Emerging Managers and the Future of Micro VC: Insights with Matt Curtolo and Joseph Alalou

Information's cheap, knowing what to do with it is. That's the new scarcity.

Every firm must have an AI strategy.

When you have an infinite number of options, it becomes really less about how fast can you do something, it's more about how fast can you get to a decision.

It's great to have an experienced VC who can be an LP potentially and be value added.

If AI can do the investment memo, what actually is your value?

It's algorithmic or artisanal. That's kind of the camps that we live in today.

Welcome to another episode of the Venture Capital Capital Podcast. Today we are excited to have Matt and Joe joining us. As a quick intro to Matt is an experienced private markets investor and advisor. Over the past 20 years, Matt has allocated billions across venture, private equity, real estate and more. He started his career at Hamilton Lane, led private markets at Hertel Callaghan, and most recently was head of Investments at Allocate, where he helped build a platform democratizing access to top tier venture funds for private investors. Today he works closely with both LPs and GPs, helping emerging managers sharpen their pitch strategy and positioning. He's directly engaged with hundreds of GP relationships, reviewed thousands of pitch decks, and brings the kind of LP insight that separates good funds from great ones. And Joe, our other guest, is the co founder and General Partner of Daring Ventures in New York City, a pre seed and seed stage VC fund. Joe's path into venture is anything but conventional. He went from washing cars and dropping out of community college to graduating from Columbia and advising on 15 billion in M& A deals at Lazard as an investment banker. Along the way he co founded or refounded Wall street after Community College, an organization helping students break into elite schools and finance careers. His background defies traditional VC pedigree. And that's exactly the point. Joe has built a reputation for backing underdog founders and just this year his firm beat out 175 others for a spot in a hot oversubscribed round led by a billion dollar fund. He believes the next generation of great founders won't look like the last, and he's building a VC firm around that belief. Awesome. Well, really excited to have both of you in the conversation today, really to talk about this kind of ongoing trend of new micro vcs and what the future of emerging managers really looks like. And so with that, maybe to kick off the conversation, let's start with Joe. So Joe, your background isn't the typical path into venture. Going from car washes, community college and now a gp. When did you first realize venture was the path that you were, you were going to pursue.

Yeah, you know, it's, it's, it's interesting. It's one of those, I feel like it's kind of a common trope among investors. Everyone says, like, oh, you know, I didn't really think I was ever going to become an investor. And that's really kind of what the story was for me. And I discovered it through, I discovered, you know, my, my love of, you know, what I ended up realizing was inherent to venture capital was I discovered my love of mentorship by running Wall street after community college. I realized through my own path that there's a lot of folks out there who don't, you know, they don't know all that much about investment banking, other front office finance careers because, you know, unless you go to somewhere like Columbia, no one's going to show up and tell you about it. So I started doing mentorship at, you know, at community colleges and trying to connect with other folks who had non traditional backgrounds. And I realized that not only did I love finding these overlooked, interesting folks who had incredible skill sets that really did actually lend themselves towards a successful career in finance, I also realized that I had a knack for sussing out that drive. And that's really kind of what we look for at Daring Ventures. What is your right to win, your will to win, and then that IT factor that separates you. And I teamed up with somebody who was originally one of the mentors in my program, Maddie Holman. She's now my business part partner, co GP and co founder at Daring Ventures. And we decided that we could replicate that thing that we were already doing as an investment strategy which was looking for overlooked, underappreciated and incredible founders that don't fit that typical mold. And it just so happens with everything that's changing with technology and venture capital today, uh, it's really the strategy of the time. We're not trying to be, we're not trying to hop on a trend. We're not trying to be different for the sake of being different. This is just what we were born to do. And it happens to it, you know, it happens to be called an early stage venture.

Awesome. No, I love it. I love, especially, you know, given my background of educating a lot of students. It sounds like there's some, some real parallels between that and what you've built with your program. Matt, I'm curious, what's your background and how did you get ultimately get connected to Joe?

Yeah, interestingly enough, I follow the same non Traditional path to some degree. I've not been in the GP seat, but have spent 20 years in allocator roles as you outlined in the intro so graciously. But I grew up in a small town in northern Pennsylvania where, similar to what Joe mentioned, private equity, even finance, was not the path of most of the folks I grew up with. So I was fortunate to, you know, this was 2004, when I came out of undergrad. I landed a back office role at Hamilton Lane, which was a relatively small company at the time, maybe 50 people or so. And I, I say it's serendipity, luck, karma, faith, whatever you want to say. The company took off in about, about nine months after I joined, so I was exposed to, I always joke I was in rooms that I had no business being in as a 22, 23 year old who just didn't have that experience. But I really got the opportunity to drink from the fire hose and learn all aspects of the business. Working with large institutional investors, having the likes of the, you know, the biggest GPS from the largest funds coming through our doors in suburban Philly. So it was, it was just this almost surreal experience in retrospect. But I've since I fell in love with the industry there and kept finding new and interesting ways to stay engaged and stay involved. So after Hamilton Lane went to work at an OCIO focused on smaller family offices, individual investors and small institutions, a lot of charitable organizations, good works, so you can see the impact even at a smaller level. And then worked at MetLife and then worked at Allocate. So I got to see all these different ways that private markets could touch not just the investment community, but everybody multi layers down, around and across. And that extends through to founders and GPs. In my current role, where I do a lot of advisory work on go to market fundraising strategy and with LPs program building. So actually Joe mentioned his partner Maddie. She had reached out to me after I Believe, a podcast I was on before and we got to talking and there's just so much mind meld of we see the world similarly, obviously attacking it from different lenses, but with very much a shared ethos.

