Investing Billions - E45: Lindel Eakman on Whether Venture Capital Returns are Higher than Hedge Funds, Private Equity, and Buyout

Starting point is 00:00:00 Is venture at its best? Is venture truly the best asset class on the planet? Yes or no? Yes. The only thing that I've seen close to it from a risk return perspective is small growth equity, not late stage venture. Small buyout. Not even buyout, growth equity. Let's just assume, you know, Lendl's own balance sheet. How would I allocate capital? Well, I would put, by my actions, I have put most of my money in venture. What do I do with that? Well, I have very little, let's put a bit of a barbell, money in venture. What do I do with that? Well, I have

Starting point is 00:00:25 very little, let's put a bit of a barbell, all in venture and a little bit way over here on the other side to kind of balance that out for cash needs. Where do you want your equity exposure? Because it's all equity. You got public markets, you got buyouts, you got venture. Pick your flavor. Some are harder to do, but you can outperform that public equity benchmark pretty comfortably by 300 to 500 basis points. But if you're good, you can do it by 700 basis points and you'll have outlier years where you do a lot more than that. For more ideas on how to raise venture capital in this market, make sure to subscribe below. Well, Lyndall Ekman, I've had probably three, four people

Starting point is 00:01:02 recommend you to the podcast. So I'm very happy that we finally got introduced through Natty Zola at Matchstick. And welcome to the 10X Capital Podcast. Thanks, David. It's really fun. I've listened to a bunch of these and a bunch of my friends have been on. So I have an idea who recommended. You've been in this industry for several decades and you started out at UTempCo. Are you calling me old?

Starting point is 00:01:22 Is that what you just did? I'm calling you wise. So you started at UTempCo, University of Texas. What did you learn the first couple of years out of UTempCo? I sort of got into this by accident. I was at business school at UT and like a good, interested accountant, CFA person. I'd always read the Wall Street Journal and had no idea about endowments and foundations in this whole, what was then especially a cottage industry or how they invested their

Starting point is 00:01:50 money. And when I was in business school, I had the luck to have a friend that through his connections, got an internship at UTemco. And I raised my hand and said, do they need another one? And it turns out they did. And so I was able to join on the hedge fund team actually as an intern at UTemco and then moved over on graduation to the private equity team. I started to zero in on venture and to see the things that you could do and just sort of how exciting it was. Tell me about moving from hedge funds to VCs. That's quite a move. I was most excited about moving over to PE because it was a young team. I was one of three. I had one boss that was younger than me, one boss that was older than me. We were all about 30. And we were managing several billion dollars on behalf of the endowment. And to be honest,

Starting point is 00:02:35 we kind of learned on the job a little bit from 2003 to 2006, call it. But it was a lot of fun to form your own opinions and to see everything out there and then decide where is the best place to put capital on behalf of the endowment. A move over to the VC side, to the PE side was natural for me because of my own personal interests. But it was also more interesting because I sort of don't trust public markets, but I do understand individual businesses and the people behind them. You invest in Union Square in 2004. What did you see in Fred Wilson in 2004? Remember the cycle in 2003, 2004,

Starting point is 00:03:15 every institutional LP hated venture because they still had the scars of the last cycle. We still had a mess of portfolios of firms that weren't going to raise again, that were firing partners, of people spinning out. And at that point in time, Brad and Fred were young. They're 40 and 45. They had enough experience to know what to invest in and what not to invest in. They had made money. They had lost a lot of money. And they had a chip on their shoulder. I literally picked Union Square Ventures out of a pile of PPMs. Nobody even makes PPMs anymore. USV was one that we picked out for a lot of reasons. Brad and Fred were good partners. You could tell they were aligned. They were raising a right-sized fund. And we were lucky enough to do the work and come to believe in them as individuals and believe in

Starting point is 00:04:01 them together. We visited them in New York. I can still remember we were such rubes. We walked all the way there. So we arrived hot and sweaty. But when we met with them, it was clear they had a point of view. And it was clear they had an aligned partnership. And we felt like that strategy and that point of view fit what they were doing. I was lucky enough to call Brad, actually, Brad Burnham, and tell him we'd like to invest and we'd like to be $25 million of your $125 million fund. I mean, I know it was the first yes for them. And there was power in that. And I've been able to do that a number of other times where when you tell somebody you believe in them, you build a relationship. And here we are 20 years later, and they're still good friends.

