Investing Billions - E222: Why 90% of Managers Fail Before Fund 3

Episode Date: October 6, 2025

Why do ~90% of first-time managers fail before Fund II/III—and what separates durable fund builders from good investors? In this episode, I unpack that question with Conrad Shang, Founder & Managing Partner at Ensemble VC. We examine why being a great investor is necessary but not sufficient to be a great fund manager, how to build for durability across cycles, and the partnership practices that earn long-term LP trust. Conrad shares lessons from UTIMCO, Norwest, and Bain Capital Ventures; why sometimes the hardest move is sitting out frothy markets; and how Ensemble uses a team-first lens and internal data products to focus time on the few opportunities that matter. We also discuss defense tech’s shift from “taboo” to mainstream, and why communication cadence and transparency determine who survives the first four to five years—when most managers wash out.

Today, I chat with Conrad Chang, who is the managing partner and co-founder at Ensemble VC, bringing a rare perspective with experience as both an institutional limited partner and a two-time venture capitalist. At UTIMCO, he oversaw a $4 billion venture portfolio within the $81.5 billion endowment, guiding investments across diverse asset classes and regions. Previously, Conrad invested in multiple unicorns at Northwest Venture Partners and Bain Capital Venture. ventures, earning recognition as a top fund investor. Surprisingly, the shift from Tier 1 VC firms to Alligator is a rare shift. So they have a unique vantage point.

What do you think GPs should know about LPs that's not intuitive being in the GPC? When you're a GP, you know, you're so focused on putting one foot in front of the other. And, you know, what I mean by that is you're singularly focused on, you know, investing in, you know, one company at a time. And so in some ways, like, you don't have the context of seeing the forest, I think, from the trees. And, you know, that analogy kind of can mean a bunch of different things. I think, you know, one, I think one of the takeaways, you know, from being in that seat is, you know, being a great investor is, you know, necessary but not sufficient to being a great fund manager, right? So you can, you know, you can have invested in great companies, but when you go and, you know, decide to sound this journey of building a fund, starting a company, right, that happens to be a venture firm, you know, you're trying to build something, you know, durable. You're building a team. You're obviously, you know, fundraising, finding great LPs that, that believe in your mission. A single investment can be at, you know, you know, five to seven years. But when you're, you know, you know, you're building a fund, you know, it's a minimum of 12 years, effectively, 10 to 12 years.

So the time horizon is longer. To be a great, you know, fund manager, you have to do so much more, right? You have to think about, you know, portfolio construction, right? Not just a single investment, but what that looks like in a collection of investments. And even before you're investing, right, you're thinking about how to build a great partnership, right? Not, you know, for year one or for year two, but, you know, for year five, six, your 10, 12 right for fun two three four five um and so you're you're actually doing a lot of um of

of like uh reflection i think before you go out to go you know you start a fun like you really have to believe that the world may not need another venture firm but the world needs your you know you know venture fun i like that framing which is the gp is a business and some businesses get stuck in the short term, a little myopic, serving the next customer, if you think about the portfolio company as a customer. And some businesses are focused on the long term, which is how do we build more franchises, how do we be more strategic with our time, our money, and our resources. And obviously, you need both. If you're just strategic, you're in the Ivy towers, you're not really getting anything done. So for GPs that are,

so focused on just making the next investment, what would be your one main piece of advice? It's easy, I think, to give advice. I think it's very difficult to live this. So I don't think we're immune from, you know, trying to balance between, you know, short term and, and I think long-term, you know, long-term goals. I think your LPs can actually play an important role in that, right, you know, given the other managers that they've invested in, that may be, you know, much, you know, further out. The advice I give, you know, GPs that are thinking about this or struggling with it, I think, one, you know, LPs are more than just, you know, all money is more than just green, right, in that standpoint, right? I think your LPs, you know, you know, besides, you know,

helping you, you know, give you the capital to going back, you know, great teams, they're also there to provide this very counsel of how to think about short-term and long-term. And long-term is really about durability. I've been in venture since 2009 when I was at Bank Capital Ventures, which was not, frankly, a great time to be in VC, right? I mean, it was right after the financial crisis. You know, I was worried that I, you know, I was concerned that, hey, I may not even have a job. I mean, just candidly, right? And I think the lesson there is, you know, venture is some ways about survival, right? And I don't mean it in like, you know, I mean it in a very serious way in that because venture is across, you know, multiple cycles, you want to play long ball and you

want to think about durability because you want to be around long enough to, you know, successfully kind of build that franchise. And I think there's an interesting data point. I may get the specific numbers wrong, but I heard, you know, Josh Koppelman talk about, you know, I think he looked at the numbers. He looked at the average VC from 1980 to 2000, just kind of an arbitrary data point. I think it was like something like 83 or maybe it was like 80 plus percent or 90 plus percent of the profit dollars made for the average VC was made in three years. And so if you weren't a VC during those three years, not surprisingly, there's like 97 to 2000, right? Then, you know, there's no money to be made for you or for your ill.

And so that data point in itself suggests you want to be, you know, durable, right? You want to, you know, be prudent and disciplined in terms of how you invest. You know, in that moment, it's incredibly difficult. Think about 21, 22, right, which is a great example of that. I think at the time, you know, we thought we were doing the right thing. But it was difficult because I think it was almost 12 months that we didn't do a single deal. And, and, you know, you're not, you know, sitting on your hands during that time. It's super frustrating because you're meeting companies. The rounds are getting done by, you know, you know, great investors. You know, they're obviously overvalued, you know, 2020 hindsight. And even at the time. And so it's really hard to look around and see all of your peers being super active. And then you're just sitting on your hands and everybody's looking at you, like, you're the crazy one.

But if you have the mentality, I think. of hey i want to be in the business over 20 years i want to build a successful franchise not just a you know i'm going to build a firm not to fund uh then you know you kind of have to put your big boy and big girl pants on um and sometimes kind of sit it out or be very you know thoughtful about you know when to deploy or how to deploy it's a bit of a paradox in that all ventures driven by these extreme power laws so there's two things you could do you could be extremely lucky which of course is just not a real strategy, or you could be sit around and wait long enough

for that power lot to hit. And I think that's this asymmetry that gets unlocked by staying in the game by having those shots on goal is one of the most underrated aspects. I was just speaking to Dan Ives from Wedbush, this famous public investor. And the analogy that he gave is

in order to be a great public investor in the tech space, you have to be kind of average most of the time, to 80 to 300, and once in a while, you hit this Jeff Bezos like 1,000 X home run. There's actually, there's power law like dynamics in the public markets, not just in the private markets. If you had invested early in Apple as a public company or META or Tesla, you would have these phenomenal returns.

