Investing Billions - E95: How to Raise Private Equity in 2024

Episode Date: September 17, 2024

Les Baquiran, Founder of Alpine Capital Advisors, sits down with David Weisburd to discuss insights on building LP relationships globally. In addition, they discuss reasons GP’s hire placement agents, benefits of family offices as LPs, and non-traditional structures LPs like to invest in.  The 10X Capital Podcast is part of the Turpentine podcast network. Learn more: turpentine.co -- X / Twitter: @dweisburd (David Weisburd) -- LinkedIn: Les Baquiran: https://www.linkedin.com/in/les-baquiran/ David Weisburd: https://www.linkedin.com/in/dweisburd/  Alpine Capital Advisors: https://www.linkedin.com/company/alpine-capital-associates/ -- LINKS:  Alpine Capital Advisors: https://alpineca.com/ -- Questions or topics you want us to discuss on The 10X Capital Podcast? Email us at [e-mail] -- TIMESTAMPS:  (0:00) Episode Preview (2:22) Lessons learned working at Park Hill  (5:31) The life cycle of working with a GP (8:02) Geographical reach and strategy for Latin America (11:54) Raising capital from LPs in different regions (19:12) Common problems LPs face in the current market (21:22) The impact of illiquidity on LP investment strategies (23:34) Examples of bad behavior by GPs (29:27) Building strong LP-GP relationships (33:10) Les Baquiran's LP roundtables and gatherings (36:47) The nuances of being a placement agent (40:25) Closing remarks

It's rare for a venture fund, as you guys know, to raise more than $500 million or even a billion or $2 billion or $3 billion, but it's not very rare in this day and age that private equity funds raise $1, $5, $10, $20 billion funds. There's a guy named Ted Weschler. He's a portfolio manager for Warren Buffett. From what I understand about his fund is that he always liked having family offices because when you have a family office client, you're talking directly to the principal. Even if you talk to institutions, and be you know a great endowment with a great name and a great history there's always a couple steps removed you know you have the investment team you have the investment committee so the ability to make quick

decisions is obviously slows down when you have layers in between money and the person making decisions so I think the major strength of having family office capital is the speed and quickness and the efficiency that decision could be made by a family office. What's the largest ticket you've ever gotten at Alpine in almost 10 years? For more ideas on how to raise venture capital in this market, make sure to subscribe below. Les Becquioran, I've been excited to chat ever since Steve Chasen introduced us a few months ago, and we've been going back and forth. And I'm really fascinated by everything that you've built at Alpine. Welcome to the 10X Capital Podcast. Thank you. Thank you very much for having me. It's my pleasure. So let's talk about Alpine.

So tell me about your background and how you came to found Alpine Capital Advisors. Sure thing. I spent the first half of my career in sort of traditional capital markets, equity research, sales and trading. And then I sort of stumbled into a role at a place called Park Hill when it was first starting up in 2007. I didn't even know really what an LP was, but one of my mentors, his name is Hari Hariharan, who runs a big hedge fund. He knew these guys and basically annoyed them to hire me with not having any experience about fundraising. And then, so they took me on. I stayed there for six years. And then on March 7th, 2014, we started our business. And I only mentioned that date because we're almost 10 years old

in about a couple of months. And the rest they say is history. So we're a private placement agent working with managers of all shapes and sizes, everything from $100 million managers to managers that manage north of 100 billion, four offices. And we cover investors all over the world. One particular strength of ours is Latin America. We have three offices. We have an office in Santiago, where my partner resides in

Santiago, Chile, Mexico City, and Sao Paulo as well. But we cover investors in Asia and Europe, and obviously in North America as well. So you came from Park Hill. For those that don't know, Park Hill is one of the most prestigious names in this business. What did you learn from your six years at Park Hill? I started this business off in public markets and hedge funds. I think probably one of the things

that I always found pretty interesting is that I found our team on the public market side is you get this kind of monthly mark when you're looking at hedge funds. We always sent out more information. I think we were in tune with the markets a lot more because it was sort of kind of live and in your face. We worked pretty hard. But the private equity guys were the ones that always made a lot more money. And to that end,

