Expanding Your Investment Strategy to Include Venture Capital with Kate Nevin

This episode explores how investors can broaden their portfolios by incorporating venture capital, focusing on insights from Kate Nevin, a seasoned investment strategist.

1. Investment Evolution: Understanding how traditional businesses can evolve into diverse investment portfolios.
2. Diversity in Venture Capital: The importance of diversity and the role of women in shaping the future of venture capital.
3. Strategic Investments: Insights into strategic fund management and the selection of venture opportunities.
4. Future Trends: Discussion on the latest trends in venture capital and their implications for investors.
5. Practical Advice: Actionable strategies for investors looking to diversify into venture capital.

1: Introduction to Kate Nevin

Overview of Kate Nevin’s background and the historical evolution of TSW two Capital Advisors. The chapter sets the stage for a discussion on the shift from traditional business models to sophisticated investment strategies. Alexa Binns: "Welcome to our discussion with Kate Nevin, a trailblazer in venture capital investment."

2: Deep Dive into Venture Capital

Detailed discussion on the specifics of venture capital investments, the importance of diversity, and how TSW two Capital has integrated these elements into their portfolio. Kate Nevin: "Venture capital allows us to invest in the future, leveraging diversity and innovation."

3: Strategies for Modern Investors

Exploration of modern investment strategies, focusing on integration of new market opportunities and maintaining robust investment portfolios in changing economic landscapes. Earnest Sweat: "How do you adapt traditional investment strategies to embrace new opportunities in venture capital?"

1. Start Small: Begin by incorporating small, manageable venture capital investments into your portfolio to understand the dynamics without significant risk.
2. Focus on Diversity: Invest in funds that prioritize diversity and inclusion, as these often bring unique perspectives and opportunities.
3. Educate Yourself: Continuously educate yourself about the evolving landscape of venture capital.
4. Network Effectively: Build relationships with experienced venture capitalists to gain insights and advice.
5. Monitor Trends: Keep abreast of emerging trends in venture capital to make informed investment decisions.

Kate Nevin is President and Portfolio Manager at TSWII Capital Advisors, a role she has held for over 20 years. She is active with many industry groups (such as The Academy of Institutional Investors and Nexus) and community organizations focused on conservation and gender equality. She was a Riley Diversity Fellow. Both in her work at TSWII and as a diversity fellow, Kate has ensured that female founders have access to mentoring, networks, and coaching in order to thrive. Learn more: tswii.com.

Sydecar.io is a frictionless deal execution platform for venture investors. Our platform handles back-office operations for venture investors, automating banking, compliance, contracts, and reporting so that customers can focus on making deals and building relationships. Learn more at www.sydecar.io.

Swimming with Allocators is a podcast that dives into the intriguing world of Venture Capital from an LP (Limited Partner) perspective. Hosts Alexa Binns and Earnest Sweat are seasoned professionals who have donned various hats in the VC ecosystem. Each episode, we explore where the future opportunities lie in the VC landscape with insights from top LPs on their investment strategies and industry experts shedding light on emerging trends and technologies.

The information provided on this podcast does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this podcast are for general informational purposes only.

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Kate Nevin, Alexa Binns, Earnest Sweat

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TSW two Capital Advisors

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Alexa Binns
Welcome to Swimming with Alligators, the VC. Podcast from the LP perspective, with your. Hosts Alexa Benz and Ernest Swett. You ready? Let's dive in.

Today we are speaking with Kate Nevin, president and portfolio manager of TSW two Capital Advisors. TSW two is an alternative investment advisor in Charleston, South Carolina, and Chattanooga, Tennessee, investing in hedge funds, PEVC funds and co investments. Originally formed as a family investment vehicle 30 years ago, the firm has evolved to support family members, outside investors, endowments, foundations. Kate has been with TSW two capital for over 20 years. I'm assuming she started when she was two.

Today we get to hear from Kate how the investment landscape has evolved for alt investments over the past 30 years, where she's had the opportunity going, where she sees the opportunity going forward, and particularly investing more in women. So, Kate, with that. Kate, thanks for joining us today. Yeah, of course. Thanks for having me.

Earnest Sweat
What is the Super bowl ads where it's the little babies giving financial advice? I'm picturing baby Kate. Yeah, that was it. That's exactly right. Just, you know, popped out of your room and hit the floor.