Starting point is 00:04:45 And it's been fun, sort of all of us growing up together. Point of view. It's not a term that you hear a lot from LPs. Are you looking for GPs that have a very specific view on the world? I think it's important to be curious, but with a point of view. I may invest in a generalist firm because I've often seen it too tight, too narrow. But I think that what's almost more important is how you can say no quickly. I'm interested in these because of this point of view and the logic behind that.

Starting point is 00:05:13 And in the case of Union Square Ventures, it's themes. We have our own set of that here at Foundry, but it's important that you're able to quickly say no to things too, because for all GPs, one of the things I've learned is it's all about time. How do you allocate your time? And how do you prioritize your time? And that's a reflection of your strategy. And if you can align those two, it's pretty powerful. If you're just chasing the hot deal or the latest thing, or the new fad, you don't have a point of view and you don't allocate your time wisely.

Starting point is 00:05:43 Brad Feld and I have a joke when we fundraise about sort of all of the different hot fads of the year. As you go back, we're old enough to go back to the late nineties to sort of, you know, as you can sort of see them. I mean, it's interesting VR, AR, when I first came over to Foundry was the thing, and then it was crypto and it definitely wasn't crypto. And then it was crypto again. You sort of see VCs using that to, I think, chase LP dollars and maybe because they don't have that point of view. What naturally happens though, as an investor, is you come in and you are excited about this array of things. And it turns out that anytime you start peeling layers away, it gets a little

Starting point is 00:06:23 more narrow, a little more vertical. And so it's the path of a junior VC that turns into a GP. They will often start as a generalist supporting many sort of different areas of interest. And then they'll pick one or two or three that are really interesting to them, where they start to build network, where they've made a few investments. And those markets tend to broaden if you pick the right ones. And I think that that's how you see firms grow. That's how you see organizations start to specialize a little bit more is through their own experience of investing. And you become more vertical than you do generalist over time. How much is venture capital a GP startup fit versus just a smart GP picking the next trend? Elad Gil is also somebody that goes after a very specific thesis.

Starting point is 00:07:08 And then there are individuals that have been very successful through many market cycles, like a Bill Gurley. How sustainable is a GP style or a GP fit through different market cycles? So there's two or three pieces to that that I think of in reaction. One is certainly just style. Certain people are attracted to certain styles of people, and that's who they want to work with. You know, I always describe our founders here. A founder is humble, hardworking, you know, not sort of the people who are going to seek attention naturally.

Starting point is 00:07:39 They're going to outwork you, though, and they're going to grind on it. And that's the style of founder that we're attracted to. Now that doesn't exactly fit because I think there's another element, which is, okay, you find the style of person you want to work with, but are they facing the right problem? And that's where that connection of sort of point of view, theme, do those overlap so that you can come to them with a prepared mind and understand what is special about that opportunity. And one thing we talk about here at Foundry is like, they have to want us as much as we want them. Because if you start off a partnership, which are often five, 10 longer partnerships with an entrepreneur, then you have to be in a position that you want to work together.

Starting point is 00:08:22 Is that culture fit a nice to have or need to have? Well, interestingly, in a firm, you might have people that have different preferences, right? And so I can just use our overlap. When I think about the 80 some odd CEO founders that we have, I think there's a high overlap, more than half at least, of the style of person that I want to work with. But I think it does differ by partner inside firms and then certainly firms are very different. We see that in our partner fund portfolio where a Moxie Ventures who are amazing will pick a different style of founder than I think a 10-1-10 generally will. And so to be able to contrast those two,

Starting point is 00:09:05 because they have different networks, ultimately you invest through your network. I mean, Katie has the best network that I've ever, of all of our partner funds, perhaps, at Moxie. And the opposite of that is David Waxman at 10-1-10, who is, and he says this himself, a nerd's nerd. I mean, they celebrate Pi Day. That's their annual meeting.

