June 27, 2025 • 22 mins
What does it take to allocate billions in private markets—and what sets a top-tier LP apart?
In this episode, I speak with Patrick Miller, Executive Director and Portfolio Manager of J.P. Morgan Asset Management’s Private Equity Group, where he plays a central role in their alternatives platform, investing across venture capital and private equity. Patrick shares how a single energizing meeting with a Florida-based venture capitalist sparked his interest in the asset class and how his team has since built a differentiated barbell strategy combining legacy tier-one firms and new emerging managers.
We dive into what LPs can do to truly add value to GPs, why fund size and ownership matter, how AI is shifting capital dynamics, and what makes a venture firm truly “differentiated.”
Whether you're a founder, a new VC, or an allocator, this episode is full of real LP insights from one of the most thoughtful voices in the game.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Patrick, I've been excited to chat.
(00:02):
Welcome to the How to Invest podcast.
Great.
Thank you, David.
Happy to be here.
So tell me about the story about how you gotinto allocating into venture capital funds.
It was really one meeting that I had with aparticular venture capitalist who is based in
Florida that we currently work with.
I left that meeting genuinely feeling energizedand I knew I wanted to spend more time focused
(00:23):
on this particular asset class.
It wasn't his network that necessarily wowedme.
While it is impressive, many venturecapitalists have great networks, but it was the
value he created for people, whether he was aninvestor or not, which impressed me the most.
And I asked myself, how can I do this from therole of an LP that is different from others?
(00:48):
Right?
It's how can I be additive to JPMorgan'sprivate equity team in helping getting access
to these differentiated opportunities?
You know, it's expected from our managers thatthey will add value to the underlying portfolio
companies, but how can I do that from an LPperspective?
Will that put us in a better position to getaccess to some of the best new and emerging
(01:10):
firms?
And those are the type of questions that Ithink about quite a bit.
How can LP go about adding value to GP?
So I think it depends on the LP.
And I recently had dinner with PatrickO'Shaughnessy where we sat down and talked
about this topic for a while.
Number one, venture capitalists want long termpartnerships.
(01:33):
Venture is not an asset class that you want totrade in and out of.
Think of the companies that were created intimes of volatility.
Airbnb in 02/2008, now an $85,000,000,000company, right?
Uber, Venmo, both founded in 02/2009.
We don't think you should trade in and out ofventure, and our general partners want
(01:55):
stability in who their LP base is.
The second is institutional experience.
Our team has been investing in venture capitalfor forty plus years.
We have tremendous experience investing acrossmultiple market cycles.
We've seen multiple firm transition.
We've been valuable members of ELPAC boards.
(02:16):
You know, we currently sit on over two fifteenboards across our platform.
Within our experience investing in venturecapital, we have seen a lot, and we can help
provide best practices for these firms.
And the third and probably the most importantis introductions to LPs or other industry
(02:37):
leaders.
Who are some of the other LPs that we know thathave unique insights or unique and
differentiated access?
How can they add value to their firm?
You know, is is their skill set additive inwhat you're currently focused on?
We recently introduced one of our partners to apodcast to help raise awareness to the firm and
(02:59):
really build their brand.
Right?
So we really wanna be partners with these GPs.
The first value add aspect, I could summarizeas Steady Hands.
So in the in the times when the market goesdown, and it always goes down, those LPs are
least likely to withdraw because of theirinstitutional knowledge on the performance of
asset class.
(03:21):
That's right.
I mean, we've seen swings, you know, hear a lotabout valuations, and that will dictate your
investment.
But we're also very focused on the early stage.
Majority of our investments are focused on seedseries a.
You know, it's a much steadier median valuationyear over year than what you'll see in series
c, d, etcetera.
(03:42):
The way that people talk about asset classes isas if you have to invest at one valuation to a
certain asset class.
In other words, venture capital early stage isalways investing at a 20,000,000 valuation or
series a is always at a 50,000,000.
Then in reality, it's supply and demand.
It's just a matter of how much demand is goinginto the market and how many companies are
(04:03):
there, and that dictates whether it's a good ornot market.
At the earliest stage, I like to say innovationdoes not care about valuation, right?
If the valuation of a seed, let's say a seedround is $20,000,000 or $25,000,000 it
ultimately doesn't matter if that company is abillion dollar company, right?
It's going to be wildly successful, right?
(04:23):
And so that's the reason why we don't like totrade in not a venture.
We like to be very focused on the early stage,you know, and back venture capitalists who have
great relationships with the next best founder.
In 2024, the top 30 funds raised roughly 75% ofthe entire venture ecosystem.