Kate Nevin
Yeah. Instantly to the office. No lies there. Before we get. As we get started, I would love to just hear the origin story of TSW two.

Yeah. So TSW actually stands for Tennessee stoveworks. So our original family business was, was actually wood burning stoves from over a century ago. Clearly they modernized over the 19 hundreds and then was sold in the late seventies. I mean, it was a stove business.

Not like we all just sort of retired fat and happy after that. But it did sort of launch what became the second sort of iteration of the family business, which was asset management. So my dad hocker, in 1980, to be exact, scraped together the minimum investment amount to invest in Tiger hedge fund. Julian Robertson's Tiger hedge fund, which really became, you know, a legendary fund, ended up creating an incredible bloodline of talent. Tiger Cubs, Tiger seeds, a lot of, a lot of a pretty incredible ecosystem was built out of 101 park.

But that investment, that single investment in Tiger became sort of the origin story for this next iteration of the family business. So it was really a single family office with that main investment. And then family members saw how well hedge funds did after thinking maybe it was just like going to Vegas or something, they realized it was actually a viable investment store strategy and wanted to invest. And at that point, Tiger was a three c one. So had maxed out with its number of LP's.

So basically, TSW two was created to provide access to the original Tiger fund. And then it just sort of grew from there and clearly continued to diversify. The portfolio officially launched as sort of a fun to fund structure in 1991. And then I joined from Lehman Brothers back in 2002 when I was two. Yeah, when you were two.

Alexa Binns
Already came out with a graduate degree and everything. Wow. Fascinating story. I don't know what, there's a lot of lessons you can even think about just like your father. Like, first of all, even, how did you get access?

And it's kind of the foresight. Do you have any kind of, like. Yeah, you know, it really is. I mean, for all those quotes, right, you. To get hit by luck, you have to be playing in the streets or all those good little anecdotes.

Kate Nevin
One of my dad's best friends from growing up ended up joining Julian Robertson from Kidder Peabody as his right hand man. And so the reason that my dad ever heard about Tiger was because one of his best guy friends from growing up ended up becoming like, you know, one of the key people at Tiger. And he said, hey, listen, you should do this. And he did. And I think, you know, like any good investment, I think when you're, you're looking out to the future right where the puck is going, you find someone you really trust and you make sort of a balance, risk adjusted leap of faith in some ways.

And, you know, that early investment ended up defining what I think is really a really transformational sort of family business story. And it just really happened by the willingness to, I think, be early, recognize an opportunity, and, and surround yourself with people that you trust. You value their opinion. It's kind of, did you set out to sort of build your own skillset with this percolating in the background, or has this all sort of been a natural? I'm curious how much of your own career journey has been intentional versus you were just maybe naturally curious about finance, and so you found yourself working in it and then joining the family.

You know, I think it was a little bit of osmosis. I mean, I definitely grew up going to hedge fund meetings and high school and college annual partner meetings. And it was always, like, just the most fascinating discussions, people, events in general. And then kind of made my way from consulting in DC up to New York and really didn't have a sense that I wanted to go into finance. I thought I actually might be a writer.

So I moved up to New York to go from consulting to writing, and then quickly wondered how anybody pays rent or feeds themselves if they're a writer in New York. And a buddy of mine from college was like, you did business courses, like, you're smart, you should just go interview on Wall street. And so I did ended up really liking the Lehman team because you could choose where you wanted to go. So I choose the sales and trading analyst track. And then inside of that track, I chose prime brokerage, which was working with hedge fund clients.

It was kind of like early on I got to self select into an industry that I already understood some of the basic dynamics and was already pretty fascinated by. It knew some interesting people that had clearly defined their careers in that industry. And so I was really lucky to fall into that seat as a young analyst. And how does the family work together now? So I'm the only family member that's really on staff.

We've never operated as a family business from the, the perspective that family members are just all over the chart. Hacker. My dad is the chair. He's not as engaged in the day to day, but he still sits his chair. Everyone else on the team we've hired through rigorous job search and looking for the right candidates.

And so most of my team, the back office really sits in Chattanooga. The investment team is in Charleston. The majority of my team's been with me for over a decade. So we really have been building out this firm over the last 30 years, and it's really nice to have such longevity. I guess the family dynamic is that, you know, my family is the largest investor in both of the portfolios that I manage.

