Beezer Clarkson, General Partner at Sapphire Ventures, on the LP Perspective | Seed To Harvest Ep28

Hello everyone, and welcome back to Seed to Harvest with your host, me, Paige Finn Doherty. I'm a founding partner behind Genius Ventures, which is an early-stage venture firm focused on future of work and future of play. I also wrote Seed to Harvest, which is an illustrated children's book about venture capital. I'm really excited to be joined by my friend Beezer today. She is Elizabeth Beezer Clarkson. Beezer leads Sapphire Partners investing efforts domestically. And internationally and is a board member for the NVCA. So previously she spent 20 years at Morgan Stanley as part of their global infrastructure group and ran day-to-day operations of the Draper Fisher Jurvenson global network, which then had $7 billion under management across 16 venture funds worldwide. She also led the launch of OpenLP, which is an incredible effort to foster greater understanding within the entrepreneur-to-LP ecosystem, and was named in 40 Over 40 Women to Watch in 2014. Beezer, welcome to the podcast. We've been Twitter friends for a while, so this is a special treat.

Oh, it's such a treat for me. I know I've been watching your career unfold on Twitter, which has been amazing. Amazing. Congratulations.

Thanks. Thank you. Yeah, it's been so fun. I think honestly a lot of your content has been really instrumental in understanding more how institutional LPs think about evaluating firms. So I'm curious for the context of our listeners, can you touch a bit more on what you focus on at Sapphire?

Sure. So Sapphire Partners is about 10 years old. And we're focused on the same thing the whole time. We are LPs in early-stage venture funds, predominantly in the US, but some in Europe and a little bit in Israel.

And in your journey of evaluating fund managers, what are— I'm curious, like, what are some of the patterns that you've seen play out over the years? And if you can touch on maybe how, like, we were talking about this before the show, but like how COVID changed your approach to making investments.

I wish Well, I actually think the fact that there's no one template for what makes a great VC part of what makes early-stage venture awesome, but it makes it hard to answer your question because the great news is you're bringing a different way of doing it than what people did 10 years ago. And that's, that's part of what just like lights me up and makes me think it's awesome, but it does, it does make it tricky to answer. I would say my best answer is trying to understand with every manager we meet, why you, like, why are you doing this? Why are you investing in what you're investing? Why is the entrepreneur picking you? How are you gonna do your portfolio? And just sort of asking a lot of questions to understand the 360 of what they're doing. Because what we're sorting for are, and every, just a caveat, LPs, you'd be surprised at the different return expectations different LPs have.

Mm-hmm.

So not everybody's trying to sort for the same thing. What we look for are, for a Series A-focused fund, somebody that we think is gonna deliver a 3x net.

Mm-hmm.

And for seed and pre-seed, it's 5x or higher.

Yeah.

So when we're asking all these questions, we're really trying to understand, okay, Paige, what are you doing? And as we understand this, do we think that is gonna hit these kind of targets? And you might not be shooting for them, and that's fine, but that might not be a fit for us. And just trying to understand all that.

Mm-hmm.

And what we've discovered during the pandemic is the use of Zoom. And sometimes that's great because you could spend more time with people virtually. But what, what we were talking about before is that historically we like to spend a lot of time getting to know people in person. Especially if we're investing in a new geography or something that we're trying to understand. And that's frankly still a learning curve for us and for me personally, because I just get such a better feel for who people are in person. So we've, I've been on, I'm just on a lot of planes. I don't have a better answer for it. I think when we started investing in Israel, I went there multiple times in one year just to get a lay of the land and understand.

Yeah, it makes such a difference when you have like, well, I find when I land in a new city and try and get my bearings and see where like the different, like stores are and like things that I'm going to do every day. I feel like it's much the same with like building a local community is it's difficult to get an understanding of who someone is without like having that community 360 as well as the internal 360 that you mentioned. I think in my experience, a lot of institutional LPs focus quite heavily on reference checks for that same reason because, you know, certain aspects of the communities that fund managers are a part of might have like a different story to tell or a different like aspect to highlight. highlight about fund managers. Sounds like that has been part of the, part of what's been missing for you. I find that's probably a lot more natural in person. Is that right?

Yes. And 100% to your point, if you were saying you're gonna invest in a type of entrepreneur that's, I don't know, the next generation future of play that's coming out of certain companies, I don't know how I would physically go and spend time in that space, but that is what, but, but references play that part.

Yeah.