You're investing in emerging managers.
(04:45):
Why is that?
We are bullish on a handful of new and emergingmanagers, some not necessarily emerging, but
smaller managers.
Our venture capital strategy is building abarbell approach.
As you would imagine, JPMorgan has very longstanding relationships with tier one venture
firms that we all know of.
These firms have tremendous resources andcapabilities.
(05:08):
They have a long track record of backing someof the most prominent companies in the world,
whether it's a Meta, Uber, Stripe, Databricks,Scale AI, which was recently in the news at the
very earliest stage.
Again they have deep teams, they have aplaybook that continues to work and experience
(05:30):
that generates that pattern recognition neededto continue to get access to great companies.
I don't think that's going to change, and Ithink they're going to continue to get good
access.
With that said, the industry is constantlyevolving, and we believe that there are some
new firms that have raised smaller funds andproven the ability to get unique access.
(05:51):
And in many cases, we're finding that some ofthese firms are investing alongside some of
these tier one or multi stage firms, but at amuch smaller fund size.
And at the end of the day, in venture, fundsize and ownership matter, right?
And so what we found interesting about some ofthese smaller funds is if you look at the
(06:13):
ownership relative to fund size, an LP can havea greater return, you know, being a smaller
investor in a smaller fund than a largerinvestor in a large fund.
And so we think as these funds become larger,they're going to be more reliant on having a
higher hit rate in their underlying portfoliocompany, which is possible because given what I
(06:34):
told you before, or be reliant on outsizedreturns.
And as of the end of last year, there wastwelve thirty unicorns, but just 48 decacorns.
It's much harder to hit that $10,000,000,000mark where some of these funds could be more
reliant on going forward.
And the model for the smaller funds is oneinvestment returns the fund, and then
(06:59):
everything's gravy on top.
You get to your three, four x net.
What's the model for these large managers, the$10,000,000,000 plus venture capital firms?
I would expect a higher hit rate of successwhere they're getting access to the fastest
growing leaders of the industry, but they'recoming in at the series A and series B rather
than the seed round.
(07:22):
So ultimately, think they're more reliant onhaving a a higher hit rate than necessarily
that one outsized return that is gonna returnthe fun.
It's kind of this breaking of this orthodoxview in venture that it's all about the
winners.
The losers don't matter.
They could all go to zero.
That's been this kind of meme in the market.
Now as your fund gets bigger, yes, you want thefund returners.
(07:44):
You want the outsized return, but, also, youwant to lower your loss rate or increase your
hit rate, two sides of the same coin, so thatyou could still get to a decent return for the
rest of the portfolio.
That's right.
And again, we built this barbell approach wherewe really have both.
Right and I think our clients appreciate havingexposure to both sides.
(08:05):
You know one trend that I am very interested infollowing over the next five to ten years is
what's going to happen to the earliest stage ofventure capital compared to growth or
opportunity or opportunistic rounds.
71% of the venture dollars in Q1 went tocompanies focused on artificial intelligence.
(08:27):
And what we have found some of the earlieststages of AI companies is not only are they
scaling very quickly, they're also doing it ata much more capital efficient level.
Right?
And so what does that look like to later stageor growth equity investing if these companies
no longer need to raise capital, raise theirseries C, raise their series D?
(08:51):
You know, what's going to happen to thosefunds?
And so again, I don't have an answer for you.
It's something I think about.
But today we are seeing companies scale and insome cases become profitable at earlier stages
than we have historically.
One well known example of this is Midjourney.
They've raised 0 outside dollars, less valuedat $10,000,000,000.
(09:12):
So it's these second order effects of okay.
So you have these AI efficiencies.
What happens to the rest of the capital stack?
In many ways, it could also become bifurcatedin that you only raise one or two rounds in
order to get scale.
And then at some point, money itself becomes amoat, and you might wanna raise a billion
(09:33):
dollars.
So it's like you raise 5 to $10,000,000 earlystage and then raise a billion dollars later
stage to scale.
That's exactly right.
And so I just it's something I'm starting tothink about pretty regularly, and I think it's
why we remain very focused on seed and seriesa, make sure we're getting exposure to these
type of companies as before they scale rapidly.
(09:54):
There's a University of Chicago study thatfound that fifty two percent of top quartile
venture capital funds persist, meaning 52% ofthem end up in the twenty fifth top twenty
fifth percentile again.
So so when you look at the emerging side of themarket, it's not as studied, frankly, as the
persistence of top firms.
What data or what information do you point tothat gives you conviction that emerging
(10:21):
managers will outperform?
