How to Vet Venture Capital Funds feat. Joel Palathinkal

Hello, future billionaires. Welcome back to another exciting episode. Today we interviewed Joel Polifinkel, and Joel is the founder of Sutton Capital. He has been in venture capital for many years, and he comes on the podcast and shares about his unique approach of building a community and an ecosystem of a VC company and a VC ecosystem.

So sticking the fork in venture capital By community.

By community. And he explains how he's done all that and he has, you know, fund managers, limited partners in portfolio companies, all in his community and really finding the best opportunities within that and his unique approach to that. So hope you enjoy this show and the insights that Joel shares. If you are enjoying the show, we do ask and thank you for all those that have subscribed and have shared a review. We appreciate that on any platform that you listen to this on so we can share this with more and more people and get more people invested in the wonderful world of private alternative investments. Thanks for listening. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Welcome back to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser. And today we are joined by Joel Powell Finkel. And Joel is a venture capitalist and entrepreneur, and he has built a pretty incredible community and a global network of, you know, single-family offices, high-net-worth investors, and really focusing on kind of the venture capital kind of ecosystem. And so he runs an accelerator for funds, helping funds raise capital and build traction, and then he also coaches and has launched a new LP accelerator, which we'll get into all this later, but teaching investors how to invest, how to build portfolios, how to vet companies and do due diligence. And so prior to this, we'll hear all about his background, but he actually has a PhD in modeling and simulation and was building flight simulators for the Navy and Department of Defense, which is super cool. And then kind of jumped into the whole world of venture. So Joel, really excited to have you on here. Thank you so much for joining.

Yeah, thank you. Really appreciate it. I'm excited to be here. One small correction is that I'm not a broker-dealer, so don't help funds or startups raise money, but I just kind of built an educational community to kind of connect people. So that's been really great, you know, just kind of building relationships across both sides.

Yeah, that's awesome. Thanks for the clarification. I think one of the things we loved about wanting to bring you on the show is we've talked about this before where we have a lot of interest from our listeners in this world of venture capital, private equity, but it feels largely inaccessible to kind of the average retail individual investor. And we wanted to kind of bring some experts that have been in this space, been in this ecosystem here.

Yeah.

Referred to us by, by Ron Shigeta, who we had on the show, who was a biotech venture capitalist. And we really wanted just to hear from you and you're, you're back on your senior, a lot of these funds go through your education program, go through your accelerator. And you know, a lot of accelerators focus on the portfolio companies themselves, which are, you know, teaching a company how to scale. And you actually focus on funds. So, so teaching funds that are going investing in these portfolio companies, how to scale. Yeah. So, you know, from our standpoint as investors and educating individual investors, would love to kind of hear from you on what are you seeing? How do you identify these companies, you know, that are going to be the ones that are going to be more successful than others? And, you know, before we get all into that though, I'd love to hear your background. Sure. And that's kind of how you even got into the space.

Yeah. So, you know, I, initially grew up studying technology and I wasn't really that knowledgeable on private equity and venture capital. I really just followed, you know, my family and, you know, friends of mine, family, friends of mine that were either going into the medical industry or working in technology and just pursued a career in technology and thought I would do an MBA because I had friends that were, you know, changing careers and getting into investment banking. And I thought about doing an MBA and I just did not, you know, fully go through the process of applying to B-school. And just through happenstance, one of the career opportunities that I had lended itself to a graduate program, a PhD program. And, you know, I ended up, you know, working for the Department of Defense. Also worked in the media space for some time. And when I was working for the DOD, they had, you know, a big industry was flight simulation. So, you know, when you think about the Navy and now, you know, I don't know if any of you guys saw the new Top Gun movie, but you know, a lot of those, you know, aircraft, you know, a lot of them need pilots to train. So that was kind of the industry that I was in, you know, just building, testing the simulators. And then there was a local university program that had a program in modeling and simulation, and some of the classes also had financial modeling. And I started just building more of an interest in finance because I had such a deep tech background. I went to New York, I met a couple buddies that were working in private equity and VC, you know, some of them went through the traditional route of going to a top B-school or just through their networks. They got placed at a top firm. And then that's kind of where I really grew an interest in looking at my superpowers and, you know, a lot of us, probably some people in your audience, they have different superpowers and different skill sets. They come from different walks of life and, you know, they may not just have the community or just the general knowledge of that exposure to that opportunity or industry. So that was the same thing with me. But I slowly built, you know, more of a community, more relationships around private equity and VC, and then, you know, finally pivoted into VC after being in New York for some time. And then I started Sutton Capital Ventures. Sutton Capital Ventures is a generalist private firm. We invest in early stage, late stage, and you know, the industries that we focus on is, you know, mostly just B2B SaaS, consumer tech. And then we also look at deep tech and the impact. And then we've also, done a few small LP investments in funds because the benefit of that is just getting access to some type of industry that you may not be an expert in. So alongside those activities, built some communities, which is now branded as just Sutton Capital and its community. So, you know, one of the first communities is educating people in general on how to switch careers or how to learn about private equity and venture capital. What's the difference between private equity, venture capital? Where does, you know, late-stage venture intersect with private equity? You know, sometimes it's a blurry line and, you know, oftentimes when you're looking at private equity as a career, there's much more financial modeling versus venture capital where you're really understanding the founder, understanding the problem, really understanding the market size. So just built skill sets through really building a media platform in a large community. You know, Ron Shigeta is a very similar case. I mean, I met him through another warm contact and, you know, through people like Ron and through other VCs, you kind of share notes and share theses on different sectors, and that helps to de-risk investment opportunities from getting those insights from other people. And, you know, that program that I launched, it's just a VC private equity you know, community, you know, I saw a lot of people magically kind of switching their careers, you know, whether they worked in technology or they're a medical doctor, a lot of them were switching careers from, you know, that industry to now a career in private equity and venture capital. So that, that was just really interesting to see. And I think just the future of education, we're starting to see education become unbundled. So recently Google has now released a suite of courses where you can get a certificate and learn like critical skills like project management, product design, and a lot of those subjects and certificates that you can earn from Google actually translate to a specific job. And I think that's where education is evolving. I think we're moving to a skill-based economy. So if you want to learn how to build a website, you don't have to go to engineer, you know, you don't have to study computer science for 4 years. You can take an 8-week bootcamp. That bootcamp will help you get a job. And same thing, you know, so I started seeing these people break into VC and then they finally achieved their goal. They're like, look, wow, I got a job in VC at PE. I think I can do this myself. How do I learn how to start a fund? Right? So I don't think there's a specific major in fund creation, right? You can't go to college and study fund admin and fund creation. There just isn't that curriculum because to know that curriculum, you have to be in the industry, right? You have to be talking to fund admins, you have to be talking to other VCs. And I think that's really where the innovation can start. So I launched another program about a year ago. We've graduated hundreds of funds in one year. We bring in about 50 funds every cohort, and every fund that is in there has, you know, some type of track record. They've established themselves and, you know, there's no fundraising activities. It's really just mentorship and community and content and education.