Right. Because then you hear the resonance of, oh, we, this is weird how we engage with Paige. Here's what she brings to the table. Here's why we choose you, right? Because I know we're in a bit of a down market now, not excluding that, but there's still competition for great deals.

100%. I think it's like almost more competitive now because it's like the great deals are just getting continuously more and more competitive, or at least.

Well, I don't, maybe we'll see a resurface of this, but the proprietary deal flow that nobody else has, I just think at some point in the last few years in venture, we just Eclipsed it. There's reasons why people pick who they pick.

Yeah.

And that's, I guess, the definition of proprietary. But yes, there is, investing has become very widespread, which is interesting and amazing and excellent, but it does increase competition.

I feel like it also leads to like a lot of different granularities with when it comes to like fund composition or structure. You were talking about before, that's an aspect of how you evaluate fund managers. And I think that my journey in fundraising has shown me that like your fund strategy and portfolio construction are really way more closely tied to you as a person than you might think from the outside. So for example, like thinking about how you develop an investment thesis, like what you're naturally drawn to and how do you communicate that to a broader audience of folks. And then like thinking about the portfolio construction, like where are the risks that you're willing to take and how do you, how many like relationships Relationships do you want to nurture and at what level? And so I feel like that's been a really interesting discovery aspect for me, cuz people are just like asymmetrically shaped and good at different things. And I feel like it's, yeah, it's been a really interesting like discovery process.

I love that you said that, by the way. Can I just pause on that? Because I've, I don't have the data to support this, which makes me crazy cuz I love when I can pull back on data, but I have a strong gut that if you align who you are as a person, mm-hmm. And what you enjoy doing and your superpowers to the kind of investing you're doing. I mean, investing, if you become— everyone doesn't have to, but when you launch a venture fund, it's a multi-decade experience.

Oh yeah.

Right?

Yeah.

Well, it doesn't make sense to me that somebody's gonna wanna do something for multiple decades if it isn't aligned with how they get energy and give energy. Mm-hmm. Because it's not an easy job. I know it looks easy on the outside, but it's not.

Right.

Anyway, so I love that you said that and you said it so much better than I ever could.

Oh, thank you.

I, I really, it's a big part of learning who people are as people is And they can say like, well, this is a Paige deal and it resonates.

Yeah. It's like about even if it develops over time, like how to say that though, cuz you get like an energy or a vibe from it and you're like, this, like, this is it. But then you're like, how do I describe this to other people? So it's like building a fund to me has kind of been like building a Rosetta Stone for who I am as a person. And then that gets communicated to the outside world. But I wanna hear about like your Rosetta Stone for that, for that context, like what At what point did you realize that you wanted to work in venture and why have you stayed all these years?

Well, the, the last part's easier to answer. I lived in San Francisco pre-tech boom, right? '96, '97, where San Francisco had a lot of different businesses. Like working at The Gap was a huge deal. It was super cool. Like, I know it sounds archaic now.

Like the corporate companies, right? Yeah.

They had like this— now everyone talks about like the Google luncheons and all the lunchrooms. The Gap lunchroom back in the day was the lunchroom to go get into.

Love it.

So you can see the face of the city's changed a lot, but it was clear that technology was happening and I was going to business school and I was like, oh, I'm gonna miss this. So I spent my whole business school career trying to get back involved with tech and I tried to figure out why. And I realized it's, put it simply, for me it's where the magic happens. Like people do not do early stage startups or early stage venture if they don't think the world's gonna be able to be changed and look differently in the future. And they try to do it in a way that they think is gonna improve it. And it could be something like next generation infrastructure. Or it could be future of play. It doesn't matter. You don't do it if you don't think the world can be improved on, which just kind of lights me up.

Mm-hmm.

And I spent business school trying to work in a startup, and I was, this is full disclosure, I was a banker and a consultant pre-business school. So check all the boxes. Turns out nobody wanted to hire me really, really in like a long-term gig because they thought I didn't have any product chops, which is probably true. So I went back to, I was like, well, if I can't find a company that fits for who I am and who they want, And at the time I was looking in the New York tech ecosystem and this was 2000 and it was DoubleClick and a bunch of teeny tiny new companies. It was a much smaller ecosystem than what it is today. You can fit it all in like your pocket. A friend was like, why don't you just go on the investing side and help launch them? And it was just such an obvious connection point, but it took a friend sort of making the obvious connection. And again, very stereotypical, I called some alums from my business school. Me again, like check all the boxes and they were like, oh, you, you're an athlete. Why don't you come work for us? So sometimes I, I say this because sometimes the stereotypical behaviors can help people.