So I think there's this paradox in that in order to hit these extreme outcomes, you do have to stay in the game. the way that you stay in the game is doing the work and also things like the boring things, portfolio construction, sizing, and just being in the game is such an underrated aspect. And it goes from when you're starting your first fund, first two, everything's against you. You don't have the track record. You don't have the LP relationships. Institutional LP's aren't taking a look at you.

And by Fund three, everything's going for you. But those four or five years is where 90% of managers, is that a minimum fail? 100%. And I think here's a, I think a good example of it. You always hear, you know, you can be too early, like you can be on time, you can be, you can be late to a sector, you can be too early in a sector, right? So when I was at Norwest, you know, there, you know, ARVR, right, was a big thing.

And, you know, and like it didn't quite live up to expectations, right? Folks were, you know, I think largely too early, you know, for us, when we weren't in investing out, you know, we did our first, you know, I'd say pilot fund, we invested in a company called ICON. So this is 2019. An ICON, for those of you who may not be familiar with, is a robotics company that does 3D printing. So they 3D print homes, you know, wrapped up a project with Linar, the nation's largest home builder, building 100 homes. But they also, you know, build for like the DoD, right? So if you think you can, you know, build structures that are concrete and print them,

you can obviously do this in a conflict zone, build walls that are bulletproof and, you know, and so on and so on. And so we invested in 2019, you know, defense was not really a thing, right? Certainly there might have been dual use. And in many ways, it was almost like a like a knock on a company, right, selling into the U.S. government. and it was tapu it was tapu right i mean people are locking themselves in buildings if you remember through that experience and then recognizing you know over time you know where i think really high

quality people right people vote with their feet where they were um saw opportunities and saw need to go build businesses um you know that allowed us to go make um i think a super impactful investment in our current fund we were you know in the series of serronic uh and then that kind of, you know, ended up, you know, further, I think, educating us, further seeing, you know, really talented people, you know, moving in to fill this great need, right? And now it's like, you know, now it's like obvious, right? There's, you know, these defense tech companies, but, you know, we followed Serronic with chaos. You know, we invested in a, they're really this year called Manifest, for the two founders for, you know, ex paleteer. The durability

aspect of it kind of back to the original question is, you know, you have to, you know, play long ball because you don't necessarily know when you know exact right time is right but there are certain proxies that you can do which is you know seeing where you know high quality talent is flowing right which founding teams are you know the biggest talent magnets right that's kind of our specialty right with you know our data platform but you know if you're if you're playing long ball right then you can kind of make those bets and you can kind of let the world kind of catch up in some ways to where you're investing, where these high quality founders are, you know, are building companies. I think oftentimes you hear these factors like talent, market size, traction, all these are

positive. And you obviously want all of them, but where would you stack rank the flow of talent as a leading indicator of success? Is that more important than the market size? Is that more important than the traction? How would you stack rank that? I think it can depend on the stage, I think across stages, like, it's kind of an easy question for us, because it's a little bit on the nose, but, you know, we call ourselves ensemble, right, for a reason. Well, it's a double entangra, I suppose. So it was about us building a great team, but the initial idea of, you know, calling ourselves ensemble was really, you know, recognizing that it's all about the team. And that's really important. And I'll make the distinction between, you know, it's all about the founder or founders

versus it's all about the team, right? I think it's an important. important distinction. And some people kind of, you know, kind of, you know, put everything in one bucket. The reality of it is, is it takes a village to go create an outcome. And, you know, I had the good fortune of, of, you know, being a seat investor in, you know, Casper. I was a, you know, an early investor in Udeme. And so kind of saw what it means to, to, you know, really require a village to go create the outcome. And that extends beyond just the fact. And so for us, the most important thing, you know, is the team. And so when we, you know, look at a potential investment or we're tracking, you know, a bunch of different companies,

I think there's a lot of signal not just in the founders and where they came from, but how they think about who is their first hire, right? So is it an engineer? Is it someone on the sales side, right? Is it go to market? Right. Because that speaks volume to, it's a reflection about how they think they're, you know, how they're going to build the company. It's also a reflection of themselves, right, of, you know, trying to find folks that are complimentary, right? Or, or the type of company that are building, you know, very product engineering focused versus very good to market focus. And it also speaks volume of like, how do they find this person, right? Is it someone that they had known, you know, for a long time, right? Is it someone that they had worked with before?

or is it, you know, they put a job posting out. I'm not saying one is really good, you know, that's good or bad, but I think that dynamic of who's your first hire, you know, who's your first sales hire, who's your first product engineering hire, how do you sequence that, right? What does that team look like? How are they complimentary? There's so much, there's so much of a story that tells, you know,

some of it you can measure, right, with data and others, you, you know, you get context for meeting the founders. and so what we like to do before we invest is we actually we like to go on site you know not always but in most cases you like to go to their office we like to go you know meet the founders and we like to go meet other folks on the team right very organically and that just i think that just speaks volumes to i think the true reflection of a company and i'd say particularly at their early stage going back to your time at you timco at University of Texas Endowment.

As I mentioned, you went from the GPC at Bain and Northwest, Bain Capital Ventures in Northwest, to UTIMCO. What were some of the lessons you learned right away, which is like, holy crap, this is why these LPs liked us, these LPs didn't like us. In other words, from the LP perspective, what is something that became immediately obvious that is not obvious to most GPs today?

This is one that is a little bit counterintuitive, right? Think about a sports team or something in some ways, right? Like you want to find the best absolute people like in their position, right? You know, you look at shooting percentage or whatever it is, right? And each individual person who's highly confident is going to make a great team, right? The reality of it, I think, it doesn't quite translate it on, I'd say on the venture side. And what I mean by that is the single most important factor that I observed when I was, you know, in the seat at Utimco, was trust as the number one factor for a successful partnership, right? So we go back and I love the fact that you ask that question about, you know, the short term and long term tradeoffs, right?

