The GP Data You've Never Collected Before | Kelli Fontaine | Superclusters | S4E1

I think a neutral reference in my mind is where the founder isn't going to say anything bad for somebody to give a negative reference. They're putting that coming back to them on the line because then we are trusted to that founder and hopefully we're getting the truth.

Superclusters is where we demystify the secrets, stories and tactics behind the money that moves the venture capital world. Welcome back Super Clusters fans, and this episode today is something I've been looking forward to for a long, long time. So from investing in great fund managers to data to investor relations, Kelly Fontaine is a partner at Sandana Capital, a fund of funds who solely focus on the best precede and seed funds with over 2 billion under management. That's billion with a B and includes the likes of Forerunner founder collective Lair, Hippo, unqork, Souse Ventures and more. Sandon is also known to take high conviction bets in nano funds, which will we allude to later in this episode. Anchoring the best managers of tomorrow. Kelly comes from the world of data, which I promise we'll get into, and has been a founder, marketing expert and advisor to founders since 2010 in efforts not to make this intro too long winded. And because the next hour will make all of this a lot more concrete, if I were to provide a roadmap for this conversation, we cover Kelly's background as a nationally ranked figure skater to how data sets are built at Sandana, to why Sandana does 40 reference calls per GP. So without further ado, Kelly, welcome to the show.

That's very, very kind, very, very honored and it's been a pleasure getting to know you already. So I'm really happy to be here.

There are so many places we and one of the things we had in our offline conversations actually right before this was you mentioned that you did nationally, like you were nationally ranked for competitive figure skating. I'd love to dig deeper on that. What was your first foray into figure skating?

So my parents, I grew up in Knoxville, Tennessee and the after school sports my parents wanted us involved in, they did not want us in front of the tv. And so one of the things they put us in was learn to skate. My brother and I at that point, my brother's 18 months older than me and we were pretty natural at it. We both were very good. And that culminated with my parents moving the entire family to Colorado Springs, Colorado for the Olympic training Center for us to be able to be competitive. And we did competitive skating. I stopped skating at 16. My brother continued on and you know Missed the Olympics by one spot. But it was, you know, a huge part of my life, early childhood.

So we probably saw him on the Olympic trials, like watching NBC.

Oh, yes. The, the national championships, international competitions, etc, yes.

Wow. And you. I. I don't want to make too many leaps of faith here. You mentioned that you started a figure skating when you're really young, back in Tennessee, and you realize you're really good at it. At what point did you realize you're actually good at figure skating?

You know, when you're young, it's really the external validation from coaches, competitions, etc. Where you realize that you're good, but the enjoyment was there. I'd say that's probably the most creative part of my life I ever had. The artistry of it and the enjoyment of it. So that's when you realize that it's something you want to pursue is because you're enjoying it. But really it's the external validation when you're a child that you trying to teach internal validation for children. But it was the external validation.

You need the gold stickers, you need the stars and all that. It reminds me of, I was a competitive swimmer prior to me embarking on this venture path and all that. And this is when I was young. This is like when I was like 10 years old or so. And my coach asked me, he's like, hey, you know why, David? Why do you think you like swimming? I was like, oh, I have good friends. And I hang up, have a lot of fun. He's like, no, no, no, no, no, you're lying to yourself. I, um, why you actually like swimming is because you've won. And because you've won, you want to do more of it. You want to keep winning. Because that dopamine, you know, I was like, I don't know what dopamine means at 10 years old. Um, but because of that, you want to do more of it. And so much of that speaks to kind of external validation, especially when kids are younger. And so as you embarked on, like, professional I guys, like, like, you know, figure skating or like, not professional, but like competitive. Professional competitive, you name it kind of thing. Um, why did you stop at 16 years old? What was the self talk that was going through your mind when you finally decided, hey, you know what, I'm going to hang up the skates?

Um, well, I had an injury, but outside of that, I had wanted to switch from it. Um, the enjoyment stopped being there. And with skating, it's such a niche sport that you really have to have a Tutor, you're at the rink more, you're not in school full time. And I wanted to go to a college. I wanted a career after skating and many skaters coach skating after or going to shows and travel. And that's not the life I wanted. And I wanted the social time with my friends in high school and I wanted just a different life. And so, you know, the injury occurred and it was a blessing because then it was a way to really stop that path when my parents had made chances, such a sacrifice to move the family to color springs.

And so when you were looking for that culture to be part of a team or like have that more, more of a team dynamic, where were spots you were eventually looking into and to what you could pursue next as a, as a 16 year old.

As a 16 year old, I did figure skating or I went from figure skating to cheerleading, which was very team. I did do golf, which is individual. But, you know, I think that's a different individual sport where we had a team as well. Um, you know, I think then I did newspaper video production a lot. I did, I did a lot of things in high school to figure out what I enjoyed. I thought that I would enjoy journalism. And then in college I realized that wasn't an individual thing where everybody was not collaborative, but this undergrad classes I took in business were group projects and I loved the people in the school. So I pivoted partway through college, again realizing that the culture of the journalism school was very different than what I would. That was a fit for me and so I pivoted to focus on business.

So speaking of time in college, I want to talk about after you. You know, it could be like early on, but you got really into football in a particular chapter in your life. How did you first find your way into football? Because you've been very outspoken with some of your fandom.

I grew up in Knoxville, Tennessee and football is a religion there. You know, University of Tennessee, we didn't have the Tennessee Titans then. There was not professional football. SEC football is a culture.

I loved it.

