May 11, 2025 • 49 mins
Joel Palathinkal delves into negotiation power for fund managers with Matthew Bobrow of Nixon Peabody LLP who shares his journey into private funds and experiences with major asset managers. They discuss trends in fund structures, capital allocation, and the intersection of private equity and venture capital. Key topics include liquidity demands, global diversification, and sector specialization. The guest offers advice on raising funds, stressing transparency, investor alignment, and LP feedback. They also explore industry focuses like cloud computing, biogenetics, and healthcare, concluding with insights on exit strategies, insurance, and the risks of using social media for fundraising.
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(00:00):
Mean, that that's kind of the the keydifferences, I think.
(00:05):
But, yeah, I I think one other point I I justdon't wanna forget too is you're gonna have
more negotiation power.
Like everything I've been talking about haskinda sounded like more work, but this is kinda
the icing on the cake part where, if you had areally good fund one, this is the time for you
to say, this is like a this is our strategy,these are our challenges, but we did really
(00:28):
well.
We think we're gonna do really well again, orwe're gonna raise our fees a little bit.
And that, I think, is just acceptable.
So, you know, just keep that in mind.
Just be reasonable with your investors.
But, yeah.
Yeah.
Welcome to The Investor, a podcast where I,Joel Palafinkel, your host, dives deep into the
(00:49):
minds of the world's most influentialinstitutional investors.
In each episode, we sit down with an investorto hear about their journeys and how global
markets are driving capital allocation.
So join us on this journey as we explore theseinsights.
You know, how to become institutional so thatLPs will kinda take you seriously.
(01:13):
And, you know, that entry point could bedifferent for everybody.
Right, Matthew?
I mean, depending on their background, kindawhat their goals are.
So number one, I want to welcome you to theshow and excited to go deep.
So thanks for making time for us and thecommunity.
So why don't we start with your background,your career?
I think some people might be interested also injust kind of the legal career pathway and the
(01:35):
legal profession and walk us through how youlanded into the private funds group because I'm
sure you have more insight on this.
But when you study law, there's probablyspecialties or fellowships or kind of more
deeper programs that you can specialize in.
Tell us kind of what made you, like walk usthrough the career and then walk us through
(01:57):
kind of the decision to focus on private fundsand what you're excited about.
Happy to do that.
Happy to do that.
Thanks for the introduction, Joel.
So I went to New York Law School in New York.
So I have pretty deep roots in New Yorkthroughout law school.
I did a lot of things for different businessesin New York.
So I'm pretty much Giants fan, Yankees fan, NewYork through and through.
(02:19):
I live on Long Island right now, but I'm in thecity like two or three times a week if anyone
wants to meet up, talk about anything afterthis.
But so after law school, I got into two biginvestment banks and I was doing more
regulatory legal compliance work, more with anadvisory spin to it, dealing with a lot of the
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new regulations that came out after Dodd Frankand sort of the transfer of risks into
investment funds away from traditionalinvestment banks who were doing it mostly
before Dodd Frank.
The Volcker Rule had a lot to do with that.
So after I worked in house essentially, whichis kind of unique, a lot of lawyers tend to
(03:04):
just go into big law right out of law school.
And I have this experience being in house,which I think it just translated well into kind
of understanding the issues that a business isfacing from, you know, a risk management
perspective, a decision maker perspective,instead of just always opining on the law and
never really being able to give that that extrapractical advice.
(03:27):
So I worked at another big law firm after beingin house, and I worked with one of the world's
biggest asset managers doing blockbusterfundraises across the world.
Mhmm.
Some of the biggest in the world actually.
And so I took that experience and which reallytaught me pretty much everything I know after
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being there for years and doing, you know,three thousand hour years in the trenches, just
learning everything.
You know?
And and after that, I looked at Nixon Peabodywhere I'm at now.
It's just the place I could go and take thatknowledge and really apply it to more of a a
middle market client base.
And also Yeah.
(04:10):
It's just the the LP sign group that we have,it's a lot of government clients.
So we're we're very focused on the publicinterest at Nixon Peabody.
So I'm able to take a lot of my knowledge andand really turn it into good.
So yeah.
And that that's why I'm here too speaking,looking for just more ways I can help the
(04:31):
community.
Yeah.
Well, thank you for all the support that you'vebeen giving me, personally and also our
community of fund managers.
One of the things that we wanna start talkingabout are just kind of some of the high level
macro trends that you're seeing for, you know,different types of fund structures, different
types of capital entrepreneurs.
(04:52):
So what are the trends that you're seeing forfund managers that are building venture firms,
private equity fund managers?
You know, I introduced you recently to a realestate fund manager.
So what are kind of some of the things thatyou're seeing across the board in terms of just
kind of fund managers trying to build and scaletheir their, their franchise?
(05:14):
Yeah.
Sure.
I mean, I think there's probably a few trendseven across those categories that I I could
mention, you know, because each investmentstrategy you'll have just it'll differ based on
the asset class, risk appetite, marketconditions, things like that.
So it's it's really, you know, if you look at,say, just real estate funds as a whole Mhmm.
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You're looking at less liquidity, you're havinglonger investment horizons, and that that just
translates into different fund terms from alegal perspective.
From a commercial perspective, what we'reseeing in real estate funds is things like
shifts to logistics and warehousing Mhmm.
Real estate assets.
Sure.
Sustainable ESG focused real estate assets likegreen buildings.
(05:57):
Right?
And, you know, assets in the real estateindustry, they're just focused on responsible
management of their property, right, beyondjust green buildings.
So Yeah.
There there's also this they call it like thisurban to suburban shift where there's just the
(06:18):
pandemic kind of accelerated people going moreinto the suburbs.
And so you're having more real estate assetsthere, especially residential retail assets
that are just kind of exploding.
So, you know, I think I think you're gonna seethat shift continue.
And just I'll touch on each of the ones youmentioned just really quickly.
(06:41):
Like in the PE space, you're seeing a littlebit more of a focus on technology and digital
transformation.
Like every company that people think are gonnabe the next big one in their portfolio, they
usually have something related to like cloudcomputing or cybersecurity.
So those are the trends in the PE space, butthat's more industry focused.
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You also have a strategy focus on these they'recalled build and buy strategies where you're
seeing funds come in and try to focus in on onelarger company and then sort of bootstrap on
smaller investments to that company and justscale it really quickly.
And so that's just another really hot trend.
(07:26):
So is that
kinda like a is that kinda like a search fundat bigger scale?
So you're trying to build like a largeconglomerate and then, you know, just become
the CEO of that company?
Almost like Amazon.
Right?
Amazon, you know, has made tons ofacquisitions, but all of that just kind of
bolts on to the footprint of Amazon.
Yeah, wouldn't say conglomerate necessarilybecause conglomerate to me kind of means it
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could be like a holding company of differenttypes of non complimentary businesses.
Whereas these funds, they're usuallystrategizing so that it's some specific
technology in the automotive industry, forexample, that they're gonna go and try to find
companies that are focused on improving thattechnology.
And they'll buy the biggest one, and thenthey'll get the four or five others.
(08:15):
And it's it's a conglomerate in that sense.
But I I would look at it more like a roll uplike a traditional like roll up.
You might see it just different.
Mhmm.
You know local companies trying to like medicaloffices do roll ups all the time.
Yeah.
So Well, they would come in, but it's a littledifferent than a fund because they're actually
coming in and operating that business and then,you know, scaling that business, delivering a,
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you know, a return and value creation.
And then on top of that, they're going out andbuying complimentary businesses to increase the
value of that larger business that owns allthose other things.
Then that's all rolled up and then they justsell that as one big massive deal versus a fund
where you'd raise money for a fund and thenyou're just buying a bunch of different
(09:02):
businesses and then showing your top levelreturns on top of that, right?
Right.
I think that's true and I think you're seeingjust a blurring of the lines where you're
having especially, and this is something I wasgonna mention later, just people looking for
liquidity and secondary opportunities.
And so you're seeing situations where the fundterm ends and they're selling off the assets
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and the people they sell them to are otherstrategic, you know, investors who are thinking
of creating more traditional operating roll uptype companies
Yeah.
After the fund already did its, you know, justnormal traditional portfolio investing, looking
for complementary businesses.
So Yeah.
It it is sort of becoming more of the trend.
(09:46):
But yeah.
Like one example, if we were to kindawhiteboard here, like one example is, if you
think about, like, the assisted living businessas a whole, right?
So, there's kind of the residential experiencethen, there's kind of the luxury amenities that
come along with us.
There's probably a different service providerthat comes along with it.
Then, there's a technology, right?
(10:07):
There's the sensors, the connected devices thatare attached to different parts of the real
estate.
That's probably another company that handlesthat.
But if you can own that entire vertical withlike all of those different technologies and
different companies, would, you know, in mymind, it seems like that could be, you know,
interesting, because you're just capturing morevalue.
(10:28):
And it's a durable business, right?
Because there's always recurring revenue.
We're not going to stop dying, right?
There's going be always people that are gettingolder.
So there's like a new cohort of people thatyou'll continue to have.
And then if you own more of those facilities,you get the market share of that.
No, no, I think that's right.
And I think just kind of going along with thetheme of learning investments, to touch on
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venture capital funds too.
I I think one thing you're seeing, Laura, thereis is these later stage venture cap funds where
they're they're sort of looking at companiesthat might have delayed going public or looking
for bigger investors.
And it's it's sort of has the the look of atraditional PE fund with traditional PE terms.
(11:14):
But then you take a look under what theinvestments are are really, you know, look
looking to make, and you're starting to see,oh, maybe this is a venture cap fund.
You look at the time horizons for thoseinvestments and you're like, well, yeah, it
looks more and more like a venture cap fund.
So you're starting to see just differentelements that you would traditionally see
isolated in one or the other kind of happen inboth now.
(11:35):
So that's a huge change, I think.
And just even the diversification, right, thatyou're seeing impact investing, like, I think
that's kind of caught, like, one of thosefactors that you used to see more earlier in
the venture cap space.
And now it's like, no.
Like, we're a middle sized, larger company, andthis is the main thing that we're focused on.
