Investing Billions - E7: Samir Kaji, Founder and CEO of Allocate | What VCs Get Wrong in Portfolio Construction, the Main Mistakes GPs Make When Communicating with LPs, What Fees GPs are Charging Today (2023 Q3 Update)

Starting point is 00:00:00 The first 10 minutes are where you can create positive bias by listening, understanding who they are, what they care about, what their object is. If an LP or a family office may meet 30 managers over the course of a quarter, well, to stand out, you can't just pitch the same thing over and over. Here's my marks, and here's all the great companies, and here's the value I add. You have to build a rapport with the underlying person because it is going to be a long-term partnership. Good afternoon, Samir. Samir Khaji, founder and CEO of Allocate. I looked up actually when we first met each other, it was roughly eight years ago to the day

Starting point is 00:00:41 when you were at FRB and I was a newly minted solo GP. So it's great to connect and welcome to the Limited Partner Podcast. Thanks for having me, guys. So for people who aren't familiar with your background, maybe you could talk a little about how you went from SVB, First Republic, and now to be founder and CEO of Allocate. I was born in Canada, moved around the US. Actually, my early years, my dad was a commercial real estate developer.

Starting point is 00:01:07 He actually started his own company. So worked with somebody that was very much the entrepreneur and got a job in September of 99, actually lending to companies during what ended up being the tail end of the dot-com bubble to working directly with fund managers in 2009. And so around that time, started seeing this change in the venture market. So away from being a monolith, where it's just Sequoia, Lightspeed, Excel, to a lot of emerging managers, you guys might remember, some of the folks early on were like Mike Maples, I didn't suck at Jeff Clavier. And for me, a lot of those people felt like entrepreneurs

Starting point is 00:01:41 that were just happening to write checks versus code. And so I really saw this change in the venture ecosystem, really wanted to build around it, joined First Republic Bank in June of 2012 to really start a group focused on the venture managers, particularly emerging. Spent about eight years there, worked with about 700 managers. Our first couple of clients there were actually what now is 8VC and then Forerunner Ventures when Kirsten first started her fund. One of the things that we observed during those 10 years was that venture capital as a category, which has such wide dispersion from top quartile to bottom, it was really advantaged toward the institutions. Institutions had the resources. they had the check sizes, they had the ability to build well-crafted portfolios. Individuals really didn't have that.

Starting point is 00:02:33 And so our belief was that private markets not only are getting bigger, but the participation within the private wealth sector is going to get bigger. So Allocate was founded on this premise that private markets should be more accessible, transparent, and then ultimately liquid. You mentioned Kirsten Green from Forerunner, and of course, AVC, which was started by Joe Lonsdale. At some point, they were emerging managers. What separated them from the pack? Kirsten, if you look at her, look at her background, what she did before, she realized she had this great observation that so many of these commerce companies, the actual spend is coming from females, not males. Yet many of the people that were investing in these companies were actually males. And her view was, no, we have a

Starting point is 00:03:15 different lens in terms of how to evaluate these companies, understand what the trends are. And she built a firm around that. And one thing that stood out to me early on is she didn't ever think about just raising a fund. It was always this long-term, this is a multi-decade endeavor that we're going to. This is how we're going to build it. This is what we care about. This is our true north. And those are things that were very clear early on when talking to folks like Joe and

Starting point is 00:03:42 Kirsten. You mentioned self-awareness and thinking about it in a multi-decade perspective. If you could communicate to emerging managers that maybe are not on the same level of Kirsten and Joe, and you weren't worried about offending them, what would you tell them? It's a great question, is why are you doing this? Most of the people that are starting these funds have actually plenty of other opportunities. The opportunity cost is high. When you start a fund, you should be signed up for a multi-decade career. You know, you raise three funds, you are going to be running those funds for what likely will be

Starting point is 00:04:17 15 or 20 years. And so why are you doing this? Do you understand the opportunity cost? Do you understand the fact that this is a very long feedback cycle? It's hard to even know whether you're really good for seven to 10 years. And even then, you can be humbled very quickly. And so the thing that we tell people is understand why you're doing this. Are you really passionate about being an investor and actually creating a long-term franchise? And are you self-aware to know where you can play? You know, today there's effectively 4,000 active VC funds in the U.S. alone, 2,600 that have come to market since 2010. So where do you fit in? And do you have some kind of unique comparative advantage that you can press on over and over again. So what do you think are compelling comparative advantages and ones that maybe people might think are compelling,