Mm-hmm.

Even if I'm not the stereotypical venture investor.

Yeah.

So I started my venture career at a sub-$50 million first-time fund, emerging manager with an incubator attached in the Meatpacking District of New York City, which was not the hip place it is today. It was very on the emergent side of things. Read a little dirtier, a little, you know, a little bit newer, a little bit more watch your back when you walk down the street. But it launched me and it was great, and I bounced around different aspects of venture and then discovered the LP world. And I think it's just the many-to-many, and as an LP you can touch so many more. And to me, that's always been a, just very attractive. It's just how do you get the world going in a way that allows you to amplify? Hmm.

Yeah, I really like that. I find when I talk to, I've had like a handful of other fund managers on the podcast, I find that that's like a very common click for them. is like, oh, I can have more impact as I like move up and become a venture investor and support a bunch of different companies. And then the many-to-many aspect of being an LP is like, oh, I can support the fund managers who are supporting many companies and see, seeing the world shift and having an impact in that way seems like it must be pretty cool.

I was a liberal arts undergrad, so I enjoy the intersection of macro and micro and interdisciplinary things, which Happens at venture and happens in the LP world. So from that level, it's, I don't know, I've always gravitated towards it. And at some point you're like, seems to be what I like. Why, why fight it? Yeah. Right. Instead lean in and enjoy it.

Okay. I love that. And so I wanna talk about since starting #OpenLP, which if you are a fund manager or at all interested in learning how institutional LPs work and why they work and anything of that nature, that hashtag on Twitter is a really great place. Beezer started that. It's a resource for emerging managers to demystify the LP perspective. So you've had a really great impact on demystifying the LP landscape, not just for me, but also for others. So I'm curious, what can other emerging managers, entrepreneurs, and limited partners do to create better conversations around allowing like a more diverse next generation of fund managers to flourish in this ecosystem?

Well, first of all, thank you. I'm so glad you find it useful.

It's awesome.

I have to say, thank you. Thank you. I think I always play with some information and I, my numbers might be slightly off, but when from a creator versus experiencer standpoint, there's always less folks that then create than people that ingest the information.

100%. It's like 2% of creators.

It's much— yeah, that was crazy.

I thought it was gonna say 5. And the average Twitter user tweets, I think it's like 11 times a month or something like that.

Yeah. So would I love it if every LP got out there and wrote a blog about their portfolio allocation strategy? And I was having a conversation with a friend earlier and he was like, why is there no, like, LP book. Like, there are all these VC books about, remember when we invested in so-and-so and there was da-da-da. And he's like, there's no LP book. And I was like, there is no LP book.

That would be a good book. Beezer, are you gonna write a book? If anyone here is listening that's a book agent.

Okay, pause. You don't know. Um, but so would I love it if everybody did that? Yes. I don't think, I think this is one of those areas where the, The more is just better.

Mm-hmm.

There isn't a, this is not a zero-sum, thank goodness, right? I love things where it's just more is better. But I think the reality is most people do not wanna create content for whatever reason.

Yeah.

So the people, but I would say to the point of better conversations is, and this is a small thing, but I think it will help a lot of people is, and I'm sure it's true, tell me from the GP entrepreneur standpoint, when emerging managers or established managers, I don't think that makes a difference, talks to an LP.

Mm-hmm.

Ask them about their, what they're investing in and what they're seeing. 'Cause when I ask LPs, I am blown away by the amount of information that lives in their head.

Oh yeah. Like, I live pretty happily in a— well, it's, it's kind of nice. It's like, I mean, I think that that's been our bread and butter is like, we provide information about like the market, how fundraising is looking to our entrepreneurs, and then I lean on our investors for like the same information. It's like if you're investing in 30, 100 venture funds, like you're probably gonna know more about the market than like Me. And so I think that that's super helpful, that confidence.

I think it's a huge, hugely untapped resource. And it gets to, 'cause everyone's like, oh, it's not transparent, which it isn't. And I don't know what LPs are actually investing. And so if you, I think you can approach people and say, hey Paige, tell me about your program. Mm-hmm.

Mm-hmm.

I would love to hear more about it. People will tell you, people will tell you.

Yeah.

And then you'll know if they're actively investing and you'll know if they're investing in early stage or later stage. Mm-hmm. 'Cause what, What the mistake I think people make, and I, I hate to call it a mistake, but it happens so frequently, is to immediately launch into the pitch.

Yeah.