I always wondered why until, and I didn't really know why until I started my own business. Another thing is that we didn't work with many venture capital funds at Park Hill. I think maybe the reason why for that, why a lot of placement agents back at that time didn't really work with a lot of venture funds is because venture funds are smaller. I think it's been talked many times on your show that if a hedge fund uses a placement agent, sometimes an LP asks why. Because the most story firms in the world, your Sequoias, your Benchmarks, your Acells, your Union Square Ventures, maybe once upon a time they used a placement agent. For the most part, the best ones don't need a placement agent. So LPs start to wonder about adverse selection bias. So the combination of adverse selection bias, skepticism, and smaller funds, it's rare

for a venture fund, as you guys know, to raise more than $500 million or even a billion or $2 billion or $3 billion. But it's not very rare, especially in this day and age, that private equity funds raise $1, $5, $10, $20 billion funds. So from an economics perspective, it made sense. So I learned a couple of things, you know, starting my own business and a couple of things working at Park Hill and I'm looking forward to get into it. How do you compete against a large, large players like Park Hills? You're obviously more boutique. What is your main differentiator? I don't know if I think about competition as far as in the placement agent business, or I don't think about it a lot because we know what we are and what we know what we aren't. We will never be a Park Hill, an Evercore, a Credit Suisse with a huge footprint,

lots of offices, lots of distribution people. And by knowing what we won't be allows us the freedom to kind of feel comfortable about what we are, which is that we focus on managers that we think are differentiated, that we can focus on from a sort of single distribution perspective. That is to say that I'm and my team, who is a fairly senior on this distribution side, are handling all interactions between the GPs and the LPs. Our mandates are, generally speaking, either smaller or if they're working with larger managers, they're specifically focused on specific regions or a specific list of investors. But to us, one of the great things about our

business is that because it's owner-operated, because we don't have a lot of the bureaucracy that I would argue other placement agents have, we're not owned by anyone outside our business, we don't report to a big bank or anything like that, is that we have power to basically work with any GPs that we want to. And these managers, these GPs can be very small, they could be very niche, or they could be very large. It's really up to us. And the decision process for that is very small. If I decide that I want to work with a GP, then we work with a GP. Sometimes, I think at larger organizations, the decision-making process is a lot more complicated, or at least involves a lot more people. And so I think not knowing what we

are and what we aren't has allows us to be a lot more efficient, at least in my mind, with the whole fundraising process. And tell me about the life cycle with a potential GP. How long before you start working with them? I hope you don't mind, but this isn't a cop-out answer. I really don't think there's a typical life cycle. We've had some GPs that we just kind of hit it off with. And in a couple of months, we're in the market with them. And there's some GPs that we've talked to for five years or longer that we decided for, you know, the reasons on our side, reasons on their side, it made sense to work. So I don't think there is a typical life cycle. And I think if you ask your average LP, they would probably say the same thing.

You know, they would say that there's no specific timing as to when an LP will know when they invest with the fund. It just kind of comes together when it comes together. And that could be very early in the life cycle of that JP or it can come further down the road. And when it comes to on the LP side, so tell me about those relationships. Tell me about the need that you feel for them. And also in broader ecosystems, there's LP consultants, there's fund of funds. How do you directly or indirectly compete with other solutions out there? I don't know if we compete against consultants and fund funds. In fact,

we have a couple of fund funds that are our clients. And then certainly on the consultant side, we talk to a lot of consultants. So at least I don't see us competing against them. I think we're very collaborative with a lot of fund funds. Some of the largest relationships that we have on the LP side that we market to are fund funds. And same thing on the consulting side. So I don't really see any kind of competition on that front. And as I mentioned, a lot of fund of funds are our clients. So I think maybe what we compete against with, and specifically as it relates to venture, is the mind space of a general partner in the sense that the GP really has to decide

whether or not to use a placement agent and how effective we will be, how much it will cost. Can they do it themselves through their own networks? What kind of message it will send to the market or to other general partners or our limited partners? And I think we compete with the mind space that a GP has to think about when it needs to weigh all the reasonings, why or why not to hire a placement agent. And the reasons why we think a GP will hire a placement agent is not only to raise money. It may be that a GP hires us because there's a certain type of investor that they don't have access to. because there's a certain type of investor that

they don't have access to. Maybe there's a place in the world like Latin America, like the UK, like Asia, that they don't have many investors and they'd like to diversify their investor base. Maybe in this tough fundraising environment, they want to expand their capabilities because it's tough to raise money. So why not hire extra help? Another reason why people may hire a placement agent is because they could probably do it if they had a lot of time, but maybe they don't have a lot of time. Maybe there's a certain opportunity or a certain fund they're looking to get off the ground, and they need to truncate the timeline for which they need to raise that capital. So I think placement agents, except for the sheer

reason, hey, we want to raise money, there's a lot of different reasons why GPs hire placement agents that just aren't the sort of blanket to raise money. When you mentioned geography, you have an office in Santiago and you also have reach within Mexico City. If a GP was to hire Alpine to geographically for Latin America, how would that work? Do you basically bring in the relationship and then the GP has to go there quarterly or yearly? Or do you manage the entire kind of IR function for that GP? There it varies. You know, we have some GPs that want to be in XYZ country so many times a year. They don't mind traveling down there, creating kind of creating the relationships, nurturing and feeding those relationships.