Starting point is 00:05:10 but actually not quite compelling to help ease perhaps? So what's not compelling is differentiation for the sake of differentiation, meaning that I want to invest in Web3 or AI because I think it's cool. It has a huge TAM and I know a lot of people. That in itself is not differentiated. When you think about a venture fund, ultimately what you're looking at is what are you doing

Starting point is 00:05:33 in four areas? Sourcing, picking, winning, and then ultimately portfolio management. So when we look at those things, how do you give yourself the fourth one to me is table stakes, like you should know when to do follow ons. And, you know, when maybe to take chips off the table, those are things that you should know. But the first three all come down to, are you doing something in a way that gives you a higher probability of success? Because you have differentiated a great example of differentiation is someone like Kirsten Green, I know we just talked about her, but going back, or somebody that has built an incredible network

Starting point is 00:06:09 that allows them to see deals that other people can't, or has a deep domain expertise scenario. So if you tell me you're investing in AI, but then I look at your background and nothing maps back to either AI expertise, AI networks, or networks of founders, or anything that shows me that not only do you understand what you're doing, but you have a real comparative advantage. So to me, it's meaningful differentiation that has to do with what do you have about you or your team that gives you a better shot at sourcing, winning, and picking? And it could be a lot of things. It could be a brand. I look at someone like Tomas Tungas, who left Redpoint to start Theory Ventures, raised $230 or so for his first fund. But Tomas has been doing SaaS for a long time. Enterprise has shown himself to really

Starting point is 00:06:59 understand the space, very public about how he thinks about the space. He has a newsletter that has hundreds of thousands, if not millions of impressions. So he's built an interesting moat from a brand reputation and domain expertise side. That's meaningful. You mentioned Tomas, a great investor, a fellow Dartmouth grad,

Starting point is 00:07:18 and he has access to so many opportunities. You mentioned picking and also winning. Is VC a game of being contrarian, being right when other people are wrong, or is it a game of access? So I think people generally think at the seed level, you can't pick. I don't know that I believe in that. I think actually people have shown to be themselves as really good pickers at that stage. But usually when they really understand something, whether it's a domain that they really understand, it's founders or they have some kind of mental model.

Starting point is 00:07:49 But in order to pick, you still have to see the right opportunities. So I do believe that seeing opportunities is incredibly important. And you have to find an opportunity to get in front of the right founders pretty consistently. And so these things aren't mutually exclusive, but, I do think that you have to have a network to be able to see the opportunities for you to then pick with a high level of quality. That doesn't mean

Starting point is 00:08:13 you're doing things that are consensus, though. That's why Tomas actually has been successful, because he puts his thoughts out there. Founders will self-select in and out. If they like what he has to say, they may come to him. And it may be somebody that hasn't even talked to any other VCs where Tomas can have a conversation, make a contrarian bet. And the way I look at VC, you want to be in that quadrant where you're right and where other people aren't looking. When things are where everybody's investing, prices go up, competition goes up. It just becomes harder to make money. But going back to your question, access first, and then you have to be able to

Starting point is 00:08:51 pick from this curated list. You don't need to see every deal, but you need to see the deals that fit your thesis. I was watching a podcast by Jason Lemkin. I think another thing is knowing what is one of your deals and having a prepared mind for exactly what you're looking for and being disciplined. I think this entire thing about not caring about valuation is a nonsense argument, which we could delve into deeper as well. There's a view that, you know, it's all power law driven. And if you get into the right company, you ride the rocket ship, other people are more valuation sensitive. What are your views on this? So I think valuation does matter.

