Investing Billions - E180: How J.P. Morgan Asset Management Picks Winners in VC & Private Equity

Episode Date: June 27, 2025

What does it take to allocate billions in private markets—and what sets a top-tier LP apart? In this episode, I speak with Patrick Miller, Executive Director and Portfolio Manager of J.P. Morgan Asset Management’s Private Equity Group, where he plays a central role in their alternatives platform, investing across venture capital and private equity. Patrick shares how a single energizing meeting with a Florida-based venture capitalist sparked his interest in the asset class and how his team has since built a differentiated barbell strategy combining legacy tier-one firms and new emerging managers. We dive into what LPs can do to truly add value to GPs, why fund size and ownership matter, how AI is shifting capital dynamics, and what makes a venture firm truly “differentiated.” Whether you're a founder, a new VC, or an allocator, this episode is full of real LP insights from one of the most thoughtful voices in the game.

Patrick, I've been excited to chat. Welcome to the How to Invest podcast. Great. Thank you, David. Happy to be here. So tell me about the story about how you got into allocating into venture capital funds. It was really one meeting that I had with a particular venture capitalist who

was based in Florida that we currently work with. I left that meeting genuinely feeling energized and I knew I wanted to spend more time focused on this particular asset class. It wasn't his network that necessarily wowed me. While it is impressive, many venture capitalists have great networks, but it was the value he created for people, whether he was an investor or not, which impressed me the most. And I asked myself, how can I do this from the role of an LP that is different from others? Right? It's how can I be additive to JP Morgan's private equity team in helping

getting access to these differentiated opportunities? You know, it's expected from our managers that they will add value to the underlying portfolio companies. But how can I do that from an LP perspective? Will that put us in a better position to get access to some of the best new and emerging firms? And those are the type of questions that I think about quite a bit. How can LP go about adding value to GP? So I think it depends on the LP. And I recently had dinner with Patrick O'Shaughnessy where we sat down and talked about this topic for a while.

Number one, venture capitalists want long-term partnerships. Venture is not an asset class that you wanna trade in and out of. Think of the companies that were created in times of volatility. Airbnb in 2008, now an $85 billion company, right? Uber, Venmo, both founded in 2009. We don't think you should trade in and out of venture

and our general partners want stability in who their LP base is. The second is institutional experience. Our team has been investing in venture capital for 40 plus years. We have tremendous experience investing across multiple market cycles. We've seen multiple firm transition. We've been valuable members of LPAC boards, which currently sit on over 215 boards across our platform. Within our experience investing in venture capital, we have seen a lot and we can

help provide best practices for these firms. And the third and probably the most important is introductions to LPs or other industry leaders. Who are some of the other LPs that we know that have unique insights or unique and differentiated access. How can they add value to their firm? Um, you know, is, is, is their skillset additive and what you're currently focused on, we recently introduced one of our partners to a podcast to help raise awareness to the firm and really build their brand, right? So we really want to be partners with these GPs.

The first value add aspect. I could summarize, steady hands. So in the, in the times when the market goes down and it always goes down, those LPs are least likely to withdraw because of their institutional knowledge on the performance of asset class. That's right. I mean, we've seen swings, you know, hear a lot about valuations and that will dictate your investment, but we're also very focused on the early stage. Majority of our investments are focused on seed series A. You know, it's a much steadier median valuation year over year than what you'll see in series C, D, et cetera. The way that people talk about asset classes is as if you have to invest at one valuation to a certain asset class.

In other words, venture capital early stage is always investing at a 20 million valuation or series A is always at a 50 million. Then reality it's supply and demand. It's just a matter of how much demand is going into the market and how many companies are there. And that dictates whether it's a good or not market. At the earliest stage, I like to say innovation does not care about valuation. Right.

If the valuation of a C let's say a seed round is $20 million or $25 million. It ultimately doesn't matter if that company is a billion dollar company. Right. It's going to be wildly successful. Right. And so that's the reason why we don't like to trade in, not a venture. We like to be very focused on the early stage, and back venture capitalists who have great relationships with the next best founder. In 2024, the top 30 funds raised roughly 75% of the entire venture ecosystem.