I love the energy, I love the community. I look forward to it. It's something you can share with your family, community, the experience, the excitement, the highs, the lows, the emotions and all the traditions that go around it. And so I absolutely love that part and it stood out. I mean, some of my most memorable moments are father daughter trip that my dad took me to Peyton Manning's last game at the Orange Bowl. It was a terrible game. He lost. He was killed by Nebraska. But it like is one of the most memorable experiences. And so I really think the traditions and all of it come around and bring people together and experience it together. The motions together is a special thing of sports. So I grew up on football, and when I went to University of Colorado, I did work for the athletic media relations department. And I did seek that out. Right. Again, I thought I would want to work in sports. And while there, I worked, you know, multiple sports. We covered football games, basketball. I helped out with the golf team, with tennis, doing the pr, et cetera. So, you know, we were the student assistants, and we would help out with press releases, et cetera.

I want to put a bookmark in that because there is a thread to talk about critical thinking and underwriting critical thinking in kind of managers. But even before I ask that question, how does one, and this is asking selfishly here as well, how does one pick schools based on critical thinking for their children?

I went to public schools. I memorized things. I think a lot of the things we can say that we learned in school, we never use again. It was great to learn, but I think it's important for people to figure out what their actual interests are versus what they have to learn and be able to pull those threads. I didn't get to do that until partway through college. Right. And that's where I was like, oh, I want to be a journalist. And then I pulled threads, and like, that's not a fit for me at all. So I think being able to figure out who and what your strong suits are early versus, like, you have to be at a certain bar at all things, it was important to me. I think memorization and the focus on just memorizing memory is important. Back to this, right?

Yeah.

But just memorizing things, that isn't wisdom, right? That's knowledge. That's not wisdom. And so being able to apply learnings was important to me. And so rather than memorizing, learning the lesson, right. We. We learn best through our own experiences. As much as I can read a book or listen to a podcast on something, actually doing it, and learning all the lessons along the way is how we, you know, contextualize and memorize things the best. At least for me, too. Right. And so, you know, that's why I chose. We initially chose a Montessori school for our children because they aren't taught to memorize. It's all tactile. They all have to learn the lessons, and it's all practical, everyday living.

That makes a lot of sense. And this is going to be Our first tease into, like, obviously the emerging manager space and all that, but critical thinking is also extremely important. Like unique insights. And I guess, like some people call like, insight development, like, at, like at floodgate. Right. Is really important in any kind of manager to have a view of the world, to have an opinion of the world. And in a lot of ways, you're underwriting that opinion as an lp. I'm curious and I just want to, like, for the fund managers who are possibly listening to this or the LPs who are listening to this. Right. How do you differentiate or is there a difference between likability and founder friendliness?

I think they somewhat go hand in hand at the earliest stages. And I think likability means different things to different people. Right. Like, not going to name names, but one of our managers I was like, a little less keen on than my partners. And it took me time and I. Then I saw my bias of I was reading him incorrectly and when I understood him better as a person, then it made me like him more. And so I think it's removing your biases of what you think is likable and good and kind of applying it to a founder in a situation and understanding that person as a person. And so I think founder friendly, you know, to get founder referrals, you have to be founder friendly. And so that is kind of hand in hand of the likability. It's a different thing for different people. Right. I just spent time referencing one gp and the founders love that he was direct, didn't waste time. The advice was tactical. He knows that he's a coach, not a player. Like, but would you use likability as, hey, somebody's very direct. Like, you wouldn't use. Probably say those things, but it is applicable to him. Right. That's. That's a likable thing for those founders. And so it is what founders appreciate that you're looking for.

Obviously not naming any names was the initial bias, at least for this fund manager, the fact that he was really direct with people and you realize that.

Oh, no, sorry, those are two different managers on those things. Um, the other manager, I think there was just a little bit of paranoia and anxiousness. And then I applied that to mean possible misogyny or like an ego. And then I realized that it's actually a vulnerability. And so I think I. It was a learning lesson of not of me internalizing, like, instead of projecting my insecurities on, like, why, why am I here feeling this way in the conversations of, hey, what does this mean? And so two separate. Sorry, didn't mean to conflate those two. Two separate. One GPA where I learned, you know, to really spend more time getting to know them as a person and not to and to check my own biases. And then the other one is, you know, talking about likability again when it comes to founders, they like different things.

And it takes a lot of courage and open mindedness to revisit your earlier opinions in order to form new ones as well. And I'm curious for you, at what point or were there things you asked or time you spent with them that you realized that, that that was more vulnerability on their side of things rather than the initial biases in which you had.

Yeah, it was more time spent with the person. And I think that goes back to getting, having enough time with the person to get to know them. And I think that's one of the most important parts of being a good investor, LP allocator or investor is being able to have that self awareness and reflection and ownership of what works, what didn't, where you were wrong and being able to course correct. I mean the whole point is that we get better at our jobs over time and a lot of this is our perspective was incorrect or initial read was incorrect or, or something that we thought in the data was incorrect. And so being able to, you know, I think one of the things I hope comes across is that I have strong opinions loosely held. Right. And so I, I take a lot of time, evidence analysis to form my opinions, but I am easy to change my mind if presented with evidence that I was not correct.

And this is once again scratch my own itch here, but Sandana sees a wealth of managers that come to your doorstep and oftentimes probably like for 95, 99% of managers that come your way, you're, you have to form an opinion pretty quickly on them because you can't spend time with thousands and thousands of managers. Correct. How do you decide which ones to. I don't know if this is the right nomenclature, but which ones to give the second chance to and which ones to be like hey, we have to trust our initial judgment here, but when you go on to raise your next fund, we'd love to have another conversation.