So just let me, let me stop you for a sec. When you say you bring in funds and you bring in a cohort of funds, these are, these are family offices who want to learn about private equity and venture capital investing. Is that right?

So there's two types of— there's GPs who are general partners at venture funds, private equity funds, hedge funds. And when I say bring in, they apply to the accelerator very similar to when you think about Ron Shigeta, he ran IndieBio, right? So there's thousands of startups that apply to IndieBio and then there's a few startups who got selected. So same thing, like we have funds, these are venture funds, you know, most of the funds are anywhere from $15 million to probably, you know, up to half a billion in AUM. And they're just applying to the program for the educational content and community. And, you know, our reputation is based on picking really high-quality, interesting funds. You know, some of the smaller funds, That get chosen are, okay, so you help family offices pick venture capital funds.

Is that right?

We don't, we don't help anybody pick funds or investments. We just built a community. So we have funds that apply to our platform, and then I have a community of single-family offices, LPs, institutions, and endowments that just want to be involved with that community, right? Because they want to meet other LPs. So they can talk about how to be a better LP. They also want to meet interesting funds. Their reason may be different reasons, right? Some family offices don't want to invest in funds. They want to invest— Okay.

So you're building a community of passive investors and venture capital investors who want to be a part of a community.

Mm-hmm.

Get deal flow, find out who's doing what, get, peer up with others that are interested in passive venture capital investing.

Correct. Yeah. So the, you know, when you think about the people, whenever you build a community, I think you need to think about what everybody gets out of it. So when you think about GPs, general partners at funds, you know, they, it's a long and lonely road trying to raise a fund and build a thesis around it and, you know, close a fund, right? So it's very valuable, I believe, to not be alone and be part of a community of like-minded individuals that are on that same journey, especially during COVID You know, and anytime it's just difficult to raise a fund, right? So it's always more fun if you're not alone. So my goal for fund managers is to build a safe community where fund managers can help each other, be a support system for each other. But what do they really need? They need to meet people that invest in funds. So I've also used my—

So it's both sides of the community. You want the guys who are running the venture capital funds and the guys that want to invest in that, in venture capital funds.

Yeah.

Some funds, you know, some L— I would cat— categorize it as two personas, right? One is a GP, a general partner at a fund who's raising a fund. An LP is an allocator that invests in funds.

Yeah.

I understand.

Many, many of them have to do this for their job, you know? So if you are an endowment fund, you know, for your job, you get judged on the funds that you bring in and And for me, you know, I'm just trying to build a community and, and, um, you know, what I get out of it is I get to just build a really crazy network. I mean, because of, because of the Fund Accelerator, that's why I'm on this podcast. Right. So Ron was in my Fund Accelerator. He was in the community. So I think when you build a community, there's a lot of intrinsic compounding returns.

And the community is the Fund Accelerator, right?

That's one of them. So I have 3, 3 communities. The first one is the private equity VC Education Community. That was the first one that started. The Fund Accelerator is a new community, which is a community for LPs and GPs. Gotcha. And that's a cohort-based program where every quarter I bring in about 50 funds. Again, those funds apply to my program. You know, I have a community of LPs that give me feedback on which funds they think are interesting, and we pick the top 50. And then, you know, there's LPs these people, what they get out of it is they want to meet other LPs, right? If you are a single-family office, you mainly focused on real estate, it might be interesting to meet another family that has done some venture, right? And meeting another family, the benefit is you're not getting pitched because you are just kind of a peer with another family.