It's a great question and something we thinkabout, obviously, often.
When I look at emerging managers today, we havenow over 3,000 venture capital funds in The US.
I think it's going to be pretty difficult formany of them.
Today, we're in an environment where we see atremendous amount of spinouts from large tier
(10:43):
one multi stage firms that want to go on theirown.
Some of these might have less proven trackrecords.
And we're also seeing a number of operators orformer founders who maybe have been doing some
angel investing but now want to build a careerand build their venture capital firm.
And we've obviously seen very successfulventure firms start from that type of
(11:06):
background, whether it be A16Z or Cosla orFirst Round.
I think the key question for us is very simply,are you differentiated?
Do you have a differentiated skill set thatmakes you unique?
Right?
Do you have a strategy that is complementary tothe current lineup of venture capital managers
(11:28):
that we currently work with.
I think there's a lot more to it than justlooking at what is the TVPI, what is the DPI,
again, because that can be subjective.
And then I think another key question is why dofounders want to work with you?
What value can you bring to them?
How are you going to win that deal?
There's really three things that we really lookat under this differentiated umbrella.
(11:52):
I'd say it's either a very deep anddifferentiated technical expertise.
It is a differentiated network to access thebest companies, or it is a differentiated
strategy.
Which one is the most important?
I would say a differentiated network isprobably the most important at the earliest
stage.
(12:13):
I think it's also the toughest to differentiatebecause many of these venture funds or venture
firms have tremendous networks, right?
And so figuring out who is differentiated fromthe other is tougher, but when you find it, you
know.
Tell me about a couple
of managers that you've recently backed, andwhat made you say yes?
The first is a differentiated strategy.
(12:33):
So we recently backed a new and emergingresidency program based in San Francisco.
The team had built a solid brand and had a goodtrack record of attracting repeat founders to
attend this residency.
The model is great.
They're able to acquire a meaningful ownershippercentage of each of the company at the
(12:54):
earliest stage at a sub $5,000,000 market cap.
And then they leverage their founder andoperator network in Silicon Valley to help
scale that company.
The company comes, lives with them for tenweeks.
All they do is build.
They look to eliminate any distractions andthen put on a well attended demo day that has
(13:16):
attracted many top venture capital firms toattend that.
Interesting about that is most of the founderswho have attended this residency are repeat
founders.
And as you would imagine, when I first heardabout it, I was surprised by that.
Right?
You would think that repeat founders wouldn'tneed to attend that residency, But I think they
(13:38):
found that model to be differentiated and thevalue that they've been providing to be very
meaningful.
The second example is a differentiated network.
We recently backed a team that referencedincredibly well from our existing tier ones.
We actually met this venture capitalist througha reference call from one of our other venture
(14:04):
managers.
This firm is not an emerging manager, but isvery focused on the seed and early stage
venture capital market and has a great trackrecord.
So interestingly, his graduation rate from seedto series A was two times better than the
industry average.
And notably, he has 75 companies across hisplatform that he's received follow on financing
(14:28):
from a very well known established multi stageventure capital firm.
And as one of our references from one of thesetier one funds said, when you see a deal come
from this particular firm that they're goingout to raise their series A, you stop what
you're doing because it's probably somethingyou want to look at.
(14:48):
And the third is a differentiated technicalexpertise.
And so think about AI today, and I believe thatAI is a generational technology.
In the 90s, it was the Internet.
In the 2000s it was mobile.
AI is that of today.
I think we're at the early stages of AI.
(15:11):
We've seen it, we've read about it.
It's really changing the world.
And so we backed an emerging manager who wasreally at the forefront of this technology.
One partner at this firm was an early employeeat OpenAI.
She is credited for helping writing to writethe code for ChatGPT.
And the other partner was the founder of FAIR,which is Facebook's artificial intelligence
(15:36):
research team.
Know, certainly one of the first employeesfocused on AI at Facebook or now Meta.
You know, these people are very technical.
They understand the technology well, and youcan see a clear reason why a founder focused in
this area would would would want them on thecap table.
In all three of these cases, you have a teamthat's very attractive to a certain type of
(16:00):
entrepreneur that's picking them.
Because essentially at the early stage with thehot deals, it's actually the founders that
choose the VCs, not the VCs choosing thefounders.
That's right.
For the hottest deals in venture, they're gonnayou know, these founders are gonna be able to
take their pick for which venture fund thatthey want to work with.
And so we think it's very important that one ofthese skill sets will be able to prevail and
(16:25):
that they'll be able to get access to the deal.
And on your team, we also invest in privateequity managers.