I think if there's something unique or differentiated and that's such a broad term, but a lot of, you know, 2,000 funds, they are all kind of look the same, do the same thing. And so what is unique about their background that gives them a right to win today? Or are they thinking about doing Something differently, right? One of our managers, we started something called Nano, which focuses on sub. You know, back then it was 15 million, probably bumping up the bar to like 25 million now funds. So we anchor those funds with 20% of the fund size. One manager we were speaking to, and that is in the portfolio. You know, he thinks about sourcing totally different than anybody else pitched us. This is Julian from Julian. Julian Shapiro from Julian Capital.

Such a big fan.

He, like, he didn't come to us like, oh, this is how everybody sources. My network is better. This is my network. Like, he was thinking about it completely different. He wanted to make sure he was seeing everything differently. And his approach to how he pitched us has evolved, right. And he has refined it over time. And we do monthly calls with our manager and he's like, this is what I learned. And this is actually how my best deals are coming in. So then from this I am pivoting from, you know, scraping Twitter and reaching out to managers to launching cchecks.com to now deep checks. Oh, but this is the WhatsApp group I created with VCs. So he's consistently iterating and very thoughtful.

He.

It's building a business, right? Your business happens to have the job of investing, but you're building a business and how do you do that? And so there's just something very differentiated. It can be about how their careers progress, they. Their expertise and how they're going to apply it. But there's something very different about their approach, their thought, the firm they want to build, what they're going after, how they're supporting founders. It's not that they're doing what somebody else is doing, but they think they're doing it better. It's. They're doing it differently.

And how do you get, or do you even bother getting like GPS out of their own echo chamber? Because everyone thinks they're doing something unique, but oftentimes they're not.

I don't think there's a way to get people out of their echo chambers. I will say the quality of GPS right now in this market is much higher. I think this was a problem in 2120, 20, 2122, even of people starting funds where, to be honest, they. They wanted to just skip the seed round, the A round, the B round, and go straight to series C. Is like how I felt about it. It's like, you know, you've never even been a junior investor. You've never even made angel commitments, and yet you just think that you deserve, you know, $50 million to start playing around with. Like, that's not the progression of a company. A company builds, gets revenue to get there. Like, think about yourself the same way. And so I think that that part is gone. And so I think the people that are spinning out now tend to actually have a lot more credibility. And so that was a problem before where everybody thought they were different or that everybody could do this. Now I think there are very differentiated things we're seeing if it's a fit for us or if we think it's for us. That's a separate question. But I do think the quality is much higher right now.

And it's the idea of, like, you can have great theses out there, but if you don't have a great GP thesis fit, like, that probably doesn't mean like someone else can execute against this. But it may not be. Although it might be a great thesis.

In and of itself, there has to same thing with like, founder market fit, right? Like, why are you the right person to go after this problem as a founder? It's the same thing with the gp. Like, you have to use your skill set, your background, why you have a reason to win, why you have a reason to be focused on this area to get you there.

That's awesome. I want to go back to a bookmark that I've had for a while and like, I know we visited the data point a little bit, but we didn't like, go deep on it. And for the purpose of this podcast. And I think people are tuning in also because they know that Kelly comes in with just like so much data knowledge. I'd be remiss not to talk about that at all. And so I'm curious, you joined, correct me if I'm wrong here, Sindana, back in 2018 and January 2018. January 2018. What a journey. And you're now sitting at what, six and a half years? If I'm doing my math right. If I'm not, I should go back to pre algebra. But I think. I think I should be good. But you've. You've joined back in 2018 and you were, if I remember correctly, I was doing some homework before this conversation where you spent the first few months at Sandana just looking through data and just collecting tons of data. And I'm curious for you, when you joined, were there things that Sandana wasn't measuring that you really wanted to measure? And how did you find those things out?

Sandana didn't have a CRM synonymous run on spreadsheets, and so they were Tracking rounds, rounds the amount invested. But you're very limited, right? Excel only has so many columns, and so it was very limited on what we were tracking. So I would say, you know, I want to track everything that is trackable. Like from the beginning, it's like, I don't know how I'm going to use this data, but if we have access to it, we should be tracking it. And so we've expanded. You know, even this year we expanded, we added like, what schools our GPS went to, like, what their background is. So we can try to find threads of like, hey, what percent are former founders? What percent are former operators? Is there any correlation with performance? So we continuously, every time expand, like, anything that we can track, I want to be tracking. And you know, we've built out the data team, so this is all kids capable of tracking additional things. So I would say yes. I mean, we track qualitatively everything we can about the companies, whether it's a repeat founder, a female founder, anything we can track, we do even funds that pitch us, like, what sector they are, geo, all of obviously those things. But are they a VC spin out? Like, we want to track everything we can where we could do analysis of understanding where trends are going. Because from doing so many calls, we do monthly calls with our gps, we do intro calls, you do reference calls, you start to see themes. But I think there's sometimes recency bias. And I always catch myself with this of like, oh, I've heard it three times in a row, so it must be a theme. When I can actually extrapolate the broader data and say, actually that's only 10% of the time or 20% of the time. I just heard it a lot recently, so I was thinking, thinking that was important. And so I think the data, the structured data, having structured data to be able to really do analysis and ever find the true patterns and themes or things that we don't necessarily call out are important.

And are there things that other allocators probably aren't measuring that you would call out as being important to measure?

