Module Description:
Experienced VC allocator/LP Matt Curtolo shares what new LPs should think about when deciding to invest in VC funds and the broader LP investment decision lifecycle.
Full Transcript:
- Welcome, everyone, to our Ubiquity University session, "LP 103: What New LPs Need to Know About Being a Good LP." This is part three of our three-part deep dive into pulling back the curtain on limited partners, the source of the money behind venture capital. Again, we're lucky to have Matt Curtolo as our speaker. Matt is an experienced venture capital allocator with over 20 years of experience, including institutions large and small, most recently at Allocate. Ubiquity Ventures is a pre-seed and seed stage venture capital firm investing in software beyond the screen. That means we back early-stage entrepreneurs that are taking software off a computer, putting into the real physical world to solve real physical world problems. Today, we will dive right in. So, Matt, I'll ask you to take it away.
Thanks, Sunil. Really excited to share having once been a new LP 20 some years ago, I'm always excited to share some of the learnings and some of the ways that LPs can approach the market today, even with their first commitments. So, say you wanna invest in venture, right? The real thing, I mean, there's a lot to like about venture. One of my bullet points was venture capital people are really cool. Sunil is a great example of that. But, you know, the real question is, why are you doing this, right? How does this fit in your overall framework? Whether you're an individual, an institution, what is the goal of your investment in venture capital? Because that should be the factor that shapes the rest of your decision-making process. And we'll walk through a very thorough process in the next slide. But are you doing it for the promise of outsized returns? Venture capital over 20 years has been the top performing sub-asset class. That's certainly a good driver in a portfolio context. There's also the opportunity to get a lens into the future. You can learn about trends oftentimes before things get into the rest of your portfolio. Public book, private equity, venture capital's gonna give you a lens into those trends. There's also the opportunity for a lot of individuals who have been successful entrepreneurs to sort of pay it forward, but also still wanna be involved in the shaping of the future, helping the next generation. I think that's also a piece that could be really impactful both to the GP and the LP. And there's also the network effect of being within this community of incredibly talented, incredibly innovative people, whether that's an investor that ultimately might wanna start their own company someday, using this as an idea generation platform as well. So take the answer to that question and design what I call your portfolio plan. So take your goals, think about your liquidity needs. Remember, venture capital is an illiquid asset class. You're making a commitment to a fund that will be drawn down over time, but will be in a locked up vehicle for 10 to 12 years or until distributions are made. So make sure this is capital that you can afford to have in that kind of structure. And then also think about the areas of interest, right? Are there certain pockets that you wanna lean into more than others? All of this aligning back to your goals. The biggest thing on the right here is just remember that there's no book. Like, what I'm talk telling you today is figure all this out on an individual basis. There's not a magic bullet or a plan or a playbook that says, "If I do this, I will reach X." Think about it, how it fits in your context, what you're gonna achieve, and apply that to your framework as you go and try to execute against it. The last piece is not written in stone. Don't feel like you make this decision, you get started, you can't change it. Yes, it's hard to get out of commitments once you've made those, but your portfolio plan can change over time, your goals can change, your individual fact pattern can change. So think about that context as well. So here I like to think about the investment lifecycle, and this is really where we wanna spend the bulk of this conversation. You wanna start with the goal setting, right? What am I trying to achieve? Why am I doing this? Once you've got that, you then move into, you can see, obviously, the goals are at the very center of this circular chart. But then you want to think about, how do I go through an investment process? I've determined why I'm doing this. Then I have to figure out, how do I get ideas? How do I start the top of the funnel? Then how do I go through those investment opportunities and find out what's good and what's not? What's a good fit and what's not? That's through qualitative and quantitative frameworks. That's a whole nother series that maybe we can dive into at a later date. But there are a lot of ways we can think about how is this portfolio, this fund, this manager gonna fit into my portfolio? Then once you've made an investment, it's really, as I said, these are long-term locked up vehicles. It's not easy to make a change there, but it is really important that you know what's in your portfolio, what that manager is doing, how they're executing. Are they doing what they told you that they were going to do? And are they meeting the objectives that you set forth when you made that initial commitment? So the monitoring piece, a lot of people will say it's a set it and forget it. It's really not a set it and forget it. You wanna make sure you're integrated in the information flow, and you understand what these managers and what these portfolios look like. Not just on a standalone basis, but how it fits into the total. And then ultimately there comes an opportunity to make a re-investment decision, or re-up as we call it in the market. I've made an initial commitment. I've been monitoring this manager. How are they doing, right? This is really where the rubber meets the road. This is the opportunity to make that next decision of, do I want to continue on with this firm, this fund, or do I wanna make a change and find something else that's more aligned to my goals, or that's performing in a different way? So, think of this as something that never stops. Once you make that re-investment decision, you're not doing this just one at a time. It's often more of a time period rather than an individual moment. But think about this and go back and revisit those goals, enhance your frameworks in terms of how you source managers, source ideas, how you underwrite those, different tools and tactics that you can use. Understanding more about what you have, particularly as a portfolio grows, you wanna understand how things fit. Your first commitment, you're starting with a blind pool, so there's not anything to work around. But the more mature your portfolio gets, the more you have to think about sort of the downstream effects and the exposures that you might be getting there. Beyond that investment life cycle, after you've set your goals, after you've gone through that investment process, you want to think about, you know, what do you expect once you've made that investment? You're gonna get reporting on a quarterly basis. So venture capital investments, they don't have a ticker. There's no real-time pricing. So, recognize that you are not gonna get information on a day-to-day basis. It is slower moving. These are not things that are necessarily gonna change day to day. But on a quarterly basis, make sure you're consuming that content that's provided by the GPs, often with a lot of great narrative and stories about the companies that they own. The annual meetings, great opportunity. I call it the showcase event for the GP on an annual basis to highlight all of the things that they're doing. Bring all the constituents to LPs, a lot of their portfolio company founders, have them all meet together in one place. It tends to be a great event. It cultivates a lot of relationships and builds that ecosystem. So it's an important part, particularly if one of your goals was to get more embedded into the venture ecosystem. And then the other thing is just make sure, again, not to beat a dead horse, but the idea that you don't want to be a squeaky wheel. You can't really change a lot that's happening. But if you want more information, if you want to engage in a more real-time way with particular purposes, feel free to do that on sort of an as-needed basis. GPs appreciate active engagement from LPs, but understand that there's a limit to their time. They're the steward of the capital that you've provided with them. So thinking about how that can ultimately come through is important. And then last but not least, be an active part of the ecosystem. I find the venture capital community to be incredibly friendly, really smart people, people thinking with a future mentality. So the opportunity to leverage GPs for market intel. You, as an LP, as you see more things, share those best practices back to the GP. Meet other LPs, have idea sharing around new managers, new investment strategies. And then also important is stay an independent thinker. As much as you can source information from all of these really smart folks that are well informed, make sure you're doing your own independent research and study and formulating your own plans, because, ultimately, this is about your goals and your ultimate strategy to achieve what you set out for at the very beginning. So that's the quick 103.
I know, Matt, this is your power alley, so you can talk for hours about this. We'll put your email down at the bottom of the video later so folks can reach out. But thank you for doing this. This has been our crash course in "What New LPs Need to Know About Being a Good LP." At Ubiquity Ventures, we'd love to hear from you if you'd like to set up a pitch meeting, especially if you have something to do with software beyond on the screen. You can do that at pitch.ubiquity.vc. Or I'm at sunil@ubiquity.vc. I would love to hear from you about this or future sessions. So, again, thank you, Matt, and, hopefully, we'll have you on for more stuff in the future.
Thanks, Sunil.