What do you look for in private equitymanagers?
Private equity is really the backbone of ourinvestment capabilities.
We deploy about $3,000,000,000 a year inprivate equity across primary investments, co
investments, secondary investments.
(16:47):
We are very focused on the small to mid market.
There's a number of reasons why we like this.
First is the opportunity set.
90% of U.
S.
Private companies have revenues between 10 to$100,000,000.
That is a pretty large pond for us to fish inand find unique deals.
There's also much less competition on this endof the market, and so we're often seeing much
(17:12):
more attractive purchase price multiples.
You know, we're currently seeing deals anywherein the nine to 13 times range, sometimes
cheaper, you know, depending on obviouslysector and growth.
We're not looking to financially engineerreturns.
We're looking to really create value throughoperational enhancement right.
(17:34):
And so we're partnering with sector experts todo just that.
Historically, companies would exit by eithergoing through an IPO or they'd be sold to a
strategic.
But if you look at the private equity industrytoday, there's over a trillion dollars of dry
powder in The US private market alone.
(17:56):
And so we have seen this trend of largerprivate equity funds coming down market and
acquiring companies our platform to use astheir initial investment.
And so interestingly, we've had four differentcompanies recently sold on our platform.
And I know that you read about how clients talkabout the lack of liquidity in the market, but
(18:20):
we continue to see a meaningful amount ofliquidity across our platform.
In fact, distribution activity through June 1is up about 23% year over year.
And so, again, this end of the market, we thinkyou can really deliver meaningful upside
performance.
Chen, you like sector specialists in privateequity.
(18:40):
What other characteristics are you looking forfrom the managers that you end up investing in
in private equity?
So private equity is certainly much differentthan venture capital.
There's much there's certainly much more of aflywheel that you're able to implement on the
private equity side compared to venture.
(19:01):
I understand in venture you want to add valueand that's something we're very focused on.
But in private equity there's sector expertswho have a right to win in their particular
field and they're able to stick to thatflywheel.
You're really able to from a from a managerperspective do much more work on the underlying
team and process and a track record reallydrives a lot of future success.
(19:25):
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What's the highest leverage thing that they'redoing?
Is it implementing management teams?
Is it executing playbooks?
What exactly are they doing?
It's people.
I I think one of the biggest things that I'velearned across private equity and venture is
people drive performance.
(19:46):
Right?
And so it's finding the best people to back.
It's finding the best people to hire.
Just to contrast people versus what?
It's people versus advice.
So it's not the private equity fund sittingdown and saying, let me tell you about my
experience.
It's here's a person that's run it from 10 to a100,000,000.
Here's a salesperson that's run it from 10 to a100,000,000.
That's higher leverage than trying to coach upessentially somebody that's never done it
(20:10):
before.
Absolutely.
A lot of these private equity funds, they'resector experts, right?
And they've partnered with operators andthey've seen these operators work before and in
many cases have a track record of success.
Right?
And so if they're investing in a new company, asimilar company, in many cases, they'll bring
the same or former operator into this companyto execute the same playbook.
(20:32):
And so they've seen this before, and they knowhow to do that.
You've been at JPMorgan now for over a decade.
What one piece of advice would you give Patrickstarting out 10 ago that you could maybe
whisper in his ear?
What lessons would you want him to have earlieron in his career?
Find a a good mentor.
(20:52):
That's probably the best advice that I wouldgive anyone, whether they're starting their
career or starting in a new role in privateequity or venture or any role.
But finding a good mentor is probably the mostimportant advice I could give.
How do you find a good mentor?
What you need to do is you need to show someinitiative, right?
(21:13):
I think you want to show initiative about hisor her career.
I think you want to get to know them as aperson.
And then at the end of the day, I think youwant to ask them to work with them.
I've been very fortunate enough on our teamwhere I have a number of different mentors.
I won't name them because I'll miss a name andI'll hear about it.
But I've been very fortunate to be mentored bya number of portfolio managers.
(21:37):
And for me, I think it's important to be bold.
I think it's important to ask them forguidance.
I think it's important to ask them about theircareer.
And I think it's important to ask them aboutwhat their lessons they've learned that they
can pass down to the next generation of people.
And I would tell people, try to create valuefor this person before they ask for it.
(22:01):
Right?
I think that would really go a long way indeveloping a good working mentor mentee
relationship with whoever that might be.
Patrick, what would you like our listeners toknow about you, about your team at JPMorgan, or
anything else you'd like to share?
I'm certainly always open and willing andwanting to connect with people.
I think having a large network and a growingnetwork is very important for everyone's
(22:25):
career.