Starting point is 00:09:26 And I think they're awesome. But they are attracted to a different kind of founder. So I see that in our partner fund portfolio. I think it's also true here, where I sell better to someone that is maybe an outsider of tech, because I feel a little bit that way myself. And I'm from Texas. Whereas I don't sell as well as Ryan, my partner does to a very technical founder that's sort of in the trenches. And so knowing who you sell to and sort of who would

Starting point is 00:09:57 be attracted to you is, I think it's helpful to be self-aware of that too. So let's unwrap Alpha and VC. You were in some of the, not only Union Square in 2004, you were early in True, you were early in IA. Some of these funds have returned over 10X. Do you find very strong culture in all these funds? Or is it sometimes just like the Oklahoma City Thunder where you have Russell Westbrook and Kevin Durant and James Harden and they're all kind of good

Starting point is 00:10:25 and they make it to the Western Conference Finals. So there's a lot of things there. And I like that you picked that team because Durant was a Texas guy. So a couple of things. One, if you're looking for a consistency across, we're in 47 different partner funds. There's not a consistent approach across that.

Starting point is 00:10:43 So I don't think as an LP, you can say, I'm looking for this. I do think that one learning that I've had in particular in watching these emerging managers and over the last nine years now is that we have great solo GPs and there's a person that's really good at that. We have great partnerships

Starting point is 00:11:04 where it's multiple people aligned around a sort of single culture. And we do have a few of those that you described where you've just got really talented people who, for perhaps personal and culture-like relationship reasons, have come together and are both excellent investors. But with differences of style and differences of approach. And I kind of think of Manu at K9 as that solo GP, like really, really amazingly talented. You've got Satya and Hunter at Homebrew that are both amazing investors. They're aligned culturally and values-wise, but I don't know they're specifically aligned in the things that they like to invest in. They're kind of those, they're both all stars. You know, and then, you know, pick a, pick a firm.

Starting point is 00:11:52 This is an interesting firm. Pick Uncork, you know, who have just been through a generational transition where they're adding partners, but there's a clear culture. It was Jeff's firm for so long. And they've intentionally built a culture with these new partners that they're building together. And that's a meaningful effort and transition. And they're one of the few that have already been through a generational transition. You mentioned generational transfers. VCs are so poor at generational transfer that it's seen as this unique skill set, that the assumption is that there will not be a generational transfer that it's seen as this unique skill set, that the assumption is that there will not be a generational transfer. So there's been a lot of press on that. Somebody

Starting point is 00:12:30 that's done an incredible job on that is Alan Feld from Vintage. He wrote a great article on that that I recommend to everybody. What are the top two or three reasons that you've seen that funds break apart? So all of our problems at the GP level are a reflection of everything happening one level down or, you know, at the entrepreneur level. How many times have we seen challenges in in startups because of founder conflict or because a founder left? Well, it's the same thing when you're starting to fund together, when your partners together. And in fact, there's it's maybe even harder to get along because there's less actual concrete feedback. You know, you don't get the feedback cycle so long from an investment standpoint. It's how do you work together is the only initial feedback that you get.

Starting point is 00:13:15 And I think that's actually where LPs get hurt the most and where firms blow up is when there's GP conflict. Well, the portfolio companies suffer when GPs aren't getting along internally. You end up making inefficient, irrational decisions on the portfolio. Absolutely. It's maddening when you see that happening, especially if you're the founder that said, Hey, I wanted David and David got mad and left. And now he's stuck with Lindle. It's one of the reasons I like our decision to transparently say, hey, we're not going to raise more funds. It's so we can say to the entrepreneur, we're all here. We're all working, and we're all together, and there's no hiding the ball. You mentioned you guys aren't doing another fund. Tell me more about that.