But there's some GPs that tell us, listen, we're going down to Latin America twice. One to introduce ourselves and two to close. And if we if that doesn't work for you guys, then that doesn't work for you guys. Some people, it's interesting. We, funny enough, we work with an Asian manager and they love seeing clients. But we started up with them during COVID. And obviously during COVID, there wasn't a lot of travel between Asia and Latin America. And we brought a few clients in just via Zoom. So I don't mean to weave around the answer, but I think really we customize our fundraise strategies to

whatever the GP is comfortable for or whatever way that we think could work in that specific region. So if we think that a manager can raise capital by just going down there twice and we think it'll work, we'll do it. But we'll tell others that, no, you need to go down there more if it's another type of GP who's maybe newer or less familiar relating to their strategy. So it's different. So it comes down to brand and track record on whether somebody could pull something of that off? Well, it could be familiarity. It could be the sort of cycle and maturity of the individual clients. It could be the amount of exposure underlying LPs may have. So for instance, a lot of LPs at the end of 2021 may have had a lot of growth and venture and software buyout and all that stuff that had been really doing well for a long time. And so sometimes it's not the best, you know, you want to wait a little bit before you bring more product like that to the market. So again, I think it's very case dependent and it depends on the type of client, both on the LP and the GP side. When it comes to investor relations, so you've come there, you've introduced yourself, then

you came back and you collect the money. That's probably rare, but maybe not with the GPs that you work with. But let's say that happens. How often should that GP be going to that geography to Latin America after the close? Yeah, it's a good question. It doesn't sound like a broken record, but again, it depends. I think Latin American clients, I'm happy we're talking about Latin America because it is a very different region and it's a specialty and strength of our firm. I think to overgeneralize Latin American clients, generally speaking, they do a lot of work upfront, but once they do the work, if you as a GP deliver the returns and

the risk and the returns that you said, I think generally they're pretty hands-off. They come to the AGM, they may come and see you, but there are some LPs in the US and Europe and other parts of the world that are very, they poke around a lot. They want special terms. They may ask for special reporting. They may see their GPs on a quarterly basis. They may talk to their GPs on a monthly basis. And we don't see much of that in Latin America, which is, I think, a good news to a lot of GPs. Outside of geography, is how an LP behaves in the first two weeks that you meet them very indicative of how they'll behave over the next several decades? Do you find that to be highly correlated? Yeah, that's an interesting question. You know, we don't, neither us or the GPs kind of,

we both take time to get to know each other, right? Because it's in a very important relationship. We represent, and furthermore, I would say even evangelize the GPs that we work with. And that's hard to do after getting to know someone for two weeks. So we at least wait a couple months for us to kind of really get the familiarity with the story. And I think the GPs do the same thing because, you know, the GPs, to many of the GPs, like their funds, they're their creation, they're their babies and they want to protect it. And they want to make sure that the partners that go out on their behalf are good people. And so I think they too, you know,

tread lightly. In fact, there's a GP that we worked with for many years and they're, you know, we work with certain products with them and we're looking to work with more products with them. So we don't know that part of the firm and they're kind of completely re-underwriting us after working with them for over five years, because it's a different part of the side of the firm. So that just goes to show you how careful GPs are when choosing partners, especially on the capital raising. Tell me about the different regions and what are some things that GPs should know about raising from LPs in those regions? I really think this is a very interesting question because we think about, even though we don't have capabilities in every nook and cranny in the world, we think about holistically how we

can help GPs. And I think GPs that we work with, the big enchilada is, of course, the US. It's the largest and most active LP ecosystem in the world. I think always will be. Europe sort of is and probably will always be the second largest. And those are the two that people focus on. Within North America, I think Canada is very interesting. We've been marketing to Canada for a long period of time. There, we see an explosion of sort of family offices and high net worth individuals. There

will and always will be the pensions, but I think that's the newest development that we're trying to solve for. And we're registered in the UK with the FCA. UK is a very interesting market because it's really not just the UK, it's a global market. You see a lot of global allocators, global family offices there, and other institutions kind of opening up to alternatives. The Middle East is a place that I don't know very well. I'll be going to it for the first time, but it's a place where I think the whole world is going to find capital there, funds small, medium, and large. Your question on Asia is interesting. Asia has always been a sort of what I'd call like an elephant hunting type of place where you would kind of look at big insurance companies, big banks, big sovereign wealth entities, things like that.

