms when, when it comes when it comes to when we say like quantitative quantitative. When we talked about quantifying product market fit, it sounds like it’s more of a blackbox statistics data, like it sounds, it sounds really complicated. But the reality is, is that we’re just using the very same tools that a startup founder uses, right, to build, to build our investment process. And to add to it, and to make it a real edge. And these are the very same tools that not just a small startup founder uses, but a large established tech companies to use today as well. And that that’s what

53:18
I mean, I think, no, I think it’s original. And it’s it’s it’s brilliant, in its simplicity, in a way, a lot of the time that we spend, so we invest a bit earlier than you pre seed and seed. But we talk a lot as a firm because we’re leading and co leading deals, we talk a lot as a firm about how do we turn? How do we help our founders evolve into CEOs? Right. And a huge part of that is you need to understand how to lead, prioritize, and understand the key metric, not just all the metrics, but what are the key levers for your type of business? What are the key frameworks? You know, how do you benchmark? And how do you find out if you’re winning or losing, right? And then you review those key priorities with with a cadence? And you know, we do it. But what

54:05
if I could ask you where’s the data that allows you to benchmark that? Well, where do you get that data?

54:12
Only piecemeal of what’s online? Right? I mean, now we’ve created our own benchmarks. But we don’t have a rich, you know, deep data set that you guys do. And we’re not trying to be you. Right, we are not, we don’t have the platform, and we don’t have the stage and stuff. But I think early on, just you know, having a focus on you know, what is your rubric? What is your path to success? How do you measure, you know, what frameworks do you apply to the business of your type, right, enterprise, SAS is vastly different than like a user hat growth hack business, which is also quite different than then a marketplace or transactional business, right? And so, Yes,

54:53
I will. If I could use an example I’ve said and then I didn’t mean to it’s Different funds will work differently. And, and the pre seed stage, there isn’t, there really is no product that’s being built in us completely different skills. And that’s actually when it comes to taking an investment risk that that is on the highest and that you’re at right now. And like, I truly respect that, because, for me, it’s, it’s a crazy risk, right? But it works for those.

55:28
For those that can do it, it works. And, and, and you’re, you’re on a path to to an incredible opportunity because of that now. But imagine if I rather if I could use an example, in the past of investing. That, to me is how I see it being done here at tribe, especially with with one of our co founders, Jonathan who, who built the platform and build a team that’s building the platform today. And in to just go into a little bit into detail on the team itself. Actually, before I do that, use that example. This is what I thought what I saw in the team, and this how I think about them today, and specifically the co founders, Ted, he, he’s the one who’s a traditional venture background, he has the experience and knowledge on having previously been not only a co founder of his previous firm, but it was at usbp, which is a story firm here as well. And he, I would consider to cover the craft of investing here at Dr. Johnson, who has the data science background, having been at Facebook built the team there have, during the five years that he was there, and what happened reporting to him, he, I would consider him the science of investing. And then with Arjun having been sixth time founder to them to a successful outcome, he’s entrepreneurial to the core, I would consider him the art of investing here. And to have that combined. working together as a team, you get all three, when as a founder you work with drive, you get all of that, combined together from somebody who understands venture and understand they’re building a portfolio and knows how to be on a board and support you as an as an investor, you have somebody who can analyze your company, analyze how your product, whether it’s working or not, and somebody and help your team build a data science team in order to do that yourself as well. And then somebody you can relate to, because building a company still has a lot of art to it. And whatever process works in the past, may not work in the future, if you don’t have that creative ability to do so in that mindset to build that which you get from margin, it’s it, you can relate with him, and he will understand, essentially, what you need to do when you’re building that company, you get all those three, but with them, so at least I want to emphasize that about right now. Now, there is one famous investor in the past, who is known for having written a textbook on security analysis. And that’s Benjamin Graham. And he’s considered the godfather of security analysis or and the the real founder of the CFA Institute, which is considered the gold standard when for for people that go get their CFA and all LPs do that, by the way they are, should I say many LPs, go try to get the CFA many do it younger, by the way, I should say. And, and we’ll really, as I read through the books on his history on Ben Graham’s and what he actually did, all he really did is that he just would look for the records that companies would have to provide to certain government agencies. And by that I mean their financial statements. And the end, he would just get the, he would just get whatever is filed with various government agencies, get that from them, and then read it and study and understand how the company works, and then decide whether to invest or even shorter to some of them. When other investors were not willing to do that actual work at the time. That’s how it really started is just being able to get data to make an investment decision or not. And that’s what tribe, the tribe team is doing as well here is that we’re getting data that is not available to anybody. And of course, we’re getting specific from that company. But Ambassador is 100 years. It’s almost 8090 years ago, we’re not doing that themselves when they were investing in companies. They were not willing to do the actual work of going and getting that those financial statements, which is the data that they need to make those decisions. Now of course, he wrote about it. And you know what the textbook he actually has four different editions of it or five different editions of it. And then he wrote the Intelligent Investor all of them Basically saying, Look at the financial statements and make investments put them to work. Now, that doesn’t, that’s what we’re doing and getting that edge. But that doesn’t guarantee you that you will have a successful outcome investment outcome. You in the end, you still need to put yourself in a position to take advantage of an opportunity in Benjamin Graham’s case, for example. And I heard this by this is a story that Morgan housel shared recently, at a capital allocator, excuse me, a capital allocators event that I participated. If it wasn’t for one portfolio company that he invested in, Benjamin Graham would have been an average investor, probably even less than average investor, himself. And that company was Geico, if he hadn’t made that investment, and kept it in a size in a position that that essentially broke his rules, he he would not have had had an incredible investment performance. And it would, hanaway would have been just a mediocre investor there. But Benjamin Graham has that traditional craft of investing, even has the science of investing covered. But the third thing that he also had was the art depart, deciding where to break those rules. And because of that, he has that he’s well renowned now today, having Tyco in there. And in a sense, that’s what I see here with the team is that is that because you still have those three things, including the art of it, that will should lead or my goal, my hope is with just being part of the team will lead to that to at least an incredible outcome. Now, time will tell of course. But that’s, that’s thing, you still need the data, you need the information, you need to have a structure and a process behind it, just to even make it happen in order for the art to work.

