301. Raising from Family Offices, How to Differentiate as an Emerging Fund, and Common Mistakes Made by Established Firms (Eric Sippel)

Eric Sippel of Sippel Farb Family Office joins Nick to discuss Raising from Family Offices, How to Differentiate as an Emerging Fund, and Common Mistakes Made by Established Firms. In this episode we cover:

• Walk us through your background and path to running Sippel Farb.
• Before we jump in can you give us some thoughts on Family Offices investing in Venture and how that has changed over the 25 years that you’ve been doing this?
• What are the major investment focus areas for the family office?
• With regards to manager selection… What gets you excited when you review the profile of an emerging fund?
• Tell us about the 3 S’s that you look for.
• Rounds are moving faster then ever and prices seem to be escalating to 2-3x of what they were just 3 years ago.  Many GPs cite their speed of decision-making as a strength — What is your opinion of quick investment decisions and short DD timelines?
• At New Stack, we focus on ownership.  However, some managers prefer a less concentrated approach with more shots on goal.  What are your key learnings regarding portfolio construction over the past few decades and what do you look for in emerging funds?
• Many LPs look for differentiated strategies for sourcing and winning deals… and put heavy weight on those factors.  Where do you stand?
• When a GP is pitching any family office, not just yours, what should they be mindful of that may be different than when they’re pitching an institution?
• Family Offices are often a bit opaque… it’s hard to find them and know what their investment interests are.  Do you have advice or suggestions of ways that fund managers can find and connect with families that may be a fit?  Have you seen any strategies from GPs that have connected with you in creative and friendly ways?
• What mistakes do you see “emerged/established” managers making the most? What about emerging managers?
• There’s a great piece on Substack by Nikhil Trivedi that discusses the rise of the Solo GP. What are your thoughts on the rise of angels to super angels to sole capitalists? Do you perceive this as a threat to traditional VC firms? 
• Last year, Different Funds published a report on the rise of capital going to vehicles outside of flagship/committed funds–i.e. SPV’s, Syndicates, Rolling Funds, and Opportunity funds. How does an LP navigate all these vehicles?
• You’ve worked with a lot of GP’s.  What sort of bad behavior have you observed that you attempt to screen for now?
• Are there signals post-investment, after a certain period of time, that indicate to you that a GP or fund is working well.
• What’s your opinion on using follow-on capital to bridge a company to Series A?
• What advice, that we didn’t cover, would you have for GPs out there that are raising a Fund I or Fund II?

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0:17
Eric Sippel joins us today from Berkeley for over 25 years, Eric has run his family office where he has invested in more than 30 emerging managers prior to running Sippel Farb. Eric was a hedge fund and VC investor. Eric, welcome to the show.

0:33
Thank you so much.

0:34
So very quick background there, can you sort of give us the you know, two to three minute overview of your path to to Sippel Farb?

0:42
Sure, of course. And you know, before I do that, just a little perspective. So what I like to do when I invest is I invest both time and money. So when I talk about my path, you’ll see how that sort of makes sense. I started off my career as a wall street lawyer working for our firms, private equity fund clients, after four years moved out to the west coast, where I co lead a nationally recognized hedge fund law practice. And I did a bunch of venture capital work. And then in early 2000, left to join a spin out of one of my clients out of Robertson Stephens as a hedge fund as the COO. And then ran their venture practice, which wasn’t very good, by the way, and then goes the CEO of the firm, we grew the assets to several billion dollars. And we all realize that we were done getting investing other people’s money. And so we closed the firm in 2010. And since then, I’ve been a philanthropist. And just investing directly as my family office, again, investing time and money, started investing in the venture space back in the early 90s.

1:46
Very good. And can you give us a sense for your investment focus at the family office, you know, what, what assets Do you invest in and kind of what’s the breakdown there.

1:57
It’s about a quarter of the assets are in commercial real estate, a quarter are in public equity, quarter are in fixed income. 15% is in Venture, and 10%, is in miscellaneous. But that’s in terms of money, in terms of time, 90 to 95% is in venture.