But what we've been really focused on in the last couple of years has been the family offices, family office space. I think it's no surprise that Asia will become the largest economic zone of the world. So as a result, there's going to be a lot of family offices there. And the place that we think that family offices are centering their activity is Singapore. So we've been spending a lot of time in Singapore. And it is a lot of Asian family offices, but it is also a lot of family offices from other parts of the world, like Europe, like the Middle East, and all over Asia, Southeast Asia, South Asia, North Asia, China, Korea, Japan,

Australia. So it's a very interesting part of the market that I think will grow. And then at some point in time, there'll be more sort of high net worth family offices wealth in Asia than there is in the US. And we want to continue to plant seeds to sort of capitalize on that in the years to come. What are the pros and cons of taking money from family offices? Pros and cons. So, well, it's interesting. There's this guy named Ted Weschler, and some of you may know him on this, listening to the show. He's a portfolio manager for Warren Buffett. And from what I understand about his fund is that he always liked having family offices because when you have a family office client, you're talking directly to the principal or the agents of that principal. Even if you talk to institutions, and it could be

a great endowment with a great name and a great history, there's always a couple steps removed. You have the investment team, you have the investment committee. So the ability to make quick decisions is obviously slows down when you have layers in between money and the person making decisions. So I think the major strength of having family office capital is the speed and quickness and the efficiency that a decision could be made by a family office. Now, there's obviously family offices that operate akin to institutions that have investment committees and have an investment staff and things like that. But if you really know the principal and the principal trusts you,

my sense is that even during the worst times, the principal will open their wallet up and give you capital when most other type client types are sort of thinking it over, especially in times like COVID or the GFC when things are pretty scary out there. I would say that if you knew a family office and they trusted you, you did a good job for them, the odds of them adding capital to you are much higher. So that's a pro. Cons for having family offices, I really don't know what the cons would be for the family office, unless, of course, you were looking for sort of these huge behemoth-like tickets. And there aren't that many on the family office side that could write $50, $100, $200 million tickets. So if you were a large fund out there, I'm not sure having relationships with exclusively family offices could get you there by just focusing on the family office segment.

What's the largest ticket you've ever at Alpine in almost 10 years? For the sake of humility, I don't mind talking about the numbers. Well, I'm talking about hype up your GPs, not you, but hype up your clients. No, no. I did a lot of heavy lifting too. I won't talk about the number, but I think the largest tickets that we've got for our clients on the GP side are ones that are not only, you know, they're not only financially driven, but there's a certain strategic element that the LP finds that they could derive out of it. And, or it's such a special GP that the LP loves them so much that they want to either do a couple of things. They want to make them into a fully sized position with the first, you know, with the first investment, they may want to even do something like, Hey, we're going to commit to

this fund, but we're also going to pre-commit to your next fund because we don't want to be cut out next time you raise. And we want to lock that capacity in right now because we think you're something special. And then the other reason is something strategic, that the GP offers a special window into a specific asset class, an opportunity, a sector or region, something where the LP finds very interesting and wants to learn alongside the GP of what they're doing. And that will hopefully bring additional benefits outside of the financial returns to the organization. So those are the types of whenever we had a big ticket, it usually was something like that. Absolutely. So you mentioned the pre-committing, that's a novel structure. I think founders fund

required that from LPs, but outside of the mandate, it's a novel structure. What are other non-traditional structures that LPs like to invest in? We're seeing now the sort of renaissance of these creative structures because it's a tough fundraising environment. So GPs are having to get creative to get that capital. You mentioned co-investments, and I think that's one of the primary things that LPs are asking for. Some LPs say, hey, listen, before we commit to the fund, we want to see a few co-investments and maybe even consummate a few co-investments before we commit to the fund. Sometimes they say, and we even want it fee-free.

In some cases, they're okay to pay fees. So that's one thing on the co-investment side. They want to see co-investments. They sometimes even want to put in writing the amount of co-investment to fund ratio if they decide to go into the fund. So LPs are, you know, they're seeing more co-investments than they've ever seen before. So that's one particular thing. Another thing is secondaries. And that could be, you know, an LP seeing more co-investments that they've ever seen before. So that's one particular thing. Another thing is secondaries.

And that could be, you know, an LP led secondary or something that some of your listeners may have heard of called a continuation vehicles. And this is something that I think you're going to see a lot of. I, you're definitely seeing on the private equity side, we do a lot of private equity, but I think you are going to start seeing it. I think you're already seeing it, starting to see it on the venture capital side, where there is an asset that is sort of going to live beyond the life of the fund. Now, VC funds can extend pretty long, but private equity funds a little shorter. But even still, there are some assets

that the GP feels, hey, I don't think it's the right time to sell. I want to give it another few years for it to kind of go build some value. And then they'll create a vehicle and some LPs will want to get out and the GP will try to find us some new LPs. So I think from that end, it's an interesting way to also create a relationship with a new LP by bringing them to a continuation vehicle and hoping to either formally staple or paperclip, some people informally, a commitment to their next fund through these continuation vehicles. And the same thing could be said with co-investments. You can either formally staple, like legally staple, or you can do a handshake or a paperclip by saying, hey, listen, we'll show you this co-investment, but if this works out, we hope you come into our