Starting point is 00:13:58 There's this natural inclination to have something continue on. And, and I, I think that's actually the wrong goal. I think impermanence is a, is, is the goal for investing in partnerships. And that's for a lot of reasons, but I think I think the things sort of run their course. And when you have a great partnership, like we do, and you sort of recognize, okay, do we all want to continue re-upping every time? When you're in a position where not everyone is ready to recommit, not everyone wants to go again, I think you have to sit back and say, wait a minute, do we try and remove parts

Starting point is 00:14:35 and replace them with new parts? And you're seeing that in a lot of firms and it's quiet for now, but I think you're seeing a lot more funds right now where there's this generational transition that needs to happen as people slow down, as people are full, as people are not 110% committed

Starting point is 00:14:52 because it has to be 110% to properly invest a fund. What are you really buying? You're buying brand, you're buying track record, you're buying a set of LPs that may or may not continue to invest with you. And at least I don't think that that's the right answer. I think you should stop and reconsider

Starting point is 00:15:09 from a first principle standpoint of, should this continue with or without me or with or without your partners? And, or would you be better off thinking about, okay, if I were just to start fresh today, what would it look like? I'm almost 50. I've got one run left in me, you know, and kind of sort of one cycle left in me.

Starting point is 00:15:29 And I want to participate in that. But how do I want to participate in that? And for me, you know, I'm really excited about this next generation of managers that are all 35 to 45, you know, that are forming, who are motivated, that are like Brad and Fred in 2004, that had to had a chip on their shoulder and have capacity and have learned good and learned bad and can really run at things in an aligned, interesting way representing the current cycle. It's always supply and demand driven and there's persistence of alpha in down markets through many, many decades. You mentioned

Starting point is 00:16:01 generational transfer. Famously, Sequoia and Benchmark was able to do it very successfully through multiple generations. They typically started it over a decade before it was done, in some cases, 15, 20 years. Tell me a little about the apprenticeship model as a limited partner. I think it takes different skills, whether you're an LP in credit funds or buyout funds or late-stage funds, even in venture, there are different things you're looking for. I think I'm drawn to early stage because I'm most focused on partnerships and sort of that alignment of those partnerships and the people that you're investing in. So I think LPs have different skill sets. I was always attracted to venture because of the people piece and the early piece and seeing the companies, almost seeing the future. But on the LP side,

Starting point is 00:16:51 there are people that are sort of naturally interested in the, in venture and technology and you'll see them. They don't need to apprentice under, under somebody. I think it helps. It was really hard at Utimco to, to spend, you know, 10, 15% of your time on venture when you're doing all these other asset classes and become an expert. That's why I like to say, I think I got lucky because of my natural inclination towards people and investing in USV led me to invest in Foundry. Here I am all these years later, it led me to invest in True, led me to invest in Spark, led me to invest in IA. And you hit this mine of people, this good network of people

Starting point is 00:17:26 that leads you to other opportunities. And I think you got to keep that network fresh. And so I think, you know, for me, I've been lucky enough to build a really big network here in venture. University of Chicago just did a study that showed that 47% of funds that are in the top quartile

Starting point is 00:17:42 ended up in the top quartile persistence of VC returns. Is there persistence of LP returns? We'll continue our interview in a moment after a word from our sponsor. Most businesses use up to 16 tools to hire, manage, and pay their workforce, but there's one platform that's replaced them all. That's Deal. D-E-E-L. Deal is the all-in-one HR and payroll platform built for global work. Smartest startups in my portfolio use Deal to integrate HR, payroll, compliance,

