This Week in Startups

Fund of funds: origins, evolution and deep dive with Michael Kim | E1890

Jan 31, 2024

01:02:21

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Michael Kim, Investor in fund of funds, deep dives on fund of funds' strengths and 'Achilles heel'. They discuss alpha, beta, and quality indices in early-stage investing, current market trends, and future startup outlook.

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Quick takeaways

Seed and pre-seed funds have become increasingly popular in the venture capital space, attracting larger LPs like university endowments and pension funds who find fund of funds an attractive option for gaining exposure to early-stage venture capital.

Startups benefit from increased efficiency and the ability to rapidly build global companies, thanks to advancements in technology and access to successful company playbooks.

The landscape of investing is shifting, with pre-seed becoming the new seed stage, as LPs recognize the potential for high returns and similar risk profiles, leading to the growth of pre-seed funds.

Deep dives

The Rise of Seed and Pre-Seed Funds

Seed and pre-seed funds have become increasingly popular in the venture capital space. The number of these funds has grown significantly over the past decade, with a shift towards institutionalization and larger fund sizes. LPs are attracted to these funds due to the potential for high returns, as exemplified by the success stories of angel investors like Chris Sacca and Ron Conway. Additionally, larger LPs, such as university endowments and pension funds, find fund of funds to be an attractive option for gaining exposure to early-stage venture capital, as they may not have the capacity or resources to directly invest in smaller seed funds. While fund of funds may be subject to criticism for the additional layer of fees, the benefits of access, diversification, and outsourced due diligence outweigh the cost for many LPs. It is important for seed funds to continuously build their reputation, expand their networks, and embrace new domains to remain successful in a competitive market.

Introduction

4min

Fund of Funds in Venture Capital

7min

B2B Marketing Challenges and the Rise of Seed Funds and Micro VCs

4min

Institutionalization of Seed Funding

8min

Importance of Attractive Websites and Fund Strategies for LPs

4min

The Role of Venture Capital in Diversified Investment Portfolios

8min

The Importance of Diligence in Fund Management and Founder Due Diligence

5min

The Importance of Motivation and Networking in Fund Management

20min

Founder Fridays: Connecting Founders and Sharing Experiences

5min

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Today’s show:

Cendana’s Michael Kim joins Jason for a deep dive on fund of funds (3:32), how to examine alpha, beta, and quality indices in early-stage investing (28:38), current market trends, future startup outlook (45:11), and more!

Timestamps:

(0:00) Michael Kim joins Jason.

(3:32) Overview of Fund of Funds, their Strengths and “Achilles heel”.

(7:01) Attraction factors for investors in pre-seed and seed startups.

(10:42) LinkedIn Marketing - Get a $100 LinkedIn ad credit at http://www.linkedin.com/thisweekinstartups

(12:04) The rise and definition of “micro VCs” with insights by Michael Kim.

(15:16) How the early seed stage carved a niche and its growing appeal to LPs.

(22:07) Squarespace - Use offer code TWIST to save 10% off your first purchase of a website or domain at http://www.Squarespace.com/TWIST

(23:12) Fund enablers and the importance of “consistent returns”.

(28:38) Examining alpha, beta, and quality indices in early-stage investing.

(34:21) Lemon.io - Get 15% off your first 4 weeks of developer time at https://www.Lemon.io/twist

(35:29) The significance of portfolio management as networks and building a ‘why' for founders to pick you as an investor.