You're investing in emerging managers. Why is that? We are bullish on a handful of new and emerging managers, some not necessarily emerging but smaller managers. Our venture capital strategy is building a barbell approach. As you would imagine, JPMorgan has very long-standing relationships with tier one venture firms that we all know of. very long standing relationships with tier one venture firms that we all know of. These firms have tremendous resources and capabilities. They have long track record of backing some of the most prominent companies in the world, whether it's a Meta, Uber, Stripe, Databricks, Scale AI, which was recently in the news, at the very earliest stage. Again, they have deep teams,

they have a playbook that continues to work and experience that generates that pattern recognition needed to continue to get access to great companies. I don't think that's going to change, and I think they're gonna continue to get good access. With that said, the industry is constantly evolving, and we believe that there are some new firms that have raised smaller funds

and proven the ability to get unique access. And in many cases, we're finding that some of these firms are investing alongside some of these tier one or multi-stage firms, but at a much smaller fund size. And at the end of the day, in venture, fund size and ownership matter, right? And so what we found interesting about some of these smaller funds is if you look at the ownership relative to fund size,

an LP can have a greater return, you know, being a smaller investor in a smaller fund than a larger investor in a large fund. And so we think as these funds become larger, they're going to be more reliant on having a higher hit rate in their underlying portfolio company, which is possible because given what I told you before, or be reliant on outsized returns. And as of the end of last year, there was 1,230 unicorns, but just 48 dekakorns. It's much harder to hit that $10 billion mark where some of these funds could be more reliant

on going forward. And the model for the smaller funds is one investment returns the fund and then everything's gravy on top. You get to your three, four X net. What's the model for these large managers, the $10 billion plus venture capital firms? I would expect a higher hit rate of success where they're getting access to the fastest growing leaders

of the industry, but they're coming in at the series A and series B rather than the seed round. So ultimately I think they're more reliant on having a higher hit rate than necessarily that one outsized return that is gonna return the fund. It's kind of this breaking of this orthodox view in venture that it's all about the winners,

the losers don't matter, they could all go to zero. That's been this kind of meme in the market. Now as your fund gets bigger, yes, you want the fund returners, you want the outsized return, but also you want to lower your loss rate or increase your hit rate, two sides of the same coin, so that you could still get to a decent return for the rest of the portfolio.

That's right. And again, we built this barbell approach where we really have both. And I think our clients appreciate having exposure to both sides. One trend that I am very interested in following over the next five to 10 years is what's going to happen to the earliest stages of venture capital compared to growth or opportunistic rounds.

71% of the venture dollars in Q1 went to AI companies, focused on artificial intelligence. And what we have found some of the earliest stages of AI companies is not only are they scaling very quickly, they're also doing it at a much more capital efficient level. And so what does that look like to later stage or growth equity investing? If these companies no longer need to raise capital, raise their series C, raise their series D, what's going to happen to those funds? And so again, I don't have an answer for you. It's something I think about. But today we are seeing companies scale and in some cases become profitable at earlier stages than we have

historically. One well-known example of this is Mid Journey. They've raised zero outside dollars, less valued at $10 billion. So it's these second order effects of, okay, so you have these AI efficiencies. What happens to the rest of the capital stack? And many ways it could also become bifurcated in that you only raise one or two rounds in order to get scale.

And then at some point money itself becomes a moat and you might wanna raise a billion dollars. So it's like you raise five to $10 million early stage and then raise a billion dollars later stage to scale. That's exactly right. And so I just, it's something I'm starting to think about pretty regularly and I think it's why we remain very focused on seed and series A, make sure we're getting exposure to these type of companies before they scale rapidly.

There's a University of Chicago study that found that 52% of top quartile venture capital funds persist, meaning 52% of them end up in the top 25th percentile again. When you look at the emerging side of the market, it's not as studied frankly as the persistence of top firms. What data or what information do you point to that gives you conviction that emerging managers will outperform? It's a great question and something we think about, obviously, often. When I look at emerging managers today, we have now over 3,000 venture capital funds in the US.