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Starting point is 00:18:28 free no-strings-attached demo with Deal Today. One can hope. I was talking to a friend that's a GP at a fund of funds earlier today. And we have a certain style of fund and firm and people that we like to invest in. we overlap a lot. And I know their returns are good over time. I, Michael is, is someone that I'm friendly with at Sedona that Michael Kim and you guys see it at him, right? At UTemco. We did. Yeah. And, and so, um, again, I think lucky to, to make that contact, um, for both of us, for Michael and for me, um, you know, UTemco at that point in time was big, was unable to approach, um, the, the seed market that was forming. It was becoming very interesting. And, um, we did, we,

Starting point is 00:19:11 you know, while I individually had the risk tolerance, I don't think the institution did. And it was too big to be writing small checks into smaller funds and, and just too, too much of a process around that. So looking at that, we stumbled across, I got introduced to Michael. And the reason we backed Michael was like, it was a bit of a test run to say, hey, I think this part of the market is interesting and I can't approach it. But also Michael had something, even without me really knowing him, he's done amazing since then. And he had Graham, who's also amazing. I look, he had four positions already he'd committed to. And so I knew three out of four of those funds already, and I knew they were interesting. And so worst case, we back Michael, he's unsuccessful raising, and we just take those directly on our

Starting point is 00:19:55 balance sheet because I know three out of four are interesting and I'd like to have that exposure anyway. So he had not track record, but he had, he had signal, I would say, that I attached to it already. And then life goes on and Michael is ultimately very successful. I think it helped give him the credibility to go raise more capital and give him a lot of credit. He saw seed and he was the one out front just sort of carrying the torch saying, this is the place to be. I think ultimately it led to my decision, you know, seeing that and helping Michael led to part of my decision to leave Utimco and go to Foundry where we invest probably at about 20, 25% overlap would be my guess. I haven't looked at it a long time, but of funds that we overlap with and we get to see each other several times a year

Starting point is 00:20:43 because of that. But man, they, you know, they've built a killer business. They've got great returns and it benefited you, Timco, to kind of take that chance, even though there was an extra layer of fees, because there was more return potential in these small funds, in this small portfolio. You had a front row seat to one of the largest endowments. I believe today it's somewhere $40 billion plus. Correct me if I'm wrong. I think it's 65. 65 billion. I'm sorry, University of Texas. It might be over 70, to be honest.

Starting point is 00:21:12 Over 70. Let's just say 100 billion. It's doing quite well, obviously, and also endowments on top of having that amount of capital. It's a very favored evergreen type LP. So I'd say it's one of the sexiest LPs you could have on your cap table as a fund. You got to see a lot of really interesting stuff. You spent 15% to 20% of your time on venture. You had another 80% to 85% on other asset classes. Is venture at its best? Is venture truly the best asset class on the planet?

Starting point is 00:21:41 Yes or no? Yes. For a lot of reasons, though. It's yes because it is, at least in our experience, has been the best returning. So over 20 years now, and by the way, we made some pretty good investments in some other asset classes. The only thing that I've seen close to it from a risk return perspective is small growth equity, not late stage venture, but small, not even buyout, growth equity. not late stage venture. Small buyout. Not even buyout, growth equity.

Starting point is 00:22:11 And to me, that's still an interesting place to invest. Let's just assume, you know, Lindell's own balance sheet. How would I allocate capital? Well, I would put, by my actions, I have put most of my money in venture. And what I do with that, we'll have very little, let's put a bit of a barbell, all in venture and a little bit way over here on the other side to kind of balance that out for cash needs. Now I'm a GP, so all of my assets are wrapped up in my own funds.

Starting point is 00:22:34 How do you hedge against your venture portfolio? I don't really hedge. I'm sort of long and strong, if you will. And that's paid off over the last 30 years, right? If you look at, there's been blips, but if you look at sort of overall equity returns, they've been incredible over the last 30 some odd years. But for my part, I invest, you know, in a few small funds that are sort of one-off. They're way off our mandate, so they don't enter, there's no conflict with Foundry. But part of, one of my old team members, two of them actually, Scott and Mike formed a firm called Serve Capital, small buyouts with SBIC leverage.