If your goal is to go build, you know, durability, right? and success, like repeatable success, then trust is 100% the most important factor. And what I mean by trust is, you know, I think it starts with the partnership, you know, who you decide to go in business with. In this case, it's, you know, Colin West, who I've known since, you know, 2013, right? When we were both kind of junior VCs, you know, just having moved to the Bay Area, you know, Colin was a, was a friend of mine. My other co-founder, Gopi, you know, Colin had gopi, Colin and Gopi at work together, you know, for four or five years, you know, prior to us,

you know, really formalizing, you know, what ensemble is, you know, today. And that trust factor, you know, again, starts with the partnership. You know, you're not going to be in the same room, you know, you're, you know, all the time. You're going to 100% disagree on things, right? And the question is, how do you react to that in the moment, right? Do you, let your ego get in the way, draw a line in the sand, and then defend it to the death. Right. So, you know, great for your ego, but bad for the firm, right? I've seen situations like that where, you know, and I argue kind of the bigger, the

bigger the organization, the harder it is to go, is to, you know, do what's right for the organization. You have so many different personalities. But then that trust starts to extend to the folks that you hire, right? And, you know, meaning you want to give them as much rope as you can. and, and you kind of like let them earn that trust and you give them, you know, more and more rope. And then it also extends to your LPs, right?

You know, how you communicate, what, you know, what you share, right? And even more cases, right, your LP is not going to be in the room. You know, they'll make the investment, you know, you can catch up with annual meetings, newsletters, you know, like, you know, even over text, right? But the reality of it is that that LP is entrusting you, you know, with dollars that are eventually going to go fund scholarships, right? And they're not going to be in the same room. And, you know, how do they have that level of trust that's going to extend, you know, beyond the life of, you know, this fund and, you know, certainly into the next.

This term trust is, is a term many LPs use. And many LPs, like you, who are at University of Texas, will say it's even more important than returns. Let's double click. And define exactly what it means to have trust with your LP. I know it sounds extremely obvious, but what are some examples? And more importantly, what are some tradeoffs? So what is the skin the game for GP to have a trusting relationship with their LPs? People always think about, you know, the LP world is so distinct, right? But I think having been in all these different seats, there's actually way more similarities

of the relationship between, say, a founder and a GP, and an LP, and an LP. I actually like, I think it's super consistent. And so an example of that is when you meet with the founder, how you got introduced to that founder, right, or how the founder gets introduced to that VC. And I think it's the same, you know, when it comes to, you know, the beginning or the commencement of an LP relationship, right?

Which is, I think in the ideal case, you're being introduced by other GPs, right? that maybe that P is our investor in. And that DEP, you know, as you've well over, you know, not three months, but over, you know, years. And, you know, they can speak to that, that credibility and that trust factor, right?

So I kind of define this as like trust by proxy. Trust is something that you cannot, or very, very difficult in most cases to establish in any way outside of, of time, right? We're a number of interactions, right? And the way sometimes to shortcut that is what I call trust by proxy. So you have a mutual connection that has deep relationships with, you know, both other, you know, sides. It can kind of bridge that, right? Not in a perfect way, but in a way that can help kind of, you know, build that relationship. So that's one, right?

what's the nature of the of the commencement of that relationship right ideally you you want something through you know uh you know trust by proxy through warm introduction because it because it sets off the relationship is not a transaction right what it what it does is it's it catalyzes it in a in a relationship building exercise um and i you know i would really credit like um you know my experience at utymco but also one of our recent hires um you know caroline who joined us from Vista. And it's really this mentality of treating your LPs as a true partner, right? So again, I kind of mentioned this earlier, but beyond capital.

And that's like everybody kind of says that, right? But what does that actually mean? You know, what it means is that it's it's two-way street, right? For the LP, you know, they obviously want a financial return, but they're also looking to educate themselves on, you know, specific, you know, errands that you may be investing in, right? Like, by the way, they're not just running a venture portfolio, right? And even though I was running, you know, venture at Utipco, I was also doing, you know, technology investments with, you know, buyout managers, right? And so, like, sometimes the GP is so narrowly focused on kind of like, you know, their world and then forgetting that, you know, the LP, you know, venture is important.

in many ways, like the alpha driver in their portfolio, but, you know, they're managing a public portfolio, they're managing a private equity portfolio, and what you're doing actually, you know, if you're investing in defense or investing in AI, right, it's going to affect the other portions of the book. And so what we do, and I think a lot of the managers do, is we're certainly the best ones. We'll take a step back and help educate their LPs on, you know, certain areas that, that they may be interested in. Our last annual meeting, you know, before Seronic became such, in many ways, like on people's radar, Dino Mavrucus, who's the CEO and one of the co-founders, I came and spoke

in our annual meeting, right? And this was like 2024. And so, like, it kind of helped educate, I think, folks on, you know, what does it mean to, you know, what does it mean to, you know, think about shipbuilding in the U.S. What is the challenge that the U.S. has relative to, you know, China, right? Which has the biggest, you know, over 200 times the capacity of the U.S. and shipbuilding. And then I'd say the street goes the other way when, you know, we're investing, you know, like real examples, we're investing in a fintech company that was basically doing, like, you know, cross-border payments.

And we know one of our LPs, actually, you know, a multifamily office based in Houston, actually owned a lot of these different kind of businesses that would be affected by it. And they made introduction to one of their, you know, like, you know, businesses that was not venture backed, right? And we were able to have a conversation with them to help us understand, you know, what are the implications of, you know, cross-border payments, you know, specifically between certain corridors. like what does that look like? How does their business performing? Because ultimately, you know, the venture back business, if it's successful, it's going to kill that business, right? And so how do they think about, you know, that threat?

And so, again, it goes back to, you know, thinking about building a firm, you know, with durability long ball, having a deep partnership with their LP. And what that means tactically is like, you know, this sounds crazy, but like talking to your LPs, right? Like making sure that there is, you know, active two-way communication. Sometimes it's one way in the sense that you are sending probably more information than they're reacting. But you have to over-communicate, you know, with your LPs. One of the reasons I was so excited about a conversation is because you had that two different tier one VC seats. You had the tier one LPC seat. You're the customer, you are the buyer,

and you were in the room having these conversations. And I think one of the things that GPs, when they hear, you want to trust a relationship, they think, sure, great, in theory. But in reality, how does that look? If you think about it from this construct of a partnership, which I love the framing, I have my business partner, Curtis, we sit down. We not only talk about business once in a while.