So that's my family partnership, my aunts, uncles, cousins, you know, old, younger, and so in terms of alignment, I think that's perfect, probably ideal when it comes to working with family. Like, I'm not working with family, but I'm investing for family, so they're holding me accountable. I'm really thinking about the next gen and how you navigate the new opportunity set. And, I mean, there's a lot at play when you're investing for yourself and for your family. And I think that's a welcome alignment piece in terms of how I manage the fundamental versus, you know, having to manage a bunch of family members in an office.

So I think I have that pretty well set up. Yeah, no, Kate is a good aunt to have. Kate, when leaving Lehman and joining the family fund, what, how did you shape the, you know, look at the new opportunities? How did you think about, you know, building culture, building the team, thinking about different alts? What was your process when going in, and what were the lessons learned?

Yeah, that's a great question. And it's kind of like a, probably like a decade long answer. So you know, I joined in 2002, and it was like we were still sort of getting our footing right from.com and kind of settling. And there was a lot of exciting stuff going on, particularly in hedge funds, right, which was the bulk of our investment back then. That's when a lot of the analysts started leaving Tiger.

And there were a lot of new shops being set up and, you know, sector driven funds, whether it was financials or TMT. So there was a lot of exciting stuff to look at to do, a lot of exciting conferences to go to. And I think one of the first things, too, is that, you know, I moved to Charleston and the back office was in Chattanooga. So in the early two thousands, like remote work, work from home. Like, that wasn't a thing.

Like, now we don't even think about it. So, you know, a lot of it was also trying to figure out how to do that well. Right? So it's like really building out a back office that could work over, you know, secure Internet and share files. And so some of it was more like that structural back office stuff.

Some of it was really continuing to build out the team because we really did onboard a lot of new people in that decade. From about 2002 three through 20, 1314 made it through the great financial crisis, which changed a ton in terms of regulation.

There were a lot of dynamics at play. And then in terms of just more of a portfolio specific thread, hedge funds, long short equity was really our bread and butter. We had also done some distressed debt investing, some macro investing, and then once I really started to get my hands into the portfolio, we got to the other side of the great financial crisis, started looking more into private investments. We'd always done some private equity, but also started to recognize the opportunity around later stage growth and venture capital. And so, you know, the willingness to look at more private opportunities became, I think, something we thought about in the context of sort of like an endowment approach to investing, where we're really trying to think about the risk return overall, but still prioritize that liquidity piece, you know, and have since, since day one.

Earnest Sweat
I'm curious what some of those early exposure to venture, if there was similar experience with Tiger where you said, oh, we're gonna dip our toe in and get started. Yeah, it was. And what we really did, Alex, was also just sort of stay, or Alexa, sorry. Was also stay in the thread of, you know, the tech and the healthcare that came out of Tiger. So, for instance, funds like CO2 that really started to dip their toes in the venture more in the later stage.

Kate Nevin
Funds like Deerfield of healthcare that has really navigated both the public and private markets well. So there were some early leaders in that space just coming out of that 101 park sort of family tree, so that we didn't have to go to the sequoia or, you know, a 16 z or we didn't have to go necessarily to Silicon Valley because we kind of had some of these trusted analysts, PM's and networks that were starting to do it, you know, utilizing their own research and analyst teams just in the public market space. So that was actually an interesting evolution to watch, right. How you could see sort of the broader industry, you know, continuously trying to find those very opportunistic, you know, risk return adjusted investments. And that took them, you know, from public markets through later stage, earlier stage.

And it's definitely been lots of learnings in there, I think, for sure. Especially when we saw kind of how it all culminated in the volatility of 2022 and then still kind of thinking about how the public and private are connected, but on a lag and lots of iterations in terms of how you need to think about pacing and deployment and liquidity. So it was, I would say, really was an evolution just out of some of those early managers and some of the early portfolio analysis that we were doing just in the space in terms of where the opportunities were. Yeah. A lot of our listeners are allocators who are curious about privates and probably are on a similar path to you, a decade behind.