fund. So there's these things that are happening and LPs are very creative thinking about those types of things. There's a lot more that we could talk about. If you had a few hours, I could talk about, but we could probably don't. But it's definitely if you're an LP and you have an idea of how to work with a GP, it's the time to tell them. No matter how wackadoodle it may seem, it may just work in this fundraising environment. Problem solving. GPs have their problems. LPs have their problems. So in terms of LPs, what are their problems in this market? Outside of not getting money back, that's an obvious one, but what are they trying to solve? What kind of funds are they looking for? What's a common problem that LPs come to you and say, Les, if you could deliver this, I'd write a check today. Let me talk about maybe the LP that doesn't have a lot of capital. And I

think on the private side, and I think that is the majority of LPs out there that have committed so much to private equity that because they're not getting capital back, their decisions are whittled down to just a couple. The first decision is, hey, I don't have a lot of capital, so I need to either end relationships with some existing managers, or I need to scale back the size of my commitments when I re-up or reinvest in their next fund, and sometimes both. And so I think their solution is, okay, well, suppose you'd like all your managers, and suppose you want to keep your re-ups the same. What do you do do you do then? There are some things you could do. You know, one thing you could do is you could use the secondary market to try to find some liquidity, either through just

a plain chain secondary for funds that you feel like you're not going to continue with and get some equity there. But what I was also referring to is there's some novel things, things like structured secondaries where an asset manager will sort of take the cash flows. And once they're paid out a certain multiple or IRR, you can get some cash back, retain the upside, but let an asset manager get a little bit of that while maintaining the relationship with that GP. So a lot of these, and I don't want to call them problems, right? I mean, they're basically, because these things are, these are situations that may be temporary. And they're all the, it's a very simple, it's very simple math folks. Like, because no one knows like when these institutions or these LPs are

going to get more liquidity, but it's basically number one, are they going to get realizations? Or number two is the underlying liquidity of the market or the underlying denominator that we've, that I think some, some of your guests have talked about before denominator effect, do the public markets melt up so much that they, they, they shrink or dilute the size of the private so that you could build up your private program and reallocate more capital to the private portfolio? And I think there's a chance that may happen. I mean, it was, you know, last year was a great year for the markets, but they don't want. So the denominator effect has been diluted down. But what they haven't been seeing is realizations from the private managers.

So it is their main issues are at least the symptom comes from illiquidity. Also, I mean, there's, you know, an LP wants to and should, we all know it's very hard to market time, right? Warren Buffett says it can't market time, but they want to be, they want to continue to commit, you know, through vintages

and they want to have vintage diversification. So a lot of liquidity is not because they don't have the money, but it's already spoken for with managers that they like and they trust. So to your new managers, it's not that they don't have money and they're not allocating. It's just that their inability, their wherewithal to invest in new managers is significantly handicapped by their inability to have free encumbered cash that they could put to new managers.

What determines what GPs, LPs like and trust outside of returns? Well, I think David Swenson always said the first thing that he looks for in a good manager is character. The second thing is character. The third thing is character. So I think the character of a manager is first and foremost something that an LP has to find because you can explain bad performance, but it's very hard to explain bad behavior. Or in the case of some situations, bad operations are for people that don't have a great non-investment side. So I really think that the first and foremost is you kind of have people that are highly communicative, LPs want highly communicative,

highly aligned, passionate, hardworking, motivated, incentivized folks to represent them. And I think that's a starting point because there's a saying that people don't buy performance, they buy a process. And there's certainly, name your venture fund. There are certainly times where venture funds have gotten wrong. You know, Sequoia probably around, I don't want to guess, I haven't seen the returns, but I'm sure Sequoia and the rest of a lot, a lot of other venture funds, you know, they probably had a pretty terrible vintage around that sort of 98, 99 timeframe when the tech, first tech wreck happened. And I'm sure the ones in the early 2000s when you had Facebook and Google Go Public, and I would imagine those were some of the best returning VC funds.

So I think there's going to be good times and bad, but you have to have that relationship, that communication, and those incentives. And incentives are very important, right? The alignment and the way that people get paid, when they get paid, how they get paid. Another thing that we, David, might want to talk about is valuations, how people think about how they value their portfolio. Is it very conservative or is it not very conservative? So lots of these things set the foundation of the relationship between the LP and the GP, and I think are even more important than the performance. A couple of things to unpack there. One is bad behavior. What is bad behavior that you've seen

from managers that have gotten scale? So I would say, you know, bad behavior is obviously very subjective, but one thing is GPs that are just not, they don't communicate well with their LPs. Whether times are good or times are bad, inability to really know what's going on from LP is something that I think is like, would be frightening to me as an LP. If the GP sort of says, hey, listen, you can't talk to the head of our firm or the portfolio manager or the deal person, because either they just don't want you to talk to them or you're not a big enough investor. You know, to me, that would be a problem, especially when things are going haywire, as they sort of have been in VC for the last few years. You know, bad behavior could be described

also as just growing either too many, growing your fund product line. So having too many funds, you know, and I think back to David Swenson, he called it product proliferation or asset gathering, right? You know, raising funds that are too big. I'm not going to name names here, but, you know, there are definitely some VC funds where you've seen, again, back to Swenson, his old adage, sizes of the NB performance, they've gotten bigger and the performance has sort of become from great to good to mediocre. Now they make more money for themselves, but they make less money for their clients. And the trade-off that they make is like, well, why would anyone invest in a fund that has worse returns than they used to? And the fact of the matter is, is that, you know, the great venture funds that had the