2:16
Wow, awesome. And maybe that’s a good place to start, I’d love to hear a bit about the evolution of VC, from your standpoint, in investing in emerging managers over the past, you know, 25-30 years.

2:30
So let’s start at the end. And then we’ll get go to the beginning and talk about evolution, there is in the last three to five years, it’s been just an explosion of emerging managers in ways that is just sort of off the charts. And so now let’s go back to the beginning. Back when I started investing in the early 90s, there just weren’t that many firms around. And it was hard for emerging managers to, to break in. Seed wasn’t really a thing as its own, and really established players were playing in the early stages. And it was hard to get there. Yeah, everything cycles. And so up and down in terms of performance, and the environment and the like, we fast forward to 2012-2013. And all of a sudden you have a whole bunch of operators who are successfully coming into the into the field. And then you know, as I said, 2015-17, you have just truly an explosion of so many talented people coming in.

3:40
Yeah, it’s changed quite a bit. How about on the family office side? Right? You’ve been at this for a long time. Can you give us some thoughts on how family offices investing in venture, you know how that’s changed over the 25 years, you’ve been doing this?

3:55
That hasn’t changed quite as much. Certainly there are more family offices investing now than there were. But family offices are all different. So there’s no one way a family office does anything. And so it’s really hard to generalize, but for the most part, family offices are constrained by their network, which funds come across that desk constrained by their network. And so I’d say that family offices are changed a lot less because it’s just hard for many of them to get comfortable with with deal flow and and with quality because they just don’t see enough. I mean, and they see plenty, but they just don’t see the range.

4:34
Right? Right. I do want to talk about that a bit later. Maybe we’ll start out. I think the old cliche holds that, you know, you’ve seen one family office, you’ve seen one family office. So Eric, I think you can speak for yourself, maybe not for everyone. So let’s let’s start there. You know, talk to us about manager selection. You’re meeting new managers, you’re meeting in emerging funds. What gets you excited when you sort of review the profile and hear the pitch for a new emerging fund?

5:06
Well, let me walk you through my rubric. So in terms of how I think about it, and you know, what gets me excited as if the fund ticks off all of the boxes in the rubric, I start at the highest level, which is, what space are they in? And is it inefficient? I just don’t think that you can make money consistently investing, if you invest with crowds. And so I’m looking for inefficient sectors, and in venture that’s expressed, usually with diligence periods and with valuations. But it also is just how many investors are there in that space, and what’s the opportunity in the space. So I start at that level, I get next to general partner experience, at a minimum, what I’m looking for is and not every manager will, will fit all of this, looking for a minimum of at least five years of operating experience in industry, in the same industries that they’re going to invest in. And then at least five years of venture investing experience that is comparable to what they would be doing with my money. So that’s the second level. The third level is what I call the craft of adventure investing the three S’s source, which is I guess, sourcing and winning selection, which is how you do your diligence, how you analyze companies, how you select companies, and then stewardship or value, add how you help companies to perform after you’ve written the chat. And then lastly, portfolio construction. For me, and this is a big debate in the venture world. But for me, I like high conviction, high concentration, large ownership, position investing. And in particular, I’m also attracted to seed stage because I can accomplish all of that.

6:49
Good, good. So on the first point, you know, what is an inefficient space or sector it sounds like it manifests and maybe, you know, better valuations and longer diligence periods. But can you give us an example of, you know, an inefficient space that was interesting for you?

7:06
Well, an example would be hard science that’s being spun out of universities. So I don’t mean AI or anything digital, but things like little mechanisms that will prevent vibrations in lawnmowers, or little sachets that you put into produce boxes, things like that. So technology that’s just a little off the beaten track, because there are very few investors who, who are in that space in part because it’s really hard to do well, and so that’s, that’s a, that’s an example.