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And so you're just having these differentelements kind of blur more together, I would
say.
And just just to focus too on, you know, crossthemes across these different strategies, I
think ESG, we hit on it, like, I think for twoof them already.
But pretty much across asset classes, investorsare just asking the questions around ESG
regardless of political affiliations.
(12:20):
They kinda wanna know just kinda get thatinformation from their managers.
And liquidity demands, like, is something thatI think might might be creeping up further just
based on the market, but also there's moreoptions out there.
Like, people are getting a lot more creativewith how to like, we were just talking about.
Right?
The the roll up after the fund that's focusedon a build and buy strategy.
(12:43):
so you're Yeah.
You're seeing more of this liquidity be createdout of just people being creative.
So I think that'll continue.
And just the final thing I'll mention that wedidn't really touch on is just global
diversification.
Like, you're seeing more of these funds thatwere traditionally in The United States looking
at real estate assets, for example, lookglobally, look at emerging markets where the
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return might be a lot higher, and maybe they'llblend a portfolio of different assets and try
to hedge their risk in different ways doingthat.
So you'll kind of see that more and more, Ithink, too.
But that's just sort of like the quick hits ontrends in those different areas you mentioned.
I
mean, have you know, so let's talk a littlemore about just kind of building a franchise.
(13:28):
So like I've seen some really innovativecapital founders, right?
So I've seen some founders that obviously, youknow, they know that this is what they're gonna
do for the rest of their life.
This is their legacy, right?
So I I almost think of it as like building thenext black stone.
So I've seen funds kind of have really greatvisionary ideas to kind of be able to offer
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products that could delight their customers.
So I've seen some funds kind of now they're onlike fund three, right?
And they've developed a they're not in ventthey're not in real estate.
They have a venture fund, but now they have agrowth equity type of offering that's not early
stage.
And they go out and raise another parallel fundfor that.
But then I've also seen some of these fundsalso come out and do a real estate fund where
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they actually do some real estate development.
They're actually offering some real estateproducts.
That could be really interesting for maybe someof their LPs that are family offices that maybe
started out in the real estate world and nowthey're offering that product.
I mean if you think about Blackstone, right,They have PE offerings and they do a lot of
real estate and then there's a blur betweenreal estate, private equity.
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And then when you think about early stage,early stage, some of those deals are evolving
to growth equity and then there's a blurredline sometimes with growth equity in PE, right?
So it's kind of interesting to see all ofthose, not only stages and fund sizes evolve
and having people run parallel fund strategies,but also just actually add other product
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offerings.
So I don't know what your reaction is to thator kind of what your thoughts are on that in
terms of just kind of innovative capitalentrepreneurs building franchises that way.
No, I mean, I think that is definitelysomething that will continue.
I mean, I think so I've actually seen more of asector specialization in the most successful
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funds and their managers.
So, you know, if you're thinking like healthcare, tech, or like infrastructure, like those
are manager like the ones in the top, you know,deck tile.
They're they're the ones that don't have like aside or real estate fund too.
You know, they're focusing all their attention,all their network on that one specialization.
Sure.
(15:37):
I think if if you if you're in a situationwhere you're successful enough to be able to
kind of take that advantage that you've had inthat sector and apply other elements of an
investment management business to a new sectorand, you know, you're you're really looking at
a whole new investment strategy.
And there are other elements to your businessbeyond the investment strategy that if you're
(16:02):
highly successful at, will easily translateinto a new investment strategy.
Like, for example, your your investorrelations.
Right?
Like, if you are just a really goodrelationship builder and you can kinda, you
know, tell an investor who is interested insomething from one that's not right away and
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you know the guy that's interested in it andyou know that what you have is something he'd
be interested in.
Like, you're gonna be good at that no matterthe strategy.
You're almost just, you know, a relationshipmanagement guru at that point.
But that's one other element.
I think if you look at beyond your LPrelations, you have regulatory and compliance
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knowledge.
And so there are certain managers out therethat might have worked at a bigger shop and are
already ahead in terms of understanding, I needto register as this.
I don't need to do this.
I don't need to do that.
And they're taking that advantage and using itcompetitively, and they could apply that same
knowledge to a real estate fund, a venture capfund infrastructure regardless.
(17:10):
And just, you know, the fourth thing, which isa little bit lower, I'd mentioned really, just
in terms of value in that situation is youroperational efficiency.
Right?
Like, your back office management.
Like, how incentivized is your team?
How integrated is your technology?
And, you you know, I think if you look at ateam that's really just set up to grow based on
(17:33):
the investment that was put into them Mhmm.
And you you you're really successful in onestrategy, and then you give them another
strategy, you know, they're gonna knock it outof the park.
And if it doesn't work, it's really just astrategy then.
Right?
So Yeah.
You're you have all these other elements thatcan really help you kind of, you know, build up
to an another level of asset manager.
(17:54):
Yeah.
But I I would try to advise clients to focus inon those specific things and make sure you're
good at those things before trying to just say,I'm okay at this.
Let me try this.
Like, make sure you're really, really good atthe first thing, and then, you know, start
thinking about a new strategy.
(18:15):
But Yeah.
I mean
I've seen GPs I mean, to to piggyback off ofthat, I've seen solo GPs do like a $25,000,000
fund and they're thinking about fund two andit's the exact same portfolio construction.
So, they're really just kind of they have thisthis flywheel and it seems like it's working
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because their second fund is the exact samesize and it's around 25,000,000.
So I guess what do you think people shouldthink about if they're raising a second fund
for a larger amount?
So, like, if you're thinking I mean, I alwaysthink it's a red flag if you're you know, if
you had a $20,000,000 fund and you only raised4,000,000 out of the 25 and now your fund too
(19:01):
is like 80,000,000, because there's a hugedisparity from, you know, number one, the size
of your first fund.
And then on top of that, like, how much youactually closed from your first one that you
tried and now you're going out to market withan $80,000,000 fund.
So kind of what's some advice you'd give tofund managers in this market, know, kind of and
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then we're gonna talk about marketing later,but just kind of thinking through the ideation
of building that firm.
And then if they've kind of gone beyond Fundtwo, how should they be thinking about I mean,
beyond Fund one.
How should they be thinking about kind offormulating the vision for Fund two?
Sure.
Sure.
I think the most important thing is to thinkabout it in terms of track record versus
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vision.
Right?
And and you have a fund one that has a strongtrack record, you're gonna easily hit your
target investment raise, and you you're you'reeasily gonna get to your fund two targets as
well.
You know?
So if you have a situation like what youdescribed where you were looking to raise 20,
you got four, and now you're telling me youlook you're looking to raise 80, of course,
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it's a red flag.
Like, there's there's no track record, right?
So then it becomes the vision.
And it's Yeah.
Well, what's your vision for this new fund?
Like, it's clearly not gonna just be the samething, right?
And and if it is, then, there's no real visionthere and it's it's essentially just somebody
who's saw something, tried it, it didn't work,and now he's trying to do it again.
(20:32):
You know?
But if if you have a situation where you have atrack record after fund one, I think that is
the the most crucial element of getting asuccessful fund two.
And you really have to highlight your earlywins.
Like, there there's a, you know, fair andbalanced disclosure requirement in the SEC
(20:53):
rules, but you you must put your wins.
You know, you can balance out all the lossestoo, but don't forget to put the big wins from
your fund one.
And I think, you know, just be transparentabout the challenges that you think you're
gonna face in fund two.
And this kinda goes to I mean, it's a broaderpoint, but just the alignment of interest with
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your investors.
Like, you even in fund one, right?
But in fund two, especially, you know, whenyou're say you had some challenges in fund one,
and maybe it's the person that you'redescribing, you you kind of just need to be
transparent.
Like, what happened in fund one?
Right?
Like, when you get to 20,000,000 and, like, nowwhy are you coming to me with this?
And, like, maybe that'll help build the visionfor it, but, you know, that that's kind of the
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the main crux of it.
But I I think if you're in some in a positionwhere you are doing a fund two, you you need to
look at your investment strategy.
You know, your your investment thesis is gonnaevolve from fund one.
You know, you're you're getting a biggercommitment size most likely.
So that means thinking about things like, am Iwriting bigger checks, or am I doing more
(22:01):
deals?
And, like, just being strategic about which andwhy.
And your investor base will also grow.
You're gonna be dealing with more sophisticatedinvestors that might want different types of
disclosures.
You just kind of have to be conscious of,again, aligning interests.
So, but you're you're I mean, the obviouspoints are building your LP investor base from
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fund one into fund two.
Like I was saying before, if you're a reallygood relationship manager, you need to just
double down on that and say, look.
We have a super strong track record.
This is why we're changing things and goingbigger.
This is why we think it's gonna work.
These are our challenges.
You're you're being very transparent, and, youknow, I think if you can do something like put
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skin in the game, I think is a is kind of myfinal big point on this is, you know, by in
fund one, you don't really have that ability.
Usually, you know, you don't have a successful,you know, fund to say, I'm gonna put 20,000,000
in and now I'm gonna get 40,000,000 of otherinvestor capital.
You just are kinda starting for nothing.
(23:06):
Right?
So you you might have a little bit if you're ifyou're lucky, but, you know, sometimes you
don't.
And I I think it's it's really keen keen infund two.
If you're if you have a successful fund one,investors are gonna say, why isn't he putting
up?
Or why isn't she putting up capital now andputting skin in the game if they were so
successful or even the strategy?
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So and that that that's kinda tied into theother points.
Like, your more sophisticated investors aregonna be the ones pointing those things out.
Yeah.
But yeah.
I mean, that that's kind of the the keydifferences, I think.
But yeah.
I I think one other point I I just don't wannaforget too is you're gonna have more
(23:48):
negotiation power.
You know, like, everything I've been talkingabout, it's kinda sounded like a like more
work, but this is kinda the icing on the cakepart where, like, you know, if you had a really
good fun one, this is the time for you to say,this is a like, this is our strategy.
These are our challenges, but we did reallywell.
I think we're going do really well again.
We're going to raise our fees a little bit andthat I think is just acceptable.
(24:11):
So you know just keep that in mind just bereasonable with your investors.