We'll talk about, you know, we were both now married. We talk about our wives. We talk about our families. tell me where your analogy ends and maybe tell me the nuance in what it means to build a trusted relationship. Yeah. That's a great question. I, you know, the first way to answer that, again, going back to the analogy of, well, what do you, what does a, what does a founder GP relationship look like? Right. So all those questions that you asked, how would you answer that with your own founders, right? And so if you take that lens, I think one, it's hard to treat everybody equally,

right? Like, let's say everybody in your cap team, if you're the founder, right? Very, very difficult to treat everybody practically, right? Yeah, it doesn't work, right? But that doesn't mean that the founder does not communicate with even the, you know, 0.1% owner on the cap table, right? So how do they do that? They do it in ways where they over communicate, but they do it in a more scalable way, right? So they're constantly sending updates, right? Maybe it's a monthly update or a quarterly update, right? They're giving the opportunity for even their small folks in the cap table to be heard and to be seen, right?

And that analogy extends to the LP side where you may have some folks that aren't on your LPAC, maybe individual investors, but they should still, you know, be in the loop and updated. And then more importantly, you should reach out to them. If you, you know, if one of them has a connection that's like quite valuable, right? Like LPs and then GP, all they want to do is be helpful, right? They don't want to be viewed as just money, right? And sometimes it's only five days out of the 365 days in a day where that, you know,

LP can be helpful. But in those five days, you know, it can be extremely, you know, valuable for the GP, right? And so I think it's, you know, taking the initiative to, you know, reach out to your LPs, you know, keep them updated, but also, you know, make sure that you're seeking, you know, their advice when you know that they have, you know, a much better knowledge base, right? You know, like in my Temco days, like, you're raising a continuation fund, right? Or you're thinking about, you know, getting Intel in a specific LP, maybe in Europe that wants to come in and they may have context, right?

So I think it's leveraging their unique knowledge base, you know, to help you make, you know, better decisions. And then, you know, where does the analogy, you know, end? I actually do think it's really important to, you know, think about not just the professional nature of the relationship, but also a personal one, right? Again, I go back to the founder GP thing, right? Like, it absolutely extends, you know, beyond just, you know, a board meeting or like, hey, did you hire the VP of sales that I interviewed, you know, two weeks ago, right? It's, hey, I know you're about to have a kid, you know, that's super exciting, right? You know, you must be thinking about a bunch different things, kind of how to, you know, how to balance that, right? Hey, you know, I know you're going

through, you know, a family, you know, personal thing, right? Like, you know, just acknowledging you and saying, hey, like, you know, it makes sense for, you know, spend time on that or something, right? Like, we're all human, right? Like, just like the struggles of a founder who's starting a company going from zero to one. It's the same for, you know, fund managers. right or you know having to let go a partner or whatever it is not all your LPs are going to be equipped right to be that that coach um but you'll know the you know the few that you have a very deep you know personal connection with where it's okay i think to i think to share some of this right and you have to be thoughtful like about you know what it makes sense to share and so it's never like

I'm going to share everything or I'm going to share nothing right that's not the framework right the framework is like there's something in between and I think a lot of folks take the mentality of one or the other right and it's it's probably somewhere in between and I would probably say it's probably a little bit more towards being open again it's not to everybody who's an LP in your fund right you know I think it's to a handful of folks that they may not even be your biggest check but ones that you know you have a relationship with that you can be open with because the reality of it is everybody's a long mind, right? So, you know, your LPs and your fund for, again, at least 12 years, right? Whether or not they decide to come in, you know, the next fund or not, you have to earn that. But, you know, if they're in your fund, they're, you know, it's a, it's a, it's a, it's a, it's a marriage for 12 years minimum. These are the conversations. Not many people have, certainly not, not through podcasts, but I think this is where the relationship alpha is, like where the truth lies.

one of the most prevalent memes in asset allocation today is that LPs are choosing to back fewer managers and more let behind fewer arrows to use the Google analogy. So there's this pressure to cut managers. How do managers balance the desire to have a trusted, long-term, sustainable relationship with LPs, while also, you know, at the same time where in the market LPs are looking to chop managers and how do you thread that needle what are some best practices that's obviously i think top of mind for folks um there's no silver bullet on any of this uh my my perspective on this and it's you know i kind of put my old de temco hat on but also you know the ensemble hat

at the same time and the way i would answer this is it is what it is right meaning like if you have an issue, whether it's performance or, you know, within the organization, like it's happened, right? It's the reality of it. And it's not the fact that like something like this surface, because that happens to every firm, right? It's, it's really the question of how do you address it and then how do you communicate it? And I think like the, you know, I think the advice I get myself and I get of others is, you know, I think understanding the, like, one, the, I think the gravity of what it is, right? And so you obviously don't want to communicate, like, every little thing, right, to your LPs, not because you're not trying, you know,

you want to avoid being transparent, but two, like, you want them engaged on the things that are the most important, right? And if they have, you know, if they're managing, you know, I think you Timcoe had, I think it was like 16 Corvette BC, managers and then some other, you know, legacy ones. If everybody is like, you know, every time, you know, I stub my toe or something, right, and I'm communicating that, the LP doesn't know when to engage on the things that are more important, right? So there is a threshold of importance, right? And as an example, right, like, you know, there's probably a lot of, you know, even at a small firm, you know, there can be

turnover at the junior level, right? So like, do I communicate that? Do I not? Right. You know, I'm not sure that that meets kind of the threshold, right? But if it's someone more senior, then obviously, like, that affects, you know, economics. It affects, you know, maybe some strategy things. So that may be something to, you know, communicate, you know, with your LPs. And then tactically, what you may want to do, right, just like a founder manages his or her board, you may want to have this conversation, you know, one-on-one initially, right, with the LPs that you have a very good relationship with, right, that you have this level of trust, right, and see how they react. And then, you know, and then bring them into the circle of trust, or they're already in the

circle of trust. And as you need to communicate that with other folks, they can help facilitate that or certainly give you advice, right? Meaning, you know, it's a serious issue for the firm and, you know, you think it's like, you know, the most important thing going on in your life and in the world globally, right? Because it's the first time you've come up with, you've, run across this. The reality of is, you know, for the LPs that have been in the business a long time, they see this, this is actually a more common issue, right? And so they can actually give you counsel and, you know, how serious this actually is and, you know, what to do in this situation. Again, you think about a founder, right, who, you know, is in a situation