7:43
Very good. And then on that second point, the three S’s sourcing selection stewardship or are you looking for sort of unique angles on each of those are some sort of edge as you know, many LPs have come on the program and talked about this mythical edge, you know, like what what with each of those three categories are sort of, you know, you looking for

8:07
Focus in reverse order I so I triple click on stewardship, I double click on selection, and I’ll single click on sourcing and why did I go through what I mean by that, to start with, there are lots of fund managers who just don’t, don’t even really pay attention to adding value afterwards it’s just not what they’re set up to do, that’s fine, that’s just not an area where I want to invest doesn’t mean that they’re not really successful, it just means that they’re, it’s, it’s just not for me and for me, the reason why I look at it this way is I’m trying to distinguish between skill and luck and find managers that I think could do sustainable returns and so the ability to do that I find that stewardship and the value add to companies really helps distinguish the the sustainability of returns and and as part of the skill piece now what I would say on that is it’s one thing to say you do that it’s another thing to really dig down and find those that do well versus those that do poorly for me customer intro is a really important value add piece because I think some do well and many say they do customer intro but they don’t really know who they know somebody works at a company and they introduce introduce the portfolio company to to that person and they get passed around and nothing really happens. So there’s a there’s an art to customer intro. So anyway, that’s that’s sort of value add selection. I double click for me and I being in the investing world for 30 some odd years. I have a good sense of when people are thorough about their diligence versus just doing it a cursory level and I like to see what people think and how And how they analyze things. So that’s so that’s the double click the single click of sourcing and winning. And the reason why it’s single click is because everyone says they have a network. And you know, how do you test how strong someone’s network is. And there’s also a problem where I just need the fund manager to find and choose 15, investments, maybe 20. Over the course of three years, I don’t need them to see everything and have a huge wide funnel, I need them to be good at these other things. And what I find is that stewardship in particular, will predict selection because it will predict who your due diligence sources are, it’ll predict sourcing, and winning, because typically entrepreneurs and founders who rave about venture capitalists will also be really helpful in terms of referring new deals, as well as being references.

10:52
You know, I found it interesting. Over the years, I’ve been hosting this podcast for over seven years now. And I’ve seen the venture industry evolve quite a bit, right from hundreds of funds to now over 1000, right 1500. And also the way that funds differentiate has changed, or at least the emphasis, it seems like now, all people talk about is sourcing and winning deals in sort of the speed with which they can make decisions. Whereas back, you know, when I started the show, the first three to five years, it was just all about the selection process. There was so much art in science and quantifying the qualitative and so much that went into the art of selecting winners. And now it’s it’s really about speed, you know, can you source really talented teams working on big opportunities? And then can you get to decisions fast? You know, I’d be curious to hear your take on that. And, you know, if you’ve also observed this, you know, speed over everything and short diligence cycles?

11:52
Yes, unfortunately, yes, I have observed that. So one of the early questions I asked my manager, when I talked to them is, what’s your typical period between the time that you meet a founder and the time that you write a check. And those managers that brag about how they can do it really quickly? I know, as a know, right off the bat, and there’s, and there’s a huge number of funds that sort of do that, and are proud of that. So yes, it’s, I think it’s horrible trend in the business. You know, you’re when you write a check in the venture space, you can’t sell that position, you’re married to that company in that founder for 1015 years. You know, if you if you don’t take the time to figure out if that’s a good fit, both on a personal personal level, and on coaching level and on whether you really think that’s a great investment, you’re not a manager. For me, the thing that I like most is very long diligence periods. But I particularly like fund managers that introduce potential customers to portfolio companies before they write the check. And then their decision as to whether to write the check or not, is important based on the feedback they get from those customers. And how the founders deal with that feedback. Because it doesn’t mean it just because they didn’t sign up as a customer doesn’t mean it’s not a place that you want to invest in. It does show you Alright, well, how is that feedback going to be taken? What are the what are the explanations, etc. And that takes time in the deep tech space, it takes time to test the technology. My ideal funds are the ones that take six to 18 months to make a decision.