I love it. Oh, that's great. So today's conversation is really around kind of smaller funds, right. And you know, I was talking to a friend of mine the other day and we were talking about how it feels like the venture space is kind of bifurcating in that you have mega funds that raise billions of dollars. You know, the names that everybody knows, the Sequoias, the Lightspeeds et cetera. And then there's, on the other end of the spectrum, a lot of really small funds that are, you know, have a much tighter focus that are doing super interesting things. I, I think maybe to kick things off for, from a different definition perspective, how do you think about like, what is the definition of being a micro VC or a smaller venture fund? Nat.

Yeah, I think it's, it's really defined by each individual llp. But what do you think of emerging micro small, all these labels, I won't say they get conflated, but they're used kind of synonymously. Generally, emerging managers are funds one through three. Call it sub $100 million in fund size. You can add in tenure. So maybe it's a fund that's less than 10 years old. Maybe it's a fund with total AUM less than $100 million. So there's nuance to all of that. But the way I think about it, it's not necessarily fun number. It's the way as an lp, I could underwrite those funds. So that would be, it's a lot more qualitative than it is quantitative. So that emerging manager cohort doesn't necessarily have the historical track record to, for an LP to underwrite, say I'm going to go back through all your historical deals, do a full attribution analysis, things like that. So emerging managers require a different lens, a lot more people focused, process focused. What's your edge? As Joe was talking about before, you really have to understand your right to win. So that's the way I would think about micro VCS today. That can be solo gps, that can be partnerships that can look very differently. Specialist generalist. But I would say that the size and tenure and the way that you can underwrite those as an LP is the way I think about it.

Yeah, no, I love that. Yeah. Especially that distinction of you don't have, as you don't have decades of track record to really look at. And so going deep on the people makes a ton of sense. I, I also like that idea of what you were talking about, kind of that reason, that edge that, that reason to win and, and maybe we turn it over to Joe. We'd love to understand a little bit more about your strategy at daring and, and how you've been able to articulate that, that edge, that, that reason to win.

Yeah, I think the, you know, the simplest way to think about it right now is, you know, tech used to live by this rule of, you know, move fast. Right. And speed was often the moat Speed isn't really an edge anymore.

Right.

We've all got the same tools. Anybody can go to market, you know, very, very quickly. And when you have an infinite number of options, it becomes really less about how fast can you do something, it's more about how fast can you get to a decision. And conviction bias, as opposed to action bias is the number one thing that we're looking for. It comes through with our founders and it also comes through in our investment strategy. We're looking for software that amplifies the expertise of people who own decisions and help us choose from an infinite amount of, an infinite amount of information mission. But it also goes down to our sourcing strategy too because what we're able to do is we're able to generate that conviction around founders who maybe don't meet the normal, you know, the normal mold. Right. We're looking for founders with domain expertise. That's where their right to win comes from. And we're able to get comfortable because of my own, you know, non traditional background, my, my business partner Maddie's non traditional background and our junior investor Lauren. The three of us together, we all came to the same place from very different and very unusual paths. We use those prior experiences as a way of underwriting and getting that conviction bias around why we are going to get comfortable with the founder. And we've already seen it pay off with some of our portfolio companies. So that's really how we're approaching investing at Daring.

Peter, that's great.

If I could add to. I think there's an element too of knowing your lane.

Right.

Of knowing what you're good at. I always say superpowers of a word that gets thrown around a lot. But yeah, you don't have to chase the shiny object. There are plenty of smart people, great ideas across the globe in different pockets to Joe's point, the non traditional backgrounds.

Yeah.

If you were trained at a VC firm at the best schools and all of that, you're going to have a situation where you're going to think one way. So I think the. We talk about diversity a lot, but diversity of thought, the way you approach folks, the ability to see the things that you are the person who is best suited to find those types of opportunities. That introspection, that sort of self discovery, of knowing where you're going to be most effective, then you have to test out if that strategy is going to work. It's not to say that just because you're good at something, it's going to generate great returns, but that's I think a really important piece of this people knowing who they are and where their strengths lie.

And I would, I would actually add, you know, tying back to where the, you know, where this, where the question started. That is a huge driver of the bifurcation because you know those, the traditional kind of mega fund, what many people would call kind of that blue chip background and they're competing for a smaller and smaller number of these really gigantic, extremely buzzy deals. I think Peter Walker over at Carta said consensus has never felt more consensus y and what that means for me running a smaller fund is if Consensys is going one way and competing for this tiny sliver of deals that means there's a lot of alpha out there. And I think that's where the rise of the micro fund really, that's what's spurring it is we don't need to worry about how we're going to get that allocation in the next Y combinator, darling, or a spin out from OpenAI. We're going to go and find those other opportunities out there that are right size for us, that are going to generate the right, that can generate returns for us and our LPs that meet our strategy without having to chase kind of the quote unquote shiny object. There's nothing wrong with those strategies but it's a great opportunity for us, like Matt said, to know your lane and I think that's where a lot of emerging managers and smaller fund managers are really seeing a lot of opportunity and a lot of play.

Yeah, I think that makes a lot of sense. I love using examples to like really get, make things concrete. Maybe could you share a deal or two that really fits perfectly within your strategy that you've closed on recently that you're excited about?