But yeah.
Yeah.
Does that kinda
I've seen people yeah.
I've seen people yeah.
No.
That was really helpful.
And I've seen people have higher fees in thebeginning.
And what they did is they were able to justifythose fees using their budget.
So they have a financial model kind of managingtheir, burn rate and kind of showcasing how
(24:34):
much they're gonna you know, how are they gonnaoperate their fund.
Right?
So usually, think it's helpful to maybe partnerwith a CFO and kind of just, you know, forecast
out like, you know, this is my you know, I'm Iknow I'm taking 2%.
I'm gonna, you know, out of the 2% every year.
This is how I'm gonna operate my my business.
I've had fund managers actually take some extracapital out of the management fee and deploy
(24:57):
that into getting into a few more portfoliocompanies to hopefully get a little more alpha.
So I think that really shows, true dedication.
Before we get into kind of a checklist or kindof just hot topics that managers should think
about, What are the LPs telling you?
So, you know, it could be definitelyconfidential.
It could be, we we could just kinda not namenames here, but are you you know, are there
(25:22):
hints of just kind of commentary that you'rehearing from the LP community?
I know you guys have some really great, peoplein your network, but any kind of reactions to
the market, things that, you know, LP shared interms of, like, why they passed on a fund?
That might be just helpful data points to keepin mind.
Sure.
Sure.
I I mean, I think there's the the usual, youknow, from, like, last night's debate that I
(25:46):
think people have, you know, certain ideasabout which president is gonna lead to which
types of investments growing and and, you know,going down.
So I think that's kind of just a given, but Ithink beyond that, you know, investors are
really focused in on successful managers thatin fund one, you know, I think conveyed a
(26:08):
vision that didn't just happen to be lucky andlike turn out the way that, you know, everyone
hoped.
It was more in the exact way that that managerdescribed it.
Like we invested in these exact companies.
We don't have to come back to you and changeour thesis.
Yeah.
You know, I'm not I'm really still focused onthat that fund one manager there, but, you
(26:28):
know, on later developed investment managers,you know, I think your LP base is really
looking to find fund managers that are lookingto align interests.
I think that's, you know, the main point thereis if you have an investment manager and he is
willing to talk to the investor and say, thisis the issue you're facing.
(26:50):
Maybe it's reporting.
It's a concern about returns.
Maybe it's a portfolio target, you know, thatthey don't think is right.
Like, maybe it's a certain class of investmentthey don't want them to be in.
I think you're gonna find there's there'sreally creative ways of working through those
issues, especially with sophisticatedinvestors.
So, you know, a lot of them are just turned offwhen somebody is just, like, not responsive or,
(27:13):
you know, just maybe not really thinkingthrough those creative alternatives and is is
maybe just assuming that not a good fit off thebat.
I think from an industry perspective, like whenyou're looking at what what are the industries
where investors are the most focused, it it'sthe cloud computing, biogenetics, especially
(27:37):
related to real estate assets, like lifescience real estate assets are some of the
hottest we've seen.
Yeah.
You know, and I think kinda just the realestate space isn't necessarily as a whole or
venture cap space as a whole isn't, you know,fundraising at record clips by any means, but
you are seeing these hot pockets like datacenters on real estate, where you are seeing
(28:01):
enormous investor interest.
And it's having the effect of going up thesupply chains to like the the mining companies
in Canada that that produce some of the raremetals that go into the data centers.
You've seen, you know, venture cap funds thatare focused on certain rare earth metals in
certain specific regions, And those arespecifically catered to the investors that have
(28:25):
those broader thesis.
Like, I'm a government investor, right?
I'm trying to incentivize a whole new economicmodel based off a new technology.
I'm trying to have my country be disruptive.
Like, they're focused on these industries invery specific way so that you know we're seeing
investors or some like I mentioned at thebeginning, some of our biggest investors are
(28:48):
government investors.
And so they are across The United States And sothey will look at different emerging
technologies in their states, and that is kindof specific to the state.
So say you're in the Midwest, maybe it'sagriculture based technology or energy based
(29:11):
technology.
But that is the hyper focus that they'relooking at.
Know, they they really wanna get into thosesectors.
So I think that hopefully, that paints a goodpicture from industry focus to Oh, yeah.
You know, even a manager size, things likethat.
Yeah, mean, think the industry's strategicinsight really helps.
So a healthcare system may have some seriousadvantages from investing in funds that have a
(29:38):
specific strategy improving the healthcare ITstack, right?
And like Exactly.
Maybe there could be some strategic P and Eopportunities for that, you know, whether it's
a family office that runs a healthcare systemor just a healthcare system as a whole, there
could be some strategic acquisitions that comeabout or even just direct investments into
those companies to solve problems of like thehospital system as well, right?
(30:04):
So they probably don't have a tech transferdepartment, natively within the system.
So they have to leverage kind of these partnersthat are, you know, venture funds that are on
the pulse going to every single conference kindof sourcing and screening deals every week,
which the hospital system doesn't have time todo because they're trying to keep their beds
full.
(30:25):
I will mention though, this is a constantstopping point in the discussion.
You know, these investors, they still havefiduciary duties.
Right?
Like, you're a pension fund or you're ahospital system, you can't just say, well, I'm
gonna invest in this.
Like, I'm a, I don't know, I'm a union pension,so I'm gonna invest in the thing that my union
(30:49):
works on.
Right?
And like Yeah.
Assuming it's gonna necessarily be a goodinvestment with good returns, you're kind of
breaching your fiduciary duties.
So what you really have to look for is someonewho's strategically investing.
So, you know, if if you're the I don't know.
Sprinkler union.
Right?
I'm just making this up.
And you're looking at target investments insprinklers, but you're also broadly investing
(31:14):
in other industries.
Right?
Like Sure.
You're satisfying your duty.
So if you have a manager, right, and say you'reon fund two, fund three, you're finally talking
to somebody that's like a pension system.
Yeah.
It's not it's not necessarily a winner to justsay, like, we'll change some of our investment
thesis to go into, like, housing for the peoplethat are part of your pension, but maybe it's a
(31:37):
winner to say, well, maybe we'll look atinvestments that could actually benefit the the
beneficiaries of your pension.
That makes sense.
You know, real estate kind of like random butyou do sprinklers on a sprinkler pension.
Maybe you're satisfying the fiduciary dutybecause you have that industry knowledge into
that sector.
So you're you're kind of justifying it in thatway.
(32:00):
So you kind of just have to be a littlestrategic on how you approach investors on
these points.
But, you know, pretty much every investorthat's looking at an emerging manager, they're
willing to be flexible.
So you kind of just have to be creative in howyou take advantage of that flexibility and make
a deal that works for everybody and aligns theinterest.
(32:21):
Sure.
And I know you had kind of a little bit of achecklist or just kind of hot topics for
emerging managers to think about.
So on the manager side, what are kind of thetop pieces of advice that you would give them
to just think about top of mind as they'rebuilding their firm?
And I would say anywhere from, you know,raising capital and closing capital and getting
(32:45):
people on board all the way down to, I wouldsay, if I'm thinking about the the end to end
work stream, it's also just portfolio supportand then just back office, you know, making
sure they get all their k ones in time.
Okay.
Yeah.
No.
Definitely.
So let me just tell you the top five and thenmaybe I'll go into more detail.
So you totally like like get a clear investmentthesis and strategy.
(33:07):
Like, that is number one.
Like, you can't go anywhere without that.
Right?
So making a choice.
To get that done.
And then so number two is your strong LPinvestor relations.
You really need to be the same way you'rereally, you know, one of the best at picking
opportunities in a certain market.
(33:27):
You need to be one of the best at talking toinvestors and and showing them transparent
communication like what I was talking about,like being transparent with your challenges,
managing those expectations for super highreturns.
Don't you don't need to put in a super high,you know, expected return number three years
down the road from now in your pitch deck.
You know, that's not something that anyinvestor really needs to see, and it isn't
(33:50):
gonna help managing expectations.
Sure.
Yeah.
You know, but I I think your regulatory andcompliance knowledge is number three.
Mhmm.
You know, operational efficiency and justcapital deployment and exit strategy is kind of
the the fifth point there.
But let me just say one thing about the theclear investment thesis and strategy.
You know, I think what goes into that is notjust a a well defined thesis, you know,
(34:15):
focusing on what your then geography, sectorstage, all that good stuff.
But your adaptability to market conditions.
Right?
Like, you need to be able to know if thishappens in the market or if it goes the other
way and that happens in the market.
How does that affect your thesis?
Not just your return.
Right?
Your thesis.
Your broader thesis, and how are you gonna eventake advantage of those changes in market
(34:39):
opportunities?
So, you know, I I think that's one thing thatI'll ask in a manager sometimes and they'll
have a great, you know, we're gonna invest inthis or that.
I'm like, well, what if this happens?
And they're like, well, you know, so you youkinda need to make sure that's clear.
And just the last point kind of on the backoffice is risk management.
You know, like, you you really have to beintelligent and I I would say hyper analytical
(35:03):
and even cross portfolio risk.
You know, you you're you're gonna have to thinkabout not just your portfolio risk, but like we
were just talking about market risk, about yourcredit risk from different lenders you might be
taking on, just how the market risk interplayswith the credit risk.
You know, I think taking off your investor hatand taking off your investment management hat
(35:28):
with your investors.
Right?
Putting those aside and just saying, like, letme take a step back.
Let me think about, you know, what if thishappens?
What if that happens?
Let's be smart about making sure we have aplan.
I think that is it's really core to anybusiness, right?
You know, like, even if you're just likevanilla retail shop.
(35:49):
But in in investment management business, Ithink it's a competitive advantage.
Like if you're able to do that well, you willsee, you know, lower costs.
You'll see lower overhead.
You'll see less losses from, know, those oneoff risk events.
So it really can be used competitively.
What are some of the biggest No, go ahead.
(36:11):
Sorry.
No, no, no, that's it.
No, please go ahead.
Yeah.
Yeah, I just It just popped up in my mind.
I think another hot thing to talk about is justtop mistakes that you're seeing.
So like, or just kind of things that should beavoided.