13:35
Wow, interesting. I love the point around making the customer insurance, it’s, it’s always a huge win, when you see a founder that is really receptive to feedback from the customers and want, they want to work with the customers and even better when the customers are so excited about what’s being built. They can’t wait to become a customer. It ends up being a huge win for our diligence process, and then also for the startup as well. Eric Yeah, I guess I also kind of wanted to get your opinion on why why a more concentrated portfolio, right? Why higher ownership positions? Why not? I mean, people in a pejorative sense may call some approaches the spray and pray but why your emphasis on more concentrated instead of, you know, a more diversified high volume portfolio.

14:27
Sure, and let me back up for for a fund. If your strengths are in a more diversified portfolio, you should do that. It’s just not necessarily going to be for me. So there could be plenty of people who are really successful it with broad portfolios. So there’s several reasons number one is, maybe it’s sort of the primary reason is capacity. So you have the capacity to review a certain number of deals well and the more deals you have that you are Reviewing the harder it is to analyze and investigate those companies. That’s number one. Number two, once you’ve written the check, again, remember that I triple click on value add, it’s really hard when you have a lot of companies to add a lot of value across all of those companies. And so you add that up, and you’re you’re much more likely to get better investment decisions and portfolio companies with more value added to them, when you have a smaller number of them. So that’s number one. Number two is for me, it’s it’s this is a sort of a high ownership, this isn’t necessarily around concentration, because you could be concentrated with small ownership. And this also relates to fund size, and it’s around portfolio construction, I like to see each investment have the possibility to return the fund. Now, I have some investments that are series A funds that are a little bit larger, and I recognize that that’s not necessarily going to be the case with with all of the investments that they make. But for the seed stage, which is where I like to focus, I’d like to see each investment do a return the fund and not having high ownership is important for that.

16:12
Got it, you know, if we take a step back, think about family offices, again, you can’t speak for all of them. But when a GP is, is pitching a family office, you know, not just yours, talk about what they should be mindful of, that may be different than when they’re pitching, let’s say an institution.

16:32
So a couple of things, I guess the one thing is, typically it’s one decision maker, or two decision makers, it might be the person working for the decision maker, or it might be the person you’re talking to, you might just be the decision maker. And so process is very different from a family office perspective, you’re not going to have committees generally, that you have to sort of satisfy and weigh, you’re not going to have sort of as the guidelines aren’t going to be quite as strict. Typically, what that often means to when you make an investment decision, you make it both based on financial and emotional reasons. And there may be you know, the personal connection may be stronger in the you know, with the family office, as it is, is leading to closing the deal than it is with endowments, or foundations or other institutions. So, so that’s a that’s a big difference. I think it from my perspective. Many family offices, I alluded to this at the outset, many family offices don’t see big deal flow. And so they may be more persuaded by who the CO investors are in the fund, then certain endowments or foundations, although there’s certainly some some of that that goes on at every level. So that’s a that’s another thing I think you should have to keep in mind. And the last thing is family offices, usually it made their money in a particular industry, they can be pretty helpful if you’re investing in that industry in terms of being a sounding board. And in terms of in terms of customer intro, and the like and talent, intro and family offices like it when they’re consulted. They like it they like to give back to the fund manager if they’re going to write a check. And lots of funds miss out on that opportunity.

18:32
What about the family offices that prefer you know, co investment? I’m not sure how much you you do have that but you know, I’ve interacted with a number of families that have said yeah, really interested in the funds, would love to see some direct opportunities first and work on those and then potentially if I become a fund investor would love to co invest alongside you or you know, in your follow on pro rata’s is so many different feelings in that some of which will be controversial and won’t necessarily put me in good stead with other family offices.

