Access is Everything

In the recent interview where Colin Keeley interviewed me, he asked me for the most important lesson I’ve learned after 100 episodes and three years of investing… and my answer was Access. In today’s interview, Lindel also cited the value of access. In his list of six things he’s looking for in a VC fund manager, number one was: A Sourcing Advantage… How will the GP source and close better deals than other funds? What is their differentiation that provides that sourcing advantage? While Lindel values the relationship he builds with first-time fund managers, I’d imagine even the best relationships don’t result in investment, where no sourcing advantage exists.

The other night I was out to dinner w/ some friends. And the guy sitting next to me, who I was meeting for the first time, was proudly speaking of his investment in a Blackstone fund. He spoke as if he had some superior selection strategy… yet any of us have access to the public fund he was describing. I kept my thoughts to myself then, but I’ll share them now… that Blackstone fund that anyone can get in, is not the one the best investors get in. Those funds are closed to the individual investor. Only large institutions with big check sizes and standing relationships will get an allocation in their best PE and Hedge Fund products.

And this access limitation exists across investment classes. Rarely can the no-value-add investor get into the best investments. This is likely why the vast majority of high-net-worth retail investors in the states have never invested in venture capital… they can’t get access to the best-returning funds (ie. the Sequoias and Accels of the world), they don’t have a big enough check-size to get in w/ medium-sized, solid returners and they wouldn’t even know where to begin with trying to select emerging fund managers. Those that have the best access move up the food chain quickly and attract larger, professional capital.

But Lindel is making investments in first-time fund managers. He’s not even attempting to access Sequoia… he’s looking for the next Sequoia… or at least the seedlings of it. By betting earlier on first-timers, he can access the most innovative minds in venture at a much smaller check size. And, when a GP has success, Lindel will likely have the opportunity to continue investing in future funds. In a way he’s buying an option. As an investor in both Union Square and Foundry Group’s first funds, Lindel identified some rising stars in the industry and he rose with them. A similar parallel exists with seed investors and the startups they invest in. If one makes an early bet and gets a pro-rata, they can continue investing for the life-cycle of that business…. and ride the wave with them.

So, for all the investors out there, how do you think about Access? Who do you partner with that has a sourcing advantage? Is your method for finding and closing startups unique? If so, there are LPs, like Lindel, that are looking for you.