Versus saying, I wanna spend the first 10 minutes really structured on the agenda to understand what you're doing, Mr. and Mrs. LP. And then ask some questions like, what did you see in the last downturn? What was a successful strategy that venture funds used? I mean, presuming they've lived through it, like, yeah, it's like it's the book that hasn't been published, but is sitting in front of you and I hesitate to say this, and again, I'm sure this is the same experience GPs have with entrepreneurs. A lot of times I, the feeling is a bit that GPs are approaching LPs like an ATM, like, can I just have a check and leave? And I get it, but you're missing out. The point of the dialogue, it doesn't have to be on Twitter. It doesn't have to be a big article.

Yeah.

You can just be in the room and you'll learn a ton.

That's super cool. I feel like the questions that I became more comfortable asking over time were around like, what does your portfolio construction look like? Like, I'm thinking about this as a fund manager. Like, how do you think about it as an LP? Where are the parallels in our business? And like, how have you made certain strategic decisions? I think like the interesting thing is across the LP world, it'll differ if you're talking to an institutional LP or you're talking to a family office, or you're just talking with someone that really resonates with your mission and hasn't invested in a fund before. So I feel like the scope of the LP spectrum is, is quite Astonishing when you think about like that effect is, is really interesting, especially when I talk to founders who it's like you, you raise a Series A usually from like a larger venture fund, but it's just like not as clear-cut necessarily for fund managers. To your earlier point, I'm curious, what do you wish that GPs knew coming from the LP perspective? Like what are those things that often come up where you feel like you're like constantly answering that question?

I would say it's a little bit of the, your point about portfolio construction.

Mm-hmm.

I don't think most, I get a number of emails, they're like, oh, hey, can we talk? And I'm like, this is not as useful an email. You're now invited back and forth.

Yeah.

Versus a, hey, I'm raising this fund. I don't know if this is for Sapphire Partners, you should be able to figure out what we're focusing on cuz we say it on our website and other places.

Yeah.

But I appreciate for most LPs they don't. So just say, here's what we're doing. Is this of interest? Could we have a conversation? Versus the, hey, can we talk? Which puts the onus on the LP, which is just awkward because 9 out of 10, they're just, they don't know who you are. They might not respond. And that's not necessarily fair, but you just, you don't want to create any impediment to respond.

Right. It's not exactly like a helpful conversation. Well, I guess like what I found is you need to like provide context and ask a specific question. And then if they respond. About a specific question, then you can be like, oh, can we have a further conversation about this? But I feel like everyone's pretty busy and also in summer everyone's traveling. So I feel like the out-of-office responses are quite often. So it's like if you ask a specific question, people usually get back to you. But if you ask for a call, it's usually like, I'm traveling for the next couple months.

So. Well, cuz it's not, it's not grounded in, it doesn't, you wanna create the impression, even if it's done in a way that's templatized, that you've done your homework.

Mm-hmm.

Because otherwise you're asking, and I'm sure again, it's the same thing when, when entrepreneurs pitch you, you're asking someone else to do the homework for you, yet you're asking them for money.

Yeah.

Which is weird.

Yeah.

It's like double weird. The other thing I, the other thing I'd say is one of the, there's tons of parallels between LPs and VPs. Yeah. But one of the things that's fundamentally different is an LP might have, I'm making this up, 30 active relationships, which they'll spend their time on for the Majority of their work. And it doesn't get refreshed every 2 to 3 years the way your portfolio will when you launch your next fund. You basically start with a clean slate and you might cross over in a couple of your investments, but you're really going to look to do 20 to 30 new portfolio companies. Even with fund of funds that raise multiple vehicles, it is, unless they raise a vehicle for a different set of managers, there's usually a high correlation. So they're not able to, like, we can't do 30 brand new relationships every 2 years. Oh, right.

So, so it's like they move rapidly. weighted on follow-on for most fund requests.

Correct. Consider it, and especially endowments and foundations, things like that. And I think, I think that GPs don't like rock that at a level of, unless somebody's a step starting a brand new program, they're gonna say they might only do one new investment every 12 to 18 months. And they get pitched by, I don't know, a few hundred GPs, maybe more, maybe less. Yeah. But so the, the hit rate's really different. From a, just the, just the thinking of how you reset your portfolio is really different. And everything else is very similar, but it's, 'cause people will say like, well, I can't unless I stop investing in somebody. And if I've been investing in somebody for, I don't know, call it 10, 15 years and they have returned capital, I'm not, I'm not gonna, yeah, stop investing with them.