What are just kind of things that you're seeingin the market that managers are not to admit.
We talked about just kind of not telling yourstory right in terms of, like, how you got from
(36:36):
25 to 80,000,000 when you've only closed afourth of that.
So that's definitely, you know, strategy andstorytelling issues.
What are some other just challenges that or orjust kind of mistakes that you're seeing
managers make that you think they just newmanagers should be just aware of because it
(36:58):
might help them.
Right?
They're like, oh, wow.
You know, now that Matt Matthew told me this,should be careful about that.
No, absolutely.
I think the really there's maybe two thingsI'll focus on the most in terms of the biggest
mistakes or you know, easy footfalls, maybeI'll call them instead of mistakes.
But just having a clear exit strategy, youknow, I think that's one thing I think a lot of
(37:24):
early stage managers might miss.
And and that kind of ties in everything else wetalked about from the different risks, from
credit risk to market risk to dealing withinvestor alignment, you know, and just be
transparent in the opportunities there, youknow, given that exit opportunities necessarily
And is this for the portfolio company level asyou're making each investment just kind of
(37:46):
having a vision for like what that actuallycould be or also, I mean, I think it could also
be just for the fund, right?
How do you fully deploy the fund and actuallydeliver some type of multiple or, hopefully
even just get into DPI.
When you're talking about that, are you talkingabout both layers or just more deeper?
Yes.
Generally speaking, both layers just becauseyou can have different funds that are of in
(38:10):
different playing different sandboxes.
But yeah.
I mean, I think from the portfolio companylevel to the fund level, it's it's really
important, like so, you know, if your strategyis, like, more focused on the buy and builds,
you know, strategies, right, we were talkingabout, then it is more of the portfolio level.
(38:30):
Like, we need to focus on how we're exiting,say, three or four different companies that are
doing similar things.
Know, similar times, you know, that raisesconcerns.
And so, you know, I think it's The issues thatI've seen, I think are part and parcel to the
trends that we talked about.
You see more buy and build strategies, you seemore people missing how the exit opportunities
(38:54):
could become an issue.
And so you you then at the fund level too,right?
Like if they're selling off to do a roll upinstead of just selling off to do something
else, like, what's your fun too look like?
You know, you're going to have to.
Yeah.
Come up with an investment strategy and kind ofthink about, well, what am I doing, right?
Like, what's my exit strategy from thisbusiness and how do I get into a new one, a
(39:18):
whole new investment strategy?
So, it it's sort of multifaceted but it's kindof just conceptually, I think the idea of just
thinking through your business plan, like frompoint A to Z and not just from your investment
level, not just from a fund level, but reallyfrom a management company level too, from a
personal and making sure all those dots arelined up and the timelines line up right.
(39:45):
Otherwise, you might have some unhappyinvestors.
Yeah.
Then we talked over cocktails, talked aboutinsurance.
So when should managers at what stage kind ofseriously think about like, D and O insurance
or what are the type of policies they shouldget as they're kind of growing their firm?
(40:06):
And obviously some small managers don't havethe budget, even within their management fee
pay for insurance.
Then I know some fund managers that payprobably $100 a year in just, you know,
insurance.
Sure.
So just kind of, know, how how should justasset managers think about that?
Sure.
So, you know, it it's it's sort of a broadquestion because it's essentially saying, like,
(40:28):
how do you think about risk?
And I I think what you'll find is there's justdifferent appetites.
And when are an earlier stage manager, fundone, you have a small investor pool, maybe a
half a dozen investors, maybe to a dozen.
You know, you have maybe six portfolioinvestments, and and, you know, you're not the
(40:51):
biggest one.
You're not the biggest investor in any of them.
You're you're probably one of the medium sizedor smaller investors.
You know, you're not taking controlling stakes.
Your your risks are limited, you know, so youryour overall likelihood of meeting that D and O
insurance is much lower, you know, thansomebody who's say on a fund two or a fund
(41:13):
three or diversifying strategies, getting intothings that maybe they haven't gotten into
before, but they have a big money bag now thatsome investors or somebody with a claim might
like to come after, you know, that that's kindof the obvious case.
Right?
Like, we've been successful.
We're going off and we're taking some newrisks.
(41:34):
This just is a no brainer.
And maybe that's the hundred thousand dollar ayear situation you're describing.
But, you know, I I think that that would be asituation to me where it would make sense to
take those costs on just because it's why havethat be something that you have to think about
and worry about when you're taking on that muchmoney.
(41:55):
You're you're making investment decisions thatyou haven't ever made before because it's a
whole new investment piece.
You know?
So I think the the there's not a a clear, like,do it now answer, unfortunately.
I I think it'll kinda depend on, you know, yourpersonal relationships with those investors as
well.
Like, if you're if you're in a situation whereeveryone's interests are aligned, this is kind
(42:19):
of the overarching point in all of this, Thenif something does happen, you know, they're
very unlikely to just bring the hammer and tryto sue and and take one of the directors down.
They're they're more likely to have aconversation and try to understand what
happened and try to, you know, not let ithappen again and, you know, because think about
it, right?
They have an investment and they want thatinvestment to do well even if there's some bad
(42:43):
apple or bad egg.
Yeah.
And so, you don't wanna be in a situation ofhaving to pull out that investment if they
don't have to.
So Sure.
You know, I think it's just those are those arethe situations where maybe you don't need it as
much if you have investors that are veryaligned with your interest and you're not as
worried about, you know, aggressive litigationcoming from them if something does happen.
(43:07):
You know, if you're pretty confident you're notdoing anything nefarious, of course.
Right?
You know, then it's Yeah.
It's just it's less needed.
You know, if you're going out there and you'reraising capital from investors that you've
never met and you're maybe you met him once ona Zoom or you met him through somebody else and
now they're writing a big check, then maybe itmakes more sense.
(43:28):
Like, maybe then it's like, yeah, I don't knowhim as well.
I don't know if our interests are actuallyaligned.
Haven't had lunch or coffee or drinks with himmultiple times.
You know, then, yeah, like, especially becauseyou can get a reasonably priced policy, you
know?
It's doesn't have to be, you know, the biggestpolicy in the world.
So, I I think Yeah.
They've got I think this is a whole episode,separate episode on its own in terms of just
(43:52):
fundraising.
Right?
Because they've got all these people on YouTubeand TikTok that are, like, you know, doing real
estate funds.
I think they're, like, retail investors.
So I guess they're like 501C funds, but you seepeople raising on social media now.
So I think that's definitely an area to becareful of because you don't really know those
investors.
Versus I would say most of the fun ones that Iknow, their first fund came off the ground from
(44:18):
people that they went to school with or justpeople in the tech community that are writing
maybe 20 to 50 ks checks and that all cobblestogether.
And then I think we'll have to do anotherepisode on just the new fundraising laws,
right?
Because now I think you can have up to, Ithink, 200 plus LPs now, right, based on the
new regulation?
Yeah.
(44:38):
There are some new regulations.
I mean, there are challenges as always, but,yeah, we can definitely talk about all that too
on a on a whole other episode but I I didn'twant to mention though just the the social
media point that I I would highly avoid doingthat just as a plug.
Yeah.
Just don't do that.
Yeah.
If if if you are presenting your strategy andyour offering in a clear and concise way,
(45:05):
you're aligning the interest with yourinvestors, you're gonna find interest from
friends, family, people in different networksthat you're meeting at events and you're
talking to, you shouldn't need that, you know.
If if you do need it, there's a there might beit's might be time to just rethink the
strategy.
Like, maybe rethink your investor network, youknow, rethink your operational efficiency.
(45:27):
Like those other key points we talked about.
So I just I I I caution it because I see peoplecome to us after doing it and then we have to
kinda help through and figure out
how to solve it.
Yeah.
Exactly.
So on the front end
I mean, there are fund managers that there arefund managers that that I've seen do it, you
(45:49):
know, just building valuable content onTwitter.
And, you know, I think they're, you know,classified as a five o six.
Just through creating valuable content, thathelps to educate.
I feel like education is a really great way tobuild goodwill with investors because, mean,
especially if they're investors that have neverinvested in venture and they come from like a
(46:10):
manufacturing or logistics or real estatebackground, they've never really gotten into
the tech space.
Just only known logistics.
So now they kind of come across you coming intheir feed and you're just sharing like, hey,
here's 10 trends that are happening in the AIspace, if you're like a venture fund, right?
So then that's kind of interesting content toconsume.
(46:33):
But I don't necessarily see those managersgoing out saying, I'm raising, you know, if you
wanna if you wanna, you know, invest in myfund, click this link.
Right.
I don't see
as completely
obvious.
I
I think I think this is a good conversation tohave because it it's really kind of the crux of
a legal issue.
And, you know, we have I mean, it's it's ahighly analytical point and it's fact intensive
(46:57):
and so I can't really give a true legalopinion.
Right?
But Oh, sure.
What
it really Yeah.
Yeah.
Sure.
But it what it really comes down to though isdo you have a reasonable belief that this
investor is essentially who they say they areas an eligible investor under the law?
And if if you are put putting, say, like, thename of your fund and what you're doing and how
(47:19):
much you're raising and just on a website andall that information is just publicly
accessible, that is essentially a publicoffering.
And, you know, you you kinda wanna avoid asituation like that.
You you know, you don't Sure.
Because what could happen is the, you know, theinvestors come in, the sophisticated ones
later, and they look at how you've beenmarketing, and it it kind of taints the whole
(47:42):
vision, right, that we talked about for yourfund, how you've been, you know, knocking it
out of the park and everything's been perfect.
Now there's
Mhmm.
Sure.
(48:04):
Yeah.
Hey, Matthew, I think you froze for a second.
So we'll try to see if we can get Matthew tocome back on.
But I know we're out of time, so, you know, ifhe can come back on in a few seconds, if the,
(48:24):
the video restores, we'll, we'll wrap up.
If not, hey.
You know, really enjoyed everybody's time andreally appreciated, you know, Matthew from
Nick's and Peabody coming on.
And, we'll we'll try to, you know, catch up anddo some other episodes talking more about
private funds.
And and yeah.
So thank you everybody for your time.