Yeah, one that immediately leaps out. It's called Praxis Pro. It is an AI enabled sales training tool for pharmaceutical sales reps. And you know, when we got introduced to this one, Cam Badger, the founder, he's a former pharmaceutical sales manager. He was in sales management. He does not, you know, fit the mold of kind of your typical, you know, Silicon Valley founder. But he is, he could not be a more daring Ventures founder. He is, you know, domain expert, understands his customers needs and you know, the feedback we were getting from other folks in the ecosystem was like oh you know, another sales tool, another sales tool, another. And it's like yeah, but this is not, it's different because you're not selling B2B. This isn't for account executives selling B2B SaaS to, you know, the next company that raised a Series A. These are, you know, you can't paper the subway in New York and get in front of 90% of your or in San Francisco and get in front of 90% of your decision makers and purchasing managers. This is a totally different game. You're not, you know, this is not cold calling people and doing lead funnels. This is people working at a territory out there in the field helping doctors who have been inundated. They faced kind of the information overload for the longest time.

Right.

And that's where the pharmaceutical sales reps really help. This is Greenfield data that we were. That he's able to capture through the rise of these kind of large language models and voice enabled tools. And that was what we really saw. We saw this is a problem that if you're looking for kind of old patterns, you're going to see this and you're going to think that it's one thing. We saw Cam's, you know, deep domain expertise and his conviction around leaving pharmaceutical sales management to go out and build something on his own and not wait for permission. He went out and was like, it doesn't matter if I'm not able to raise, you know, immediately, I'm going to go and I'm going to build something and I'm going to talk to, I'm going to talk to customers. I'm going to get this in their hands. His traction has been incredible. It's really been, you know, he's developing a product that everybody wants and he could not be more of a daring Dungeness founder. Those are the exact folks that we're looking for, you know, to back with our fund.

I love it. That's great. So I want to shift gears a little bit and talk a little bit about the fundraising environment for emerging managers. And maybe we start with Matt. I'd love to hear, kind of like, what was your experience like raising the, your current fund? What were some of the challenges that maybe were a surprise and also, you know, maybe some of the good things too, that were a surprise, you know, LPs that you wouldn't have expected to come in and write that check and what motivated them to do so?

Sorry, is that to me or to.

Sorry, that was for. Did I say Matt? I meant for.

I was wondering what fund I just raised, but, you know, you never know.

Yeah, I think, you know, one of the, one of the things that we, that we decided that we were going to do when we were starting Daring Ventures was because we were so committed to building a firm and not just being tourists in the industry. We decided that we were going to deploy our own capital up front and work on building out the operations and learning the business of being fund managers. Sometimes we get these MBA tracks in from different schools and stuff, and we always give them this presentation, the unsexy side of being an emerging manager. And it's all of the things from fund formation to HR to filing documents with the Secretary of State, all of that kind of stuff. And then very fine print at the very end of the presentation, it says, and then you get to start worrying about investing, you know, deploying capital, et cetera. So we spent a lot of time building that up upfront because we knew that we can't go back in time and manufacture a track record from nowhere. But what we can do is we can show that there are some operational risks that we can mitigate rather than saying, hey, you know, we're running this out of our inbox. It's all kind of our friends, whatever we wanted to build institutional quality operations from day one. That has allowed us to really differentiate ourselves when we've been talking to more sophisticated investors. Problem with more sophisticated investors, as Matt can definitely attest to, is they're looking for that early momentum. So after building all of that, after building all of that kind of infrastructure and kind of beginning those conversations with an eye on the horizon, we've now pivoted to the bread and butter individuals. You know, those smaller check sizes that. That is the back of, you know, the funds and First Club first funds, but First Close especially, are built on the. On the backs of smaller investors. So we've been, you know, really focused on explaining this idea about conviction bias, right? How that, that this is the new era, right? Information's cheap. Knowing what to do with it is. Is that's the new scarcity, right? And telling that story. And there's, you know, one of the things that has been, you know, very interesting about this fundraising environment is for many people, they hear that and they're like, I just, I don't see it. I think that AI is going to, you know, do all this kind of, you know, whatever. The. There's another side to that coin, though, which is there's folks who are like, yes, I've been saying this. I've been seeing this in my business, I've been seeing this in my industry, and I would love to get involved with a folks fund that is going to start, you know, giving me access to folks who are building in or around my industry. And I can see those early trends that are going to affect, you know, how I make my money, how I make my living, and, you know, how my team is going to work. So we've been managing that pivot and you know, we don't, we don't always know what we don't know. And we approach all problems with that, you know, with that sense of humility and being able to be adaptable, especially in this fundraising environment, has really been yielding, you know, great results. And we, you know, we're very excited that we should be able to hit our first close by the end of the year. And, you know, it is a tough fundraising environment. Calling people up and emailing them and asking for money or asking them to introduce you to their friends who maybe have money is like two of, two of the harder things that I've ever had to do. But it's part of the job and it's part of the, it's part of what we do. And you know, I always, I love learning and learning the art of the fundraise has been, has been a, a huge amount of fun and been a great pleasure.

Awesome. Love it. Matt, let's definitely switch to you and get your perspective. What, how do you think about investing in emerging managers? I know you mentioned a few things that you look for, but also like, if, you know, for those emerging managers that are listening in, in our audience today, what, what advice would you have for them? You know, things that maybe other emerging managers miss, things that they could be doing to increase the likelihood of their ability to raise.