of like, hey, you know, had this co-founder, right? On how I invest, we spend a lot of time talking about smart investments, and while most of those are financial, some of the best investments are the ones you make in yourself. That's why I'm a fan of Joe's jeans. Their new Kinnetic 2.0 denim looks rugged and timeless, but feels nothing like stiff traditional denim. With modern four-way stretch, it's comfortable, resilient, and built with intention, so it moves with you wherever the day takes you. What sets it apart is versatility. These genes seamlessly transition from work to dinner to the weekend, all while holding up in style and comfort. And because they're crafted from premium materials with every detail designed to last, this isn't just

another pair of jeans, it's denim elevated, a true wardrobe investment. Two standouts, the Asher and Doheny, and the Brixton and Nod. Upgrade your denim strategy today. Go to joe's jeans.com and use code invest at checkout to get 20% of your first purchase. That's J-O-E-S-J-E-A-N-S.com code invest for 20% off. Your smart move starts here. Yeah, it's not working out. Oh my God, I'm like stressing out about this and I know what to do. Like this could kill the business. The reality of it is if you, look at if you're a if you're a GP and you've invested over you know many many companies across you know cycles like you this has happened you know more than a few times right in your broad

portfolio and so you can actually have the data and the you know case studies to suggest hey like this is kind of how you might want to manage this right just like GPs have a portfolio of founders you know the best LPs also have a portfolio VCs that they can pull from and draw you know experiences from. I think that's probably like, you selectively, I think, seeking counsel with the folks that, you know, you trust very, very deeply. To summarize, one is you don't want to be like the girl who cried wolf. You don't have to send every day.

And you're going to seem like you're not able to regulate your own emotions. You want, but you do want more transparency. So probably the default human benchmark to, of communication. is probably lower than the ideal one. So for some reason, GPs, on average, are way below their kind of optimal level of communication. And also, you want to make sure that your communication and the narrative that you're putting out, even if it's transparent, that you explain it in the right way. And you might want to test that in a couple trusted circle before you kind of blasted out to 150 LPs.

Yeah, absolutely. Absolutely. I go back to, you know, what are the best practices that you would give a founder on communication, right? And, you know, it should be similar to how you communicate with your LPs. It really shouldn't be that different, right? I mean, there's a little bit of nuance to it. But at the end of the day, you know, you want your founder to not text you on every little thing that, you know, is an issue that comes up in the business. You know, surface the ones that are relevant. that, you know, maybe on a quarterly basis, right? With, you know, in this, you know, you'd like to have that discussion one-on-one prior to the board meeting, right, if it really warrants it. And you also want a founder to have a plan of action, right? In advance, you know, not ask you, hey, what are I doing this for this problem, but say, here's the problem.

This is my course of action. You know, am I missing something, right? What is your feedback on the course of action that I'm planning to pursue? you. One of these things that I've been thinking about is this concept of rooting things. So rooting investment thesis. So everybody might make the same buy decision to buy Bitcoin. But if I spent a year thinking about why, when it goes up and down, I'm not going to sell. So it's great if you bought Bitcoin $100. If it goes up to $200 and then goes down to $140 and you sold, then you gave up the other $120,000, the other, you know, the $1,000. And I think this

rootedness also applies to relationships and LPs. If you assume that on a long enough time horizon, and I've literally talked to Jonathan Gray from Blackstone, Cliff Asnus from AQR about this very topic, if Cliff Asnus and Jonathan Gray have had issues in their franchise, I guarantee, with enough time, any GP on this planet will have those issues. And the way that they handled it also by over-communicating, meeting with LPs, but I would also add kind of the subtext of what they were saying

is they built this trust also over time ahead of that. So if you think about it as the trust and the relationship as a tree trunk, you could strengthen the roots of that tree trunk through trust ahead of the crisis. Because just and no one wants to be transactionalized. And if you're only talking to your LPs when you need them or when there's a crisis, it's not going to feel good for them. And you're likely on that chopping block that we talked about. But if you build that relationship ahead of time,

not only will they maybe not take capital from you. If there's a good market opportunity, the smart LPs, the very top top Hortel LPs might even double down on you and allow you to actually, you know, build, build your alpha and build your franchise during difficult times. It's easy to, you know, sometimes say these things. This is very hard to do in practice, right? So it's not like, oh, there's like a, there's an instruction manual. You do this and you do this at this cadence.

I think it's just, if you just think about it, right, as a priority for the firm, then, you know, it'll naturally kind of follow, you know, some of the things that you do, right? It's an aspiration, I guess, in some ways, right? You kind of have to aspire to build partnerships with their LPs, even if some of those don't look like that today, right? And then the second thing I'd say, and look, I was guilty as this, guilty of this when I was at UTIPCO as well, right? Like, you know, I'm not, I'm not cast on on on anybody here but you may overcommunicate you may do everything to try to establish a great relationship with your LP but that LP may just not reciprocate that's going to happen right that's okay right but I think like again if you're thinking about playing long ball and durability you just kind of have to go the extra effort to recognize that hey they're you know they're managing a bunch of stuff, not just your fund and not just venture. And so you may be sending them all this, you know, all these different materials, you know, asking to catch up when you visit, you know, wherever they're based and they may not, you know, get back to you. That's okay,

right? I think making the effort, you know, making sure that you're thinking of them is in itself, I think, what it means to be a good, you know, a good partner, right? Say all this stuff. And I think some people's reaction is like, well, I tried that, right? But I'm not getting any love back. And that's happened to us also. But every now and then, you know, you'll get a note and say, hey, you know, like we, you know, one of the things that we pride ourselves on since we, since we started was we will write a mid-year letter, right? Like, and it's, you know, the first one, it was, you know, it took like months to write it because we never wrote one of these before. It actually wasn't that, it was like, okay when I go back and read it. But we've made the effort to write a mid-year letter every

single year. And then, you know, what's the greatest feeling in the world is when, you know, someone that you reached out to, you know, multiple times doesn't respond. But on this latest one, you know, they say, hey, like, you know, great, great mid your letter, right? Really enjoyed reading it. Right. And so like, it's, it's, you kind of have to, you get credit for being active and being thoughtful and, and, and, and, and, uh, being consistent, right? You'll get feedback occasionally, probably not as much as you would like. But, you know, you should make sure that you're always acting like you're thinking of them, right? I think that's kind of like an, I don't know, like one principle to think about.

