This Week in Startups

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

19 snips
Jan 31, 2024
Michael Kim, a fund of funds manager at Cendana Capital, specializes in seed and pre-seed investments. He discusses the pivotal role of fund of funds in venture capital, detailing their strengths and how they support smaller funds. Michael dives into the appeal of early-stage investments for limited partners, the rise of micro VCs, and the significance of examining alpha and beta in investment strategies. He also shares insights on current market trends and the future outlook for startups, highlighting the shifting dynamics in the funding landscape.
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INSIGHT

Carry and Fund Size

  • Larger funds can achieve high carry even with lower multiples due to sheer fund size.
  • This incentivizes GPs to prioritize fund size over potentially higher returns in smaller funds.
INSIGHT

LP and GP Alignment

  • Large LPs enable large venture funds by providing capital for sizeable deployments, fulfilling their venture allocation needs.
  • Consistent top-quartile performance, not necessarily the highest returns, can satisfy some LP needs for stability.
INSIGHT

Accelerator Model

  • Y Combinator and Techstars function like high-quality indexes, offering beta exposure with a chance of alpha through outliers.
  • Institutional LPs understand this dynamic, accepting potential lower returns for the quality and breadth of the portfolio.
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