So let's back up for a minute. So our investors are mostly, you know, most people, we have this what we call the investment continuum, and most people start in the public markets, right? And you know, as a passive investor, you maybe then start doing some private real estate. Maybe you start doing some private equity and venture capital is a little more out there, right? And then you have the people on the coast like you, that probably the only thing you've ever invested in is venture capital, right? And, but it feels a little bit like gambling, right? It's like, yeah, you know, you to pick a portfolio company and, and yeah, I mean, it's kind of wildcatting, you know, and So how do you, you know, so how do you pick the right manager? And as a skeptic, right? And a guy who's actually my background, I've raised $44 million in venture capital with a, with a previous, yeah, in company. And I'm a computer scientist, so I understand the whole, all that space, but it's, it's really hit and miss and very risky investment. So where does venture capital fit in a portfolio? Let me just ask that. Where did, where does it fit? I mean, it shouldn't be 100%, right? Although Yeah, I think people in the space, that probably is where they're at. But hey, how, how does it fit and, and how, how do you de-risk it?

So I think taking a step back, you know, different people are going to have different goals, right? So if you are a pension fund, you know, you're managing millions of people's retirement money and, you know, ensuring that they'll have money when they retire. So You're not going to go in, you're not going to go all in on venture. And you know what they have at the institutional level is portfolio construction, right? So they have mandates and they have processes around that in terms of like what actual percentage goes to venture, what else goes to stocks, but you know, bonds and commodities. So at a professional level, there's portfolio construction that's created as an angel or like a high net worth individual, someone who works at Amazon or someone who works at IBM. These people make around $200,000, $300,000 a year, right? Or, or whatever, maybe more, right? These tech operators, medical doctors, lawyers, high net worth individuals, accredited investors. You know, again, what are your goals? Are you, and, and what is your tolerance for risk, right? Because you could, you know, it does sound like gambling, right? I mean, it's high risk, you know, but there's frameworks that you can put in place for venture. And you know, again, you know, I'm not a financial advisor, so I wouldn't be the right person to prescribe that. But I think, you know, you want to think about your goals and your tolerance for risk. You know, I would say venture in general is just, to your point, just a very risky asset class, right?

Well, so how do you de-risk it?

So there's a few things that I've done in my process, right? I mean, I look at, The market size, I look at the team, I look at the traction. Normally when I invest in startups—

now this is for a portfolio company or these are for VC-managed companies.

Yeah, these are, I'll talk about both, right? So I say for portfolio companies, again, everybody has a different strategy, right? Some people do pre-seed where they're all in on just the founder. There's no traction, there's no revenue. I'd like to see some revenue. Yeah. So I like to see some revenue.

Just let's have a, you know, an intro moment here, right? We love to bring our investors along and, you know, and get rid of the vernacular.

So, yeah.

So there is venture capital investing falls into kind of a spectrum based on the size of the company and the maturity of the company. So pre-seed, I haven't even heard that word.

Sure.

Is basically a guy with an idea, right? He's waving his arms, you know, seed is really more of a concept. You know, then, you know, I'm not sure what categories you would say, but then there's, then there's really growth stage where concept, it just needs, it just needs capital. And then it's late stage, which is really very, very mature teams, very mature strategies and more of a pre-IPO. Then there's MAS, which is really pre-IPO and bridge kind of funding. So it's, so, and they're various sizes. So, $100,000 might buy you, you know, 2 or 3 or 4 or 5% of a company at an earlier stage.

Yeah.

It buys you, you know, away from the CEO at the later stage.

So, yeah.

So, so, you know, is that accurate or you're, you know, you know, give me your perspective on that.

Yeah, that's right. I mean, I would say pre-seed, a lot of times people who invest in pre-seed are, you know, spectacular people. Some of them might have had a business In the past. So like if Travis Kalanick, right, from Uber is like, look, I'm launching, I crushed it with Uber. I crushed it with cloud kitchens. I'm going to change education.

Yeah. So, so you're going to have the website in that case, you're saying whatever he does, got a good chance of working. And so I'm going to throw some money at it.

Yeah. So you're investing in people and the benefit of doing pre-seed, obviously, you know, I'll give you an example, right? If you invested There's a chart that I saw a while back that listed the early investors. This might give you some perspective. The early investors of Uber, right? So it was, you know, Jason Calacanis was one of the investors and I think he got like $25,000 from Sequoia Capital and they gave him like $25,000 worth of shares and they had a graph that showed how much that turned into, right? So $25,000 early. If you waited 10 years, that would've been $125 million. So I think that's like 5,000x, right? So yes, it's risky. It could be gambling. Uber could have failed. But also there's a different perspective, which is like, what if it doesn't fail? You know? So if you think in a positive light, it's like, look, I have some capital that I'm going to put into growth opportunities and, you know, I'm going to bet. I am going to bet. I'm going to bet I'm going to bet on this person, the moonshot. I believe in this person.