19:03
That’s what we’re here for Eric Yeah, I guess. Um, so first off, I don’t do any comas. So start there. And yes, lots of family offices are looking for co invest, they’re looking for ways to drive down fees. In many instances, again, I can’t, can’t say in all instances, but in many instances, these family offices are just making bad, bad investment mistakes. They don’t have the skill set that GPS have. They don’t have the network necessarily to diligence and investment that GPS app. Now of course, if you’re in the industry, if you grew up in the industry as a family office that you’re then calling investing in, I take that back, of course. They don’t necessarily have the capacity to correctly analyze these there’s adverse selection where oftentimes what’s available is not necessarily the best investments And so I just think it’s a huge mistake, even though you drive down fees to write checks alongside as a co investor or a follow on invest with it with a GP, unless you can figure out the very highest conviction, highest conviction follow ons that GP is doing not all the follow ons, and you can get and you can figure out, and you have a diligence edge that will help you out there. Otherwise, I think it’s just a mistake. Now, I also think it’s a mistake on the fund manager side, to offer co invest to somebody before they become an LP, unless it’s somebody who’s really going to move the needle for you, and you think they’re close to investing. And so you just need to do one co invest with them before they write the check. Otherwise, I think that’s a mistake as well.

20:48
You know, you hear this old cliche about, you know, somebody goes to Vegas, they hit a big, you know, they’re first time and then they keep going back, and they’re losing. And I’ve seen a similar pattern, in some cases, with family offices and angel investors, they, they get lucky, you know, with like, an early deal, or maybe they were good, I don’t know, but you know, they have a big hit early, and then it makes them really want to double down on directs and put, you know, far more allocation into individual investments than then, you know, maybe the standard diversified venture portfolio would, would, Warren,

21:25
I just think that, you know, as an investor, whether you’re a family office, you’re an institution, whatever it is, you have to know what you’re good at, you have to know why you’re good at it. And when you have that self knowledge, you can then apply it to where are you going to invest your money? And you have to be honest with yourself, and you have to look at your track record over time.

21:45
100%, you know, family offices are a bit opaque, right? It’s hard to find them. It’s hard to know, what their investment interests are, what they’re good at, you know, what their specialty is? Do you have advice or suggestions for ways that fund managers can find and connect with families that may be a fit for them? And and have you seen any strategies from GPS that have connected maybe with you in, you know, creative ways that you know, you are open to?

22:15
So, lots of different parts of that question. Let me see if I can break it apart. So finding family offices is hard. As you said, it’s really hard. There are some places that I think are easier than are some places where you can find them. So number one, I think the raise the conference does a fabulous job. But you know, I was on the selection committee for a couple years. And they do a fabulous job of connecting emerging managers and, and family offices. There are some of the large banks that focus on venture investing, like First Republic is the one that comes to mind does a great job of connecting family offices to GP’s. So some of those things, I think are ways to do it there. There’s some other things out there as well that are helpful, some other conferences. So that’s sort of on the How do you find them piece. The other a way funders most funds find me or just through my network, I have great network in the fun to find space, a few endowments, other family offices, they’ll send me things that they find are interesting, I’ll send them things that I find that are interesting. And so that’s the typical way things are, you know, people find each other. But that’s true at the institutional level, too. It’s not just the family office thing. So so that’s in terms of finding each other in terms of connecting. What I would say is really important. And GP’s often miss sort of lose sight of this is trying to have a conversation getting to know the person before they get to a pitch, you know, sort of exploring what their background is in the first question is should be the GP asking the LP. Tell me about yourself. Tell me about your background. What other funds have you invested in? What are the things you like, what do you think you dislike? So that there’s sort of a connection to it, you’d be shocked at how many GP’s don’t actually look at someone’s LinkedIn before the LP’s, LinkedIn before they talk to the LP, so that if there’s something on LinkedIn, like for example, I was a soccer coach for many years. So you know, people like soccer, they’ll connect with me around soccer, or I am the Chair of Bay Area goodwill. And so people who have a connection to Goodwill might talk about that it’s it’s sort of doing a little bit of homework, and finding out about the person and trying to connect on a personal level before you dive into the pitch.