Forex's and above, you know, there is a whole world out there that doesn't need a Forex fund. And some of these LPs are large institutions. And the thing is, is that if you can get a much larger ticket with less of a return, you make out on the economic side by raising and said, okay, I raised a $300 million fund 20 years ago, but I want to raise a $3.5 billion fund now. You make a lot more money, especially on the management fee with that $3.5 billion fund, even if the returns are half as good. So I don't know if I'd call that bad behavior because it's

a market, but certainly some LPs have felt sort of like hoodwinked that my old great fund that I've supported for a decade, decade plus has decided to create more products, has decided to deprioritize them as a relationship, has decided to launch mega funds, or has forced me to invest in other funds that they know I don't want to invest in, but are kind of stapling the commitment from one fund to another fund to get access to the fund that I've always been in. So those are just some examples, but we can go on and on about that. And you mentioned venture marks. Some mark very conservatively, some mark very aggressively. It's not as big of an issue in private equity, but in venture capital, should every VC be marking their marks very conservatively?

And is there not a middle ground there? We'll get right back to the interview. But first, to stay updated on all things emerging managers and limited partners, including the very latest data on venture returns and insights on how to raise capital from limited partners, subscribe to our free newsletter at 10xcapitalpodcast.com. That's www.10xcapitalpodcast.com. Yeah. I don't know the right answer to this. I just know that some LPs have the same company in their portfolio marked differently by different VCGPs. In some cases, the same company with three different marks from three reputable GPs.

There are some LPs out there that love the conservative marks because they always know that, you know, well, it can't get much worse than this if you take a really, really conservative view on the marks. But listen, I mean, if I was an LP and I'm not saying LPs want this, but I'm just kind of putting my shoes and putting myself in their shoes and I get paid on IRRs, even on a backward looking basis over a few years. And I invested in a lot of VCs that had last round valuation. I mean, if my compensation was based on that, I mean, I would get paid more money and money is a great motivator. So I can't really say what's right or what's wrong, but I can say that a lot of LPs are confused. And that exacerbates the issue of liquidity because when you don't know what your marks truly are, don't know how much capital you

have to commit. And then you have to, right, an LP who doesn't know these companies inside out, they have to make the arbitrary decision of how to mark their own book. Because if there's three or four companies that have this different valuations, they're going to have to either create some kind of mishmash Frankenstein valuation, or they're going to say, listen, I really want to be super conservative. I'm going to take the most conservative mark, or I'm going to take the mark of the GP that I trust the most. And that's something that is, you know, to me, bizarre. It doesn't happen in private equity. It only happens in venture. And, you know, something, and I don't know if I could show my screen here, but if you could bear with me. So we did a poll

of our GPs and we basically asked them, sorry, I'm trying to just, oh, here we go. So we asked them a very simple question. How confident do you feel about your VC valuations? And then you can see it right there. 73% of them said they're not confident in their VC marks and only 7% said they're confident in their VC marks. So to think about that, some endowments, some family offices I know have 50% of their book, of their entire endowment, of their entire portfolio in VC. And to have a 7% confidence, I'm not saying that it's the same endowments and family offices, but if you thought about that, that 7% of them had confidence that their VC marks were marked properly, that'd be a pretty big problem if half their endowment was in VC and you only had a 7%

confidence that those marks were correct. What do LPs do in that case? Do they just take a systematic 20, 25% cut? Or what are some ways that LPs solve that problem? I've heard a lot of different ways. I mean, one way you could do this is you could go to your GPs and say, hey, listen, I want you to, I want to take the quick hit. I want to take the quick pain. I want you to mark down as conservatively as possible across your portfolio. But the problem is it's up to the GP as to if they'll do it or not. Some people, they're like, listen, we just have to do it by the book. We don't control our GPs. Our GPs will give us our marks and we have to aggregate those marks and then put it into our NAV. And that's all they do. I mean, after all, like these are all