Yeah.

So it's taking a portion of your capital and putting it on Red 19.

Yeah. And I think that's a spirit of the American dream. That's a spirit of entrepreneurship, right? It's risky to start a business and you're betting on yourself. So yeah, I mean, I wouldn't say like it's gambling, but I would say you're believing in something and you're backing something because you have conviction.

And so you don't have to, doesn't it, doesn't it make more sense, you know, for, I mean, you know, I guess my advice to an investor would be if you know a space, if you're an expert in food technology, then yeah, do angel investing.

Yeah.

Or seed or pre-seed in food technology because you know their space, you know the risks, you understand that, you know, or if you're a computer scientist or what. So if you know something, then go in.

Yeah.

And if you don't, do not, do not go in at that level. And then if you don't know, if you're not an expert in the area, then you really want to invest in a fund. And because you get diversification, right?

Yeah.

I mean, you know, I was the first venture capital in my business in the late '90s was a guy who was a founder of Savin Rosen, one of the top VC funds of the early tech era. And they had 100x returns, or 100% returns, sorry, in their LPs over the course of decades. And their model was 1 in 18 deals. They only cared about the one deal that went 100x. And if you went, it went 5x or 10x, they didn't care.

Yeah.

So it's really, if you're doing that, you have to have a portfolio. There has to be a lot, you're placing a lot of bets on the table, right? For the one that's going to hit. So doesn't it make sense to do, to do, you know, to do pick a fund or a couple funds if you're going to do this, unless you really are an expert and you know the exact company you're investing in?

I look, I mean, again, I think it depends on your goals. So I think, you know, the benefit of going direct obviously is you're not, it's not a diversified product, right? So it's a direct deal, like you're directly in Uber, Uber has outsized returns, right? But the risk is the risk, right? So going into a fund is a risk-adjusted opportunity and you can also learn, right? So if you are, so I'll give you, I'll talk about my example, right? I have deep tech experience and I have fintech experience and I worked in fintech in Europe for some time. So to your point, Bob Fraser, like when I started investing, I did focus on deep tech and fintech because those are the areas I knew. But I started becoming really curious about food tech, you know, so I've done some, you know, companies in food and, you know, the way that I built knowledge around that was I talked to Rob, you know, so I think if you want to expand your portfolio to new sectors, I think the way to do it is go down the rabbit hole, read a bunch of blogs, listen to a bunch of podcasts, and it's not that difficult eventually on your own to study and become an expert, but then you could also expedite that from having experts that have invested in that industry to share deals with because they know the industry. They're kind of vetting them for you. And then there's also angel groups, right? You can go to angel groups. It's kind of a community of people that are sharing their concerns about the risks in the groups and they're investing together, right? So they're taking a risk and they're betting on this company together and they're doing the deal. They've done all the diligence together. So I think all of those things kind of help to de-risk. But yes, funds, the interesting thing about funds is you can quickly learn a type of industry very quickly and it's also risk adjusted. There's also some types of LPs, I would say endowments that cannot invest in funds because it's too risky. So they have to invest in fund to funds, which is an index of an index. And so that's, so again, you know, so it depends on your goals and also like what you're trying to achieve. If you're trying to achieve outsized returns and a 5,000x return, you know, probably, you know, a fund on top of a fund is not going to help you. And then, you know, also like, you know, do you want to get exposure to real estate and, you know, do you want to have monthly recurring revenue from like rental properties? Right. So again, you know, I think you want to think about holistically what's important to you and what your goals are financially, and then kind of build a strategy around that personally.

How would you, how should someone go about picking a fund manager? Let's say they, you know, I'm saying I want to, I don't know anything about the space. I want to play, I want in the VC world to learn. I don't want to risk, I don't want something too risky. I just want to play. And I mean, there's thousands of these fund managers. I mean, I was looking the other day on AngelList, which is kind of a community, you know, an angel investment community. It's got, and it's, you can kind of say, hey, you can raise your hand as a fund manager and say, I'm a fund manager and start these little micro funds. And there's thousands of these guys and there's, I don't know how many thousands of, of, of investment, of, of venture funds. So, you know, it's navigating that. It's, it's, you know, where do you stick the fork in? How, how, what's the best way? To learn about this and to find a manager that you can do well with.

So I wouldn't say there's some golden rule, but you know what I think has been successful on both sides, you know, as an LP, an LP could be an emerging LP. That's kind of a term that I've been hearing thrown around. You know, we've had these IT professionals, doctors, lawyers that are making a couple hundred grand a year. They probably can budget, maybe investing $50K a year or $100K a year, right? They've traditionally done startups. Now there's a whole movement of kind of like these angel LPs where, to your point, maybe what you were alluding to is they back these smaller funds and some of these funds have smaller minimums, right? Traditionally, funds usually have a bigger minimum to get in, right? You have to do a $250K check or $100K check to get in as a minimum. But Now there's these tech operators that are launching funds on the side. You know, I just went to dinner with someone last night. I know two people that have worked at Google and they've launched funds on the side. And, and you know, so there's a, there's a whole movement now of people who have good jobs that—

but that's not very comforting, right? It's kind of cool in one sense, and it's kind of ridiculous in another. I'm an engineer. Let me start, let me start a VC fund. Right. It's like as an investor, Mm-hmm. You know, I'm not going to put my money in these guys. You know, where, where do you, how do you, how do you place capital?