Starting point is 00:23:11 It's a fund of funds. They're some of my best friends and they're a big part of my non-venture portfolio. But again, it's privates and it's in a small part of the market, investing the same kind of partnerships that we defined over time together. What about search funds? Interesting. I don't have exposure to that network particularly. I think those are something that can't be done at scale. There's been several groups that have tried to put together search fund platforms. I like the alignment. I like the hustle factor behind those ideas.

Starting point is 00:23:43 I haven't seen any that appealed to me. I've seen a couple of them, but in general, I think the concept is worthy and is almost like it almost harkens back to the earliest days of venture. One thing I would say on the venture asset class, in my experience, I've asked a variation of that question to 20 institutional investors and they have conclusively said venture at its best is the best asset class. What's kind of wild about that is on top of most of those investors were actually did not have into consideration tax advantages. So with the advent of things like USPS, venture capital, even on a pre-tax basis, seems to be the best asset class. On a post-tax basis, it ends up being even better.

Starting point is 00:24:22 Of course, not financial advice. Speak to your financial advisor. And your tax advisor. Yeah, and that's one of the reasons I created this podcast is to go, in terms of your portfolio, yes, you could give your public book to Goldman or JP Morgan,

Starting point is 00:24:39 and maybe they'll get another 100 basis points over the market. But the real alpha and the real difference, the worst asset class in the world, I think is also venture, bottom quartile venture. We'll get right back to the interview. But first, to stay updated on all things emerging managers and limited partners, including industry trends

Starting point is 00:24:55 and insights on how to raise LP capital, please subscribe to our newsletter powered by Carrier Labs, a full-service content marketing firm that's partnered with us on the newsletter. Visit 10X Capital Podcast to subscribe. I think that's a problem with benchmarks though, David. I look at benchmarks and there is this giant spread of returns. And I think with almost with any sense, you can get in the top half of just any filter, you know, of any nuance or knowledge, you can get in the top half of, I mean, just any filter, you know, of any nuance or knowledge you can get in the top half of returns. It's capturing that upside volatility of the best

Starting point is 00:25:32 performing funds, the 5, 10, 15, 20 plus X funds. Those can happen, especially in the small fund world. The thing that I like to say with venture is, is an LP, at least you're seeking volatility, you're seeking upside. And if you get too diversified or you invest in too big of funds, or you invest in things that don't have the opportunity to have a big pop, well, ultimately you're gonna be disappointed in the returns and you might as well invest in something else. It is with an appetite of seeking risk that you should go into venture. And you sure shouldn't do it if you don't have some visibility or some filter. And certainly access is a problem for a lot of people. I think there are a lot of people that aren't staffed for it. And they wander into the venture

Starting point is 00:26:14 asset class and they invest into, we'll just say big firms. And by their nature, they might outperform a portfolio of lower middle market buyouts. They might not. It's going to be in that same zone. To your point, if you give your money to a public equities manager, you might do 100 bps over the index. You might do that. With a good portfolio of venture funds, you're probably going to do at least 300 over that benchmark. And you're probably going to do 500. He's like, where do you want your equity exposure? Because it's all equity. You got public markets, you got buyouts, you got venture. Pick your flavor. Some are harder to do. But you can

Starting point is 00:26:54 outperform that public equity benchmark pretty comfortably by 300 to 500 basis points. I sit on a few endowment foundation boards. I've seen it over time. But if you're good, you can do it by 700 basis points and you'll have outlier years where you do a lot more than that. So there is a solution for the problem that you said, which is essential financial conservatism, which is just a tilt. It's neither good nor bad, but there's a way to do it right and there's a way to do it wrong. The way that you're talking about doing large funds, highly diversified, that's essentially you're basically getting beta. And sometimes beta could be good,

Starting point is 00:27:25 depending on the market. What the smartest investors, I had the state of Wisconsin investment board that have over $100 billion in AUM. They're only investing 3% of their entire portfolio in venture. But within that portfolio, they're taking an aggressive alpha strategy. They are going for slightly larger firms than some of the seed fund of funds, but they're not looking for the mega $100 billion funds. I mean, I know Presti over there. Chris is great. And I tell Chris, he has the best job among large pension funds that I know because of their willingness to take risk and their flexibility to write small checks from a huge pool of capital, he's able to do directs. I question whether he's actually compensated enough given the mandate that he's been given, but he's a good friend and someone that we see in a lot of our funds together.