24:43
What mistakes Do you see emerged managers make, right? We’ve talked a lot about emerging managers, how about emerged, I think emerge managers and that’s I get a broad category. I think oftentimes they get too large. They They’re fun size grows too large, that means that their selection process gets sloppier, the evaluations process gets sloppier, if they’re, you know, they’re they’re writing bigger checks for the same size, ownership position, they. So that’s one thing that I think emerged managers do poorly. The other thing I think they do poorly is sort of maintaining, maintaining quality, not just in the way I just described, but also, you know, when you grow assets, you have to grow your, your team, you often lose the true strength of the firm, as you get really large, you’d really dilute you know, the the true superstars. And so I see that as a as a big issue as well, obviously, there’s some very large, very successful firms. And so you can do it well. But I think it’s harder, and then cultural becomes harder, and, you know, investment committee becomes larger, and you just end you have all of those dynamics. And it’s just it’s hard to go from 100 million dollar, matching $100 million really well to ultimately managing in a fund to a $500 million or a billion dollar fund. Those are hard. It’s even it’s, you know, it’s hard enough to go from 100 to 250 million. So I, you know, those are the things that I see, and most people kind of ignore it until it’s too late.

26:33
Interesting. So as these funds grow and stuff, they become looser with the thesis, and I’m sure a lot of firms, you know, the thesis evolves over time, you know, how do you study about the thesis, it’s more about the quality of the diligence, right, it’s more about the risks that you’re willing to accept, because you have, you know, when you can only write a small number of smaller checks, and you know, everything depends on it, you’re just going to be that much more, I have much more of a critical eye, then when you when you have a huge pot of money at your disposal. And, you know, you stand when you have a larger team, you have to do things like oh, well, I have to make sure that team member is happy. And so maybe I have to say yes, to that deal, when I shouldn’t say yes to it. And it’s just around, you know, it’s not sloppy, because I don’t think it’s sloppy, I just think it’s a little bit less sharp, if that makes sense.

27:36
Interesting. So how is how does one manage that right? Both the GP and the the LP investing in the GP?

27:42
My favorite way to manage it is to stay small. You know, don’t add team, don’t add to a lot of team members. Yeah, you add a couple to support and don’t add a lot of assets. Just stay you know, if you’re really good at managing 100 million, why you think it’d be good at 300, 150 and then stop and be done. And go and grow really slowly, because you’re fund size is your strategy. And so just because you’re good at one doesn’t mean you’re going to be good at the other.

28:29
So there’s a great piece on Substack by Nikhil Trivedi that discusses the rise of the solo GP, what are your thoughts on sort of, you know, the increase in angels, super angels solo capitalists? Do you see this as a as a threat to traditional venture firms?

28:48
It’s great. It’s fabulous. I, you know, again, you need to know what you’re really good at, you need to have you adjust your fund size, so that it fits that. And then, you know, off you go, I don’t think it’s a I don’t think it’s a threat, when you have really talented people, funding companies that need to be funded

29:10
about the difference in models, right? There’s all these different types of ways of investing, right, you’ve got your traditional committed fund, but now, you know, there’s been a proliferation of SPV syndicates, we have rolling funds, we have opportunity funds, you know, how does an LP navigate sort of all these different structures and in ways of participating in the asset class, you know, it gets back to what I was saying before, which is you really have to sort of be immersed in the asset class to understand the nuances and what’s in what’s different. So, you know, for again, family offices, there are many family offices that are immersed and understand this and then a lots of family offices, who you know, it’s it’s this is all Greek to them, and that’s fine and if it’s Greek to them, they should do they should not necessarily try to engage you With it, but, you know, I love opportunity funds that I don’t like spvs. I don’t like rolling funds. I like traditional drawdown commitment funds. That’s just me, you know, I have reasons for it. But those other ways of doing it are successful for a lot of people. And if it fits their strength it as the GP or venture capitalist fits your strength, you should go do it. You know, you really need to fit your strengths to your structure. Perfect, perfect. All right, Eric, this question is called three data points. I’m going to adjust it a bit for you as an LP. But I’m going to give you a hypothetical situation with an emerging GP, you can ask me three questions for three specific data points in order to make your decision. Now, I recognize this is not how this is done, but you’re going to humor me for a bit so that the fund is based in the Bay Area, they’re raising 50 million. They invest in seed and pre seed rounds. And they do not have a sector mandate. They’re sector agnostic. Again, the catches, you can only ask three questions for three specific data points in order to make your decision.