So, you know, there's been some funds that have done really well. And, you know, the thing is they still need money to pay for their expenses. Right. And to be honest, the only, you know, when you have a fund, you're not generating monthly recurring revenue, right? Especially if you haven't raised too much capital. So you keep the lights on, right? So you got to do what you got to do and everybody has to start somewhere. So what a lot of people do there's two frameworks, right? You can be an LP and you can work as a doctor or a lawyer and, you know, just take the money from your salary and keep doing that for the rest of your life. And hopefully you hit a home run, right? But then there's another school of thought that's like, look, you know what? Let me build my own firm. I think my goal, again, going back to goals, you know, I'm a doctor, I'm doing well, you know, but the moment that I stop going to the hospital, you know, I'm not going to get that paycheck anymore, right? So how can I make, you know, how can I generate some type of wealth? And I think, you know, some people are looking at, you know, building a syndicate, building a firm, and their goal, you know, for some of the people, their goal is to eventually be a fund manager. And that was kind of what happened to me, right? I was an engineer. I got tired of going to work every day and I was like, look, I really want to, I'm really intrigued by the opportunity of private equity and VC. So there's doctors that are like, look, you know, my goal is actually to be a I want to be a private equity investor in healthcare and also invest in healthcare, but I don't know how to get there. Right. I have this job. I'm trapped. Right. I got a mortgage. I got kids. So how do I get there? Right. So some pathways could be, let me do some small syndicates on AngelList. Let me, let me find an interesting startup. And you know, when I talk to this startup, the startup likes me because I'm a doctor. I have this medical background to your point, right? It's an industry that I understand. And I can add value to the founder. And I know a bunch of other doctors, they could probably part ways with like $10K checks. You talk to 5 or 6 or 10 doctors and, you know, that turns into kind of $100K check. And maybe that's how you build your track record, right? You got your first syndicate deal, and that's good proof to show that you can get people on board to invest in you, even though you have a even though you have a full-time job. And I have a perfect example. So I can reference, if you guys want, a YouTube video. One of my friends who's at an institution, he backed two doctors that work at a hospital. They on the side built a hedge fund strategy on different types of drug discovery. And this institutional LP backed those two doctors. Because they have a unique alpha because they have the industry expertise, they know about those drugs. So again, you know, there's always a way to achieve your goals. You just gotta figure out the creative way to do that.

And sometimes it's not conventional way, you know, it's actually, so, you know, most of our world is very into the real estate investing, right? And you read Rich Dad Poor Dad and then you go, yeah, you buy a rental house, right? And then you maybe buy another rental house and then you need, you maybe you get into multifamily and at some point you need more capital so that you actually learn how to syndicate. And it's a very similar path, right? On the, on the VC side. So let's leverage my expertise as food tech or biotech or doctor or whatever I'm, I'm really good at. Yeah. And get into that space and look at building a, building a viable little investment fund.

Yeah.

So I mean, that's, that's really cool for the people that really want to get down and dirty, right? Roll up their sleeves.

And you do those syndicate and be active. And whether it's real estate, I mean, look, you could do the same because I'm a fund accelerator, right? So I have real estate funds, I have hedge funds. It doesn't matter. As long as you have a fund, you're welcome at Mike and Mead because it's all the same thing. You got to build a track record. So you can do a bunch of properties you've invested in. You can showcase a track record and say, look, I've invested in like 20 properties. They're all making, you know, $2,000 a month in revenue and I'm profitable and it's appreciated as well. Right? So that's kind of my personal track record. And now I've done like 3 syndicate deals and those deals, they're up by this much. Here's the track, you know, so you want to create some reporting on your track record, how you're doing, because those are the data points that are going to indicate that you are a backable person to eventually launch a fund. Right? And it's the same thing for venture as well. A lot of people, they're doctors, they're tech operators. They do a couple small deals on AngelList. Now they show that, hey, you know what, like these deals have done well. This is kind of my technical track record.

It's 100% about track record. As a guy who's raised hundreds of millions in my day, and it's 100% about track record. It's like you gave the example of a Travis, you know, Kalanick and, you know, guy gets a big exit. Doesn't matter what he does next, people are gonna throw money at him.

Why?

Yeah. He has a track record and that's an extreme example of it.

So this, this person that worked at a tech company, I'll give you a perfect example. I won't say the name or the person, but worked at a big tech company on the side, launched a, well, on the side, what he did is he built a community. So I think community is super important because those are the people, and you guys are doing this now, right? But this person had a tech job full-time because he had to pay the bills, right? But he knew that he wanted to be a fund manager, right? So he is trying to figure out a path. So what he did was he built a large community and started doing happy hours, right? Investor happy hours, built a community, built trust, added value to the community, and then he started a syndicate. And all those people were part of the community. They're sharing notes and they started backing his syndicate deals. Over time, he had several deals that were done. Many of those deals were doing well.

