This Week in Startups

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

5 snips
Jan 31, 2024
Guest
Michael Kim
Michael Kim, a fund of funds expert, shares insights on the evolution and dynamics of early-stage investing. He discusses the concepts of alpha, beta, and quality indices, and dives into why micro VCs are gaining traction. Kim reveals the increasing interest of limited partners in pre-seed and seed investments, highlighting the factors driving funding in these areas. He also emphasizes the importance of consistent returns and the critical relationships between fund managers and startup founders in navigating today's startup ecosystem.
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INSIGHT

Growth vs. Performance

  • Venture firms raise bigger funds, even if performance decreases, to increase management fees.
  • This can lead to decreased GP hunger and sharpness, as large funds may aim for 2x returns instead of higher multiples.
INSIGHT

LP Needs and Preferences

  • Large LPs like CalPERS and state pension funds need to deploy substantial capital, driving demand for large venture funds.
  • Consistent top-quartile performance can be more valuable to some LPs than aiming for the highest returns.
INSIGHT

Beta with Alpha Optionality

  • Y Combinator and Techstars, by investing in many startups, primarily offer beta exposure, with an option for alpha if outliers emerge.
  • High-quality indexes with potential outliers are attractive for LPs.
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