Everybody uses year benchmarking, and that's not the appropriate way to do venture. You're. We have one fund manager who takes five years to commit the capital, right. To do an initial investments versus a manager who does it all in a year. You're going to look very, very different 10 years from now, 15 years from now. You know, then you can start benchmarking them against each other, maybe from that vintage. But I think in general, the way of doing vintages is Incorrect adventure. I think you know, why I think the relationships we have and the detail we have is very important, is that we actually know KPIs of our underlying companies. And so I don't think people really track that. They track the last round valuation, the NAV, etc. And that really doesn't tell you how the health of the portfolio is. And so we really try to track how the companies are progressing, what the operating metrics are so that we understand the health of the underlying portfolio. Because when we have to go to re underwrite a fund or benchmark other funds coming in to pitch us, we want to know, okay, well you have this many seed rounds from this year. How are those companies tracking? Not just have they raised a series A and from who, but how are those companies actually tracking?

If you could give us a little like behind the scenes peek into like the metrics in which you're tracking. Not all of it necessarily, but the obvious ones in my mind are obviously like revenue growth, revenue net revenue retention. Like some of these things I think are important to track, I would say, like, you know, but are there other things that are telltale signs of the health of a portfolio than purely just like the easiest one, revenue.

I mean, number of customers. I would say the, the one thing that we do is definitely track who those customers are because I think that shows like if you've gone from a seed stage selling into other startups to like true ACDs that are enterprise level, we track that as well to understand who the customers are and if it's actually a core position or more of a pilot, you know, product that they purchased. So I think it's, you know, we add fields. If all of a sudden we like hear something and we aren't tracking it, we'll add it. Right? But I think, yeah, I think the understanding the growth over time too, it's not just a point in time as well sometimes that we want to track, is there?

I'm curious, like, you know, we can always, you can always turn me down here, but what is the most recent structured data field you added to your CRM?

I mean, the most recent big thing we did is we added a secondary joint venture fund with Klein Hill. And so we had to revamp how we input data for a fund investment because you're purchasing it at one price, but the NAV is a different price and the commitment was a different thing. So that was the biggest like restructure of data that we've done recently. As far as adding fields, I'd say there's probably continuous updates to. The hardest thing ever to track is really sectors and like what the exposure is at a sector level. A company I was at before was called RPX and and we created an actuarial model and the two inputs on it were the frequency, the number of times you're going to experience a lawsuit and the severity, how much that lawsuit was going to cost. And it really mattered which sector and what technologies they touched. And so you could never just use the broad set of codes and like apply them. And so I think that is something a continuous upkeep internally of like okay, we track technologies, we track which is industry they're selling into, we track a broader sector, then we add sub sectors if we start to see themes pop out. But you don't want to create too many tags where you know it's too much and you're not really seeing trends. And so I think that's probably where we spend the most time on fields. But again I think the most recent thing is probably focusing on making sure we know our GPS school or sector or background understanding if they were a founder before operator. And so being able to see that exposure on a look through basis.

Could you provide us the bull and bear case of what it looks like to actually not necessarily trust the data in which you're seeing?

Yes.

You know I love data. As we talked about, the data is what all these, what really informs my truth. Right. It sets me down a path. But that being said, I'm data informed. We want the data to yes, drive our strategy, but especially playing at the earliest stages. You are betting on a person, right. And the portfolio is unknown. So you can only be data informed at the later stages at private equity, etc. That's a different conversation when we're talking about earliest and trying to just apply data and have a blanket process around it.

It's very nuanced and different.

That being said, you have to make sure the data you're using is correct. LinkedIn and Twitter is full of the stat right now that only three funds have 3% of the overall unicorns or.

More.

Which is a great stat for Sandana because we have 15% of unicorns from the seed stage.

That's beautiful.

So we are great at picking the fund managers who are great at picking and finding unicorn founders. And I love this marketing stat and.

It'S a great banner stat.

But it's a marketing stat. Right. And we, we do. It is a metric in which you can say like this person was successful. But when I saw the list. I knew immediately that the list was incorrect. Right. So the number one on there is Y Combinator and I think it says they have 70. Well, we have 130. We have been around for 50% less time than they have. So they have more mature companies and we have, I think, 50% less companies than they do. So our hit rate is much better with less mature companies. But I know from our calculations that they at least have 96. I also know that missing on that is 2 fund managers that have 33 unicorns and 22 unicorns. I also know that a manager that is listed on there is listed with 10 unicorns, not 20 that they have. And so just looking at the data and understanding like, okay, well where is the data coming from and why is this incorrect? Is like my first pass. Like I get where it's going and it's probably correct. But what conclusions you can subsequently draw out of it are going to be incorrect if you don't have the correct data to begin with. So I'm always. That's why we focus on proprietary data. Just because the private markets have such opaque data that it's only really your own data that you can trust at this point point. But with that being said, there are better data sources coming around. I think there's a lot better ways we are going to be able to get data on the horizon. But we focus internally on our data. But from that, you know, just from that anecdote of like, hey, who are the top investors and unicorns from the seed stage, the first question really is what is the hit rate? Who has the best hit rate?

Right?

Like who's capturing the most unicorns for shots on goal? You know, if I look in our own portfolio, the top quartile of managers, meaning the managers the Most unicorns, it's 5%, right. So 5% of their companies become unicorns. Top 5% in our portfolio is 15% of their company's unicorns. And so that's a great benchmark for us when we're looking at other funds. But that's just not the entire benchmark that we're going to look at when we're looking at more mature funds. It's what's meaningful to the fund. Right. Like we have one fund manager who has one unicorn who returned 20x the fund. Right? 20x DPI. Yes. So it's not just a markup. And so I think this is another thing, like, hey, should we only be looking at exited unicorns? Because it's great that it's paper marks, but should we actually do the analysis on exited unicorns? Should we actually take out 2021 minted unicorns?