I think it's going to be pretty difficult for many of them. Today, we're in an environment where we see a tremendous amount of spin outs from large tier one multi-stage firms that wanna go on their own. Some of these might have less proven track records. And we're also seeing a number of operators or former founders who maybe have been doing some angel investing, but now wanna build a career

and build their venture capital firm. And we've obviously seen very successful venture firms start from that type of background, whether it be A16Z or COSLA or first round. I think the key question for us is very simply, are you differentiated? Do you have a differentiated skillset that makes you unique, right?

Do you have a strategy that is complementary to the current lineup of venture capital managers that we currently work with? I think there's a lot more to it than just looking at what is the TVPI, what is the DPI, again, because that can be subjective. And then I think another key question is, why do founders want to work with you? What value can you bring to them? How are you going to win that deal? There's really three things that we really look at under this differentiated umbrella. I would say it's either a very deep and differentiated technical expertise. It is a differentiated network to access the best companies or it is a differentiated strategy.

Which one is the most important? I would say a differentiated network is probably the most important at the earliest stage. I think it's also the toughest to differentiate because many of these venture firms have tremendous networks. Right? And so figuring out who is differentiated from the others is tougher, but when you find it, you know. Tell me about a couple of managers that you've recently backed and what made you say yes.

The first is a differentiated strategy. So we recently backed a new and emerging residency program based in San Francisco. The team had built a solid brand and had a good track record of attracting repeat founders to attend this residency. The model is great. They're able to acquire a meaningful ownership percentage of each of the company at the earliest stage at a sub $5 million market cap. And then they leverage their founder and operator network in Silicon Valley to help scale that

company. The company comes, lives with them for 10 weeks. All they do is build. They look to eliminate any distractions and then put on a well attended demo day that has attracted many top venture capital firms to attend that. Interesting about that is most of the founders who have attended this residency are repeat founders. Ever wanted to explore the world of online trading but haven't dared try?

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but I think they found that model to be differentiated and the value that they've been providing to be very meaningful. The second example is a differentiated network. We recently backed a team that referenced incredibly well from our existing tier ones. We actually met this venture capitalist through a reference call from one of our other venture managers. This firm is not an emerging manager, but is very focused on the seed and early stage venture capital market and has a great track record.

So interestingly, his graduation rate from seed to series A was two times better than the industry average. And notably, he has 75 companies across his platform that he's received follow-on financing from a very well-known established multi-stage venture capital firm. And as one of our references from one of these tier one funds said, when you see a deal come from this particular firm that they're going out to raise their Series A, you stop what you're doing because it's probably something you want to look at. And the third is a differentiated technical expertise. And so think about AI today. And I believe that AI is a generational technology. In the 90s, it was the internet. In the 2000s, it was mobile.

AI is that of today. I think we're at the early stages of AI. We've seen it, we've read about it. It's really changing the world. And so we backed an emerging manager who was really at the forefront of this technology. One partner at this firm was an early employee at OpenAI. She is credited for helping to write the code for ChatGPT.

And the other partner was the founder of FAIR, which is Facebook's artificial intelligence research team. Certainly one of the first employees focused on AI at Facebook, now Metta. These people are very technical. They understand the technology well. You can see a clear reason why a founder focused in this area would want them on the cap table. All three of these cases, you have a team that's very attractive to a certain type of

entrepreneur that's picking them. Because essentially at the early stage with the hot deals, it's actually the founders that choose the VCs, not the VCs choosing the founders. That's right. For the hottest deals in venture, these founders are going to be able to take their pick for which venture fund that they want to work with. And so we think it's very important that one of these skill sets will be able to prevail and that they'll be able to get access to the deal. And on your team, we also invest in private equity managers. What do you look for in private equity managers? Private equity is really the backbone of our investment capabilities. We deploy about

$3 billion a year in private equity across primary investments, co-investments, secondary investments. We are very focused on the small to mid-market. There's a number of reasons why we like this. First is the opportunity set. 90% of U.S. private companies have revenues between $10 million to $100 million. That's a pretty large pond for us to fish in and find unique deals. There's also much less competition on this end of the market. And so we're often seeing much more attractive purchase price multiples. We're currently seeing deals anywhere in the 9 to 13 times range, sometimes cheaper, the nine to 13 times range, sometimes cheaper, depending on obviously sector and growth,

but we're not looking to financially engineer returns. We're looking to really create value through operational enhancement. And so we're partnering with sector experts to do just that. Historically, companies would exit by either going through an IPO or they'd be sold to a strategic.