And you know, you want to include those people because they're smart people, right?

Your LPs. A lot of them that are part of your community, they're smart, sophisticated people. They may even help you not make mistakes as well. You know, maybe you found a really amazing deal that's like in the insurance tech space and you really love it. You love the founder, but there's a person that works in the insurance industry and they're like, look, this is never going to work. You know, I know the industry. And like, that might have saved you. I'm like thinking you should just think. So that's where the community comes in, right? You do that, you do 20 deals, all those deals, some of them failed, some of them did well, right? But when you look at it from a portfolio strategy, you know, there's a certain percentage IRR that you can kind of culminate together, right? That is your track record. Now you have a story. I'm this person. I built this community. I've done all this. I think I can raise a 10. And that person went on and raised, they already oversubscribed their first fund. They're already on their second fund.

Okay.

So Let's say I don't want to roll up my sleeves, right? I want to be passive. I just want to be in the game. Who's successful out there as an LP picking funds? How, you know, really, you haven't answered my question of the tens, 20,000 of little funds. What's a winning strategy to pick one? Is it, it seems like it's probably purely relational based at this point. Now it's like, I know this guy, therefore I want to put money. But that's— is that a good strategy? Doesn't seem like it would be. I mean, yeah, who's being successful as a limited out there that's not just lucky, right? And that's not picking a portfolio company, but picking a fund manager.

Yeah, I would say, you know, like not to mention any names, but I would say the, you know, there's a lot of fund of funds that have picked, you know, winning managers as qualitative and quantitative. Things that you want to look for, right? So I think on the qualitative side, the most important thing is a deal flow. You want to judge a fund by the quality of the deals they have. Now, when they say quality, you know, what's the, you know, how well has that startup done? Have they raised a lot of money since they invested? Is there a large markup in the valuation? Like, you know, what's the, you know, there's kind of qualitative things that you can look for in the character of the person, When they say they're going to do something, do they actually do it? There was kind of a red flag that I picked up on this morning. There was actually an LP that was evaluating a fund and the fund actually name-dropped somebody. And when he talked to that person, that person's like, I never heard of that fund before. So I think sometimes just intellectual intelligence, emotional intelligence, some of those qualities of just kind of being someone that you can trust. Those are really the moving needles for investing on the qualitative side. You know, what is their strategy? Is their strategy aligned to what you are trying to get exposure to? Right? There's a fund that's focused on quantum computing. That's a really cool, sexy industry, but is that part of your goal as an LP? Are you trying to really get exposure to quantum computing? So I think you want to think about, you know, for the smaller funds, Some things that I think are really interesting are these funds that ha— again, have built these massive communities because those massive communities are really people that are backing that fund manager. And, and you know, that's just, I think it's just a really big indicator on that fund manager building something that resonates with, with the community and having a unique strategy. On the quantitative side, there's a bunch of quantitative factors, right? So like, What is the cash-on-cash return? What is the IRR? So there's not, not to kind of go deep into the rabbit hole of that, but there's performance metrics that different types of LPs look for. So I think the winning funds are the ones that combine both, right? And I think winning could be different for me and someone else. When I say this is a winning fund, somebody else may say, well, I don't, and that actually happened this morning. I was talking to somebody, I was like, look, I love this fund. And I thought they were a winner. And then somebody else, their perception of winning is different, right? So I think it depends on what you, what winning means for you, right? Is it just performance? Is it access to some of the hottest deals? To your point, there's so many funds out there, right? And there's so many great funds. Some of the biggest feedback I give to funds is like, look, you're a You're another Web3 fund. You know, there's like 5 other Web3 funds that I've just interacted with. I'm going to a Web3 summit tomorrow. What is it specifically that you're doing? Right. And I think it really comes down to content, community, deal flow, and then performance trumps all, right? So are you able to return capital to your LPs?

You know, and I just, I guess, want to put a little bit of a cautionary note out there too for our investors. You know, I was actually part of an angel group Yeah. And it was a democracy, right? It was, it was primarily doctors and lawyers who were very smart.

Yeah.

And they fell in love with different food tech deals and technology deals. And literally not a single one had any experience in food tech. And I was the only, only technologist.

Mm-hmm.

They voted down two of the deals, the technology deals I liked that actually went out and did well. And they voted for a bunch of technology deals that, that didn't go anywhere. And they had a 100% whiff track record, 100% voting. And this is really smart Smart people making really stupid investments. Yeah. And because you're smart, because you're a great doctor, doesn't mean you should invest in quantum computing. Yeah. I mean, it doesn't mean you know shit about quantum computing. Right. And you should probably stay away from it. And so, yeah. So I, I think there's a, there's a little bit of, we need to be careful about hubris and, yeah, as it, as it appears and, and stick with something, you know, and, I think you always had, you know, I think for me, I always, at the end of the day, I invest because I think it's something that I believe in.