Right.

Like there's a lot of things you have to look at before you let the data inform how you're going to invest and move forward and what you're.

Taking away from it.

So I think again, data is great. We have more and more data and I think we're going to have more and more data sets that are actually credible to use. But the first thing is making sure the data sets are credible and then what you're actually supposed to be taking from it and what you're doing with that data. And so really we've, you know, we've used the data to form and refine our investment approaches.

You know, we did a bunch of.

Analysis if we did a certain percentage of a fund on a consistent basis or if there's a consistent check size.

How of our, whatever fonts have performed.

We do a lot of back testing of our own data. But again, it's just going always a layer deeper on the analysis to make sure that what you just uncovered in the analysis is true. Because again, if you're including 2021 unicorns, you're probably skewing your data set to what's actually the value. So I think we just have to be, you know, always dig a level deeper on the analysis and make sure that we're not letting the data tell the story we want it to tell.

I want to play hypotheticals for a second. Let's say I'm an emerging LP and my like I have a smaller check size in the grander scheme of things I want to allocate towards emerging managers. I'm looking for data, but I don't have the data sets in which Sandana has and I don't have the data sets in which these other larger institutions have private, lots of private data have. Where does one begin in terms of obviously one being an LP and send on is, you know, that's one way. But let's say my check size is smaller. It's a 500k to a million dollar check, which is probably smaller than what Sandana might take. I'm putting words in your mouth, but nevertheless, let's say smaller. How do I approach finding data and building a data set for the first time?

So it depends what you're doing. If you're looking at emerging managers, they typically don't have thick track records. So you don't necessarily need a dataset. I mean, listen, people use Cambridge Benchmarking or Burgess or Whoever and vintage year benchmarking is not the correct way to look at venture. Right? Because if you have one fund who invested their entire fund in 2012 or you have another manager who took five years to invest, right? Like the companies that were invested in the fifth year could have a pop. And so you don't know. And so for me, like, I think in general most people are using data incorrectly, so it doesn't matter. For me, like thinking about if you're an lp, which data should you use? And it really is looking at each manager that you're assessing and how they stand in that certain field. Like you should be able to assess, okay, these, if it's a newer track.

Record, they're not going to have a.

Ton of markups or exits, right? So you're really assessing their thought process, their networks, really their connectivity, their ability to get in deals and who the capital base is around, how those companies have progressed, what the traction of those companies is. And that's why I say it's, it's the data is used for like how should I model my portfolio? How, what check sizes I should be writing. So for us, we looked at it and you know, we need a certain look through ownership percentage of the underlying company. So we took that for our managers, right? We want to see at a seed fund and you can take this part of data and to make sure they have the right portfolio construction. Right, because that gives you the best potential outcome. So I would use data to inform how you have a thesis on what portfolio should look like because that should give you a best statistical chance of outcomes if you can find a person who you think is going to be a better picker and better winner. So the number one thing is where are they sourcing? Are they sourcing the best deal flow? Are they sourcing the best founders? Do they have the capability to pick and win? And that's what you're sourcing if once you put a portfolio construction around it. And so for us, what we think about the portfolio construction is that 10% of a seed fund size. So like if it's $50 million fund, it should be getting at least 5% ownership upon entry. That means that, you know, a unicorn exit will at least return the fund if you catch the outliers. If you have less than that, then you catch an outlier and it's not going to return the fund.

It's not going to be meaningful.

And so we apply that same philosophy to our own portfolio construction where we want to write a meaningful enough check to the funds so that we have a meaningful ownership in the look through companies. And so if you're an LP and wanting to make fund commitments, you should think about it that way. You shouldn't invest in 100 funds. You should probably invest in enough where you're getting enough ownership of the look through companies where it could return, you know, all of your fund commitments. If the one fund hits it in.

In many ways it probably is on the, let's say in the hypothetical scenario and feel free to like course correct me here, which is you figure out like hey, you know, here's my, what my fund to fund, hypothetical fund to fund size would look like in order to let's say return a. I'm making this up like 50 million dollar fund to fund size. What you're really looking for is a single company, not a single fund, but a single company ends up returning 50 mil in and of itself. And that is a function of how much of a check size in which you have in the manager and also how much ownership in which they have. So if they come in, they go for 20 ownership over time. By time of exit, they own 5%. You want that 5% and your ownership over that 5% of equity to return at least some meaningful DPI to you, correct?

Yep.

You know, we just had a company exit that will return 20 of our fund of funds. And so that's what we look for is that you're really looking the end of the day, it needs to have that look through ownership. So if you're an LP looking to look at emerging managers or any type, it really should be like, you know, what is your ownership? And so, you know, I think a lot of people like the broader portfolios. My team really likes the concentrated portfolios because by the time we have a fund of funds, you have enough shots on goal across and so your ownership is meaningful and you have enough shots on goal. So if one fund doesn't hit one, it's not great for that fund. But we're still okay as a fund of funds and how the accretive company.

Number of shots on goal.

That being said, I tend to lend towards. I don't like super concentrated. I still want the statistical averages going back into the multiple inputs into a model. I want them all to be perfect or give me the best for each fund and so I fall somewhere in the middle there.

But I do think, you know, I.