(48:45):
Really appreciate it.
We we capture a lot of amazing content.
So, thank you again.
Catch up soon.
Bye.
Mean, that that's kind of the the keydifferences, I think.
(00:05):
But, yeah, I I think one other point I I justdon't wanna forget too is you're gonna have
more negotiation power.
Like everything I've been talking about haskinda sounded like more work, but this is kinda
the icing on the cake part where, if you had areally good fund one, this is the time for you
to say, this is like a this is our strategy,these are our challenges, but we did really
(00:28):
well.
We think we're gonna do really well again, orwe're gonna raise our fees a little bit.
And that, I think, is just acceptable.
So, you know, just keep that in mind.
Just be reasonable with your investors.
But, yeah.
Yeah.
Welcome to The Investor, a podcast where I,Joel Palafinkel, your host, dives deep into the
(00:49):
minds of the world's most influentialinstitutional investors.
In each episode, we sit down with an investorto hear about their journeys and how global
markets are driving capital allocation.
So join us on this journey as we explore theseinsights.
You know, how to become institutional so thatLPs will kinda take you seriously.
(01:13):
And, you know, that entry point could bedifferent for everybody.
Right, Matthew?
I mean, depending on their background, kindawhat their goals are.
So number one, I want to welcome you to theshow and excited to go deep.
So thanks for making time for us and thecommunity.
So why don't we start with your background,your career?
I think some people might be interested also injust kind of the legal career pathway and the
(01:35):
legal profession and walk us through how youlanded into the private funds group because I'm
sure you have more insight on this.
But when you study law, there's probablyspecialties or fellowships or kind of more
deeper programs that you can specialize in.
Tell us kind of what made you, like walk usthrough the career and then walk us through
(01:57):
kind of the decision to focus on private fundsand what you're excited about.
Happy to do that.
Happy to do that.
Thanks for the introduction, Joel.
So I went to New York Law School in New York.
So I have pretty deep roots in New Yorkthroughout law school.
I did a lot of things for different businessesin New York.
So I'm pretty much Giants fan, Yankees fan, NewYork through and through.
(02:19):
I live on Long Island right now, but I'm in thecity like two or three times a week if anyone
wants to meet up, talk about anything afterthis.
But so after law school, I got into two biginvestment banks and I was doing more
regulatory legal compliance work, more with anadvisory spin to it, dealing with a lot of the
(02:42):
new regulations that came out after Dodd Frankand sort of the transfer of risks into
investment funds away from traditionalinvestment banks who were doing it mostly
before Dodd Frank.
The Volcker Rule had a lot to do with that.
So after I worked in house essentially, whichis kind of unique, a lot of lawyers tend to
(03:04):
just go into big law right out of law school.
And I have this experience being in house,which I think it just translated well into kind
of understanding the issues that a business isfacing from, you know, a risk management
perspective, a decision maker perspective,instead of just always opining on the law and
never really being able to give that that extrapractical advice.
(03:27):
So I worked at another big law firm after beingin house, and I worked with one of the world's
biggest asset managers doing blockbusterfundraises across the world.
Mhmm.
Some of the biggest in the world actually.
And so I took that experience and which reallytaught me pretty much everything I know after
(03:49):
being there for years and doing, you know,three thousand hour years in the trenches, just
learning everything.
You know?
And and after that, I looked at Nixon Peabodywhere I'm at now.
It's just the place I could go and take thatknowledge and really apply it to more of a a
middle market client base.
And also Yeah.
(04:10):
It's just the the LP sign group that we have,it's a lot of government clients.
So we're we're very focused on the publicinterest at Nixon Peabody.
So I'm able to take a lot of my knowledge andand really turn it into good.
So yeah.
And that that's why I'm here too speaking,looking for just more ways I can help the
(04:31):
community.
Yeah.
Well, thank you for all the support that you'vebeen giving me, personally and also our
community of fund managers.
One of the things that we wanna start talkingabout are just kind of some of the high level
macro trends that you're seeing for, you know,different types of fund structures, different
types of capital entrepreneurs.
(04:52):
So what are the trends that you're seeing forfund managers that are building venture firms,
private equity fund managers?
You know, I introduced you recently to a realestate fund manager.
So what are kind of some of the things thatyou're seeing across the board in terms of just
kind of fund managers trying to build and scaletheir their, their franchise?
(05:14):
Yeah.
Sure.
I mean, I think there's probably a few trendseven across those categories that I I could
mention, you know, because each investmentstrategy you'll have just it'll differ based on
the asset class, risk appetite, marketconditions, things like that.
So it's it's really, you know, if you look at,say, just real estate funds as a whole Mhmm.
(05:34):
You're looking at less liquidity, you're havinglonger investment horizons, and that that just
translates into different fund terms from alegal perspective.
From a commercial perspective, what we'reseeing in real estate funds is things like
shifts to logistics and warehousing Mhmm.
Real estate assets.
Sure.
Sustainable ESG focused real estate assets likegreen buildings.
(05:57):
Right?
And, you know, assets in the real estateindustry, they're just focused on responsible
management of their property, right, beyondjust green buildings.
So Yeah.
There there's also this they call it like thisurban to suburban shift where there's just the
(06:18):
pandemic kind of accelerated people going moreinto the suburbs.
And so you're having more real estate assetsthere, especially residential retail assets
that are just kind of exploding.
So, you know, I think I think you're gonna seethat shift continue.
And just I'll touch on each of the ones youmentioned just really quickly.
(06:41):
Like in the PE space, you're seeing a littlebit more of a focus on technology and digital
transformation.
Like every company that people think are gonnabe the next big one in their portfolio, they
usually have something related to like cloudcomputing or cybersecurity.
So those are the trends in the PE space, butthat's more industry focused.
(07:04):
You also have a strategy focus on these they'recalled build and buy strategies where you're
seeing funds come in and try to focus in on onelarger company and then sort of bootstrap on
smaller investments to that company and justscale it really quickly.
And so that's just another really hot trend.
(07:26):
So is that
kinda like a is that kinda like a search fundat bigger scale?
So you're trying to build like a largeconglomerate and then, you know, just become
the CEO of that company?
Almost like Amazon.
Right?
Amazon, you know, has made tons ofacquisitions, but all of that just kind of
bolts on to the footprint of Amazon.
Yeah, wouldn't say conglomerate necessarilybecause conglomerate to me kind of means it
(07:52):
could be like a holding company of differenttypes of non complimentary businesses.
Whereas these funds, they're usuallystrategizing so that it's some specific
technology in the automotive industry, forexample, that they're gonna go and try to find
companies that are focused on improving thattechnology.
And they'll buy the biggest one, and thenthey'll get the four or five others.
(08:15):
And it's it's a conglomerate in that sense.
But I I would look at it more like a roll uplike a traditional like roll up.
You might see it just different.
Mhmm.
You know local companies trying to like medicaloffices do roll ups all the time.
Yeah.
So Well, they would come in, but it's a littledifferent than a fund because they're actually
coming in and operating that business and then,you know, scaling that business, delivering a,
(08:39):
you know, a return and value creation.
And then on top of that, they're going out andbuying complimentary businesses to increase the
value of that larger business that owns allthose other things.
Then that's all rolled up and then they justsell that as one big massive deal versus a fund
where you'd raise money for a fund and thenyou're just buying a bunch of different
(09:02):
businesses and then showing your top levelreturns on top of that, right?
Right.
I think that's true and I think you're seeingjust a blurring of the lines where you're
having especially, and this is something I wasgonna mention later, just people looking for
liquidity and secondary opportunities.
And so you're seeing situations where the fundterm ends and they're selling off the assets
(09:26):
and the people they sell them to are otherstrategic, you know, investors who are thinking
of creating more traditional operating roll uptype companies
Yeah.
After the fund already did its, you know, justnormal traditional portfolio investing, looking
for complementary businesses.
So Yeah.
It it is sort of becoming more of the trend.
(09:46):
But yeah.
Like one example, if we were to kindawhiteboard here, like one example is, if you
think about, like, the assisted living businessas a whole, right?
So, there's kind of the residential experiencethen, there's kind of the luxury amenities that
come along with us.
There's probably a different service providerthat comes along with it.
Then, there's a technology, right?
(10:07):
There's the sensors, the connected devices thatare attached to different parts of the real
estate.
That's probably another company that handlesthat.
But if you can own that entire vertical withlike all of those different technologies and
different companies, would, you know, in mymind, it seems like that could be, you know,
interesting, because you're just capturing morevalue.
(10:28):
And it's a durable business, right?
Because there's always recurring revenue.
We're not going to stop dying, right?
There's going be always people that are gettingolder.
So there's like a new cohort of people thatyou'll continue to have.
And then if you own more of those facilities,you get the market share of that.
No, no, I think that's right.
And I think just kind of going along with thetheme of learning investments, to touch on
(10:51):
venture capital funds too.
I I think one thing you're seeing, Laura, thereis is these later stage venture cap funds where
they're they're sort of looking at companiesthat might have delayed going public or looking
for bigger investors.
And it's it's sort of has the the look of atraditional PE fund with traditional PE terms.
(11:14):
But then you take a look under what theinvestments are are really, you know, look
looking to make, and you're starting to see,oh, maybe this is a venture cap fund.
You look at the time horizons for thoseinvestments and you're like, well, yeah, it
looks more and more like a venture cap fund.
So you're starting to see just differentelements that you would traditionally see
isolated in one or the other kind of happen inboth now.
(11:35):
So that's a huge change, I think.
And just even the diversification, right, thatyou're seeing impact investing, like, I think
that's kind of caught, like, one of thosefactors that you used to see more earlier in
the venture cap space.
And now it's like, no.
Like, we're a middle sized, larger company, andthis is the main thing that we're focused on.
(11:58):
And so you're just having these differentelements kind of blur more together, I would
say.
And just just to focus too on, you know, crossthemes across these different strategies, I
think ESG, we hit on it, like, I think for twoof them already.
But pretty much across asset classes, investorsare just asking the questions around ESG
regardless of political affiliations.
(12:20):
They kinda wanna know just kinda get thatinformation from their managers.