Starting point is 00:09:25 You know, ultimately, it's pure math. And, you know, at the early stages of investing, you don't know which company is going to be the outlier. I don't know, you know, like people didn't know Figma was going to be Figma or Stripe is going to be Stripe at that seed or, you know, pre-seed round. Ultimately, you have to have some kind of discipline. I think the key, though, is great VCs are not completely dogmatic and they understand there are going to be exceptions they have to make when it comes to valuation or they have high conviction and they're willing to take it now you don't want to build a portfolio full of those exceptions because that becomes your business model

Starting point is 00:09:57 but you investing in a 10 million versus a 20 million post at a 20 million post you're actually reducing your return on that particular investment by 2x and there's no way getting around the math and during the time of 2012 to 2021 it seemed like it didn't matter because in 2021 you had 787 unicorns a minute so it felt like everything went to the moon of course that belies what is really possible in terms of exits. So yeah, I actually do believe valuation matters at every single stage. But you just need to know when to make exceptions. Absolutely. I think the lack of dogma is the best dogma for VC. So pivoting a little bit into Allocate. So I'm a very happy investor. I was in the first round, but do we really need another investment platform? Isn't there enough people tackling this space?

Starting point is 00:10:50 Why does Allocate exist? I don't think there's enough people tackling the space. So if you think about the size of the innovation sector, tech, life sciences, it's grown. Today, it drives 22% of GDP and growing. A lot of that value is happening in the private market. So things that used to be had in the public markets, Amazon went public three years after founding. We just don't see that. Now the time to exit is 8, 10, 12, and sometimes even longer. However, if you look at the average investor that wants to invest in the innovation sector on the private side,

Starting point is 00:11:23 there's a lot of adverse selection. And adverse selection. And adverse selection is usually driven by network relationships, check sizing. And then ultimately, you know, one of the pain points I've always had is, well, I'm not really just investing in one-off funds, but I want to build a portfolio that's well diversified across time, that's well diversified across manager types, across co-investments. So ultimately, the way we look at the world is not only are we a platform that allows people to invest in the highest quality opportunities, but to do so in the way that's personalized to their own objectives. And that, to me, has been missing within the wealth management world. And there are people that have tried to tackle

Starting point is 00:12:05 parts of this. iCapital has done a great job, I think, on the private equity side, maybe some like Case on the hedge. But venture now is a mainstream product that is of significant scale, especially now that people define venture as anything from pre-seed to pre-IPO and everything in between. So our view is venture is making that transition into mass finance, but the infrastructure tools are still not there for the private wealth sector. Samir, can you trace the evolution of how you've navigated the IDMAs with Allocate in terms of what are the actual product or products that you've decided to offer? Yeah. So in the early days, when we first started, our whole concept was this concept of democratization.

Starting point is 00:12:51 How do you allow more people to participate? And that remains one of our three pillars. I mentioned accessibility. Over time, what we realized is there's much more to investing in the private markets, education. So we do about 50 events, webinars per year, just to educate limited partners that are emerging that want to invest in the space. Second is portfolio construction.

Starting point is 00:13:13 How do you think about portfolio construction? Well, a lot of the tools that we're building around portfolio modeling. So I have X amount of funds that I already have in my portfolio. What does that mean for where I am from a cash flow standpoint what are my cash flows going to look like where do i have gaps in my portfolio after i invest you guys know this really well you know you get these quarterly reports that come from different fund admins now i have to pull down from 10 different sites then i have to take that information put an excel spreadsheet to be able to track how much I've funded, how much I have left, what is my DPI, IRR. I don't really have a good sense of which portfolio companies unless I spend a lot of time. So a lot of what we spent over the last

Starting point is 00:13:54 year is building those portfolio management tools to give people visibility and transparency into their portfolios so they can make smarter investment decisions. So that's been the real big evolution. The one thing that I'm excited about, about the future of the private markets, is actually the third pillar, which is liquidity. How do you get better liquidity from your illiquid investments? Meaning that, Eric or David, you invest in a fund. Do you really want to be stuck for 16 years? Hey, we'll continue our interview

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Starting point is 00:15:02 table management. It's a modern, intelligent equity management platform that offers equity, issuance, employee stock management, 409A valuations, and more. I've been a happy investor in AngelList for many years, and I'm so excited to have them as a presenting sponsor. So if you're ready to level up your startup or fund with AngelList, visit www.angellist.com slash TLP. That's angelist slash TLP to get started. Back to the show. Or what if there's an opportunity that you can now borrow against your liquid stakes? You don't have to sell, but you can borrow against them

Starting point is 00:15:35 to do whatever you need or make another investment or sell in a secondary and a more efficient way. You guys know the secondary market is opaque. It's incredibly inefficient. So we are looking at creating this end-to-end stack from deal discovery all the way to portfolio management. I think liquidity is really critical. And it's something that third and fourth time LPs are aware of that first time LPs oftentimes miss. In terms of you, you mentioned all these tools and IDMAs. To Eric's question, who is your customer profile? Who is your typical customer?