However, it's always good to get additional data points, right? So you get positive, negative data points. People hate the deal, people love the deal. There's been times where like everybody hated the deal and I still invested and I had, you know, so I think at the end of the day when you invest, and this is just, and this is, you know, again, you know, talk to your financial advisor, This is not financial advice, but, well, I'm just going to share what works for me. I just got to use my instincts and kind of use data and just try to do the best I can on my own.

And I guess my advice would be don't trust your instincts more than experts, right? If you don't know the space, if you're not an expert in quantum computing, you should probably talk to a guy who is an expert in quantum computing. And I think that's a good opportunity because your gut is not going to, it's not going to help you.

You know, I think that's an opportunity to invest.

The yes factor, right?

Exactly.

A good salesman, you know, I, I saw more technology deals sold to non-technology people, and they just get wowed by the brilliance of somebody, and it's just, it's just fluff, right? It's Hamburger Helper. Yeah, there's nothing underneath it. So, you know, you know, there needs to be, you know, some caution too, right?

Yeah. And I think the, you know, that's kind of where it, you know, opens up opportunity to possibly invest into, you know, if you, if you're interested in kind of more general exposure, looking at fund managers that have a strategy on quantum or cyber. If you really, if you don't know the space, just surrounding yourself with experts, right? Like, listen, anything in food tech, like Dr. Rong, you know, like he has, he knows those people, he knows the community, he understands like what does not, what the red flags are, right? Because he's just seen so many. And I think to build that skill, you know, none of us were born like a private equity investor, right? We learned at some point, right? I wasn't like born and, you know, I'm like, hey, I'm an engineer, right? Like you learn something at some point. So everything, you can learn anything, I believe, in this life. You just got to find maybe the right people that can train you or just find the right resources. And, you know, anybody could be a quantum expert. They just probably gotta spend a certain amount of hours studying it and, you know, going to the right platforms to do that.

Well, I, I like your community approach. You know, I, I, I think, I think it's a way to get, you know, to learn something and get with people who, and make yourself smart, right? Make yourself knowledgeable about the space and find out what other people are doing. And, and I, you know, sounds like a really good idea. And I like your idea of helping people start funds too, you know? Yeah. And everyone, every fund that's out there started that way with a guy that said, hey, let me, let me, let me become an investor.

And yeah, I think it's really just surrounding yourself with smarter people, right? I mean, and smart is subjective, right? I mean, there's book smart, there's people that are really smart in terms of building relationships. So I think unpacking smart could just be another whole podcast, right? But yeah, I think, look, there's a lot of people that have been super book smart. They've built really amazing careers, but you know, when it comes to managing money and building wealth, maybe, maybe that department hasn't been, because, and it's because there hasn't been the education there.

Right.

So, yeah.

Financial skill is a must.

And you know, if you're looking at portfolio companies and, and, you know, the question is, this is the bigger, deeper question, Bob, like, why didn't we learn this stuff in high school? True.

True.

You know, like, wouldn't you want to know what budgeting is? You know, and that's kind of a bigger, deeper question, but yeah, you know, is that something that like should be added to education in the early days? I mean, to be honest, I really learned financial management just from reading a lot of books. You know, there's a book, I think it was like The Millionaire Next Door. Those are really good books. Yeah. It had a lot of stories of couples like, you know, thoughtfully saving money. You know, they advise you to buy a car that's 3 years old. So there's just a lot of cool content out there. But, you know, I feel like unfortunately it's usually self-study or now with—

Or fortunately, I mean, you know, because the truth is for $15, the price of a book, right? Yeah. You know, whoever will tell you their deepest secrets and their most glorious successes and worst failures. And how to avoid them. And so, you know, yeah, I, I do think that's actually a key, right, is to be an avid reader. And, and, you know, yeah, I mean, I've raised lots of money and never went to school to learn how to raise it, right? There's no, there's no, there's no course to take to learn how to raise money, right? You know, you know, so good, good point. I think we can improve on that.

Yeah, I think, look, raising money— this is, this is another maybe controversial thing, but I think one of the most important skills is sales. So totally with sales, you can get a job offer, you can raise money, you can probably find a spouse, probably find a date. And I think you're really helping, you know, and you're also kind of, you know, I think that, and then just solving problems, right? So if there's a problem, one problem is, hey, we're facing 8% inflation. How do you mitigate inflation? Maybe it's not always just investing in the FAANG companies. Are there other opportunities that can provide growth and outsized returns to augment inflation? Right? So I think, and then I think the new thing which the Gen Zs are figuring out is communicating that in 15 seconds, right? We're doing long-form content here. You know, sometimes the Gen Zs, what's most engaging, you're seeing now people watching Netflix, but they're actually on their phone scrolling TikTok and they're not even watching Netflix. So I think, you know, another big thing that's going to be super important is concatenating a message in like less than a couple minutes, a couple seconds. And you know, like that combined with sales, if you go to a family office event, or some type of capital allocator event and you're trying to connect with somebody, you're not going to have time to do a long-form message or pitch, right? You really need to kind of help them understand, you know, who you are and what you're doing in a couple seconds. So I think that's definitely like when it comes to content and communication, you know, short and sweet is sometimes more. But again, all of these are just my opinions. I could be wrong.