So Rahul McDahl, he's one of the greatest fundraisers alive, if not the greatest. He's raised $99 billion. And he tells a story on the podcast I did with him in that he talked to a $1.2 billion foundation, The CIO told him that just that past year, he got 934 voicemails, not calls, but voicemails from managers, not in his portfolio and not even talking to him about investing, about how he should invest. And this is just this very, I guess, visceral way of showing how busy LPs are, how overwhelmed they are. It truly is oftentimes not you. It's them, not you. did you find you were at utemco which in many ways is is today i think it has 60 maybe 70 billion

its endowment it's one of if not the most kind of coveted lps in the world tell me about your lived experience as an LP edit such a prominent endowment so i joined um you know right a little bit before the new cio britt harris joined uh group was actually in our office, I don't know, like a month ago. And he had come, you know, from TRS, which is the teacher retirement system of Texas. And so I think one of the things that I really give, you know, Britt a lot of credit is, you know, I think further institutionalizing what was already a great endowment. And what I mean by that is the way that you operate, a $2 billion endowment versus a, you know,

60 or 70 billion dollar endowment, right? Like intuitively has to be different. One of the exciting things about Utiko is that the size of the endowment grew very, very dramatically over the last, I don't know, 20, 30 years, right? And there's, you know, there's a lot of history to it. But some of it, you know, being in Texas, this was money coming from the Permian Basin, right?

like just some random historical context there. And so Utimco had this really amazing opportunity in task of not being short on cash and cash inflows, but making sure that it was being invested at scale, but in a very thoughtful and strategic way and to do it, you know, I'd say relatively quickly, right? And, you know, as that endowment, I think, you know, grew, So, I think the Utimco board, I think, rightly recognized the need to really institutionalize and really help, you know, evolve the endowment from, you know, smaller endowment to, you know, one that, you know, frankly, rivals the size of, like, a pension fund, right?

I think UTIPCO is, like, number one or number two, depending on how you, you know, it's, you know, like, how you measure it. But effectively, it's like one of the, you know, it's like the, like the largest endowment in the world. And so, you know, when I was there, it was kind of thinking about, you know, what processes that we want to apply, you know, across Utimpco to bring, you know, an additional level of rigor, but also a way to invest more repeatedly and consistently, right? And, you know, what that tends to mean is, like, I think formalizing, you know, the investment process, you know, how opportunities got surfaced. you know, as the organization grew, making sure that everybody in different parts of the organization were informed on, you know, what was coming down in the pipeline, right? Again, you know, an endowment is not just venture, right?

Not everybody who sits around the table is equally versed in what that means, how to invest. Not everybody's heard of Sequoia, right? And so making sure that there is a mechanism in place to, you know, get everybody on the same page. and you know in some ways kind of standardized you know that that process you know at the time you know you know whenever you put new process in place you know and you're learning and you're figuring things out and doing something new like there are moments where it's not that fun right but you know now that you know i you know i'm in the seed at ensemble you know found of the you know co found the firm um it's really important to put process in place right

So you're not collecting a bunch of shiny objects for one thing, right? And then two, you can have repeatability in your performance, right? And the grandest scale is an endowment. Like the downment is going to live, you know, beyond me, beyond you, beyond my kids, you know, everybody's kids for generation. That's the hope, right? And so the time horizon is almost infinite. And so we have to, you know, in order to fund, you know, my scholarship and then, you know,

maybe my kids will go to UT on a full ride too. you have to create like repeatability consistency and that was kind of an important lesson that we applied to ensemble so you know we're a you know i kind of bucket ourselves as an emerging manager right but when we've you know put together ensemble we always had the mentality again of being aspirational like institutional right so taking some of the lessons you know not from like true ventures fund one but from true ventures fund five Right? And saying, well, you know, how do we look more like them? How do we avoid, you know, maybe some hard lessons? And so how do we make ourselves institutional? Vinod Costa popularized a zero million dollar business versus zero billion dollar business, how they function from day one. And you did see a simulation of dozens, if not hundreds of funds, venture funds at UTIMCO, including some of the best funds in the world. What were some practices that the very? top GPs or the GPs that made it, let's just define it in the outcome. What did they do from the very beginning that was different from the ones that were even second or third quartal? The best managers were the ones that could give you a sense of, you know, what they

were looking at, how they saw the world in a given moment, right? So that goes back to like over communicating and transparency. So I'd say that's. kind of, you know, the outcome of it was, you know, knowing kind of where folks were spending time, how they kind of thought about the world. You may not, you know, agree with it or, you know, you may have questions about it, but you had a sense of, like, who they were and, like, how they were thinking about things. I think the second thing that the best managers did was, you know, I think go out of their way to make sure that you knew what they were thinking, you know,

meaning that they would travel, you know, countless managers would make the effort to travel, you know, down to Austin. Austin's a great place, right? But some of our managers weren't Berlin or, you know, Tel Aviv, but they would make that trip, be very proactive about, you know, certainly you can read it in a, you know, in a mid-year letter or an update, but more importantly, to build on that relationship, that personal relationship, and that takes effort. So I think the best managers did that.

And then I think three, the best managers also made sure that the LP relationship was with the firm in addition to maybe having a strong, you know, like a close relationship with a specific partner. And so when I would go and visit specific managers, I'd have the opportunity to go meet with like, you know, multiple folks on the team, right? I'd have exposure to the whole partnership. I'd meet with folks. And, you know, that way you can kind of, the LP has a sense of, you know, how is this, how are these, you know, How is this partnership functioning, right? Are folks on the same page? You know, how are they, you know, how are they complimentary?

Not when you're deligencing them on whether or not to reopen this fund or to invest in the fund, but, you know, how they're, you know, working together, you know, after you've committed to the fund, right, as they're deploying the fund. But those are just, I think, some of the ways that, you know, GPs, I think, have, you know, like, thoughtfully, I think, worked with, you know, some of their LPs. it's downstream of this partnership mentality if you have a true partner you're not going to send them a letter and you're going to make an effort to actually meet with them and again like this is a hard thing to do i'm not again it sounds like you listen to this like oh of course like but conrad like you know i'm a solo GP right or conrad um you know there's like three people on the team right

like we had to experience all this also and you know there's sometimes where we probably communicated better could have done things better um the reality of it is like again this is aspirational right so you have you have to make this a priority and kind of work towards best in class right but if you're not thinking about it then you're not like you know it's like if you go to the gym like you know and you're not working a specific muscle continuously there's no expectation that like you're going to you know you know run faster when you go on the track or something right you kind of have to constantly cultivate this even knowing that you know this isn't going to like excellence is not overnight right it's this mentality and we we practice this ourselves i think a lot of the credit goes to gopie who's my other co-founder who's our head of data science head of engineering of taking this like mentality of building software right which is like you V1 is not going to be, like, lights out, right? V1's probably going to be, it may be pretty crappy, right?