Starting point is 00:16:11 Who do you guys build for? It's a great question. So there's two types of clients that we go after and we work with. One is when we work directly with clients, which is our direct-to-consumer model. That is really focused on family offices, U.S. primarily, but we have some global, as well as ultra-high-end individuals. These are the folks that typically are qualified to invest in some of the funds that are brought on the platform. The second is working with the independent wealth advisors. So these advisors could be private banks. It could be your independent wealth advisor that's managing money on behalf of the family offices or in ultra high net worth. And for them,

Starting point is 00:16:52 they have a great picture of their clients overall portfolio, public equities, fixed income, and we offer them the ability to onboard venture in a responsible vetted way to their clients. And so those are the two areas we focus on right now. So, and in terms of this, and I know you'll probably say it depends, but I'm gonna put a gun to your head and make you answer this question. If you have a typical customer,

Starting point is 00:17:13 let's say he has 50 to $200 million in wealth, what percentage would you advise him to put into venture assuming he has no immediate liquidity needs? How would you allocate that venture portfolio among the different strategies and different funds? So the fact that you said you're going to put a gun to my head, because I was going to say it depends, because it really does, as you know, depends on the individual. But let's say somebody that has $100 million that has done nothing in the private markets, starting afresh. I mean, the first thing, obviously, is understanding what

Starting point is 00:17:42 they want to do, what their return hurdles are. Do they have any need for liquidity, what their opportunity costs are? But let's say all of those things we've figured out. Generally speaking, venture, if you look at that size, it's about 10 to 12% of a person's portfolio. That doesn't mean from a commitment standpoint, you're typically looking at that as net asset value of your overall portfolio. Obviously, you don't want to invest all of it in one day. So that person that has 100 million, they're not going to put 10 million into one VC fund today and call it a day. What we would advise is you would build that portfolio typically over a three to five year period, and then have a mix of different type of funds. The reason you build it over three to five, you want some vintage or diversification.

Starting point is 00:18:26 And ultimately, the holy grail in venture fund investing is for it to self-fund itself eventually, meaning that as you make your new commitments in years five, six, and seven, they start to self-fund from the distributions of the funds you invested in years one and two. And then you kind of become a steady state. And if you do that, you can get the returns that the institutions get and be able to sell fund. From a portfolio

Starting point is 00:18:52 standpoint, it is super important. I'm glad you asked the question because venture today is not this monolithic. It's not like I invest in insight and that's the same as investing in a pre-seed $30 million fund. These are two different type of risk return profiles. And venture, to me, is now a combination of different sub-asset categories. So if somebody is looking for true venture, to me, that's kind of pre-seed, seed, maybe series A. And then as you go down the stack, it becomes more growth and PE. So even some of the large funds, people say, well, I don't want to invest in large fund because it's 2 billion, I can never get a three or four X. Well, that's not really the model for those bigger funds, because maybe they do 25

Starting point is 00:19:36 to 35% in first checks, and the rest is for following. And so a lot of the later checks are B, C and D rounds, which shorter time to liquidity, less risk. And in many cases, you're not looking for, you know, 4X on those funds. A 2 to 2.5X is a more normalized return, but the risk profile is different. Whereas the pre-seed, you know, typically when we underwrite, we are looking, can we get a 4x net to our investors for any, you know, small seed fund we do, because we are taking more risk. You know, there's liquidation preferences that we have to think about as, you know, as their portfolio continues to raise more capital, they're investing very early, these are smaller funds.