So, Well, Joel, thank you so much. This has been very enlightening and, you know, very, very cool how you've built this community, you know, both for fund managers, LPs, and obviously education around it all. What's the best way? You run a podcast as well. I think it's called Future One. Yeah. You know, that you talk about a lot of these topics in more depth and you have guests on and then—

So yeah, yeah, you can go to SuttonCapital.co. And you can go to free resources and then free resources. There's a dropdown to just see videos. And I do a web show every, every week. You know, I usually have, you know, 1 to 2 investors. This has been a fun experience. I actually haven't been interviewed in a while. I've been busy interviewing other people. So it's an honor to, to, to be here and share my story and appreciate you guys. Spending time with me.

Yeah. And if someone's interested in kind of joining your community, what would the approach be there?

Yeah, they can join our website. They can contact us on our website. There's a Slack channel that we have as well. So all of that is under free resources. Yeah, I mean, a lot of our content is available for free on the internet. You know, I'm Joel Palathingley. They can, you know, follow me or connect with me on On LinkedIn, on Twitter, I'm @joelpallath. So whenever I find something interesting, I always post it on social. So yeah, I mean, the community, the content's there, so hopefully it's valuable to some people.

Awesome. Well, Joel, thank you so much for coming on and we'll have you back on talking, talking 2.0 here later on. So appreciate you coming.

Yeah, absolutely. Take care, guys. Thanks a lot.

Thanks.

Bye.

All right, well that was really fun bringing on Joel to talk about the kind of community he's built in this exciting space of venture capital. So definitely really cool what he's done in kind of the whole approach that he's taken with kind of building community and not only just on, you know, the portfolio company side that he is looking for investments, but also helping fund managers and also helping limited partner investors being able to kind of work together and learn and, you know, gain, you know, insights from each other. I think it's a really cool approach.

I thought that was interesting, the idea of kind of building your own VC fund, you know, I mean, as a way to do it.

Well, it's cool. I've been seeing a lot of the trends and the shifting we've seen in the real estate side of things from, you know, it's getting easier and easier to raise capital and, you know, for the barriers to entry continue to decrease is more people get educated and even doing it as a full-time job. You have a mastermind with, you know, a lot of capital raisers.

It seems very cool opportunity, but maybe a cautionary tale as well, right? Should everybody start their own venture capital fund? No, I love that. My risk meter is just pegging the needle, you know? But, you know, but there's going to be some wins out of that too, right?

So, right.

Yeah.

It's, it's, you know, it's the good with the bad. It's the democratization of, of the, the industry a little bit. But with, with that comes, you know, not only bad actors, but just inexperienced actors that, yeah, at that point have, have hubris or maybe don't have the experience to even know what they don't know and can get into trouble. But, you know, it's exciting from a macro standpoint because I do think this is a space that, you know, you and I are personally very interested in, but it does feel like there's this, you know, great divide of how do you, how do you bridge the gap of actually—

how do you make it not gambling? That's, that's what I'm looking for because it is, it's like, oh, it's all— you always tell the story about the guy who, who invested in Uber and made the, made the, made the, you know, 1000x or 5000x. Okay, great. But for every guy that did that, there's, there's a million guys who did the opposite and lost everything. And, you know, so how do you do that? And, you know, that's— I'm still on the hunt for, for that. What's the strategy to, to play this space? You know, I I do think it's, you know, staying in an area where you are an expert and as an angel investor is a winning strategy if you have the bandwidth to be an angel investor.

Yeah. Well, I think you made the point too, like there's the spectrum and as you want to de-risk, the way you de-risk is by investing in funds or fund of funds that are diversifying in a bigger portfolio. The more expertise you have in a particular area, maybe the less of that you do and the more direct you go to the actual companies themselves and you kind of pick and choose along the way. But no, I think that's, I mean, I like what he said too. I mean, it's a little bit of a cop-out answer of, you know, this, you know, just what are your personal goals, right? Which he's right. I mean, it is someone at my stage of investing can withstand a lot more risk as someone who's, you know, later on, he's just along with a lot of capital, right? You know, but Generally in my mind, venture capital dollars that, you know, are allocated personally are ones that I'm okay losing, you know?

So that there you, there you go.

And, and I, I'm curious, I'm just looking at you while we're doing this interview as you're the banker, right? You literally were a commercial banker who underwrote hundreds of deals and, you know, and you know, you're disengaging that whole part of your brain to do any of this investing, right?

It's not even disengaging, it's just you have to, it's a different risk reward profile, right? In banking you have, you can't have any downside, so you can't take really any risk. But in this, if you're using dollars that you're okay losing, then hey, this could be a 5,000x return and that's okay. But I'm not going to bank my life savings or my entire future on it. So I think it's, yeah.

Well, Ben, these listeners, They want to play. What do they do? How do they jump on board?

Yes.

Well, obviously you can reach out to Joel and his kind of cool community there. And most importantly, if you've not subscribed to this podcast to get the best education around alternative investments, you need to subscribe to Invest Like a Billionaire on any platform you listen to. And please share it with all your friends and family. We're trying to share the knowledge here. So help us in that journey. Thanks so much for listening.

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