Yeah, it's where I sit now. That's precisely what my role is. Advising a lot of firms. It's, it's this whole intersection of how do I put my best foot forward. There is no guarantee of, you know, I'm going to meet a. It is a sales process. It's. Think of it as enterprise sales. Right. There's a funnel, there's a number of get to those first hundred no's and like really start working that machine. But you never know. I. So there's an emerging manager friend of mine that just recently had a final close. He posted, you know, he went a whole year without hearing yes from an lp and that's hundreds of meetings. So there's this element of resilience. But also Joe used the word humility. There's self awareness that this is going to be really hard to get through. So the things that I orient people around is something I mentioned before. Knowing your strengths, really doing that introspection of one. Why Am I doing this? What do I believe people will say, why does the world need another venture fund? I don't necessarily ascribe to that same logic. If you're doing something that's, you know, that you're really good at, that you can find ways to generate returns and you're able to raise capital, supporting the ecosystem is super important. So on all, on all sides of that, I sort of drive people towards, you know, really understand your why. Sounds basic. But so many people say five years ago, jumped into this because they thought being a venture capitalist was fun and boy, did their clocks get cleaned.

Right.

I mean, it's, it was fun for a little until it wasn't. And now we're dealing with that wreckage. So I feel like in, in a lot of cases, people now people like Joe and the like of a lot of the emerging managers I work with have really gone through that process of, okay, I think we understand what we're trying to deliver to the market, how we're organizing ourselves. We are actually building ahead of the fund that we're raising now because we believe in a firm rather than just a fund and a product where a lot of those funds raised in 21. It's a person who's now back in another operator role where it was just, it was too challenging to get back and raise a second fund through no fault of their own. Not going to say these are folks that don't deserve to be in business, but the market will dictate that. So be as authentic as you can. Understand your strength, understand that this is going to be challenging. I think the median time to closing now is up to 15 or 16 months. So it's a, it's a pretty big number. So you have to understand that as well. But that unique voice, the only thing unique about your strategy is you. So I continue to hammer on that with folks. Don't talk about proprietary or unique. Just really understand and harness the thing that you're really good at. And that's, I think, the cleanest way to go forward. All the other tricks and networking, warm intros. Understanding that getting to a first close is equally as important as all the steps in between. Being in business is a big signal to the market. Having that first close, having capital to deploy a portfolio to look at, you then become a product pitch rather than just a story. So that's something that I, I always kind of orient people to think about. Yeah, there was conventional rules around. You have to have a certain percentage of your target to get to that first close. I don't ascribe to that. I think just get to that first close, get in business and show people what you believe internally and how you're going to build that. And Joe said, the institutions, a lot of the groups that I've worked at and worked with, there's the adage that everybody wants to be the first one to be second. So you have a lot of people watching and waiting. Those early movers are definitely going to be the individuals when you're talking one to one to the principal and they can pull the trigger, the institutions will follow. Right? They're looking for that early traction. They're looking for, can you demonstrate that that story can be put into action through the portfolio that you're building, and then hopefully those dominoes will fall. But it might take a little bit of time.

And I just want to hop in and echo something that Matt said as a learning that we had on the fly, which is staying authentic to yourself. I mean, that is a huge part of our brand is that is authenticity and our unique voice. And we even, you know, had a moment where we had to take a step back and we were looking at some of the materials we were putting together and it was like, we're not McKinsey people. We were doing a bad rendition of like, you know, frameworks and all this stuff. Like, it is important to be able to answer the why. I, I believe, you know, after mentoring so many people through investment banking interviews, I can almost tie everything back to, like, getting ready for an IP interview process. But, like, the three levels of why, like, you need to be able to answer if a check writer's really pressing you, like, well, why? Well, why? Well, why? You need to have an understanding. But that is not. The daring Ventures brand is deep, dense, framework laden, you know, and all of this stuff in marketing materials, that's not who we are. We can speak that language and we have a sophisticated understanding of our thesis and, you know, the underwriting principles, et cetera. But from a presentation standpoint, we needed to take a step back and look at it and be like, hey, it's about our voice and leaning into the thing that we're good at doing, which is communicating a certain way and not trying to be something that we're not. And if we had just continued to go down that path and not continually reassess. I mean, we're founders too, at the end of the day, keeping those feedback loops tight enough that we stop doing things the wrong way, but not so tight that we're iterating, you know, in Perpetuity. And it really just comes down to authenticity and taking a step back and checking yourself, which has been, it's been a learning process for us for sure. But that's, I think that's what makes it so fun, you know, being a first time fund manager.

Yep. No, absolutely. And I really liked Matt's advice of just getting that first close. I remember when we raised our first fund, it took us two years to get it fully closed. And we did a first close. It was a small amount. And One of our LPs is very, he's a very successful fund manager. He was like just close something and deploy it and, and then you have something to sell the, the next group of LPs and raise that and deploy it and, and then it'll snowball. And that's, that's exactly what happened for us. We, we were fortunate enough to make some good early investments and then it became a really great story to tell the next group of LPs and the next group and eventually get to the close that we needed to get to. So. Yeah, I think that's great. I'm curious. One of the things that we wanted to talk about is it feels like there's this new emergence of other larger venture funds. Right. These big blue chip VC funds actually becoming LPs and venture funds. I'm curious if you guys have a perspective on that. Good, bad, why are they doing it? I mean, they're doing it a lot in a lot of cases because they need to be able to get access to deals at scale. Right. Obviously. But there might be other reasons we're talking about.

Yeah.

So yeah. I'm curious if either of you have a perspective on that.