And liquidity demands, like, is something thatI think might might be creeping up further just
based on the market, but also there's moreoptions out there.
Like, people are getting a lot more creativewith how to like, we were just talking about.
Right?
The the roll up after the fund that's focusedon a build and buy strategy.
(12:43):
so you're Yeah.
You're seeing more of this liquidity be createdout of just people being creative.
So I think that'll continue.
And just the final thing I'll mention that wedidn't really touch on is just global
diversification.
Like, you're seeing more of these funds thatwere traditionally in The United States looking
at real estate assets, for example, lookglobally, look at emerging markets where the
(13:06):
return might be a lot higher, and maybe they'llblend a portfolio of different assets and try
to hedge their risk in different ways doingthat.
So you'll kind of see that more and more, Ithink, too.
But that's just sort of like the quick hits ontrends in those different areas you mentioned.
I
mean, have you know, so let's talk a littlemore about just kind of building a franchise.
(13:28):
So like I've seen some really innovativecapital founders, right?
So I've seen some founders that obviously, youknow, they know that this is what they're gonna
do for the rest of their life.
This is their legacy, right?
So I I almost think of it as like building thenext black stone.
So I've seen funds kind of have really greatvisionary ideas to kind of be able to offer
(13:48):
products that could delight their customers.
So I've seen some funds kind of now they're onlike fund three, right?
And they've developed a they're not in ventthey're not in real estate.
They have a venture fund, but now they have agrowth equity type of offering that's not early
stage.
And they go out and raise another parallel fundfor that.
But then I've also seen some of these fundsalso come out and do a real estate fund where
(14:10):
they actually do some real estate development.
They're actually offering some real estateproducts.
That could be really interesting for maybe someof their LPs that are family offices that maybe
started out in the real estate world and nowthey're offering that product.
I mean if you think about Blackstone, right,They have PE offerings and they do a lot of
real estate and then there's a blur betweenreal estate, private equity.
(14:32):
And then when you think about early stage,early stage, some of those deals are evolving
to growth equity and then there's a blurredline sometimes with growth equity in PE, right?
So it's kind of interesting to see all ofthose, not only stages and fund sizes evolve
and having people run parallel fund strategies,but also just actually add other product
(14:56):
offerings.
So I don't know what your reaction is to thator kind of what your thoughts are on that in
terms of just kind of innovative capitalentrepreneurs building franchises that way.
No, I mean, I think that is definitelysomething that will continue.
I mean, I think so I've actually seen more of asector specialization in the most successful
(15:17):
funds and their managers.
So, you know, if you're thinking like healthcare, tech, or like infrastructure, like those
are manager like the ones in the top, you know,deck tile.
They're they're the ones that don't have like aside or real estate fund too.
You know, they're focusing all their attention,all their network on that one specialization.
Sure.
(15:37):
I think if if you if you're in a situationwhere you're successful enough to be able to
kind of take that advantage that you've had inthat sector and apply other elements of an
investment management business to a new sectorand, you know, you're you're really looking at
a whole new investment strategy.
And there are other elements to your businessbeyond the investment strategy that if you're
(16:02):
highly successful at, will easily translateinto a new investment strategy.
Like, for example, your your investorrelations.
Right?
Like, if you are just a really goodrelationship builder and you can kinda, you
know, tell an investor who is interested insomething from one that's not right away and
(16:24):
you know the guy that's interested in it andyou know that what you have is something he'd
be interested in.
Like, you're gonna be good at that no matterthe strategy.
You're almost just, you know, a relationshipmanagement guru at that point.
But that's one other element.
I think if you look at beyond your LPrelations, you have regulatory and compliance
(16:45):
knowledge.
And so there are certain managers out therethat might have worked at a bigger shop and are
already ahead in terms of understanding, I needto register as this.
I don't need to do this.
I don't need to do that.
And they're taking that advantage and using itcompetitively, and they could apply that same
knowledge to a real estate fund, a venture capfund infrastructure regardless.
(17:10):
And just, you know, the fourth thing, which isa little bit lower, I'd mentioned really, just
in terms of value in that situation is youroperational efficiency.
Right?
Like, your back office management.
Like, how incentivized is your team?
How integrated is your technology?
And, you you know, I think if you look at ateam that's really just set up to grow based on
(17:33):
the investment that was put into them Mhmm.
And you you you're really successful in onestrategy, and then you give them another
strategy, you know, they're gonna knock it outof the park.
And if it doesn't work, it's really just astrategy then.
Right?
So Yeah.
You're you have all these other elements thatcan really help you kind of, you know, build up
to an another level of asset manager.
(17:54):
Yeah.
But I I would try to advise clients to focus inon those specific things and make sure you're
good at those things before trying to just say,I'm okay at this.
Let me try this.
Like, make sure you're really, really good atthe first thing, and then, you know, start
thinking about a new strategy.
(18:15):
But Yeah.
I mean
I've seen GPs I mean, to to piggyback off ofthat, I've seen solo GPs do like a $25,000,000
fund and they're thinking about fund two andit's the exact same portfolio construction.
So, they're really just kind of they have thisthis flywheel and it seems like it's working
(18:37):
because their second fund is the exact samesize and it's around 25,000,000.
So I guess what do you think people shouldthink about if they're raising a second fund
for a larger amount?
So, like, if you're thinking I mean, I alwaysthink it's a red flag if you're you know, if
you had a $20,000,000 fund and you only raised4,000,000 out of the 25 and now your fund too
(19:01):
is like 80,000,000, because there's a hugedisparity from, you know, number one, the size
of your first fund.
And then on top of that, like, how much youactually closed from your first one that you
tried and now you're going out to market withan $80,000,000 fund.
So kind of what's some advice you'd give tofund managers in this market, know, kind of and
(19:21):
then we're gonna talk about marketing later,but just kind of thinking through the ideation
of building that firm.
And then if they've kind of gone beyond Fundtwo, how should they be thinking about I mean,
beyond Fund one.
How should they be thinking about kind offormulating the vision for Fund two?
Sure.
Sure.
I think the most important thing is to thinkabout it in terms of track record versus
(19:46):
vision.
Right?
And and you have a fund one that has a strongtrack record, you're gonna easily hit your
target investment raise, and you you're you'reeasily gonna get to your fund two targets as
well.
You know?
So if you have a situation like what youdescribed where you were looking to raise 20,
you got four, and now you're telling me youlook you're looking to raise 80, of course,
(20:10):
it's a red flag.
Like, there's there's no track record, right?
So then it becomes the vision.
And it's Yeah.
Well, what's your vision for this new fund?
Like, it's clearly not gonna just be the samething, right?
And and if it is, then, there's no real visionthere and it's it's essentially just somebody
who's saw something, tried it, it didn't work,and now he's trying to do it again.
(20:32):
You know?
But if if you have a situation where you have atrack record after fund one, I think that is
the the most crucial element of getting asuccessful fund two.
And you really have to highlight your earlywins.
Like, there there's a, you know, fair andbalanced disclosure requirement in the SEC
(20:53):
rules, but you you must put your wins.
You know, you can balance out all the lossestoo, but don't forget to put the big wins from
your fund one.
And I think, you know, just be transparentabout the challenges that you think you're
gonna face in fund two.
And this kinda goes to I mean, it's a broaderpoint, but just the alignment of interest with
(21:13):
your investors.
Like, you even in fund one, right?
But in fund two, especially, you know, whenyou're say you had some challenges in fund one,
and maybe it's the person that you'redescribing, you you kind of just need to be
transparent.
Like, what happened in fund one?
Right?
Like, when you get to 20,000,000 and, like, nowwhy are you coming to me with this?
And, like, maybe that'll help build the visionfor it, but, you know, that that's kind of the
(21:37):
the main crux of it.
But I I think if you're in some in a positionwhere you are doing a fund two, you you need to
look at your investment strategy.
You know, your your investment thesis is gonnaevolve from fund one.
You know, you're you're getting a biggercommitment size most likely.
So that means thinking about things like, am Iwriting bigger checks, or am I doing more
(22:01):
deals?
And, like, just being strategic about which andwhy.
And your investor base will also grow.
You're gonna be dealing with more sophisticatedinvestors that might want different types of
disclosures.
You just kind of have to be conscious of,again, aligning interests.
So, but you're you're I mean, the obviouspoints are building your LP investor base from
(22:24):
fund one into fund two.
Like I was saying before, if you're a reallygood relationship manager, you need to just
double down on that and say, look.
We have a super strong track record.
This is why we're changing things and goingbigger.
This is why we think it's gonna work.
These are our challenges.
You're you're being very transparent, and, youknow, I think if you can do something like put
(22:45):
skin in the game, I think is a is kind of myfinal big point on this is, you know, by in
fund one, you don't really have that ability.
Usually, you know, you don't have a successful,you know, fund to say, I'm gonna put 20,000,000
in and now I'm gonna get 40,000,000 of otherinvestor capital.
You just are kinda starting for nothing.
(23:06):
Right?
So you you might have a little bit if you're ifyou're lucky, but, you know, sometimes you
don't.
And I I think it's it's really keen keen infund two.
If you're if you have a successful fund one,investors are gonna say, why isn't he putting
up?
Or why isn't she putting up capital now andputting skin in the game if they were so
successful or even the strategy?
(23:28):
So and that that that's kinda tied into theother points.
Like, your more sophisticated investors aregonna be the ones pointing those things out.
Yeah.
But yeah.
I mean, that that's kind of the the keydifferences, I think.
But yeah.
I I think one other point I I just don't wannaforget too is you're gonna have more
(23:48):
negotiation power.
You know, like, everything I've been talkingabout, it's kinda sounded like a like more
work, but this is kinda the icing on the cakepart where, like, you know, if you had a really
good fun one, this is the time for you to say,this is a like, this is our strategy.
These are our challenges, but we did reallywell.
I think we're going do really well again.
We're going to raise our fees a little bit andthat I think is just acceptable.
(24:11):
So you know just keep that in mind just bereasonable with your investors.
But yeah.
Yeah.
Does that kinda
I've seen people yeah.
I've seen people yeah.
No.
That was really helpful.