But we're going to constantly iterate. It's not a point in time, and this is kind of it. This is a constant iteration, and our aspiration is to get to, like, V-Infinite, where every version of it will continuously be better. I know for a fact, next week we're going to be better. The products will be better than the week before, and next year, it's going to be like dramatically different. And so we have that mentality, not just in us building product for, you know, for ensemble,

but ideally in how we're managing like, you know, marketing, how we're managing, you know, managing relationships with the LPs. Like we're nowhere, we know we're not the best. We're far from it, I think, in a lot of different ways. But we're constantly looking inward and saying, hey, like, what can we do better? And then having the expectation that a lot of the things we do aren't going to work. and they may fail, but that's not an excuse not to constantly try to, you know, try new things, you know, to push the boundaries and do better.

If you think about it, all venture, performance, or any S class is relative. If you think of this as relationship alpha, so you have your returns, you have your information alpha, you have this relationship alpha, a little bit goes a long way if your peer group is never flying to, maybe Austin's a little bit easier, but maybe it's North Dakota or a Alaska and you're flying once a year, that goes a long way. So a little bit goes a long way as well. So let's talk about ensemble, your fund. Mutual friend told me that you have a 12x mark on your Fund 1. First of all, is that true? And two is tell me about how you went about constructing Fund 1. Well, one, yes, like we're very proud of the performance in our Fund 1. It was our

pilot fund and you know we had the great fortune and maybe misfortune of like of you know having a very novel concept at the time when we raised your first fund in 2018 which was around this idea that you could bring a product engineering you know culture and mindset to a venture fund right so you know obviously that means you know being data driven but really having this very different approach of in order to get better, right? We're going to go build software. We're going to go build product. We're not going to throw more people at it. Like, we're not going to, we're not going to, we want to grow exponentially or step function through software versus grow linearly through, you know, people. And so at the time, right, the use of software and data was, you know,

not super obvious. And so it was a very difficult fund to raise, right, kind of past the hat. It was a very, it was also a small fund but you know we had the opportunity to go incubate this actually within coffin fellows to really experiment you know test this out and our sole objective in that phone one was to really prove that we could use data and use software and product in a way that could significantly change how a venture firm would function and then in turn deliver better performance than you know like you know the typical venture fund right so that was kind of the thesis right could we radically you know implement more product engineering into a venture firm you know did we expect it to be you know like a 12x fund and hopefully like you know greater than that which we think it can given

some of our positions, it outperformed our kind of wildest imagination, right, of, you know, of very, very specifically, you know, finding great teams, right, not just great founders, you know, early, right, through a bunch of different signal that we could measure and track. And then also use that early advantage to translate into collaboration with other funds and then earning access, right? And so, That was the thesis that we proved. We had 12 investments. I think it was like five or six of the 12 ended up, you know, ended up companies being valued over a billion, right?

So we had, you know, you know, big, you know, zoom in that portfolio as an example. We had grow, which is a problem in India in that portfolio. And so that was, I think, the initial, you know, proof of concept. That allowed us to go think about, you know, the natural question after that is, well, how do you scale this strategy? Right. Can you scale this strategy, right? When, you know, you're writing bigger checks, can you actually earn bigger access, right? You know, can you actually collaborate with other funds? Like, you know, can you have this kind of repeat hit rate in the next fund? And so that thesis around using data and product and engineering has evolved significantly, you know, since our fund one. And the, The best reflection of that is from, you know, the founders, we're now a team of 12.

Half of the folks on the team are data scientists and engineers, and then the other half are investors and, like, folks in operation. So people kind of say, oh, well, every fund is a data-driven fund now. Like, I hope that's the case, right? Because I think that'll actually deliver better allocation of capital. So I want more and more folks to be data-driven. But, you know, two, like, there is a spectrum of what it means to be product engineering focused, you know, fund. And, you know, we've extended, I think, that software advantage into every aspect of the venture fund.

So not just on the sourcing side, but also in the winning and value ads. We've built products to help our founders, you know, access customers, you know, find great people to hire and then, you know, other functions as well. Give me a very specific example of how data helps you make better investments. The simplest way to describe it is thinking about how venture has been done, you know, since the very beginning, right, and the evolution of that and maybe the minimal evolution of that, which is historically, you know, when venture first started, you put your firm on Sandhill Road, right? And, you know, founders, you know, there weren't that many firms. And so, you know, founders would, you know, find out about X-Firm and go visit you, right?

Over time, that's evolved to, you know, more nodes, right, in other cities and other places. And, you know, founders don't necessarily just come to specific firms, but you basically find opportunities based on folks in your immediate network. So, you know, maybe you used to work at Stripe or maybe, you know, you've been an venture for, you know, X number of years, you know, had companies went public, and so you're backing those folks that are leaving those companies, right? But it tends to be a very kind of, you know, finite network of folks. And you really don't know where to hunt. And so you're, you know, think of it almost like a random walk. You're top of funnel. You're meeting a bunch of folks. And, you know,

very few of them end up translating into investments. And the headline of that, and I always found that's really odd is, you know, VCs would always say, hey, you know, hey, you know, hey, you know, I met 10,000 companies or a thousand companies last year, right? And I made one in, you know, I made one or two investments, right, out of meeting, you know, a thousand companies. And you're like, you know, and they're like, they're so proud because it demonstrates the rigor that they have and, you know, how high a bar that they have. The reality of it is that conversion is pretty bad. If you think of any other sales organization, right, you get fired, right? If you had to meet a thousand people and you sign up one customer or, you know, like a P firm doesn't work like that, right?