31:18
So number one, where are most of you? Where are most of your portfolio companies located? Number two, how long? Does it from the time that you meet the founder? Until you issue a term sheet? And number three, the cheating one would be what have you told me that I need to know. But I want to I want to ask the third question. The third question will be what excites you? Very good. But if the answer is I don’t like I don’t like general response. So I probably wouldn’t invest in this just to start Bay Area funds. If they’re specialists find this I’m interested in. But if so, yeah, bear doesn’t disqualify it. But no, the generalist no sector mandates us.

32:15
Okay, what are you? And what if the answers like where are most of your portfolio companies, let’s say they’re spread all around the world, let’s say if it’s, you know, six to eight months to term sheet, and what excites you, let’s say it’s deep tech really nuanced, let’s say, you know, heavy science oriented tech.

32:35
So I don’t view that as a, as a generalist. I view that as a specialist, deep tech is I think of as a specialty. So I am invested in probably the largest number of funds I’m invested in both in terms of capital and number of funds as deep tech funds. And so I think of that as a special I think about a specialist and those are all really interesting to me. So six to eight months, you’ve described a bunch of funds in my portfolio, but six to eight months, deep tack around the world. Yeah, I’m very interested we can have a long conversation about we’re probably going to talk for a while.

33:07
Good. I’m curious is there are there signals post investment, you know, after a certain period of time, that indicate to you that a GP or a fund is, is really working well in gives you sort of the conviction to re up for the next fund lots of signals. Now, for me when I underwrite a fund investment, I’m usually thinking that unless I see something that’s a real, that really bothers me that it will be that I’m investing in at least two funds. And my hope is that investing in every fund in their life in their life cycle, so and what I try to do is I try to mentor the managers where I’ve invested and try to add value, my goal is to be the most value add, sorry, LP that the GP has. And so I have the ability to stay close to people and learn what’s going on. So what are you know, sort of thing so the thing that most people look at that I think is least predictive in the first three years of a fun diss track record. Right, you know, how is a portfolio? How are you know, what are the markups? Because that’s, there’s so many other external factors that relate to that, that markups aren’t necessarily the best way to think about things. portfolio company progress is really important. So if you can look underneath the evaluations to see the progress that that’s that’s really helpful. For me, it’s important that the GP, do what they say they were going to do during the pitch, but also evolve as the environment evolves. And so they don’t have to, you know, it’s an example if they say, All right, we’re gonna have long diligence periods and then short diligence periods because they can’t get into deals otherwise I get that evolution that’s fine. doesn’t work for me because they don’t like the result. But If, on the other hand, they say Say, you know, instead of we have a long diligence period, but instead of owning 15%, we own 12%, or 10%. Because we want to write a larger number of checks, because we have, we have a much wider opportunity set, and we have the capability of doing it, that’s fine with me, right? So it sort of depends on on why they’re evolving, and how the in what the environment is. The other thing I am looking for is, and this is a mistake that a lot of managers make, I’m looking to see where they follow on with their capital. And so I think fall on capital is the most valuable thing he can use. So are they following on into the things where they’re supporting all of their companies? I don’t, that’s okay. I don’t love that, um, are they supporting? Are they writing much bigger checks to the companies that they think are true winners and true breakouts? I really do like that, particularly if they can do that before the rest of the world sees the inflection points, are they supporting the losers, because they’re afraid of companies that will, without their support, they won’t, they won’t make it. But, you know, they’re not really likely to return, you know, be significant winners for the portfolio, those are the kinds they really dislike. So that, you know, there he’ll follow on strategy is important for me, I love to go to annual meetings and talk to founders in person, because then I can find out how much value the the GPS are adding to the companies. And, you know, and I like to add value to the portfolio companies where I can, because again, I can find, I can find out more about the GPS. So those are some of the things that I that I’m looking at and looking for,

36:57
if you see a follow on strategy that includes, you know, bridging or, you know, helping some of those early companies that haven’t quite gotten to the next level yet, is that is that going to be, you know, a negative signal for you know, it depends on why, right? I mean, a lot of times, if the company is hitting milestones or coming close doing the things that set was gonna do, you still have just as much conviction in the company as you had, when you wrote the check or close to it, a bridge is great way to, to add it to increase ownership before everyone else sees it, it doesn’t have to hit hit, you know, takeoff velocity yet to write checks into balance. On the other hand, if you’re writing the bridge, because you think that somebody is going to come along and and buy the company at, you know, at a one and a half x for rather than a 1x, in a year and a half. You know, I, you know, the risk of that hat you have that not happening is high enough that I just don’t know that that’s going to be a strategy that makes sense to me.