But if you look at the private equity industry today, there's over a trillion dollars of dry powder in the US private markets alone. And so we have seen this trend of larger private equity funds coming down market and acquiring companies across our platform to use as their initial investment. And so, interestingly, we've had four different companies

recently sold on our platform. And I know that you read about how clients talk about the lack of liquidity in the market, but we continue to see a meaningful amount of liquidity across our platform. In fact, distribution activity through June 1st is up about 23% year over year. And so again, this end of the market, we think you can really deliver meaningful upside performance. Chen, you like sector specialists in private equity. What other characteristics are you looking for from the managers that you end up investing in private equity, what other characteristics are you looking

for from the managers that you end up investing in in private equity? So private equity is certainly much different than venture capital. There's certainly much more of a flywheel that you're able to implement on the private equity side compared to venture. I understand in venture you want to add value and that's something we're very focused on. But in private equity, there's sector experts who have a right to win in their particular field and they're able to stick to that flywheel. So you're really able to, from a manager perspective, do much more work on the underlying team and process and a track record really drives a lot of future success.

Thank you for listening. To join our community and to make sure you do not miss any future episodes, please click the follow button above to subscribe. What's the highest leverage thing that they're doing? Is it implementing management teams? Is it executing playbooks? What exactly are they doing? It's people.

I think one of the biggest things that I've learned across private equity and venture is people drive performance. Right? And so it's finding the best people to back. It's finding the best people to hire. Just to contrast people versus what? It's people versus advice. So it's not the private equity fund sitting down and saying, let me tell you about my experience. It's here's a person that's run it from 10 to a hundred million. Here's a salesperson that's run it from 10 to a hundred million. That's higher leverage than trying to coach up essentially

somebody that's never done it before. Absolutely. A lot of these private equity funds, they're sector experts, right? And they've partnered with operators and they've seen these operators work before and in many cases have a track record of success. Right. And so if they're investing in a new company, a similar company, in many cases, they'll bring the same or former operator into this company to execute the same playbook.

And so they've seen this before and they know how to do that. You've been at JP Morgan now for over a decade. One piece of advice would you give Patrick starting out 10 years ago that you could maybe whisper in his ear? What lessons would you want him to have earlier on in his career? Find a good mentor. That's probably the best advice that I would give anyone, whether they're starting their career or starting in a new role in private equity or venture or any role. But finding a good mentor is probably the most important advice I could give.

How do you find a good mentor? What you need to do is you need to show some initiative. I think you want to show initiative about his or her career. I think you want to get to know them as a person. And then at the end of the day, I think you want to ask them to work with them. I've been very fortunate enough on our team where I have a number of different mentors and I won't name them because I'll miss a name and I'll hear about it. But I've been very fortunate to be mentored by a number of portfolio managers.

And for me, I think it's important to be bold. I think it's important to ask them for guidance. I think it's important to ask them about their career. And I think it's important to ask them about what their lessons they've learned, that they can pass down to the next generation of people. And I would tell people, try to create value for this person before they ask for it. Right? create value for this person before they ask for it, right? You think that would really go a long way in developing a good working mentor, mentee relationship with whoever that might be.

Patrick, what would you like our listeners to know about you, about your team at JPMorgan, or anything else you'd like to share? I'm certainly always open and willing and wanting to connect with people. I think having a large network and a growing network is very important for everyone's career. And so I'm happy to connect with anyone for that matter. So feel free to reach out. Thank you, Patrick. And looking forward to continuing the conversation live very soon.

Great. Thanks, David. Thanks for listening to my conversation. If you enjoyed this episode, please share with a friend. This helps us grow, also provides the very best feedback when we review the episode's analytics. Thank you for your support.