And so the question is, well, how do you actually change that funnel very dramatically? Right? Because the reality of it is you don't want to be spending time aimlessly meeting folks, right? Even folks that get recommended to you, right? Because you saw that conversion rate. The reality of is you want to redistribute your time. right, from the low value activities of first meetings to the high value activities of building the relationship, finding them early, and then positioning yourself to win what is, you know, very, very competitive, you know, deals. And so it's shifting kind of what that funnel looks like from, you know, a pyramid to maybe, you know, a diamond in terms of like time allocation. And so what we've done is build a platform internally. We call it unity. We have offshoot.

products called Discovery, you know, we have a value add product called GTM 2.0. There's multiple products that we have internally. But within Unity, what we're trying to do is dramatically change, you know, where time is spent, right? So if you can actually refocus all of your energy on a smaller set of opportunities that have a higher probability of generating, you know, a big outcome, right? Not a guarantee, right? Then you can fundamentally reallocate all of your time to, you know, diligence in these opportunities, you know, and also, you know, winning them. And so the question is like, well, what does that, what does that look like? And so for us, you know, that means not just having a box checking exercise of, hey, we, you know,

we use chat GPT or we buy a bunch of data from, you know, so and so that anybody can do, right? it means, you know, building things, you know, vertically integrating, right? So building our own product internally, right? Like, we don't, you know, there's nowhere else to get kind of what we do, right? Because we've actually built all the infrastructure internally, right? Not just, you know, the application layer. And that also means fundamentally building new process in the firm. So how we meet as a team and how we run.

our process looks very, very different than what I did at Norwest and also I'm being capital. We run it like a software company, right? Every month we know what opportunities that we're going to be, you know, focused on. We're probably 70% outbound as a result of that. And then I'd say the latest kind of evolution of the firm is we've actually changed how we've hired, right? And so that's probably the biggest distinction between, you know, at least outside looking in of what it means to be a, you know, a data-driven fund. is that we fundamentally re-architected what the organization looks like. So not only is my co-founder, one of my co-founders, you know, head of data science, head of engineering, right?

Gopi came from IBM Watson, but we've hired, our most recent hires have been, you know, two of which have been on the engineering side, right? And so half of us are on the engineering and data science side, right? It's not a box checking exercise to say, okay, hey, you know, we have the enterprise license for chat GPT, and we hired a data scientist. right like we're good to go like we're data driven and we're going to have the advantage right the reality of it is like you're constantly iterating you're constantly building new product and you know the new product that will release at the end of the year like we just thought about six months ago right or even three months ago and so we're constantly like you know innovating and building new things internally you know versus you know like waiting for chat GPT to release

you know, chat with you five and, you know, or doing a deep research report or something, right? Like, great. Like, anybody can go do that, right? It's fundamentally changing how your investment processes, your decision process, and then what your organization looks like. Give me some of your secret sauce. What is some data that you're looking at that narrows down your top of funnel dramatically that you look for investing at the early stage? People always ask that. I'll give you a couple of examples of it. It's not like a Harvard business school study, right, which is, you know, the person that's like, you know, left-handed that went to Stanford that, you know, came from, you know, an immigrant family is going to be like, you know,

the amazing founder, right? Like, it's not formulaic like that. The reality of it is there's a bunch of different signal. Think of it as like stacking alphas, right, where each individual signal may not be that relevant, but the amalgamation of multiple signals actually drives meaningful alpha. So that's like point one, just in terms of like philosophy. The second one, I think, is contextualization. And that's what, you know, LLMs and what AI has really helped accelerate for us. Meaning, you know, if you're building a company that's in the consumer world versus building something in the healthcare world selling to, you know, health systems, how you

build that team will look dramatically different, right? You could, each team could be very, very high quality. You know, both founders could have, you know, come from, I don't know, like Stripe or something, right, but how you build that team out and what that team looks like and maybe what your co-founders will look like will look dramatically different, right? And it's intuitive because you go to market motion for a consumer company is very different than, you know, a healthcare, AI company selling into health systems. Right. And so because we built the infrastructure, all of our data is not just the stacking of

a bunch of different signals, but it's the contextualization and knowing and understanding what a company does, right? So saying, hey, this is a great team, but not a great team for a consumer company, right? Or, hey, this is actually a great team within health care, within the AI, and also relative to the stage. Like, you have to contextualize it. So that's kind of like, Like, I offer that because it's an important framework, right? And then, like, on the specifics, like, one example that you can actually track and measure that folks kind of use intuitively. And I mentioned this earlier is, like, did people on the team work together in the past? Right.

And so, like, you know, what will happen in the traditional sense is you'll meet a founder and then you'll maybe meet the head of engineering and be like, oh, like, awesome. Like, oh, like, no wonder there's great chemistry that. They, you know, seem to work well as a team because, oh, they had worked together for four or five years. Maybe not in the last job, but, you know, in a prior job at like Facebook or something, right? So you're like, oh, that actually is great. That makes a lot of sense, right? There's probably less team risk there because, you know, they've known each other. They've worked each other.

They kind of know, you know, the skeletons in their closets or something, right? But it's kind of, it's like, you know, ex ante, right? after the fact of you meeting the founder what we've done and it's not the only thing we look at and sometimes it's less important but you know when founders choose to come together to work together right or their first second third hires are folks that they had worked together in the past there's a lot of interesting signal right you know where you know a players you know tend to want to work together again because they have the context of knowing you know how people work in high pressure environments, right, when the company's growing really quickly, right?

Or they're handpicking, right, the best within a certain group, right? Like, we do a fair amount of, you know, you know, A&D or, like, you know, like, defense investing under the bottom umbrella of deep tech. And you see, you know, folks at Anderil kind of leave together in, you know, pockets, right? Anderil might not love that, right? but you're seeing, you know, someone who's leaving as a founder being very selective about the folks that they're bringing on to the team, right? Maybe an old colleague, not in the same group, but this other group at Andrew. Like, we've seen that, you know, across the board.

The reality of it is, like, you can actually measure that, right? The challenge is that a human just can't do that at scale, right? But, you know, building a product, you can measure that one attribute, but you can also look at a thousand attributes. And you can do that across, you know, 100,000 companies. And you could do that across, you know, 30, 40, 50 million people, right? Because the beauty of, of, you know, software infrastructure is that it's infinitely customizable and it's infinitely scalable. Right. So we don't have to go hire and build a giant team, right, which is like people are linear, right? Whereas software and, you know, and data, you know, can be exponential. And it's, at the very least, it's a step

function and so that's kind of our framework of how we solve problems awesome well this has been fascinating conversation appreciate you jumping on and looking forward to continuing this conversation live this is 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