38:02
Eric, what advice maybe you know, something we didn’t cover today? What advice would you have for GP’s out there that are raising, you know, fund one or fun two?

38:10
I would, it’s not necessarily funds that are in the process of raising. But I would always think about your communications with your limited partners, as being the foundation of your next fundraising of the next fund. And so number one is it’s much easier to retain your existing LPs is to go out and find new LPs. And so you want them to be happy. You know that in the investing world, lots of things will go against you. You don’t necessarily have the luxury of timing your next fun fundraising for when things are going well versus poorly. And you know that for the most part, people look at markups. And so how do you change that conversation or reframe it so that you’re communicating with LPs in a way that makes them comfortable with reacting? Or in the case of new people that you’ve met? How do they look at what you’ve done in a way that is not just based on markups? And so how do you communicate portfolio progress? Whether it’s new customers or milestones, how do you communicate you know that you’re doing what you said you’re going to do so lots of GP say they add value to portfolio companies don’t just tell me that show me it give me examples of that both in the fundraising process as well as in your LP letters and annual meetings and the like. If there are other things that are you know, around your strategy, your thesis or just your you know, you kind of your pitch make sure that in the you know, in your again, in your communications that you’re communicating that so people like oh yeah, they’re doing what they said they were gonna do, as opposed to just sort of ignoring it. starting from scratch again, because if I if I have to come back up to speed for the next fund in the fund after because I don’t know that you actually did what you told me you were going to do. It’s it’s hard for me. Um, so that’s so that’s the that’s I think the biggest thing that I would say, the other piece while you’re fundraising, think about your data room as you know, kind of your, the way you would think about footnotes in a paper. So, you know, in your pitch deck, and in your pitch, you say certain things. Again, let’s just use the example I introduce customers to portfolio companies before I, before I write the check, use the data room to shift to highlight that to show examples of that so that I don’t have to go out and talk to 15 or 20 different references to prove the fact that you did that. It’s all in there. It’s in the data.

40:57
Perfect, super helpful. Eric, if we could interview any guests here on the program? What guests Do you think we should feature? And what topic would you like to hear about?

41:07
I’d love to feature Warren Buffett. And I’d love to and not because I want to hear about what he thinks about technology investing. But I want him to think about, you know, what do really strong investors do? That can carry over to venture?

41:26
Love it. You’re not the first to request that. We’ll get right on it there. And then, um, what do you know, you need to get better at?

41:36
Oh, gosh, I need to get better at everything. Yeah, I there’s so many things that I that I need to get better at. I need to get better at asking better questions. I need to get better at digging deeper. I need to get better at Yeah, I need to get better at sort of distinguishing between what seems good and, and what is good. I need to make sure that I continue to try to avoid FOMO I mean, it’s just when you’re an investor, you never stop growing. I’m lucky to do this, because it’s really fun. But I mean, I’m yeah, there’s so many other things that I can learn.

42:17
And then finally, Eric, what’s the best way for listeners to connect with you and follow along with Sippel Farb?

42:23
Connect with me on LinkedIn. And then you know, we can go from there.

42:27
Very good. Well, Eric, I appreciate you doing this. You know, I’ll say from personal experience that in the in the broader LP community, you are one of the most thorough and helpful people out there. I’ve really appreciated our interactions over the past few months. And I really appreciate you sharing your thoughts and your advice with emerging GP’s today. So thank you.

42:46
Thanks, Nick. I appreciate it. This was fun.

Transcribed by https://otter.ai