1:01:53
Marcelino? What do you know you need to get better at

1:01:56
it. I’ve learned portfolio management, I’ve learned investing in startups and but I’ve yet to learn how to be a better supporter of a founder. And that’s only because I don’t have the entrepreneur experience. But with the team that I’m with, I hope to learn from them and acquire that knowledge as well as that experience from them and how to help them and to help because in the end, we’re not just investing in the startup in a new idea. But we’re helping the founder and partner with them to build their companies. And that’s stressful work. That’s that is they are taking the real risks, not the allocators that not the fund managers, not the allocators. It’s them who are making and growing that wealth that in the end, of course, support the whoever the investor is, but but that’s something that I definitely need to learn more. And I look forward to that.

1:02:49
And finally here Marcelino what’s the best way for listeners to connect with you.

1:02:53
I want to say LinkedIn, although I, I’ve tried to, I think LinkedIn is the best way that I found to be most most effective. I’m also on Twitter as well on on a tube but but I think LinkedIn would work best and then that way we can connect. And, and once we do, hopefully, after all, this pandemic is over and, and we can all finally meet in person again, I am still old school, when it comes to that I love to meet in person and get to know somebody. And, and I’m always happy to help whether they are an emerging fund manager or, or, or they’re an allocator that needs to gain market insight or their founder. And they’re trying to figure out how venture funds work and, and how to work with them, I’m always happy to share that insight has been in it. I’ve only been in this in this business for it’s gonna be 14 years now. And yet, there’s much that I’m learning but I’m always happy to share it with anybody out there.

1:03:52
Well, I can speak from personal experience that you’ve been tremendously helpful and open and transparent. With me, certainly, you know, sharing your experiences and, and helping me figure out how to navigate this whole process of, of building a firm and thinking about raising capital and all the rest. So you know, thank you for for everything and thanks for you know, sharing your wisdom today. This was a really enjoyable episode for me. And I think you’re you’re an inspiration to many with you know your story in your background that you shared. Well,

1:04:24
thank you, Nick, this. This was an incredible even I learned some things here but but you’re the one who’s with your podcasts Have you shared a lot of knowledge out there. So I’m just glad to be a small part of it. Thank you.

1:04:36
Thank you Marcelina