I'm sure we both do, but I'll kick it off. And I think the, the reality is as firms have scaled, their ability to write small checks is just, it's immaterial. The time commitment is not going to be there. But they are still going to lay those seeds out. These option checks, it obscures the market a lot, frankly. I think. So that's talking about a big firm writing tiny checks into deals. The same can be said as big firms writing checks into emerging managers. Right. They want that option value for the best deals that come out of there that are either aligned with their strategy or, you know, they're paying tuition in some cases to learn about new areas of the market that they think will emerge. There's also a case to be made and we've actually seen it a couple times with, I think it was general catalyst They've actually ended up absorbing some small funds within them to run seed strategies because at their size they could never do that independently. So why not just bring somebody in there? So I think there's a lot of motivations to do that. I'd say the other piece is a lot of the partners individually are LPs and funds. So you have not just the firms with the practice, but the partners then investing. I think it's great to support the emerging manager ecosystem. I think it's great to have an experienced VC who can be an LP potentially and be value added. I think that's a great thing. But you want to make sure that that's all aligned. So I'd say by and large these are folks who are looking for the future, putting some capital in. As someone who's building, I'll hand it over to Joe, but as somebody who's building a firm, not a fund, is that going to be sticky? Right. If they invested in one fund and didn't see any deal flow from that that met their criteria, is that going to be a one and done type lp, which is of course not the ideal. We never raising that first fund. Peter, you and Joe both know that all, all capital is green when you're raising that first fund. But if you can find folks who are committed to the long term vision, the better you can be. So a lot of things embedded in there.

But. Joel, share your thoughts. Yeah, I mean I, I, the way that I see it is, you know, it's rather than it being a good thing or a bad thing, I think it's a sign of a maturing ecosystem as private markets are, are growing, you know, Fidelity Higher Sub Advisors, you know, eventually these large asset managers are going to be, you know, quote unquote, hiring sub advisors by investing, you know, in smaller funds. Not quite the same, you know, structure as the public market vehicles, but it's the sign of an emerge of a, of a maturing ecosystem. And I think that it's, I think that it's healthy. Right. You know, as some of these larger, you know, larger funds are turning into really kind of alternative investment platforms, it only makes sense that you know, they're going to want some, you know, I guess this is the, the time where I can make a little stark comment like I guess they're going to want some of that real like venture alpha eventually and they're going to be, you know, allocating to the smaller funds, you know, to try to get, to try to get some of that back and to be able to Offer that, you know, as a, as part of a suite of larger products. And I think, like I said, it's good, I think it's good for the ecosystem. It's a very interesting point of maturation in a, you know, in a business that is, you know, a little bit behind the likes of, you know, private equity, let's say traditional buyout in terms of, you know, sophistication from a, from kind of like a structural and industry level. So yeah, anything to, you know, to continue the flow of capital to new and emerging managers I think is awesome.

Yeah, you know, it's interesting. I was having a conversation with a friend of mine who's an emerging manager and he made the point, he was like, there's only two kind of funds today. There's 2% funds and 20% funds. And the product that the 2% funds sell is you can write 100, $200 million check into their fund, which you can't do into an emerging manager. Right. It'll kind of like blow up their strategy. You'll, you basically will own the fund has a whole bunch of issues. And so you can't really do that to emerging managers. But then what ends up happening is you have these funds that, you know, they manage billions of dollars. There's no way that they're going to be able to generate, you know, crazy great returns. And then you've got like predominantly smaller funds, emerging managers and so forth that, that are really chasing after that 20% carry check as opposite, plus the 2% management fee. Right. And, and really driving that alpha. So yeah, I really, I really liked your, your comment there, Joe.

Peter, do you mind? Can I offer the counterpoint to that? I, I think a lot of, I, I don't. Having sat in the seat where I worked at MetLife where the asset base is substantial, we were deploying billions of dollars a year to private markets, broadly including venture. There comes a point where the LP needs and the lp, you know, reason to invest in the asset class may not actually be to generate. It should always be to generate alpha above something. But we had a fixed return that we were targeting so we could deploy the efficiency of dollars, we could deploy a nine figure check into the asset class, which we absolutely couldn't do to an emerging fund. At one, there was no materiality. But two, we just didn't have the bandwidth from a personnel perspective to cover those kind of assets. So I think for larger allocators that still want. I cringe a little bit when we talk alpha beta, like venture beta. No one Wants median venture returns. That's not going to be a great outcome for anybody. But the reality is some investors to get access to some of those larger funds, which I think will give you strong returns, maybe not relative to the emerging manager, but that fill the role in the portfolio and asset allocation is one way to do it. And the flip side on the fee on the 2 versus 20, I think those firms as an allocator, you have to look at how are those dollars getting deployed. Right, Management fees should be going to support the platform. Right. Management fees should be going to building out a platform team building out global offices, whatever will support that strategy. That income you should think about as is this really going to support the strategy or are they spending on talent that's, you know, crazy price. So are people going to be resting on their laurel? So then you get into the motivations and the intangibles. But I, I do think there's an argument that big funds, you know, while they're not going to generate the same multiple type return, they probably fill a.

Gap for a lot of investors. Yeah. And I. What?

Well, no, I think, I think they definitely fill a gap, but I think part of it is the product that they sell is the ability to deploy a nine figure check into their fund. Right at scale. Right. Because you, you can't get access to the asset class, to your point, in a way that's efficient if you're writing a bunch of $10 million checks.

Yes.

Right.