Starting point is 00:20:19 And so we look at that as your alpha. And then as you get bigger and bigger funds, that's your qualified beta. And we think that some split between those. And that really does depend on the investor's overall objectives within the asset class in terms of returns and overall risk they're willing to take. You mentioned kind of liquidity, self-funding. I think those are important things. I think a lot of people should look up QSBS and the incredible tax advantage, both federal and state and the rollover function on QSBS. Disclaimer, not financial or CPA advice. In terms of those top managers, you talked about getting a

Starting point is 00:20:57 4X. We all know how rare that is. Let's talk about market today. It's Q3 2023. What are the top managers? What are they dictating in terms of emerging managers, in terms of management fees and carryout? Management fees have kind of stayed around the same. So 2% blended over the years. I mean, sometimes they start off at 2.5%. But post-investment period, oftentimes they'll stair- step down, right? Maybe it's, you know, 25 basis points a year, and it kind of blends down to 2% to 2.2%. Carry has been something that has gone up over the last several years. Now we're starting to see some change, but during 2017 to 2021, what we saw is two things. On the carry side, we saw increased carry,

Starting point is 00:21:44 sometimes starting from 1X, 25% or 30%. And we even saw a lot of emerging managers do tiered carry, meaning that it's 20%, but once you hit a 3x, it goes to 25%. And then it goes over 5x, it might be 30%. And the question we ask is, okay, well, if you hit these hurdles, is there a catch-up? Meaning that if I hit a 5.2x, which LPs would be happy with, does the 30% then apply all the way back to the 1x? And then, you know, what is the net return? So we saw a lot of that.

Starting point is 00:22:16 We're not seeing that as much anymore. I mean, fundraising is incredibly, incredibly difficult. The other thing we saw during the bull run, the extreme bull run, was emerging managers stapling on opportunity funds and doing a lot of SPVs. So it was a way to build AUM. Some of those will do fine. But I think, again, going back to the self-awareness, do you really have the ability and the domain expertise to actually be able to do growth stage investing? Or is it just lazy follow-ons? And so I'd say right now, carry is getting pushed back. Opportunity funds definitely are not in vogue unless you are a small percentage of funds where you've shown the ability to be a great fiduciary partner over a long period of time. So if I'm understanding you correctly, the 2% blended is still market today. So what

Starting point is 00:23:06 fund size is that acceptable by the LP community today? So 2% management fee, I mean, I feel like that's now become almost a road. And I'm not seeing anybody go below 2% in terms of managed fee. I think there's a few exceptions here or there. But ultimately, 2%, it's more on the carry side that we're starting to see a little bit more friendliness to the LPs. And certainly with the stapling of other products, many people have unstapled or simply not raised an opportunity fund in this environment. When you say staple, is that a dollar for dollar allocation among the seed fund, the opportunity fund? Yeah. A seed seed fund raises and sometimes the opportunity funds are bigger than the core. So somebody raises an $80 million core fund raises 120 for an opportunity fund. The opportunity fund usually comes with lower economics, just to be clear, typically,

Starting point is 00:23:56 it's like 1%, maybe 10%. And sometimes that 1% is on invested capital not committed. But ultimately, this stapling means for every $2 I put in, let's say $0.80 goes toward the seed fund, and then $1.20 goes in the opportunity fund, which is pro rata between the two opportunities. And then, of course, follow on in the seed fund or no follow on on the seed fund. So they do have follow on on the seed fund. So typically, the follow on on the seed fund is Series A, and then anything Series B plus goes in the opportunity fund or through an SPV. Well, that's a good lifestyle. A lot of VCs were living last couple of years. That's great. Good for them. In terms of looking in the venture landscape, obviously we have somewhat of a trough in 2023. Where do you see things going in 2025?

Starting point is 00:24:43 Will there be a shakeout well there'll be new emerging managers how do you look at it from a holistic macro perspective well i mean if you look at it historically during these times of course capital going into funds has decreased dramatically in 2009 about 16 billion was raised by vcs you, first half of this year, about 33 billion, typically concentrated with the bigger managers. So this is the hardest fundraising environment I've seen in 14 years, and maybe in my entire career in terms of raising a fund. So we do think they'll be able to take out a lot of people will realize that raising that fund to refund three is exceptionally hard to sign that not really what they want to do. And we're starting to see