Starting point is 00:28:18 And I think he and some of the Canadian pensions are the most forward thinking of large pools of capital who say, I can't put 15% into venture because I can't execute against it that well. But I can put a small amount and I can expect a high return. And it's worth allocating a part of my budget or my staff, like the expensive part of my staff to that opportunity. Another guy to throw in there is Marcus Frampton, CIO of Alaska Permanent. And something that all these investors have in common is that their board of directors, their investment committees have given them the ability to generate alpha through structure. A lot of these large capital pools become structurally aligned. In some ways, somewhat arbitrary, you can't own more than 10% of a fund. Why does that matter?

Starting point is 00:29:01 If you're Alaska Permanent, you have $60 billion in AUM. Why does it matter if you put in $20 million into a $60 million fund? Are you really creating the systemic risk in the fund? So a lot of it does go down to structure as well. And I think it's one of the most underrated sources of alpha in the larger pools. I would push harder on that last point, which is your percentage ownership of a fund shouldn't matter if you think you're good at it. One of the things I regret not doing at Utimco, and I would hope they do now, is use your scale as an advantage. And so you should be seeding managers. You should be able to attract talent with your capital and be generous. Because if you want to attract the

Starting point is 00:29:38 best talent, you're going to have to be generous with those terms. You should be seeding those managers. I know that Harvard tried that for a long time. And I think because of some of their institutional challenges, that got in the way. But there were some great firms that they actually spun out of Harvard Management Company over time. And I think that is not utilized enough because of political stuff, because of process stuff, because of risk tolerance on behalf of bigger boards. What do you think about seeding platform? It's more known in the hedge fund space. What do you think about that opportunity set in the VC LP space? With this generational transfer that's occurring, I think it's a huge opportunity right now.

Starting point is 00:30:15 Big fresh pool of capital just to go play with, it would certainly be one of the tricks, one of the things that I go play with. I think you could go out and back five, maybe eight funds, not with a lot of capital. If you could bring other capital, your friends and LPs, other LPs capital to them, and you could do five, maybe eight of these new managers that look a lot like that whole vintage of 2004, 2005, 2006, 2007, where 35, 45 year olds,

Starting point is 00:30:41 two to three to four partners, sub $300 million fund, probably sub $200 million fund, early stage focus, alignment, hustle, bandwidth, chip on shoulder. That's pretty easy. I would be really excited to raise my hand and say, all right, let's go do that. I've been texting our CEO, my co-founder, and we'd like to offer you a job, Lyndall, 10X Capital. You have this nice view out there, 85th floor. We have a nice 401k. We have all the cushiness endowment, but no strings attached in terms of strategy. What do you think about that? Thank you for the offer. It's heartening to hear that. I'm not going anywhere. I've got a really nice view. I've got a really nice view of

Starting point is 00:31:20 Longs Peak behind my screen. So I like the mountains maybe more than the city. But look, I think the opportunity set right now is just sick if you're an experienced LP that has any flexibility. And that's GP seeding. It's continuing to invest in some of these small funds. It's a great time to invest in small funds. It's secondaries. There's a lot of individuals got overextended on their private commitments. You got to be willing to do tiny ones though. By the way, there's a whole bunch of stranded seed and series A companies that there's something good about them, but the cap table's whacked. So if you're willing to go in and recap it, I mean, I hate, nobody wants to

Starting point is 00:31:58 be a vulture capitalist. You got to take care of the team. But if you can kind of come in as the white knight, you know, that is fixing something and they feel aligned, we see a lot of opportunity there. One of the risk aversions you mentioned about backing small managers, backing solo managers, when you have a solo GP,