And that's a conversation that I have with, you know, my friends in the emerging manager community. You know, I tell them all, like, I try to tell them as much as I can, like stop promoting kind of the big funds, you know, they are, it is inherently a different product. And actually the mega funds doing mega fund things, I see that as better for me as a, as a smaller manager because now it's not like, well, why don't I just invest in injury? It's like, no, this is a great yes. And these are total different, totally different products. And it's like, yes, Ferraris get stuff from point A to point B very fast. But like Walmart, they need a Mack truck. It's a totally different product. It does a totally different thing. And it's like, yeah, Ferrari is faster. Like, okay, well that's not going to suit their needs. So I think that getting into, I think a lot of emerging managers spend a lot of time just thinking specifically about like oh, the returns or this or that. And it's walking back from that comparison to Matt's Point and being like, these are MetLife, a sovereign wealth fund, they have total calpers, they have totally and completely different needs than anybody who is ever going to be an LP in my smaller first time fund. So yeah, I think it is a fun comparison and there are snarky remarks to be made about Alpha, but at the same time, this is. Apples and oranges are totally different things.

Yep, totally. Well, and for a lot of people, you can't invest in Andreessen. Right. Because the minimum check is pretty meaningful. Right. And so if you want access to the asset class as a smaller investor, emerging managers and smaller funds is kind of the only way to get it. So I want to talk a little bit about the, you know, what's happened over the last few years. So you had like a giant explosion of emerging managers and small funds in 2021, and there's a lot of speculation that a lot of those funds that all invested at super high valuations are going to become zombie funds. I'm curious, Matt, what are you seeing? Do you think that's the case? And then is now a great time, like it's a challenging time to raise a fund and yet, you know, funds are getting raised right now. Do you think that emerging managers are going to make a comeback in the next couple years or how do you think about it? Right.

Emphatically yes. That's not only my own personal bias, but I think the data will support that.

Right.

We had this incredible wave that's anomalous on so many measures in 2020 and 2021. We will not see that again. But if you look at the long term averages and trends, we're not worlds away. We're starting to see the deceleration of the decline in terms of where capital is going. We quote a lot of the Carta data as well. Where Peter Walker had said, you know, there's a little bit of an upturn, it's maybe stabilizing to where the amount of capital that's being raised by emerging managers will start to increase. I'm seeing that firsthand with a lot of the groups that I'm working with. These are groups that are raising micro funds, sub $50 million funds, where the dynamic was such that in 2023 a lot of groups were cautious. 2024, they felt like, okay, there's some macro stuff going on. A lot of people were holding their breath through the election as a point of uncertainty of what's going to happen. The election passed and people kind of, whether you like the outcome or not, it was a It was a, you know, it was something you could hang your hat on. The beginning of the year, there was a lot more renewed enthusiasm. Early 2025 through the first quarter. So we saw a lot of funds raise, capital, get to closings, but we've still had this choppiness in the public markets. We've had global unrest. So we have all these exogenous factors that are still impacting the capital flows. And that's without even talking about the dearth of distributions to LPs. So I think a lot of those things, maybe they don't all have to unlock at the same time because LPs are interested. All the LPs I know are talking about small, different and interesting funds. That's what they're looking for, that's what they're hungry for, which is great, but there are some structural impediments for them to actually get over that hump. So I believe that emerging managers offer the best value proposition for folks that are alpha seeking in this part of their portfolio. But I think once, and I think once some of this stuff settles, I'm not going to prognosticate when that happens, but I think once some of this stuff settles, you will start seeing more and more of those flows. If I had to put a timeframe on it, within the Next, you know, nine to 12 months, I would expect to see, you know, more of an uptick in those types of funds.

How much do you think that's driven by distributions? Because, you know, I'm, I'm watching personally, half my portfolio could go public tomorrow. They have the metrics to do it and they've just been waiting for markets to reopen. And so, you know, we're watching the FIGMA IPO go off with, you know, very successfully and hoping that's, that's a return of, you know, IPOs.

Yeah.

So, yeah, curious, curious how much you think it's dependent on distributions. And if you would predict that we'll get some more of those going forward.

I think we're starting to see from a public market perspective the acceptance of some of these companies going out. We've got Chime, was it Firefly today? So we're really seeing some of this upturn and we'll see where these things land. These are the types of moments that we need in the market. Because to your point, Peter, there are so many companies that are waiting to go public. Now you could argue, should they or shouldn't they? How will the public markets receive them? That's a different topic. But I do think Once some of that liquidity comes back, we'll be in a lot better situation. Some of the LPs that I've worked with put a ton of their capital out in 21. So not only was it at peak valuations, they haven't seen a dime of it back. So they were investing at a high pace, they invested at peak. So there's some scar tissue too that has to work itself out. So I think there's both the emotional, psychological and then there's the actual, you know, what's my account at? Can I actually put capital into this in a prudent way? So I do think that unlocks the good news too. We shouldn't anchor to the IPO market that's historically been 10ish percent of the number of exits on a vintage year basis. M and A is something that I think we're seeing unlock at that smaller company level as well. So I think that's also a motion that we're keeping our eye on to see if some of these larger transactions get through antitrust and things like that.

That, yeah, I think, you know, one of our portfolio companies whiz, it will be an interesting one to watch if that gets through antitrust. Because to your point, I think, I think hopefully more deals like that will help open up that side of the market as well.

Absolutely.

Shifting gears a little bit, I want to talk about AI because it's just, I don't know about you both, but I feel like AI is making everything in every area of my life exciting, accelerate faster than it ever has before. And so I want to talk about how AI is impacting fundraising, emerging managers, how you think about, you know, all the different things. In some ways it may, it must be making it easier but also potentially more challenging. And maybe. Joe, do you want to, you want to kick off and tell us what your perspective is on how AI is impacting you?