Think you don't want to lean so much into ownership that you have adverse selection and you reduce your chance of an outlier. But you don't want to be so, you know, spread thin where you have so little ownership, where that outlier doesn't isn't meaningful anyway. So there's a balance.

One of the things that you do and doing 40 plus reference calls, and I think you mentioned this before, which is mutual references are worse than negative references references. Is there one rhyme and reason behind 40 reference calls instead of 30 or 50 and then two don't have to answer both at the same time. I can follow up with the second one after but I want to seed it in your mind right now, which is to spell things out. Why are neutral references actually worse than negative references? And what might be some examples of mutual references.

40 was just a number that we said because there's probably the median number of references that we were doing and that was implemented and how we worked when I started. So I never questioned it, went along with it. But now that I've been here and now that I've been a part of the referencing, I think it's important that you talk to everybody. You don't going back to this, if I see talk to three people and I hear one thing, I might not hear what the other 37 are going to say. And so you're only getting a small sample size and you don't get the full picture. I think it's important because you start to see themes, right? Like what is their superpower, what is their weakness, right? VCs call customers before investing. They want to hear what the customer pain points are, what they want, how happy they are. We want to know the same things. We want to be a productive partner. You don't hear things if you only do a subset. And we want to be able to to give the constructive feedback and understand if we are going to work with them over this fun cycle, this is where they should be spending their time and their energy because this is what founders find valuable and this is what they find a weakness. And so we should hopefully convey that to them so that they can course correct. I think what's also important is we as LP think we know what founders want, right? That changes in every market, right? When I started at Sandana, the thing we heard from our GPS consistently was like, hey, the hardest thing for them is to hire the engineering talent you're competing with at that point. Facebook, Salesforce, etc. On the comp side. And it's just very hard to recruit. I would say the challenges now are probably a little bit different. And so that's from our GP's perspective. But talking to the founders what their biggest challenges and how they view having a multi stage fund lead, a seed versus a seed fund. Like we, we are in our little thought bubble and if you're not outside talking to the real customers and the real people, then you're not going to have that clarity. And so I think it, you know, going back to strong opinions loosely held, I want to make sure that I'm completely always refining what I should be optimizing for when I'm looking for a gp. I think a neutral reference in my mind is where the founder isn't going to say anything bad. I think for somebody to give a negative reference, they're putting that coming back to them on the line. And so I think that unless you have a close relationship, a second degree relationship with founders, which I think is why it's important that we live where we invest.

Right.

Typically there's some connectivity to the founder. I either worked at a startup where that person knows somebody that is now a founder in my network or hey, you're my neighbors friend, right? Like I think that important connectivity of us living where we work because then we are trusted to that founder and hopefully we're getting the truth. That being said, I think founders are not going to often give a negative reference because that can again come back to them. So if they're not giving you tangible examples of how that GPS helped them, they can't rattle off all the things of why they love working to with them. They're not espousing, they're not going to recommend that GP to their founder friends, right? And so that right there just says like that's fine but you're not going to get deal flow. And so you know, you use the low hanging fruit to get that founder in your network but now that's not going to flywheel and get you the next founder. And so I think you can really tell a lot. I think this is about knowing who you're referencing with the barometer, right? Because we definitely even in our own network have gps who are never going to say anything bad. So but like where on the barometer are they of positive to neutral? And so I think it's understanding who you're doing the reference with and hopefully have some connectivity with them. There's many founders we've talked to multiple times and so we can have a really good barometer of that. So yeah, that's why I think you really have to pay attention to neutral references because if you're thinking oh it's fine, I don't think fine is going to win deals or create something big.

I mean effectively, you want to live rent free in a founder's mind or someone who could possibly refer you deals. And if you don't, if there's no obvious reason as to why, oh, you're the first person I think of when I think of AI deals, when I think of infrastructure deals, you're really not going to get that deck, no matter how good of a friend you are. Because almost on that recency bias kind of thing, you're going to disappear into obsolescence in their mind pretty quickly. I'm really curious. Along the way I stumbled across like, you know, I think you, your team was diligencing curiosity Kirsten at Forerunner Ventures. And in that process you spoke, speaking of references, you spoke with the founder of Warby Parker and he said Kirsten was his first call for everything. Even at 5am if you could recall what was the set of questions that led you to that insight?

Okay, so that was predates me, so I can't take credit for that. That's a Michael reference. I think you can ask specifically or founders will volunteer that, like hey, hit the fan. And you know, she's the first person I called. Yeah, I think you can really suss that out. You can ask that specific question like who's the first person you call? Yeah, if something were to go wrong, who on the cap table is the one that you're going to call? And you know we have many times where we speak to founders and there's more than once in Nona GP on it and we ask them to stack rank. Right, Like Stack ring, tell us who does what, like who. If you are going to refer a lot of times they'll say, well if it's this sector, this founder, it's like, no, if you're going to start another company, who are the top three in the order that you would want to go to? And I think you just like, it can get uncomfortable but if you press them, you know, again it goes back to having the rapport and relationship and trust with them. If you have that on the conversation that you can press to really get them to have an honest feedback of it.

Speaking of calls, this is post investment. You do monthly calls with all your GPS and your large LPs. That is a lot of calls. That's like more than five dozen calls if not more at this point. How does that work?

Spend about 30 hours.

How does that work? How do you get anything else done during that period of time?