professionally audited firms and they all have talked to their auditors about why the marks are right and who be it for me, you know, as an LP to kind of change those numbers around. I'm not a venture capitalist. I'm not a professional person who knows these companies inside out. So why should I be changing the marks around? But some LPs have artificially taken their NAVs down just because these, and many of these are nonprofit institutions that have a fiduciary responsibility to reserve enough cash to allow them to pay for the ongoing operations of their institutions. And it could be a hospital, it could be a university, you know, it could be these institutions that we rely on. So let's double click a little bit on the LP relationship. I think that's an integral part of the industry and something that doesn't get

enough cover. So after the LP invests into, let's call it fund three, their first fund, how often should the GP should be meeting with the LP outside of quarterly reports? What should the GP be doing in order to build a close relationship with LPs? Again, I think it's a case-by-case basis. That interaction with the LP or between the LP and the GP is obviously going to be more frequent, more distant at the onset. But well, listen, if you've been with a firm for 10 years, 20 years, onwards, there obviously probably isn't as big of a need to have as frequent a dialogue. Maybe there is when there's things like leadership changes or strategy changes, or I'm going to launch this fund and that fund. I'm opening this office or that office.

I think LPs or GPs ask me a lot about the types of questions you're asking me. And I don't think relationships between GPs and LPs are that different than any other relationship. It's highly dependent on the nature of the relationship. So I can't really put an exact number on it, but I think giving some examples that I did, you can kind of get the sense of what I'm talking about. With the LP communication, they're essentially trying to solve around two issues.

One is how is my investment doing? And two is what information do I need to make another investment? Is that a fair distillation of what they're trying to get from the relationship and from the contact? Well, yeah. I mean, how my investment is doing, especially for early stage managers, I think is a very hard thing to do. I mean, you're sort of waiting a long, long, long time

to really find out how it's doing. But there is an interesting thing that happens, and it's only human nature, where a GP will tell an LP about the good things that are happening about their portfolios much more likely than the bad things that are happening about the portfolio. And I would say that the LPs that have the strongest relationships with their GPs are the ones that have a transparent, communicative relationship where you can talk not only about the good stuff, but the bad stuff too. And so I think, you know, you're right. You know, when you make an investment, you want to know if you're making money, whether you're losing money and all that kind of stuff. But like I said in the last question about relationships, a relationship is based on transparency and honesty. And if something's going wrong, it's I think it's better to just kind of surface it out than kind of hide it instead of just thumping your chest every time something goes right with your portfolio. In terms of Alpine's role, are you, after the LP has invested

in the GP, are you also meeting with the LP and briefing them on the GP and on their performance? Or is it just, do you hand off the baton and say, you know, GP, now this is your relationship? Generally speaking, we hand off the baton. And even before, you know, even before the relationship is consummated, I think it's essential that after make the initial interactions happen between the GPs and the GP and the LP. And this could be over a number of different years, a number of years, is that we allow the GP and LP to organically cement a relationship together without any other involvement. Because we're not going to be around forever. We act on a agent agency, not a principal basis. So, you know, by the definition of that, we are not taking fiduciary responsibility over the introduction. I take obviously reputational

responsibility because if I introduce a lot of bad funds or bad companies to our investors, they're probably not going to talk to me and they're probably going to tell their friends, don't talk to Les. But generally speaking, you know, I think it's very important that the LP and the GP establish, have some time to establish some basic level of relationship away from us. I do think that we do handhold longer and closer in places outside of the U.S., like Asia, like Latin America. And that should probably be expected given potential cultural differences, the lack of travel from the GP to the LP or the LP to the GP, and in some cases, the language differences. So I think it depends, but generally speaking, we like the LP and GP to have a very direct relationship. You're known for your kind of roundtables and for your gatherings, and we can always edit this out. But tell me about kind of the groups, the amazing LP

groups that you put together in different regions. How did that start? What are you trying to accomplish? And how do LPs sign up for something like that? Well, I have to credit a couple people out there who really kind of gave us the idea. The first is the Smithsonian Investment Office. So when COVID hit, no one was traveling, but LPs were very interested in what was going on in the world. And so what we did is that the Smithsonian and myself, every Thursday night, hosted on Clubhouse a gathering of LPs that would just talk about what they're seeing in the markets and what they're seeing, hearing from their managers, because there was no travel, there was no discussion. No one really knew what was going on. And that turned into a weekly thing that every Thursday night, because none of us were

leaving our house, no one was getting on the plane, that every Thursday night we would meet up and we would talk. So that was sort of the first iteration. There's also a friend of mine and he works at an endowment. I don't want to out him just because just in case his compliance department doesn't know he does this, but he had interesting group of LPs together unified on a platform. But it was a platform that focused on a specific part of the world. So one of the people in the group said, maybe you should reach out and do this on another platform. And so we started using platforms, whether it's social media, and then Zoom kind of came into effect. So we would have these events where we'd have

LP-only chats about what people wanted to talk about. It might be a specific investment idea, a manager, a sector, a specific geography. It could be even something like careers and compensation. It could be LP software. You know, LP software has been amazing. It's amazing how painful the experience LPs have had with LP software, with, you know, systems and software and how they continually try to optimize for it. But most of them feel almost helpless to deal with the current system that they're dealing with right now. So we've done a lot on that. You know, all this is just crowdsourced. These are real issues and problems and curiosities that LPs have. All we do is just we're the organizer of these events, and they can be very small to very large. And these are virtual or these are in-person too, correct?