Yeah, so, you know, we see, you know, some interesting, some interesting kind of knock on effects like, you know, for, you know, being in the position of starting basically a small business, we're, you know, welcoming of any opportunities to increase our kind of operating leverage over here and we find ourselves using AI tools, you know, every day. I think being on a, on a riverside call is the, the only time where there's not dueling AI notetakers in the window. And we use it regularly to help us increase our output. But we also recognize its limitations and we recognize what some of the use cases of AI actually say about things. For example, when folks say, oh, it's going to write all of our investment memos. It's like, then what's the point? Then what's the point of the memo? Like, actually if it's going to compile your unstructured notes and thoughts and stuff into something readable. Okay, but like, if AI can do the investment memo, what actually is your value? And one of the things that I personally, you know, this may be one of the hotter takes, but I think the revenue per FTE number is the dumbest metric of all time. Because all that says to me is there's obviously a massive market inefficiency in whatever it is that you're doing. And if you're doing, you know, a million ahead, somebody's going to come in and do that for 900,000. Because I feel like some, some folks forget that. Everybody else has Claude code too, and they have cursor and they have lovable and there's a lot of software engineers out there. So what actually is that moat? And that's why we continue to continue to fall back on domain experts with domain expertise who understand what should be automated, what could be automated, and what definitely should not be. Because it is the core value proposition. Not because we're Luddites, but because you're not ever going to get market acceptance from something that you're automating a core piece of what that business actually is about. So if experts are using it to help make more informed decisions, you know, we think that that is, we think that that's kind of how we are, how we want to invest. And it's also, it reflects on how we use these tools in our fund too. It's not compiling memos for us. We're not having it send, you know, things out to, to LPs. Are we using it to help, like organize our, our CRM? Absolutely. But yeah, curious kind of from the, from the other perspective and a higher level, Matt, kind of what you think.

Yeah, it's so funny because everybody now AI became the shiny object, I don't know, 2ish years ago. It was in every deck. All the firms that were crypto funds that weren't having success changed to AI funds. So you had some of that rebranding where a lot of people said AI but weren't behaving in a way that was really adopting it. I just had a call today with a client of mine where he laid out, he's like, we want to build this tool and here are the things we want to get out of it. Here are the hours we want to add back to our time. Here's the way we want to think about the world or we want to think about our organization. And we're not just throwing AI in, we're being very intentional about using it and building it. And here's who we're going to give access to. And here's the data sources we're going to pull in there. And here's what we. Here's what the output and the goal that we're trying to achieve there is. So from an internal perspective, every firm must have an AI strategy. If I were to ask a GP and they said, you know, if we were to rewind the clock. And you asked Joe that question, he said, yeah, we think it's cool, but we haven't done anything with it yet. That's about as big a red flag as I can hear. It's just you need to be. You need to embrace where technology is going and find ways to use it that are natural for your business model, but also that are going to really maximize your time. Because I couldn't agree more. That this is the way that this business continues to persist is through human connection, right? The intuition you want to have that supported by technology and software and AI. But once we remove the human from the loop, Joe's exactly right. It's like, okay, well, what are we doing and what's really happening in this scenario? How are founders going to get that value? Is it just a capital source? Because then I think you have a whole different conversation. LPs are a little bit of a different story. I think we're slower as a group to adopt new technology, partly structurally of like, okay, do we have access to some of this stuff? Compliance. Think the larger institutions and the layers that you have to go through to implement new technology. But there are tools. I spend a lot of time with startups on that side of the house thinking about asset management software, thinking about efficiency tools. You would probably. You may or may not be surprised at the number of Excel spreadsheets that still live in most LP practices. It's still a heavily archaic process the way a lot of people manage this. So I think more tooling there lets LPs be more efficient. And the beauty of that is then they get to spend more time with the managers and understand what we talked about before their, why they get to know. They get to hear stories like Joe's about, here's what we're building, here's why we're building it, here's my personal connection, here's the companies, if you can just spend more time with folks and then build that body of work and that conviction and conviction that way. Feel like that's a great use. So within firms, I feel like it's all about being intentional and getting the maximum use out of what's available to you. With LPs, I think kind of bringing more tools, even if it's lightweight, even if it's a scheduler or a note taker or something like that, that can just become part of your day to free up some hours. I think that's awesome.

And I will say for some of the, like, you know, companies that are especially smaller, you know, family offices, et cetera, but even small businesses, I think one of the beauties of AI is people are going to realize that I don't need to wait for somebody to invent some SaaS product for me. We've created our own little internal tools here and we always joke around like that would have been, we would have raised 2 or 3 million bucks a few, you know, 10 years ago, but now it's just like, oh yeah, I'd vibe coded that together because I can create my own custom little thing for the thing that I need it to do that fills a gap and I don't need to call somebody and have them make an API. And I think that, you know, that is where again expertise comes into play, is understanding how can I use this to increase my operating leverage, you know, and that's, that's the number one thing I think Matt and I 100% agree. It's the, it's not, it's not about do you, are you using it, Are, are you using it efficiently and are you actually getting the maximum value out of it? And that's, you know, that's where expertise comes into play. There's infinite number of tools. What are you going to have an AI agent tell you what to do? Got to pick which agent is going to tell you.

Yep, yep. Do you think to your earlier point for founders, do they have a moat around AI? Does, does VC have a moat against AI?