And I've seen people have higher fees in thebeginning.
And what they did is they were able to justifythose fees using their budget.
So they have a financial model kind of managingtheir, burn rate and kind of showcasing how
(24:34):
much they're gonna you know, how are they gonnaoperate their fund.
Right?
So usually, think it's helpful to maybe partnerwith a CFO and kind of just, you know, forecast
out like, you know, this is my you know, I'm Iknow I'm taking 2%.
I'm gonna, you know, out of the 2% every year.
This is how I'm gonna operate my my business.
I've had fund managers actually take some extracapital out of the management fee and deploy
(24:57):
that into getting into a few more portfoliocompanies to hopefully get a little more alpha.
So I think that really shows, true dedication.
Before we get into kind of a checklist or kindof just hot topics that managers should think
about, What are the LPs telling you?
So, you know, it could be definitelyconfidential.
It could be, we we could just kinda not namenames here, but are you you know, are there
(25:22):
hints of just kind of commentary that you'rehearing from the LP community?
I know you guys have some really great, peoplein your network, but any kind of reactions to
the market, things that, you know, LP shared interms of, like, why they passed on a fund?
That might be just helpful data points to keepin mind.
Sure.
Sure.
I I mean, I think there's the the usual, youknow, from, like, last night's debate that I
(25:46):
think people have, you know, certain ideasabout which president is gonna lead to which
types of investments growing and and, you know,going down.
So I think that's kind of just a given, but Ithink beyond that, you know, investors are
really focused in on successful managers thatin fund one, you know, I think conveyed a
(26:08):
vision that didn't just happen to be lucky andlike turn out the way that, you know, everyone
hoped.
It was more in the exact way that that managerdescribed it.
Like we invested in these exact companies.
We don't have to come back to you and changeour thesis.
Yeah.
You know, I'm not I'm really still focused onthat that fund one manager there, but, you
(26:28):
know, on later developed investment managers,you know, I think your LP base is really
looking to find fund managers that are lookingto align interests.
I think that's, you know, the main point thereis if you have an investment manager and he is
willing to talk to the investor and say, thisis the issue you're facing.
(26:50):
Maybe it's reporting.
It's a concern about returns.
Maybe it's a portfolio target, you know, thatthey don't think is right.
Like, maybe it's a certain class of investmentthey don't want them to be in.
I think you're gonna find there's there'sreally creative ways of working through those
issues, especially with sophisticatedinvestors.
So, you know, a lot of them are just turned offwhen somebody is just, like, not responsive or,
(27:13):
you know, just maybe not really thinkingthrough those creative alternatives and is is
maybe just assuming that not a good fit off thebat.
I think from an industry perspective, like whenyou're looking at what what are the industries
where investors are the most focused, it it'sthe cloud computing, biogenetics, especially
(27:37):
related to real estate assets, like lifescience real estate assets are some of the
hottest we've seen.
Yeah.
You know, and I think kinda just the realestate space isn't necessarily as a whole or
venture cap space as a whole isn't, you know,fundraising at record clips by any means, but
you are seeing these hot pockets like datacenters on real estate, where you are seeing
(28:01):
enormous investor interest.
And it's having the effect of going up thesupply chains to like the the mining companies
in Canada that that produce some of the raremetals that go into the data centers.
You've seen, you know, venture cap funds thatare focused on certain rare earth metals in
certain specific regions, And those arespecifically catered to the investors that have
(28:25):
those broader thesis.
Like, I'm a government investor, right?
I'm trying to incentivize a whole new economicmodel based off a new technology.
I'm trying to have my country be disruptive.
Like, they're focused on these industries invery specific way so that you know we're seeing
investors or some like I mentioned at thebeginning, some of our biggest investors are
(28:48):
government investors.
And so they are across The United States And sothey will look at different emerging
technologies in their states, and that is kindof specific to the state.
So say you're in the Midwest, maybe it'sagriculture based technology or energy based
(29:11):
technology.
But that is the hyper focus that they'relooking at.
Know, they they really wanna get into thosesectors.
So I think that hopefully, that paints a goodpicture from industry focus to Oh, yeah.
You know, even a manager size, things likethat.
Yeah, mean, think the industry's strategicinsight really helps.
So a healthcare system may have some seriousadvantages from investing in funds that have a
(29:38):
specific strategy improving the healthcare ITstack, right?
And like Exactly.
Maybe there could be some strategic P and Eopportunities for that, you know, whether it's
a family office that runs a healthcare systemor just a healthcare system as a whole, there
could be some strategic acquisitions that comeabout or even just direct investments into
those companies to solve problems of like thehospital system as well, right?
(30:04):
So they probably don't have a tech transferdepartment, natively within the system.
So they have to leverage kind of these partnersthat are, you know, venture funds that are on
the pulse going to every single conference kindof sourcing and screening deals every week,
which the hospital system doesn't have time todo because they're trying to keep their beds
full.
(30:25):
I will mention though, this is a constantstopping point in the discussion.
You know, these investors, they still havefiduciary duties.
Right?
Like, you're a pension fund or you're ahospital system, you can't just say, well, I'm
gonna invest in this.
Like, I'm a, I don't know, I'm a union pension,so I'm gonna invest in the thing that my union
(30:49):
works on.
Right?
And like Yeah.
Assuming it's gonna necessarily be a goodinvestment with good returns, you're kind of
breaching your fiduciary duties.
So what you really have to look for is someonewho's strategically investing.
So, you know, if if you're the I don't know.
Sprinkler union.
Right?
I'm just making this up.
And you're looking at target investments insprinklers, but you're also broadly investing
(31:14):
in other industries.
Right?
Like Sure.
You're satisfying your duty.
So if you have a manager, right, and say you'reon fund two, fund three, you're finally talking
to somebody that's like a pension system.
Yeah.
It's not it's not necessarily a winner to justsay, like, we'll change some of our investment
thesis to go into, like, housing for the peoplethat are part of your pension, but maybe it's a
(31:37):
winner to say, well, maybe we'll look atinvestments that could actually benefit the the
beneficiaries of your pension.
That makes sense.
You know, real estate kind of like random butyou do sprinklers on a sprinkler pension.
Maybe you're satisfying the fiduciary dutybecause you have that industry knowledge into
that sector.
So you're you're kind of justifying it in thatway.
(32:00):
So you kind of just have to be a littlestrategic on how you approach investors on
these points.
But, you know, pretty much every investorthat's looking at an emerging manager, they're
willing to be flexible.
So you kind of just have to be creative in howyou take advantage of that flexibility and make
a deal that works for everybody and aligns theinterest.
(32:21):
Sure.
And I know you had kind of a little bit of achecklist or just kind of hot topics for
emerging managers to think about.
So on the manager side, what are kind of thetop pieces of advice that you would give them
to just think about top of mind as they'rebuilding their firm?
And I would say anywhere from, you know,raising capital and closing capital and getting
(32:45):
people on board all the way down to, I wouldsay, if I'm thinking about the the end to end
work stream, it's also just portfolio supportand then just back office, you know, making
sure they get all their k ones in time.
Okay.
Yeah.
No.
Definitely.
So let me just tell you the top five and thenmaybe I'll go into more detail.
So you totally like like get a clear investmentthesis and strategy.
(33:07):
Like, that is number one.
Like, you can't go anywhere without that.
Right?
So making a choice.
To get that done.
And then so number two is your strong LPinvestor relations.
You really need to be the same way you'rereally, you know, one of the best at picking
opportunities in a certain market.
(33:27):
You need to be one of the best at talking toinvestors and and showing them transparent
communication like what I was talking about,like being transparent with your challenges,
managing those expectations for super highreturns.
Don't you don't need to put in a super high,you know, expected return number three years
down the road from now in your pitch deck.
You know, that's not something that anyinvestor really needs to see, and it isn't
(33:50):
gonna help managing expectations.
Sure.
Yeah.
You know, but I I think your regulatory andcompliance knowledge is number three.
Mhmm.
You know, operational efficiency and justcapital deployment and exit strategy is kind of
the the fifth point there.
But let me just say one thing about the theclear investment thesis and strategy.
You know, I think what goes into that is notjust a a well defined thesis, you know,
(34:15):
focusing on what your then geography, sectorstage, all that good stuff.
But your adaptability to market conditions.
Right?
Like, you need to be able to know if thishappens in the market or if it goes the other
way and that happens in the market.
How does that affect your thesis?
Not just your return.
Right?
Your thesis.
Your broader thesis, and how are you gonna eventake advantage of those changes in market
(34:39):
opportunities?
So, you know, I I think that's one thing thatI'll ask in a manager sometimes and they'll
have a great, you know, we're gonna invest inthis or that.
I'm like, well, what if this happens?
And they're like, well, you know, so you youkinda need to make sure that's clear.
And just the last point kind of on the backoffice is risk management.
You know, like, you you really have to beintelligent and I I would say hyper analytical
(35:03):
and even cross portfolio risk.
You know, you you're you're gonna have to thinkabout not just your portfolio risk, but like we
were just talking about market risk, about yourcredit risk from different lenders you might be
taking on, just how the market risk interplayswith the credit risk.
You know, I think taking off your investor hatand taking off your investment management hat
(35:28):
with your investors.
Right?
Putting those aside and just saying, like, letme take a step back.
Let me think about, you know, what if thishappens?
What if that happens?
Let's be smart about making sure we have aplan.
I think that is it's really core to anybusiness, right?
You know, like, even if you're just likevanilla retail shop.
(35:49):
But in in investment management business, Ithink it's a competitive advantage.
Like if you're able to do that well, you willsee, you know, lower costs.
You'll see lower overhead.
You'll see less losses from, know, those oneoff risk events.
So it really can be used competitively.
What are some of the biggest No, go ahead.
(36:11):
Sorry.
No, no, no, that's it.
No, please go ahead.
Yeah.
Yeah, I just It just popped up in my mind.
I think another hot thing to talk about is justtop mistakes that you're seeing.
So like, or just kind of things that should beavoided.
What are just kind of things that you're seeingin the market that managers are not to admit.