Starting point is 00:25:25 some of that. There are new funds coming to market. Ultimately, I do think that this is a good time to be able to have dry powder to be able to invest. I mean, we've seen that historically, the performance post an economic dislocation, the last two economic dislocations we had, we saw venture in terms of percentage increase in overall performance was 25 and 37 percent in the five years after an economic dislocation on bubble bursting versus the three years leading up to it. And so it is a good time. But you have to understand that raising capital is very, very difficult. So we expect of the 2600 that maybe half decide not to raise a successor fund. So there was this concept of zombie funds that came up in the 09, 2010. It's people that have a fund. It's still alive, of course, because it has portfolio companies, but they're no longer

Starting point is 00:26:24 making new investments. And we expect that to happen in 23, 24, and 25. Some of it based on the fact that the marks that they had on their portfolio that allowed them to raise a fund are no longer going to be there because of the shakeout in the late stage market. I started my career in 2008 during the global financial crisis, similar to you in 99. And one thing that that taught me is to look for, and I was able to get a couple lucky hits early on. One of the things it taught me is to look for what's working even in dark times. So what is working? You mentioned half of those people will be out of business, but the other half presumably will be in business.

Starting point is 00:27:01 What have you seen has worked to get people to a first close, second close, and even if they don't get to their full target, continue to proliferate as a franchise? So getting to a first close obviously is the toughest thing. And maybe what we do is look at fund ones, right? A fund two, you may have some existing LPs that you can rely on to get to a first close. Number one, set a realistic target. I think that a lot of people started with targets even in 2023 that might have been fine for the 2021 demand market where I'm raising a fund one or I'm raising a fund two that's gone from 5 million in fund one to 75 in fund two. I think we have to be very realistic and think about what your minimum viable fund size is. So if you have a certain strategy,

Starting point is 00:27:48 this is similar to a seed company that raised 2 million and maybe 2 million as a pre-seed and raised 6 million in the seed. Well, that's not happening now. So you have to also do the same thing and say, instead of going from five to 75, maybe I go 5 to 25. And then as I continue to execute, maybe it's my fund three that now has the big jump in fund size. And so I think people that are really aware of the current demand side of the market, it's working because they're more thoughtful about how do I do more with less?

Starting point is 00:28:24 How do I still build a nice portfolio construction? And then ultimately understanding who your target client is. So if you're raising 25 million, going to most of the institutions is not going to be a good use of your time. You know, there's going to be some fund of funds, maybe some strategics that do make sense, but your buyer is family offices and high net worths. So how do you get that network? How do you build that funnel? And how do you build a pipeline of prospective LPs that's large enough to get to 25? And I always say that to get to 25 million close, you should have about 150 to 200 million in the pipeline, knowing that a lot of people will fall off. And the probability of

Starting point is 00:29:03 getting to a close in this market is incredibly difficult. There are things you can do to get to that first close to drive some urgency. Sometimes people do provide some kind of economic benefit or sometimes there's things where there's side letters that you can provide for co-invest. There's little things you can do. Generally speaking, we're not a big fan of having people give away economics unless somebody's providing a huge anchor check in the early days where it just makes sense. And sometimes you just have to do whatever it takes to get into business. But for most, it is building a pipeline and getting referrals. Raising money from high net worth and family offices is a trust business.

Starting point is 00:29:45 And it's very difficult to just get in front of somebody and start pitching them without them knowing who you are or you knowing them. And so getting a warm referral and then being an active listener. So this is one of my, I guess, pet peeves. I'm sorry, I'm going on this tangent here, but it's really important for people to hear. If you're a GP pitching to a family office, what you don't want to do is just go and start pitching day one. I mean, pitching right from the beginning. The first 10 minutes are where you can create positive bias

Starting point is 00:30:19 by listening, understanding who they are, what they care about, what their object is. If an LP or a family office may meet 30 managers in the course of a quarter, well, to stand out, you can't just pitch the same thing over and over. Here's my marks, and here's all the great companies, and here's the value I add. You have to build a rapport with the underlying person because it is going to be a long-term partnership. So please spend the first 10 minutes asking questions and learning about them. And then that'll help you pitch a story that's actually more tailored for the end person that you're working with.