Well, so I will say we started Doing time blocking. In January, I finally looked at our calendars and like, this is not sustainable. I'm not going into the city for some meetings, etc. So we started doing time blocking. So we blocked it into like Monday afternoons, we do calls Tuesday morning. So we do all the manager calls in one block. And then it can be rotating which partner is on the call. So we do have one data person, one associate, investment associate, and one partner on each call. And that's so that we get the notes, all the data captured, and the partner can make sure that we have all the important things covered. So, you know, that being said, we do the time blocking, we do them all. I think it's really important for relationships, for our capability of re underwriting our managers for, you know, I think it's one of the most important ways we operate and to be able to add value and to be able to, you know, really work and add value to the ecosystem. There's no way I'm ever giving that up as a part of how we operate.

Right.

So it does take a lot of work. But again, I think we have optimized like a way to do it where it eases the burden on the team.

I'm curious, I know you rotate through this like, how did the dynamics go pre meeting and during the meeting in the sense that do you ask like, hey, GP, bring an agenda 24 hours in advance or do you go like, hey, here are the things that we want to talk about. How does that usually work?

Yeah, so it's meant to be a no agenda call. I think you get a lot more thought like they can reach out to us on WhatsApp, Slack, email, etc. For these like real tactical, real time questions. So typically that's the best way to address those. This time is more bigger things. A lot of times we don't mean for it to be a portfolio review. That being said, we have several managers who definitely prepare. Like, these are the deals I've just done. This is what's going out for funding and hey, hey, this is where I want to spend time and think and they structure the time. And for me that shows a lot of preparation, optimizing their time and making sure they're getting the most out of this. 30 minutes with us and that's appreciated. There's somewhere, you know, that we don't do it, but it's still very valuable. And I would say shout out to Julius and Thomas on our team, they do the prep work on our side. So, you know, they go back to the Prior few months of calls, like what was an open agenda item that we didn't close? Like did that company end up closing around? How is this going internally? Like they go back through all the call notes or anything that's come up internally and they prepare notes so that we have them ready. You know, this is a goal that I hope I can take off their plates with AI. We have the data team working Rohan and Fur, our newest hire or you know, we're up sampling AI tools right now, hopefully automating that part of Julia and Thomas's job. But they've done an amazing job in supporting us on the preparation for the call to make sure we're not wasting our managers time either. But it really is meant to be. If you're thinking about building a team, how can we give advice? Right. We also have strategic LPs so if we know which companies are coming up for funding, we can use our connectivity to downstream capital to hopefully highlight the right companies and understand if they are the right fit for which funds and give ideas. Right. We're an extended part of their network. We view ourselves as an extension of our GPS team. We view ourselves as an extension of our LPs team and so we really want to be able to provide that value back. And so it's best that we prepare for the meetings. So yeah, and the LPs, it's mainly that we're helping them go directly into funds or they're interested in directly investing into underlying funds or funds that are going to outgrow us or even that aren't even in our ecosystem. We hear about new funds being started that are larger or not a fit for us. And so it's really to compare notes on what's going on in the market. Obviously an investment update, but I think we get that through the data and everything we share. So it's more of where are they spending their time, what are they interested, what are the holes in their portfolio and how can we be helpful?

How often do you send investor updates as a team? Is it every month or is it every quarter? Is every year.

So we do two big deep dives a year and that is really like, you know, we're, we're working on one now called the mid year review and then for the annual meeting we do it and those are really deep dives into like how many companies are alive, what stage are these companies at? What are the trends within the portfolio? Who, which companies are the top performers, how are they performing? And I'd say, you know, not much when you have 400 plus companies and an underlying fund of funds. Like you don't need the one off, like this company raised this amount data. It's really how is the portfolio progressing? And so I think the two big deep dives are, you know, we could do smaller ones but it's not going to have as much change as the big deep dives we do.

And I'm curious because you mentioned earlier in this conversation that you invest in nano funds as well and These are like sub 15 sub $25 million funds and you guys anchor as like 20% of that fund. I imagine for a lot of these opportunities you're also taking, if they have one, an ELPAC member seat. And so I'm curious, how would you bifurcate that? What's different between taking an LPAC seat and like providing value to the fund managers versus the monthly calls in which you have with the fund managers?

Yeah, the LPAC seat is just for governance, right. It's to check in and to make sure things are going and they need to make sure that the LPs are updated and they're going to be there. So if they're, if they have the transparency, they're going to be supportive for the next fund. So I think lpacs you should use correctly, right, because they will introduce you to other LPs, they will be supportive of you for your next fundraise. The more transparent you are, the more data you give them, the more they're informed, the better operationally you are perceived. All of this you should definitely use your lpac. That being said, like the LPAC isn't come to of like, hey, this term sheet is not really in my strike zone for valuation. How should I think about the check size and how should I think about portfolio construction if I write that check size or you know, more of that tactical advice. And so I think that's like, you know, broader, like a VC company using a board for certain things. But like the day to day is where we want to play and be, you know, that trusted confidant.

Well, they're in the back half here in the fourth quarter. We've gotten past our halftime show already. I want to take a step back from all the LP GP venture stuff and just ask you some questions to kind of like share the humanness behind Kelly as well. And so I have really two questions here to kind of round us out here. I'm curious as a proud Broncos and Peyton Manning fan, the latter of which since 1994, which he became the starting quarterback for the Voles and as someone with a brother who was a part of the first pair to land a quadruple Salchow, if I'm pronouncing that right. Okay, so for those who are as, like, you know, uninitiated as I am, it's spelled S A L, C, H, O, W, but I think it's pronounced Salchow. Right. Like, okay, so as the first pair to land a quadruple Salchow jump in an international figure skating competition in 2007, what's your Mount Rushmore when it comes to indelible sports moments you've been fortunate enough to witness?