It depends what your value add. It depends what your value add is. Right. I mean if, if it can write all your investment memos and if it can tell you what deals to do and it can tell you who to contact. No, you don't have a mode. What are you going to look for? And I think one of the things that is incredible about human intuition is large language models are inherently reverse looking. They're inherently predictive and computers are not good. They're incredible at a Lot of things except for randomness, the unexpected, the Black Swan event, you know, those are inherently unpredictable things. And humans have a great ability to see outside of, you know, predictability. Right? AI can generate new art, but humans will generate the, you know, the counterculture movement to that which AI will adopt and humans will push back against that. And there's incredible interplay between, you know, humans and technology throughout history that demonstrates if you have a unique ability to source, to come up with ideas, technology is always going to do something, is always going to be a boon to you. So I don't think it's about, you know, moats or, or, or not, you know, having, having a moat in terms of a specific industry. It's what are you going to do with it? And I think if you're a total Luddite and you're like, I'm not using it in my practice at all, it's tough because we're able to operate like we have way more staff than we do. But at the same time, if we were doing our entire practice, how am I supposed to ask a founder like, well, aren't you just a rapper on ChatGPT? They could ask me the same question like, Joe, aren't you just a rapper on ChatGPT? Like, yeah, you know, that's a good point. So what is my value add? It's the expertise that I bring. And again, that's what really underpins our thesis.

Any thoughts, Matt?

I think, you know, we're, we're at an interesting moment in time too where I think the, the inputs, right, you could prompt, you know, pick your, pick your model, invest. Build me an investment strategy like Warren Buffett, you know, in the private markets. Here's some data. Let's, let's build that up. I think back to Joe's point about domain expertise. Having a point of view is, yes, you can train a model to think like you as much as you can if you feed it the right inputs. Okay, here's how we score certain things. Here are the characteristics we look for. You don't want to underplay the potential of what those models can do. But I still think this is a human to human business. So that's where we're getting closer and closer to that. And when AGI is really fully actualized, like what are we going to see then? I don't really know. I don't like to think about that. But it is something that I feel like you have to be again, back, focus, focused on where you individually can harness your value as a person. Supported by the information and supported by the processes that you can build. So that's where is. I've talked to and seen a lot of funds that look more like quant hedge funds where they are all the way to the decision making, you know, and the sizing metric to. Okay, here's, here's what we're going to do. We've, we started here. We don't know how those are going to turn out, but I'd be hard pressed to say today's generation and today's LP community is going to look at those the same way they're going to look at a more artisanal way of investing. Charles Hudson from Precursor had this great quote of it's, it's algorithmic or artisanal. That's kind of the camps that we live in today. Artisanals to me still feels like what particularly early stage is about. You are going to have more and more of these algorithmic type models where it's about inputs and outputs, less about intuition and feel and gut. So is there a true moat? I don't think so, but I think both of these models can coexist where every LP is going to have their taste in what they like.

Like and they, they coexist in public markets too.

Right.

There's, you know, there are quant hedge funds and then there's still people doing special sits and merger r. But you know, there is, there is room for, there's room for everybody if you have something real to bring to the table.

I love it. And I, I agree. I think at the end of the day it's very much, it is a relationship game. Right. And you know, we didn't, we didn't really talk about it today, but as I've reflected on my fundraising for our fund, so much of it really comes down to trust. Right. I've seen funds with terrible performance raise another fund. Why? Because the LPs trust them, right? They like them, they want to support them, they know that it's their cycles in this business. And so, you know, trust is one of those things and authenticity which we did talk about and relationships and being there in the up and the down and the good and the bad. I think those are things that are really hard for AI to do in an authentic way, at least for the foreseeable future. And if I'm a, if I'm a founder, like I want somebody alongside me as an investor who, who's going to be alongside me right through that, that I can call at midnight and vent to and get direction and all of those fun things. And so I think from my perspective, I think that's where kind of that melt resides. But yeah, this has been a super fun conversation. Any last parting thoughts on emerging managers and the future of venture?

Yeah, I'll let Joe get the last word. But I think from my perspective, this is, this is the most exciting area of the market. I think there is nothing like company creation. It is market agnostic. Smart people are popping up from all pockets of the world, younger and younger, utilizing tools. I think if you are someone who is curious and interested in markets and thinking about the world and how we can make it better, that's also something we didn't talk about. But venture, early stage venture in particular is the place where you want to spend time. It's always going to evolve. You always have to keep being a student of it. So that's my personal draw to it after a lot of years and a lot of other asset classes. So I think that it's just going to continue to be the most interesting and important part of the ecosystem.

Yeah, I couldn't agree more. I think the opportunity to build my own, my own fund alongside Maddie and Lauren. This has been, it's been, it's been an honor. It's such a privilege, you know, to get to interact with incredible founders every single day. I think this is, it is so much fun. This is so entrepreneur. This is very entrepreneurial. Meet people from all walks of life with all sorts of different backgrounds and, you know, learning about why people are solving the problems that they're solving. The impact that they've already made these days, you know, by the time they've already talked, by the time they're talking to us and the, the impact that they're planning on having in the future, it is just, this is beyond exciting and it really is just an honor to get to talk to all the founders and investors and ecosystem partners that we get to hang out with and meet every day.

Awesome. Well, thank you for joining us for this episode today. I think it's been a super fun conversation. Feel like I've learned quite a bit from both of you. And for those of you that are in the audience, let us know down in the comments, you know, what questions you have. What do you think what the future of emerging managers and micro VC looks like? Please like and subscribe and leave us a review and we'll catch you at the next one.