And so I'm happy to connect with anyone forthat matter.
So feel free to reach out.
Thank you, Patrick, and looking forward tocontinuing the conversation live very soon.
Great.
Thanks, David.
Thanks for listening to my conversation.
If you enjoyed this episode, please share witha friend.
This helps us grow.
Also provides the very best feedback when wereview the episode's analytics.
(22:46):
Thank you for your support.
Patrick, I've been excited to chat.
(00:02):
Welcome to the How to Invest podcast.
Great.
Thank you, David.
Happy to be here.
So tell me about the story about how you gotinto allocating into venture capital funds.
It was really one meeting that I had with aparticular venture capitalist who is based in
Florida that we currently work with.
I left that meeting genuinely feeling energizedand I knew I wanted to spend more time focused
(00:23):
on this particular asset class.
It wasn't his network that necessarily wowedme.
While it is impressive, many venturecapitalists have great networks, but it was the
value he created for people, whether he was aninvestor or not, which impressed me the most.
And I asked myself, how can I do this from therole of an LP that is different from others?
(00:48):
Right?
It's how can I be additive to JPMorgan'sprivate equity team in helping getting access
to these differentiated opportunities?
You know, it's expected from our managers thatthey will add value to the underlying portfolio
companies, but how can I do that from an LPperspective?
Will that put us in a better position to getaccess to some of the best new and emerging
(01:10):
firms?
And those are the type of questions that Ithink about quite a bit.
How can LP go about adding value to GP?
So I think it depends on the LP.
And I recently had dinner with PatrickO'Shaughnessy where we sat down and talked
about this topic for a while.
Number one, venture capitalists want long termpartnerships.
(01:33):
Venture is not an asset class that you want totrade in and out of.
Think of the companies that were created intimes of volatility.
Airbnb in 02/2008, now an $85,000,000,000company, right?
Uber, Venmo, both founded in 02/2009.
We don't think you should trade in and out ofventure, and our general partners want
(01:55):
stability in who their LP base is.
The second is institutional experience.
Our team has been investing in venture capitalfor forty plus years.
We have tremendous experience investing acrossmultiple market cycles.
We've seen multiple firm transition.
We've been valuable members of ELPAC boards.
(02:16):
You know, we currently sit on over two fifteenboards across our platform.
Within our experience investing in venturecapital, we have seen a lot, and we can help
provide best practices for these firms.
And the third and probably the most importantis introductions to LPs or other industry
(02:37):
leaders.
Who are some of the other LPs that we know thathave unique insights or unique and
differentiated access?
How can they add value to their firm?
You know, is is their skill set additive inwhat you're currently focused on?
We recently introduced one of our partners to apodcast to help raise awareness to the firm and
(02:59):
really build their brand.
Right?
So we really wanna be partners with these GPs.
The first value add aspect, I could summarizeas Steady Hands.
So in the in the times when the market goesdown, and it always goes down, those LPs are
least likely to withdraw because of theirinstitutional knowledge on the performance of
asset class.
(03:21):
That's right.
I mean, we've seen swings, you know, hear a lotabout valuations, and that will dictate your
investment.
But we're also very focused on the early stage.
Majority of our investments are focused on seedseries a.
You know, it's a much steadier median valuationyear over year than what you'll see in series
c, d, etcetera.
(03:42):
The way that people talk about asset classes isas if you have to invest at one valuation to a
certain asset class.
In other words, venture capital early stage isalways investing at a 20,000,000 valuation or
series a is always at a 50,000,000.
Then in reality, it's supply and demand.
It's just a matter of how much demand is goinginto the market and how many companies are
(04:03):
there, and that dictates whether it's a good ornot market.
At the earliest stage, I like to say innovationdoes not care about valuation, right?
If the valuation of a seed, let's say a seedround is $20,000,000 or $25,000,000 it
ultimately doesn't matter if that company is abillion dollar company, right?
It's going to be wildly successful, right?
(04:23):
And so that's the reason why we don't like totrade in not a venture.
We like to be very focused on the early stage,you know, and back venture capitalists who have
great relationships with the next best founder.
In 2024, the top 30 funds raised roughly 75% ofthe entire venture ecosystem.
You're investing in emerging managers.
(04:45):
Why is that?
We are bullish on a handful of new and emergingmanagers, some not necessarily emerging, but
smaller managers.
Our venture capital strategy is building abarbell approach.
As you would imagine, JPMorgan has very longstanding relationships with tier one venture
firms that we all know of.
These firms have tremendous resources andcapabilities.