Starting point is 00:32:13 the worst thing that could happen is that they decide to wind down the fund and then there's no one to manage that assets. Tell me how that plays out. Yeah, I mean, a couple of things. One, it's been a learning for me to get comfortable with solo GPs. And I've actually gotten excited about solo GPs because of our early conversation

Starting point is 00:32:28 about the challenges of partnership, especially new partnerships that don't work. So if I can find one person to back and then help them build leverage around them, great. In the case of, you know, someone not getting hit by the bus, but disappearing down the wormhole, you know, we are more comfortable with that because we are GPs and we could take the fund over if we had to. Right. And get the support of the other LPs to sort of manage that out. But, you know, in the case where they're gone, it is a problem. And we've certainly, you know, thought long and hard. OK, how do we fix that? And there have been a couple of cases I can't specifically talk about and where we thought that GP might have gone away, might be going away.

Starting point is 00:33:08 And we thought, okay, how would you restructure economics? How would you take control? Most LPs can't do that. I think we can because of our experience. It's not something anybody wants to do. A thing that I recommend to those solo GPs is make sure you have a plan for your estate around that. Make sure that there is someone who's the designated point person so that your spouse or your partner isn't dealing with that in a time of grief. And that they're briefed up enough to know how to handle it. I know of one person in my world that if I was gone tomorrow, he is set up to take care of my business, right? And I think that's true for everybody. They should have that sort of backup option who's briefed.

Starting point is 00:33:54 So it's important that people are aware of that issue because it always comes without prior warning. And that's one of the biggest issues. Is there a marketplace of standby GPs that take over portfolios? No, it's usually a personal relationship to someone that, you know, in my case, it's a guy named Mark Schoberg who worked with me for 10 years.

Starting point is 00:34:13 We like to say that in a parallel universe, we're still partners. And, you know, we're partners and we check in all the time. We know each other's values. That he would be the go-to guy if I was by myself. And this, in the Foundry circumstance, I've got five other partners. So unless we're all six of us on

Starting point is 00:34:29 a plane together, we don't have a problem. And we're never, logistics never worked out that we're all on a plane together. But I would hate to be the last one holding the bag for all six of us. I will say that because there's a lot of work left to do here. You've announced that you're not doing another funds. You have a market cycle in the tank. What's next for you, Lyndall? You know, I'm in a great spot because I've got 10, maybe 15 years of work at Foundry that will, over time, provide bandwidth as that runs down. We have a year and a half, two years of work left to do on our 22 fund where we're still putting it to work. But you can hear in my voice, my excitement,

Starting point is 00:35:06 kind of the opportunity set. I do think we're sort of like when I started in this business in 2003, where like there's a several good years of positive, of great vintages ahead of us. And I want to participate in that next cycle. And I want to back, you know, this next generation of foundry type people, this next generation of USVs,

Starting point is 00:35:24 next generation of True. You know, and I'm of USVs, next generation of True. And I'm lucky enough to have the network to be able to do that. I personally can't meet the minimums, so I'm going to have to go find capital somewhere to help me invest. Yeah, having not enough and having too much capital is the main constraint in VC. You don't want to be on those barbells. I appreciate you jumping on the podcast. I've really enjoyed the conversation. I've learned a lot. I know that the listenership has as well. Thank you for jumping on the podcast. What would you like our audience to know about you?

Starting point is 00:35:50 I want to acknowledge that the magic of venture is the founders and the things that they're doing out there and the hustle and the team and the effort they do. And the second thing is that I'm grateful for the opportunity to have the relationships I have and for the opportunity to back all of the managers and all of the individual founders that I've been able to back.

Starting point is 00:36:10 On that note, thank you, Lindell, for jumping on and I look forward to meeting in New York or in Boulder very soon. Come see us, we'll go for a hike.

Investing Billions - E45: Lindel Eakman on Whether Venture Capital Returns are Higher than Hedge Funds, Private Equity, and Buyout

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