It's, it's easy. Yeah.

The bar is different. The bar's different.

Consider like the competitive landscape of GP fundraising, especially from an institutional perspective? Because it's like, I feel like that's really the question of like, how, how do you build a relationship and answer the question for them of why they would pick you over a manager that has already returned cash? Like, not like on paper, like cash to them. You know, what makes you special enough to, to like take the place of, of that manager in the next part of the portfolio. So I feel like that's, that's super helpful perspective. I'm, I'm curious, like what key benchmarks should emerging managers keep in mind for 2022, 2023 to set themselves up for success while raising?

I don't know if this counts as a benchmark, but I would say the doing of what you're doing, right? Are you investing your portfolio? How are your portfolio companies going? Bringing the, to our conversation we had earlier, what did you say you were gonna do? And then are you doing it? And if things have changed, why have they changed? Really kind of bringing your body of work and paying attention to it. 'Cause there will be metrics on what the TVPI chart looks like for the vintage and things like that.

Yeah.

That's not really as relevant as, as developing a relationship with an LP that says, oh, well, I think Paige is gonna be doing this kind of work. And look, in a tough market, she was able to do it successfully.

Yeah.

And all those Portfolio interim benchmarks, right? But it's, and they, on paper, they look like kind of how your company's doing. Are they developing revenue? Are they just, are they producing products? But really it's about, are you doing what you said you'd do? And did you do it in an up market and a down market? And I know downturns are hard. I can use a whole bunch of words you'd have to bleep out because, because all of that is true. But the, the silver lining in this is that Markets go up and go down, and if you show as a manager you've been able to work your way successfully through both, that is a very compelling story, comparative to the, I only know an up market and I'm just gonna do momentum plays and believe that someone's gonna come in after me and market my company and I don't really have to do anything. Not that, I don't mean to be dismissive, but I'm saying like showing that like, this is what happens when things are tougher and I've found companies that work in up and down markets. That's a compelling story.

Hmm. Right?

Versus they just had to keep fundraising tons of money because they couldn't figure out how to manage their cash burn.

Yeah.

Less compelling. Yeah. The greater fool fundraising theory works in some markets, but it's fragile, right?

Yeah, it's interesting. It plays off something that you said earlier around like there, you can look at like a TVPI or like metrics and graph those against other folks, but it doesn't show like that true 360 of like what's going on within the portfolio and what are those like minute benchmarks that are, I think, like more leading indicators of success. Whereas I think like TVPI is a lagging indicator, especially when it comes to like price round and safes and like not marking things up and et cetera. I, I think that—

No, because like you could have, I've seen portfolios like this. Yeah. Somebody will get a piece of, I don't know, like Uber back in the day, and their portfolio might be something awesome, like a 10x. Yep. But they were a small check in a company that they had no engagement with after that. I'm making the worst case scenario, right? And so you look at the portfolio and you're like, Well, it's not, it's still money.

Yeah.

So you don't wanna discredit their wisdom in getting it in, but if that's not replicable, like as an LP, you're trying to find out who's gonna have a rep— Yeah.

Like leading, co-leading, developing those relationships. I feel like that's like one of the biggest differences between like what I found being like syndicate or a fund manager. The way that you're evaluated is like those long-term relationships and the repeatability of your ability to like create them over time is Becomes way, way more important. Well, Beezer, I could jam with you forever, but to wrap us up, what advice do you have for aspiring investors or perhaps LPs? And as our last question.

Well, I can't help being an optimist, so I'd say, I know we're gonna be in for a bit of a tougher sledding, but be patient. I, we'll all get through this. If you really are committed to doing this work, then I think people that care about it will find a way. I just, I've seen it time and time again. It might not be easy, but if, you know, as my friend says, making money is not supposed to be easy.

I love that one. My friend says that too. Well, Beezer, thank you so much for joining Seed to Harvest today. If you are listening and would like to connect with Beezer, please visit her amazing Twitter @Beezer232. I'll also link her website for Sapphire Partners in the description, but thank you so much for coming on. I so appreciate your time.

Thank you for having me. I love watching what you're doing out there. Thank you.

Thank you. Thanks so much for tuning in today to Seed to Harvest. If you enjoyed this episode, be sure to subscribe wherever your favorite podcast listening platform is. I'll be releasing new episodes weekly, and if you have any questions or comments, feel free to let me know on Twitter. That's Paige Finn, Paige and then Finn with 3 N's. Thanks and see you again next week.