(05:08):
They have a long track record of backing someof the most prominent companies in the world,
whether it's a Meta, Uber, Stripe, Databricks,Scale AI, which was recently in the news at the
very earliest stage.
Again they have deep teams, they have aplaybook that continues to work and experience
(05:30):
that generates that pattern recognition neededto continue to get access to great companies.
I don't think that's going to change, and Ithink they're going to continue to get good
access.
With that said, the industry is constantlyevolving, and we believe that there are some
new firms that have raised smaller funds andproven the ability to get unique access.
(05:51):
And in many cases, we're finding that some ofthese firms are investing alongside some of
these tier one or multi stage firms, but at amuch smaller fund size.
And at the end of the day, in venture, fundsize and ownership matter, right?
And so what we found interesting about some ofthese smaller funds is if you look at the
(06:13):
ownership relative to fund size, an LP can havea greater return, you know, being a smaller
investor in a smaller fund than a largerinvestor in a large fund.
And so we think as these funds become larger,they're going to be more reliant on having a
higher hit rate in their underlying portfoliocompany, which is possible because given what I
(06:34):
told you before, or be reliant on outsizedreturns.
And as of the end of last year, there wastwelve thirty unicorns, but just 48 decacorns.
It's much harder to hit that $10,000,000,000mark where some of these funds could be more
reliant on going forward.
And the model for the smaller funds is oneinvestment returns the fund, and then
(06:59):
everything's gravy on top.
You get to your three, four x net.
What's the model for these large managers, the$10,000,000,000 plus venture capital firms?
I would expect a higher hit rate of successwhere they're getting access to the fastest
growing leaders of the industry, but they'recoming in at the series A and series B rather
than the seed round.
(07:22):
So ultimately, think they're more reliant onhaving a a higher hit rate than necessarily
that one outsized return that is gonna returnthe fun.
It's kind of this breaking of this orthodoxview in venture that it's all about the
winners.
The losers don't matter.
They could all go to zero.
That's been this kind of meme in the market.
Now as your fund gets bigger, yes, you want thefund returners.
(07:44):
You want the outsized return, but, also, youwant to lower your loss rate or increase your
hit rate, two sides of the same coin, so thatyou could still get to a decent return for the
rest of the portfolio.
That's right.
And again, we built this barbell approach wherewe really have both.
Right and I think our clients appreciate havingexposure to both sides.
(08:05):
You know one trend that I am very interested infollowing over the next five to ten years is
what's going to happen to the earliest stage ofventure capital compared to growth or
opportunity or opportunistic rounds.
71% of the venture dollars in Q1 went tocompanies focused on artificial intelligence.
(08:27):
And what we have found some of the earlieststages of AI companies is not only are they
scaling very quickly, they're also doing it ata much more capital efficient level.
Right?
And so what does that look like to later stageor growth equity investing if these companies
no longer need to raise capital, raise theirseries C, raise their series D?
(08:51):
You know, what's going to happen to thosefunds?
And so again, I don't have an answer for you.
It's something I think about.
But today we are seeing companies scale and insome cases become profitable at earlier stages
than we have historically.
One well known example of this is Midjourney.
They've raised 0 outside dollars, less valuedat $10,000,000,000.
(09:12):
So it's these second order effects of okay.
So you have these AI efficiencies.
What happens to the rest of the capital stack?
In many ways, it could also become bifurcatedin that you only raise one or two rounds in
order to get scale.
And then at some point, money itself becomes amoat, and you might wanna raise a billion
(09:33):
dollars.
So it's like you raise 5 to $10,000,000 earlystage and then raise a billion dollars later
stage to scale.
That's exactly right.
And so I just it's something I'm starting tothink about pretty regularly, and I think it's
why we remain very focused on seed and seriesa, make sure we're getting exposure to these
type of companies as before they scale rapidly.
(09:54):
There's a University of Chicago study thatfound that fifty two percent of top quartile
venture capital funds persist, meaning 52% ofthem end up in the twenty fifth top twenty
fifth percentile again.
So so when you look at the emerging side of themarket, it's not as studied, frankly, as the
persistence of top firms.
What data or what information do you point tothat gives you conviction that emerging
(10:21):
managers will outperform?
It's a great question and something we thinkabout, obviously, often.
When I look at emerging managers today, we havenow over 3,000 venture capital funds in The US.
I think it's going to be pretty difficult formany of them.
Today, we're in an environment where we see atremendous amount of spinouts from large tier
(10:43):
one multi stage firms that want to go on theirown.
Some of these might have less proven trackrecords.