We talked about just kind of not telling yourstory right in terms of, like, how you got from
(36:36):
25 to 80,000,000 when you've only closed afourth of that.
So that's definitely, you know, strategy andstorytelling issues.
What are some other just challenges that or orjust kind of mistakes that you're seeing
managers make that you think they just newmanagers should be just aware of because it
(36:58):
might help them.
Right?
They're like, oh, wow.
You know, now that Matt Matthew told me this,should be careful about that.
No, absolutely.
I think the really there's maybe two thingsI'll focus on the most in terms of the biggest
mistakes or you know, easy footfalls, maybeI'll call them instead of mistakes.
But just having a clear exit strategy, youknow, I think that's one thing I think a lot of
(37:24):
early stage managers might miss.
And and that kind of ties in everything else wetalked about from the different risks, from
credit risk to market risk to dealing withinvestor alignment, you know, and just be
transparent in the opportunities there, youknow, given that exit opportunities necessarily
And is this for the portfolio company level asyou're making each investment just kind of
(37:46):
having a vision for like what that actuallycould be or also, I mean, I think it could also
be just for the fund, right?
How do you fully deploy the fund and actuallydeliver some type of multiple or, hopefully
even just get into DPI.
When you're talking about that, are you talkingabout both layers or just more deeper?
Yes.
Generally speaking, both layers just becauseyou can have different funds that are of in
(38:10):
different playing different sandboxes.
But yeah.
I mean, I think from the portfolio companylevel to the fund level, it's it's really
important, like so, you know, if your strategyis, like, more focused on the buy and builds,
you know, strategies, right, we were talkingabout, then it is more of the portfolio level.
(38:30):
Like, we need to focus on how we're exiting,say, three or four different companies that are
doing similar things.
Know, similar times, you know, that raisesconcerns.
And so, you know, I think it's The issues thatI've seen, I think are part and parcel to the
trends that we talked about.
You see more buy and build strategies, you seemore people missing how the exit opportunities
(38:54):
could become an issue.
And so you you then at the fund level too,right?
Like if they're selling off to do a roll upinstead of just selling off to do something
else, like, what's your fun too look like?
You know, you're going to have to.
Yeah.
Come up with an investment strategy and kind ofthink about, well, what am I doing, right?
Like, what's my exit strategy from thisbusiness and how do I get into a new one, a
(39:18):
whole new investment strategy?
So, it it's sort of multifaceted but it's kindof just conceptually, I think the idea of just
thinking through your business plan, like frompoint A to Z and not just from your investment
level, not just from a fund level, but reallyfrom a management company level too, from a
personal and making sure all those dots arelined up and the timelines line up right.
(39:45):
Otherwise, you might have some unhappyinvestors.
Yeah.
Then we talked over cocktails, talked aboutinsurance.
So when should managers at what stage kind ofseriously think about like, D and O insurance
or what are the type of policies they shouldget as they're kind of growing their firm?
(40:06):
And obviously some small managers don't havethe budget, even within their management fee
pay for insurance.
Then I know some fund managers that payprobably $100 a year in just, you know,
insurance.
Sure.
So just kind of, know, how how should justasset managers think about that?
Sure.
So, you know, it it's it's sort of a broadquestion because it's essentially saying, like,
(40:28):
how do you think about risk?
And I I think what you'll find is there's justdifferent appetites.
And when are an earlier stage manager, fundone, you have a small investor pool, maybe a
half a dozen investors, maybe to a dozen.
You know, you have maybe six portfolioinvestments, and and, you know, you're not the
(40:51):
biggest one.
You're not the biggest investor in any of them.
You're you're probably one of the medium sizedor smaller investors.
You know, you're not taking controlling stakes.
Your your risks are limited, you know, so youryour overall likelihood of meeting that D and O
insurance is much lower, you know, thansomebody who's say on a fund two or a fund
(41:13):
three or diversifying strategies, getting intothings that maybe they haven't gotten into
before, but they have a big money bag now thatsome investors or somebody with a claim might
like to come after, you know, that that's kindof the obvious case.
Right?
Like, we've been successful.
We're going off and we're taking some newrisks.
(41:34):
This just is a no brainer.
And maybe that's the hundred thousand dollar ayear situation you're describing.
But, you know, I I think that that would be asituation to me where it would make sense to
take those costs on just because it's why havethat be something that you have to think about
and worry about when you're taking on that muchmoney.
(41:55):
You're you're making investment decisions thatyou haven't ever made before because it's a
whole new investment piece.
You know?
So I think the the there's not a a clear, like,do it now answer, unfortunately.
I I think it'll kinda depend on, you know, yourpersonal relationships with those investors as
well.
Like, if you're if you're in a situation whereeveryone's interests are aligned, this is kind
(42:19):
of the overarching point in all of this, Thenif something does happen, you know, they're
very unlikely to just bring the hammer and tryto sue and and take one of the directors down.
They're they're more likely to have aconversation and try to understand what
happened and try to, you know, not let ithappen again and, you know, because think about
it, right?
They have an investment and they want thatinvestment to do well even if there's some bad
(42:43):
apple or bad egg.
Yeah.
And so, you don't wanna be in a situation ofhaving to pull out that investment if they
don't have to.
So Sure.
You know, I think it's just those are those arethe situations where maybe you don't need it as
much if you have investors that are veryaligned with your interest and you're not as
worried about, you know, aggressive litigationcoming from them if something does happen.
(43:07):
You know, if you're pretty confident you're notdoing anything nefarious, of course.
Right?
You know, then it's Yeah.
It's just it's less needed.
You know, if you're going out there and you'reraising capital from investors that you've
never met and you're maybe you met him once ona Zoom or you met him through somebody else and
now they're writing a big check, then maybe itmakes more sense.
(43:28):
Like, maybe then it's like, yeah, I don't knowhim as well.
I don't know if our interests are actuallyaligned.
Haven't had lunch or coffee or drinks with himmultiple times.
You know, then, yeah, like, especially becauseyou can get a reasonably priced policy, you
know?
It's doesn't have to be, you know, the biggestpolicy in the world.
So, I I think Yeah.
They've got I think this is a whole episode,separate episode on its own in terms of just
(43:52):
fundraising.
Right?
Because they've got all these people on YouTubeand TikTok that are, like, you know, doing real
estate funds.
I think they're, like, retail investors.
So I guess they're like 501C funds, but you seepeople raising on social media now.
So I think that's definitely an area to becareful of because you don't really know those
investors.
Versus I would say most of the fun ones that Iknow, their first fund came off the ground from
(44:18):
people that they went to school with or justpeople in the tech community that are writing
maybe 20 to 50 ks checks and that all cobblestogether.
And then I think we'll have to do anotherepisode on just the new fundraising laws,
right?
Because now I think you can have up to, Ithink, 200 plus LPs now, right, based on the
new regulation?
Yeah.
(44:38):
There are some new regulations.
I mean, there are challenges as always, but,yeah, we can definitely talk about all that too
on a on a whole other episode but I I didn'twant to mention though just the the social
media point that I I would highly avoid doingthat just as a plug.
Yeah.
Just don't do that.
Yeah.
If if if you are presenting your strategy andyour offering in a clear and concise way,
(45:05):
you're aligning the interest with yourinvestors, you're gonna find interest from
friends, family, people in different networksthat you're meeting at events and you're
talking to, you shouldn't need that, you know.
If if you do need it, there's a there might beit's might be time to just rethink the
strategy.
Like, maybe rethink your investor network, youknow, rethink your operational efficiency.
(45:27):
Like those other key points we talked about.
So I just I I I caution it because I see peoplecome to us after doing it and then we have to
kinda help through and figure out
how to solve it.
Yeah.
Exactly.
So on the front end
I mean, there are fund managers that there arefund managers that that I've seen do it, you
(45:49):
know, just building valuable content onTwitter.
And, you know, I think they're, you know,classified as a five o six.
Just through creating valuable content, thathelps to educate.
I feel like education is a really great way tobuild goodwill with investors because, mean,
especially if they're investors that have neverinvested in venture and they come from like a
(46:10):
manufacturing or logistics or real estatebackground, they've never really gotten into
the tech space.
Just only known logistics.
So now they kind of come across you coming intheir feed and you're just sharing like, hey,
here's 10 trends that are happening in the AIspace, if you're like a venture fund, right?
So then that's kind of interesting content toconsume.
(46:33):
But I don't necessarily see those managersgoing out saying, I'm raising, you know, if you
wanna if you wanna, you know, invest in myfund, click this link.
Right.
I don't see
as completely
obvious.
I
I think I think this is a good conversation tohave because it it's really kind of the crux of
a legal issue.
And, you know, we have I mean, it's it's ahighly analytical point and it's fact intensive
(46:57):
and so I can't really give a true legalopinion.
Right?
But Oh, sure.
What
it really Yeah.
Yeah.
Sure.
But it what it really comes down to though isdo you have a reasonable belief that this
investor is essentially who they say they areas an eligible investor under the law?
And if if you are put putting, say, like, thename of your fund and what you're doing and how
(47:19):
much you're raising and just on a website andall that information is just publicly
accessible, that is essentially a publicoffering.
And, you know, you you kinda wanna avoid asituation like that.
You you know, you don't Sure.
Because what could happen is the, you know, theinvestors come in, the sophisticated ones
later, and they look at how you've beenmarketing, and it it kind of taints the whole
(47:42):
vision, right, that we talked about for yourfund, how you've been, you know, knocking it
out of the park and everything's been perfect.
Now there's
Mhmm.
Sure.
(48:04):
Yeah.
Hey, Matthew, I think you froze for a second.
So we'll try to see if we can get Matthew tocome back on.
But I know we're out of time, so, you know, ifhe can come back on in a few seconds, if the,
(48:24):
the video restores, we'll, we'll wrap up.
If not, hey.
You know, really enjoyed everybody's time andreally appreciated, you know, Matthew from
Nick's and Peabody coming on.
And, we'll we'll try to, you know, catch up anddo some other episodes talking more about
private funds.
And and yeah.
So thank you everybody for your time.
(48:45):
Really appreciate it.
We we capture a lot of amazing content.
So, thank you again.
Catch up soon.
Bye.
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