Starting point is 00:30:56 Typically, a good sign for that you've been listening well is when the person says, well, tell me about yourself. When they're done talking about themselves and they feel heard. You mentioned minimum viable fund size. I think that's an interesting concept. I think something that's underreported is the proliferation of tools available to general partners. So outside of allocate, what are other tools that emerging and general partner, emerging managers should be aware of that could help them scale with maybe less capital under management. So one of the great tools that, you know, came out, I was surprised that it hadn't been done before that I and I'm friends with the CEO on above, but he created a company called tactic. And what it does is portfolio modeling. So it allows a manager to actually build a

Starting point is 00:31:39 portfolio model from day one, factoring in things like dilution rounds check sizing follow on and it gives people a good understanding of like if I raise X amount how would my portfolio look how much is going to be investable cash what do I need to get to recycling to build you know a type of portfolio that allows me to show execution of my overall fund but also provide those type of returns that LPs are looking for. So Tactic is a great, great product. It's super easy to use. And it's one that I think every emerging manager should use. And going alongside the minimum viable fund size, what is the minimum viable team? Obviously, there's different strategies, but what do you need? Me and Eric, let's say, are starting an

Starting point is 00:32:21 emerging fund, fund one, $20 million fund, who will we need on our team? Could be just you. It doesn't have to be multiple people. You look at someone like Oren Zev. Oren has now reached scale over 2 million raise, and he's a one-man shop. And you'll never hire somebody, or at least he's told me he's never going to hire anybody. And he's been able to be incredibly successful because of his overall self-awareness of what he is and what he's not. You talked about it earlier. Know what your deal looks like and focus on that. Focus on what your true north is, what you're trying to execute. Now, if you told me, hey, we want to do these five things for our founders and one of them is talent acquisition, well, then sure, you may need somebody on the talent side.

Starting point is 00:33:05 If you think go-to-market is something that you really want to focus on and you want to build a network of corporate relationships, well, maybe you need somebody if you don't have that domain expertise. But I don't think there's any dogmatic way of looking at that you need a team to do X. And in the early days, I would actually encourage people to be much more simple and if you're raising a single on 20 million dollar fund it's fun one you should do it yourself if you can now if you already have a partner that you've worked with great but understand that when you add partners it creates dynamics that you know add even more potential risk to the equation earlier.

Starting point is 00:33:45 So let's say the two of you raise, the question I ask as an LP, what have you guys done before? Have you invested before? Tell me your ideology. Like, are you guys aligned? Because I've seen so many partner dissolutions because people stapled on partnerships

Starting point is 00:33:59 because they thought it would help them raise more quickly and somehow provide sort of this unique one plus one equals three, which as you know, even in the M&A market, that doesn't always work out. I think starting with the end in mind is always good. And I think a lot of people will always be in your ear telling you these things. And usually they came from big companies. We won't mention specific companies. So you've been really generous with our time. What would you like our listeners to know about Allocate and how you guys fit into the ecosystem and how they could get in touch with you? Yeah, so getting in touch with us,

Starting point is 00:34:32 you can go to the allocate.co website, apply to join, you can get in touch. Or you can just reach out to me on LinkedIn. My Twitter is at Samir Khaji. I'm pretty active on both LinkedIn and Twitter. I would also point people toward my Substack, which is ventureunlocked.substack.com. That's where I post a lot of my writings, as well as my podcasts where I interview different GPs, mainly to educate both the GP and LP side. But in terms of Allocate, look, our true north is unlocking the power and efficiency of the innovation market and allowing more people to participate in a responsible way. And if that resonates with people, we'd love to talk to you. Yeah, and of course, I'm not only a big fan, but I've voted with my personal money into Allocate.

Starting point is 00:35:22 So I'm happy you guys are doing well. Thank you for the update as well. And thank you for taking the time to speak with Eric and I. This was very informative. And I know this was very informative for many people. Guys, it's been a lot of fun for me. And I appreciate you bringing me on with the great questions here. Thanks for listening to Limited Partner Podcast. If you like this conversation, please like, subscribe and review on YouTube, Spotify or Apple. Thank you for your support.

Investing Billions - E7: Samir Kaji, Founder and CEO of Allocate | What VCs Get Wrong in Portfolio Construction, the Main Mistakes GPs Make When Communicating with LPs, What Fees GPs are Charging Today (2023 Q3 Update)

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