And we're also seeing a number of operators orformer founders who maybe have been doing some
angel investing but now want to build a careerand build their venture capital firm.
And we've obviously seen very successfulventure firms start from that type of
(11:06):
background, whether it be A16Z or Cosla orFirst Round.
I think the key question for us is very simply,are you differentiated?
Do you have a differentiated skill set thatmakes you unique?
Right?
Do you have a strategy that is complementary tothe current lineup of venture capital managers
(11:28):
that we currently work with.
I think there's a lot more to it than justlooking at what is the TVPI, what is the DPI,
again, because that can be subjective.
And then I think another key question is why dofounders want to work with you?
What value can you bring to them?
How are you going to win that deal?
There's really three things that we really lookat under this differentiated umbrella.
(11:52):
I'd say it's either a very deep anddifferentiated technical expertise.
It is a differentiated network to access thebest companies, or it is a differentiated
strategy.
Which one is the most important?
I would say a differentiated network isprobably the most important at the earliest
stage.
(12:13):
I think it's also the toughest to differentiatebecause many of these venture funds or venture
firms have tremendous networks, right?
And so figuring out who is differentiated fromthe other is tougher, but when you find it, you
know.
Tell me about a couple
of managers that you've recently backed, andwhat made you say yes?
The first is a differentiated strategy.
(12:33):
So we recently backed a new and emergingresidency program based in San Francisco.
The team had built a solid brand and had a goodtrack record of attracting repeat founders to
attend this residency.
The model is great.
They're able to acquire a meaningful ownershippercentage of each of the company at the
(12:54):
earliest stage at a sub $5,000,000 market cap.
And then they leverage their founder andoperator network in Silicon Valley to help
scale that company.
The company comes, lives with them for tenweeks.
All they do is build.
They look to eliminate any distractions andthen put on a well attended demo day that has
(13:16):
attracted many top venture capital firms toattend that.
Interesting about that is most of the founderswho have attended this residency are repeat
founders.
And as you would imagine, when I first heardabout it, I was surprised by that.
Right?
You would think that repeat founders wouldn'tneed to attend that residency, But I think they
(13:38):
found that model to be differentiated and thevalue that they've been providing to be very
meaningful.
The second example is a differentiated network.
We recently backed a team that referencedincredibly well from our existing tier ones.
We actually met this venture capitalist througha reference call from one of our other venture
(14:04):
managers.
This firm is not an emerging manager, but isvery focused on the seed and early stage
venture capital market and has a great trackrecord.
So interestingly, his graduation rate from seedto series A was two times better than the
industry average.
And notably, he has 75 companies across hisplatform that he's received follow on financing
(14:28):
from a very well known established multi stageventure capital firm.
And as one of our references from one of thesetier one funds said, when you see a deal come
from this particular firm that they're goingout to raise their series A, you stop what
you're doing because it's probably somethingyou want to look at.
(14:48):
And the third is a differentiated technicalexpertise.
And so think about AI today, and I believe thatAI is a generational technology.
In the 90s, it was the Internet.
In the 2000s it was mobile.
AI is that of today.
I think we're at the early stages of AI.
(15:11):
We've seen it, we've read about it.
It's really changing the world.
And so we backed an emerging manager who wasreally at the forefront of this technology.
One partner at this firm was an early employeeat OpenAI.
She is credited for helping writing to writethe code for ChatGPT.
And the other partner was the founder of FAIR,which is Facebook's artificial intelligence
(15:36):
research team.
Know, certainly one of the first employeesfocused on AI at Facebook or now Meta.
You know, these people are very technical.
They understand the technology well, and youcan see a clear reason why a founder focused in
this area would would would want them on thecap table.
In all three of these cases, you have a teamthat's very attractive to a certain type of
(16:00):
entrepreneur that's picking them.
Because essentially at the early stage with thehot deals, it's actually the founders that
choose the VCs, not the VCs choosing thefounders.
That's right.
For the hottest deals in venture, they're gonnayou know, these founders are gonna be able to
take their pick for which venture fund thatthey want to work with.
And so we think it's very important that one ofthese skill sets will be able to prevail and
(16:25):
that they'll be able to get access to the deal.
And on your team, we also invest in privateequity managers.
What do you look for in private equitymanagers?
Private equity is really the backbone of ourinvestment capabilities.
We deploy about $3,000,000,000 a year inprivate equity across primary investments, co
investments, secondary investments.
(16:47):
We are very focused on the small to mid market.
There's a number of reasons why we like this.
First is the opportunity set.
90% of U.
S.
Private companies have revenues between 10 to$100,000,000.