We do both. We do both. This has been really enjoyable. Thank you for taking the time to sit down and chat. What would you like for our listeners to know about you, Alpine, or anything else you'd like to shine a light on? Yeah. I really want to reach out to those managers that are starting out. Maybe you're even an undergrad or a grad student who hasn't even thought about starting an investment firm. And I would like for you guys to focus on the non-investment side because that's very much what I focus on. I focus on the non-investment side of the business, which is mostly the fundraising, but it's a lot of the advice that we give to managers when they're

building their business. Because I think when you read a lot about these great investors and you're in a business school or you're reading these books, you learn about the art of investing, but a lot of times you don't focus on the non-investment side. And the non-investment side, whether it's fundraising, operations, accounting, all these things that are essential are things that LPs focus on. And the sooner you have a good, thoughtful approach to how you build your non-investment side, I think the sooner you will be successful. Sometimes LPs are very lenient because they know that managers are new and they're happy to help them out. In many cases, I think they're even more understanding for venture capital managers because venture capitalists, it's hard to find a good venture happy to help them out. In many cases, I think they're even more understanding for venture

capital managers because venture capitalists, it's hard to find a good venture capital fund out there. And if they find a great investor who may not have thought about the non-investment side, they're happy to give advice on how to build a non-investment side. So I would think really carefully about that side of the business. It's usually an afterthought until they have to. So that would be my one piece of advice. And I know we've had conversations offline. You're driven by things outside of just fees, which sets you apart in the space. What makes you so passionate about being a placement agent and raising capital for GPs? I'll give you one selfish answer and one little less selfish answer. So one of the greatest things that, one of the greatest perks about our business is that we have the, we're in the lucky position that we hear all the great questions that our LPs ask of our GPs.

And at the end of the fundraise, we can make the decision and usually do make the decision to invest in the manager. So most LPs, right, they ask these GPs their questions in a vacuum. But at the end of the fundraise, we would have heard hundreds, thousands of questions from our LPs. And that's really a gift that I think is very unusual in this business. And it gives us confidence and comfort to invest in our managers. And I think that's a really great perk. You know, the second thing is, you know, you talked about not caring about the fees. You know, I got a family to feed and I've got employees to pay.

So we obviously care about the fees. But I think you always have to also care about the fit of what you're doing and what the market wants. And the market is not one type of LP. The market is an amalgamation of lots of different types of LPs that want a lot of different things. So for instance, if I'm raising money for a $4 billion firm, right? That $4 billion firm may not be as interesting to an endowment or family office that invests in managers, and most family offices endowments invest in managers, at least for the first time, that are raising less than a billion dollars, and in some cases, less than $500 billion. So I have to not only find those bigger managers that a pension fund or insurance company can invest in, but also have to find those smaller managers that an endowment and a family office

want to invest in. And so there's no kind of universal fund that will be magical to all types of LPs and not to all LPs in the world. And that's what I mean by not always trying to chase the biggest fee, because we have these great relationships with LPs because we've been doing it for a very long period of time and we work really hard at it. But I think if you cannot, no LP is going to invest in a fund just because you have a good relationship. They're only going to invest in funds that they truly find organically compelling. And by doing that, we have to source a lot of interesting ideas and a lot of different ideas of different shapes and sizes for different types of LPs. And you're essentially operating a marketplace. So you're finding out from LPs what they need. And obviously,

then you have GPs and you track that in the CRM or you've built out your own CRM or how do you manage that? We have databases, but I think it's simple, I know Warren Buffett's not a big fan of VC, but he has invested in things like Snowflake and things like that us in relations to what type of GPs that we work with. A lot of times we're responding to the demands and interest of what LPs want. But a lot of times we're taking our own view on what we think is interesting in the market. And in some cases, very confident that the market will adopt it. And in some cases, hoping, pleading, begging, praying that the market will find it interesting, not really knowing if they will find it interesting. And in some cases, we've gotten it right. In other cases, we haven't gotten it right.

So I think it's a combination of trying to find out where that hockey puck is going as far as what clients might like. And a little bit of it is being responsive to what they're looking for. Well, Les, thank you for the bonus couple of questions. And thank you for jumping on the podcast and I look forward to meeting up soon. Absolutely. Thanks, Dave. Thanks, Les.