So the funny thing is, is when I quit skating, my brother skated. I couldn't watch. I would get so nervous.

So. So no more watching, brother.

You know, I would say, honestly, I mentioned it earlier, like, Peyton Manning, his last game in college, he lost. It was Nebraska at the national championship. But that father daughter trip, like, I can remember it better than a lot of games. Another game that the Broncos lost, I traveled to Colorado. It was, like, negative. I forget how cold it was. The coldest game in, like, Bronco history. But I remember it because it was an insane loss for the Broncos. But I was there with my dad. So I think for me, sports is as much as about, like, the emotions and the fanaticism, but sharing it. And so, you know, I think the things that I remember are, like, either my close friends I was with or my family I was with. And that's why I remember them. And they're not necessarily the best outcomes.

It's the experience, the shared experience of going through each other.

Yeah.

Okay, last question here. I guess another question is, like, how do people find you? But the question before that, as someone who's once tweeted, your preferred method of going out is by dying of laughter. What's the last thing that gave you more than a chuckle?

It's funny that you use the word chuckle, because that was last night. And it's what made my son crack up. And so it's not appropriate to talk about the fact that my son said it. Anyway, it's something to do.

Now I want to know even more. Like, you've teed all that up.

Okay, well, so my son and I, if he, you know, kids need back to the gold stars, they should be internally motivated. But giving him, you know, 10 and 10 minutes of Instagram, the Internet's funny. We don't have America's Funniest Home Videos you can watch. So we watched the snippets on Instagram and there's a guy on there that was talking about shits and giggles and how it should. Men should not say that should be poop and a chuckle. And that word to an 8 year old boy like potty talk is hilarious. And so just dying laughing over potty talk. And so anytime my kids laugh like that, it's hard not to. That's the beauty of kids. You relive the innocence and the joy that they have. And so I'd say, you know, the laughter I get, I'm a pretty serious person unfortunately and but my kids can bring really out the childhood of me and be able to relive it. So I'd say it's the potty talk with my 8 year old.

This is too beautiful. And there's not a better note to end on than that because so many of us, like I think we take like a lot of us take ourselves too seriously, myself included at times and I forget the innocence of childhood and there's simple things that just make us laugh and I, I think about those moments very fondly. Anyways, Kelly, thank you so much. You're in a lot of places, you post a lot on socials as well. Where's the best place to find you? Mainly for the LPs in this audience who are looking to learn a little bit more about allocating to venture and underwriting emerging managers. Where's the Best place? Twitter, LinkedIn, email? Where do you prefer investing with us? Straight to the data room.

Straight to the data room. I think the best way is honestly through our network. Like I think it's, you know, I looked at where we've gotten introductions even from people. It's getting in through our network of why we need to know each other. I think the sheer amount of new managers, people trying to learn, it's very hard to respond on LinkedIn or cold emails. And so really it is through our network that I appreciate the effort because part of this is, you know so much about venture is network, right? Like how are you going to be able to utilize your network to help companies to get in front of managers, etc. And so I think utilizing a little bit of effort to use your network to get introductions to people goes a really long way.

I agree, I agree. Give all this extra context as well. But if I will say for those who do want to cold email you or cold message you, I think if they can recall things like hoops and chuckles in this conversation, maybe the cold email will go somewhere.

I would say so.

Well, thank you so much, Kelly. I wish we could go on so much longer, but by the beauty of this podcast, people who are listening are busy as well, so we're kind of timekeeping it to about an hour, hour or so. Kelly this has been such an enjoyable conversation, but as all great conversations go, we run out of time before we run out of topics to talk about. I appreciate you lots, and until the next, stay tuned.

Which I think is why it's important that we live where we invest.

I want to give a special shout out to today's sponsor Alchemist Accelerator. Backed by the likes of Coastal Avengers, Mayfield, Salesforce Course, just to name a few, Alchemist is the top B2B startup accelerator that's been around since 2012, backing founders from day one. And if you've been around for 12 years and running laser focused only on one industry, you build this incredible set of flywheels and positive feedback loop is absolutely insane. We back the best enterprise talent who go on to change the world in which we live in, who then come back to their hometown, coach and mentor for the next generation of world class enterprise talent. And don't take it just from me. Alchemist has backed the likes of LaunchDarkly, Rigetti, Privicera, Moengage, Farmwise, just to name a few, many of which who have come back as mentors and coaches for the current classes of Alchemist. If you're curious and want to get more involved in the Alchemist ecosystem, check out alchemistaccelerator.com superclusters that's an S at the beginning and S at the end, and we'll include the link in the show notes below. Till next, stay awesome. Hey Superclusters fans. David from post here. And if you're tuning in from Spotify, Apple Podcasts or wherever podcasts find your ear, it'd mean the world to me if you left a review. For Those from the YouTube universe, let me know if you agree or disagree in the comments. And it'd mean a lot to me if you could share this episode with just one other person who'd get a kick out of today's topics. I'm on the road to publishing to at least 100 episodes of Superclusters, so every comment question review helps me make this experience more helpful, exciting, and fun for you. And lastly, I want to share a quick disclaimer. The views expressed in this episode are for informational purposes only and are solely the views of myself and the guest alone. They are not representative of Alchemist Accelerator. None of the views expressed herein constitute legal investment, business or tax advice. Any allusions or references to funds or companies are for illustrative purposes only and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions. And that's all from me. See you on the next.