The Adventures of an LP Whisperer | Eric Woo | Superclusters | S1E3
Nov 20, 2023
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Eric Woo, co-founder and CEO of Revere, shares his insights on emotions, career transitions, storytelling, fundraising, engaging with LPs, measuring performance metrics, and achieving clarity of thought through data triangulation.
Revere is a ratings platform that helps LPs evaluate and compare VC funds, providing a user-friendly experience and informative insights for more informed investment decisions.
Community-building initiatives play a crucial role in the VC industry, and Reveer recognizes the importance of assessing fund managers' community strength and impact as part of their rating system.
The ability to identify high-growth, high-potential outlier companies within a fund's portfolio is a strong indicator of future success and should be a focus when evaluating VC funds.
Deep dives
Reveer: The Ratings Platform for VC Funds
Reveer is a ratings platform that serves as the Morningstar for VC funds. It allows LPs to evaluate and compare different funds in the venture capital industry. Similar to how Yelp helps users find highly rated restaurants, Reveer helps LPs navigate the VC landscape and make informed investment decisions. The platform provides a heat map that highlights different aspects of a fund's performance, such as team, track record, value-add, firm management, and sourcing. LPs can use Reveer to screen and narrow down their options, but it's important to note that it doesn't replace the need for face-to-face meetings with fund managers or thorough due diligence. Reveer strives to provide a user-friendly and informative experience to LPs, helping them navigate the complex world of venture capital and make more informed investment decisions.
The Importance of Community in VC Investing
Community plays a crucial role in the venture capital industry. It has a direct impact on deal flow, network effects, and portfolio support. While it can be challenging to measure community qualitatively and quantitatively, Reveer recognizes its significance in determining future returns. As part of their rating system, Reveer surveys fund managers to understand and assess their community-building initiatives. By capturing a wide range of answers, patterns start to emerge, allowing Reveer to evaluate the strength and impact of a fund's community. This data helps LPs gain insights into how fund managers activate their communities and support their portfolio companies. While community is just one factor among many, it is an important attribute that contributes to the overall evaluation of a fund.
Quantifying Performance and Metrics in VC Funds
When evaluating VC funds, there are several metrics that LPs consider, such as DPI (distribution to paid-in capital), TVPI (total value to paid-in capital), and IRR (internal rate of return). However, these metrics alone cannot paint a complete picture of a fund's performance. A telltale sign of a potentially top-performing fund is its ability to have one or a few companies within its portfolio that have significant potential to generate returns that can outweigh the entire fund. This means that the focus should be on identifying outlier companies in a fund's portfolio that have the potential to deliver substantial returns. Other metrics and indicators may differ depending on individual LP preferences and investment strategies, but the ability to identify high-growth, high-potential companies within a fund's portfolio is a strong indicator of future success.
Using Heat Maps and Ratings to Evaluate VC Funds
Reveer's ratings platform provides LPs with a comprehensive evaluation tool for VC funds. Rather than relying solely on traditional metrics like DPI and TVPI, Reveer uses a heat map to highlight a fund's strengths and weaknesses across multiple categories, including team, track record, value-add, firm management, and sourcing. The heat map allows LPs to quickly and visually assess a fund's performance in these areas, helping them make more informed investment decisions. It's important to note that while the heat map provides an overview, LPs should conduct thorough due diligence, including face-to-face meetings and in-depth analysis, to gain a complete understanding of a fund's potential.
The Importance of Making Personal Connections in Investment Conversations
One key recommendation that Eric Wu provides to both GPs and LPs is to approach every conversation as a conversation, not just as a pitch. He emphasizes the significance of establishing a connection with the other person and treating them as a human being. Wu believes that this personal connection is essential for building trust and credibility, allowing for a deeper understanding of each other's motivations and goals. By focusing on creating meaningful conversations, GPs and LPs can build stronger relationships and increase their chances of success in the industry.
Investment Flexibility and Adaptability for Long-Term Success
Eric Wu challenges the traditional notion of rigid investment models and advises fund managers to continuously iterate and adapt their strategies over time. He believes that change should be embraced rather than avoided, even if it means shifting the size or focus of a fund. Wu emphasizes the importance of understanding the motivations and intentions behind these changes, as well as the ability to maintain success by leveraging the ingredients that have proven effective in the past. By promoting flexibility and adaptability, Wu encourages fund managers to maximize their potential for success in a rapidly evolving industry.
Eric is co-founder and CEO of Revere, where he leads product development and investment analysis & due diligence efforts.
Prior to starting Revere, he was Head of Institutional Capital at AngelList, the world's largest online venture capital investment platform that supports over $10B in assets and has participated in the financing of over 190 "unicorn" companies. At AngelList, Eric worked closely with investors to curate early-stage fund and deal opportunities. He also developed systematic and data-driven strategies for institutional investors.
Over the last 12 years, Eric has helped allocate over $160 million in venture funds and direct co-investments. Notably, he played a key role in establishing the emerging manager investment programs at Top Tier Capital and Northgate Capital, organizations that collectively have more than $15B in AUM. Eric is an acknowledged thought leader in the VC emerging managers ecosystem.
Before his venture career, Eric worked in pricing and risk management for a large insurance company and financial guarantor. He also has experience in online marketing and private market research. A Bay Area native, Eric graduated with a B.S. degree in Mechanical Engineering from UC Berkeley and has been a CFA charter holder since 2004.
You can find Eric on his socials here:
Twitter: https://twitter.com/ericjwoo
LinkedIn: https://www.linkedin.com/in/ericwoo/
And huge thanks to this episode's sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters
OUTLINE:
[00:00] Intro
[03:30] How did Eric pivot from being an engineer to an asset manager?
[09:52] Building emerging manager programs at Top Tier and Northgate
[15:25] How does Eric define conviction?
[17:23] What was the thesis that Eric raised his fund of funds on?
[20:00] How much does an established fund's portfolio is allocated to emerging managers?
[23:48] How did Eric pitch institutional LPs to join AngelList?
[32:48] How does Eric measure the ROI on hosting events?
[36:24] How does Eric pitch Revere to my relatives?
[39:29] How does Revere rate emerging managers?
[47:49] What are telltale signs of a fund's outperformance?
[51:36] The value of community
[58:10] What are subconscious decisions LPs make that deserve a double take?
[1:02:09] Why strategy drift is not a bad thing
[1:04:57] What VC firm turned identity into culture?
[1:07:39] What is Eric's nighttime routine?
[1:09:50] Angel investing is to tipping as LP investing is to ____
[1:13:45] What is one thing Eric recommends GPs do but no one ever listens?
[1:15:18] What is an investment opportunity Eric missed because of what he didn't do rather than what he did?
[1:18:21] Thank you to Alchemist Accelerator for sponsoring!
[1:20:58] Legal disclaimer
Follow David Zhou for more Superclusters content:
For podcast show notes: https://superclusters.co
Follow David Zhou's blog: https://cupofzhou.com
Follow Superclusters on Twitter: https://twitter.com/SuperclustersLP
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