That is a pretty large pond for us to fish inand find unique deals.
There's also much less competition on this endof the market, and so we're often seeing much
(17:12):
more attractive purchase price multiples.
You know, we're currently seeing deals anywherein the nine to 13 times range, sometimes
cheaper, you know, depending on obviouslysector and growth.
We're not looking to financially engineerreturns.
We're looking to really create value throughoperational enhancement right.
(17:34):
And so we're partnering with sector experts todo just that.
Historically, companies would exit by eithergoing through an IPO or they'd be sold to a
strategic.
But if you look at the private equity industrytoday, there's over a trillion dollars of dry
powder in The US private market alone.
(17:56):
And so we have seen this trend of largerprivate equity funds coming down market and
acquiring companies our platform to use astheir initial investment.
And so interestingly, we've had four differentcompanies recently sold on our platform.
And I know that you read about how clients talkabout the lack of liquidity in the market, but
(18:20):
we continue to see a meaningful amount ofliquidity across our platform.
In fact, distribution activity through June 1is up about 23% year over year.
And so, again, this end of the market, we thinkyou can really deliver meaningful upside
performance.
Chen, you like sector specialists in privateequity.
(18:40):
What other characteristics are you looking forfrom the managers that you end up investing in
in private equity?
So private equity is certainly much differentthan venture capital.
There's much there's certainly much more of aflywheel that you're able to implement on the
private equity side compared to venture.
(19:01):
I understand in venture you want to add valueand that's something we're very focused on.
But in private equity there's sector expertswho have a right to win in their particular
field and they're able to stick to thatflywheel.
You're really able to from a from a managerperspective do much more work on the underlying
team and process and a track record reallydrives a lot of future success.
(19:25):
Thank you for listening.
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What's the highest leverage thing that they'redoing?
Is it implementing management teams?
Is it executing playbooks?
What exactly are they doing?
It's people.
I I think one of the biggest things that I'velearned across private equity and venture is
people drive performance.
(19:46):
Right?
And so it's finding the best people to back.
It's finding the best people to hire.
Just to contrast people versus what?
It's people versus advice.
So it's not the private equity fund sittingdown and saying, let me tell you about my
experience.
It's here's a person that's run it from 10 to a100,000,000.
Here's a salesperson that's run it from 10 to a100,000,000.
That's higher leverage than trying to coach upessentially somebody that's never done it
(20:10):
before.
Absolutely.
A lot of these private equity funds, they'resector experts, right?
And they've partnered with operators andthey've seen these operators work before and in
many cases have a track record of success.
Right?
And so if they're investing in a new company, asimilar company, in many cases, they'll bring
the same or former operator into this companyto execute the same playbook.
(20:32):
And so they've seen this before, and they knowhow to do that.
You've been at JPMorgan now for over a decade.
What one piece of advice would you give Patrickstarting out 10 ago that you could maybe
whisper in his ear?
What lessons would you want him to have earlieron in his career?
Find a a good mentor.
(20:52):
That's probably the best advice that I wouldgive anyone, whether they're starting their
career or starting in a new role in privateequity or venture or any role.
But finding a good mentor is probably the mostimportant advice I could give.
How do you find a good mentor?
What you need to do is you need to show someinitiative, right?
(21:13):
I think you want to show initiative about hisor her career.
I think you want to get to know them as aperson.
And then at the end of the day, I think youwant to ask them to work with them.
I've been very fortunate enough on our teamwhere I have a number of different mentors.
I won't name them because I'll miss a name andI'll hear about it.
But I've been very fortunate to be mentored bya number of portfolio managers.
(21:37):
And for me, I think it's important to be bold.
I think it's important to ask them forguidance.
I think it's important to ask them about theircareer.
And I think it's important to ask them aboutwhat their lessons they've learned that they
can pass down to the next generation of people.
And I would tell people, try to create valuefor this person before they ask for it.
(22:01):
Right?
I think that would really go a long way indeveloping a good working mentor mentee
relationship with whoever that might be.
Patrick, what would you like our listeners toknow about you, about your team at JPMorgan, or
anything else you'd like to share?
I'm certainly always open and willing andwanting to connect with people.
I think having a large network and a growingnetwork is very important for everyone's
(22:25):
career.
And so I'm happy to connect with anyone forthat matter.
So feel free to reach out.
Thank you, Patrick, and looking forward tocontinuing the conversation live very soon.
Great.
Thanks, David.
Thanks for listening to my conversation.
If you enjoyed this episode, please share witha friend.
This helps us grow.
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(22:46):
Thank you for your support.
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