Earnest Sweat
How would you approach that today? Or how has their thinking changed a little bit where maybe you're more familiar with the public markets and you're realizing, oh, as long as valuations are down in venture and PE, maybe we should be looking over there. Yeah, I mean, I think the recognition that right now inventure and P is probably a pretty good vintage given the dislocation of markets and just the different rate environment we're in a lot of the macro factors. So, you know, I think for me too, it's been able, it's been trying to navigate kind of across the firm. Right.

Kate Nevin
So we do, we have a couple of different portfolios and we do things a little bit differently. And so in one area, I'm spending a lot more time on the earlier stage venture and then some funds skew to more of the later stage growth and some are more the private equity. So I think from what I enjoy most about my seat is that I'm looking at the full spectrum all the time. My aperture is wide open from public market to early stage seed, pre seed type of venture. And you know, what I think is compelling in a lot of ways in terms of if you're just sort of starting to look at the space is, you know, as an allocator, how can you utilize a wider aperture to really manage the risk profile, the liquidity profile?

I think also in terms of sort of whether your sectors are thematic approach might be. So I've really enjoyed, you know, you find certain things in earlier stage, I think, that you don't find well, clearly in later stage, but even the types of managers, the geography, the teams, the gender, the racial makeups, like everything has kind of changed in terms of the full landscape of venture. You know, for me, spending more time, particularly around women and diversity, that's taken me earlier stage. I see a lot more female founded funds coming out of that successful angel raise and then maybe going to a fund zero or a fund one and really staying in that pre seed seed. And so I think it depends on kind of how like what the top down approach is to a portfolio leads to sort of how you're going to source those particular funds, which I think has been super dynamic for me, whether it's coming out of hedge funds and skewing later stage growth pre IPO or it's coming out of a real desire to see more diversity, particularly women, in our portfolios.

And it's coming out of that earlier stage, they couldn't be clearly on opposite ends of the spectrum. So then it's like, well, how do you manage the sizing, the risk, the duration, right. Whether it's ten years to whatever, like a pre IPO might say three to five years. So there's a lot at play. And I think what's enjoyable from my side is that ability to take that sort of endowment approach and go, okay, I got to manage the risk of the portfolio, I've got to manage the liquidity, I've got to manage the duration.

I'm looking for more women, more people of color, more women's healthcare, more future of. So then by kind of like, you know, having these sort of larger themes, I work my way down into the execution. And so like I said earlier, it's nice to have like a huge aperture because I get to, you know, I'm drinking from my fire hose some week, how many meetings I take, but I'm really trying to get a good sense of the entire landscape. I want to get into the sourcing. But first the half step of, I understand how you go from Tiger to then, you know, all the kind of offshoots and getting into the privates and kind of late stage growth.

Alexa Binns
But what did you see from venture early stage that made you say, hey, we need to build out, you know, a product and function here? Yeah, it really was for me where I saw women, where I saw people of color showing up as real thought leaders, like real deep analysis, really connected to the opportunities that clearly had a good sense of how they wanted to build the portfolio, how they were going to execute. It came with somewhat of a portable track record. It looked different than what we were typically used to seeing where, you know, XYZ analysts left, got three years this aum, right, so everything looked different. But I think, you know, one thing we learned from those early years, especially seeing, you know, the Tiger fund as a model, is that talent is evenly distributed, distributed, but that opportunity is usually not.

Kate Nevin
So you've got gotta dig a little deeper to find talent in new areas. And so for me, driving that first step of the sourcing was, where are the women? Really? That was the only question I started with. And then when I really dug in deep, I found that a lot of the women were in early stage for a lot of reasons.

I'm sure you've already discussed on this podcast. I think the barrier to entry there was probably a little bit lower, say, than setting up a long short equity hedge fund, right? I mean, clearly there's a difference in the back office and the regulatory environment on those two products. But I also felt like it was a lot of women coming out of prior experiences as operators, spending a lot of time maybe working for someone else, and now really feeling like they could go and do it on their own. And it was all showing up in seed and pre seed for the most part, at least, you know, five, six years ago, when I really started digging in.

And so I just kind of kept with that thread and kept sort of building out that network effect, right, of really making some great early allies, some early investments, and then continuing to pull the threads because I found that it's really a nice connected LP base, right? Like part of my job became really getting to know the LP's that were in these funds with me when doing the diligence. If there wasn't a long track record, the joy of that was doing half dozen to a dozen reference calls and really getting to know a lot of the founders, the portfolio companies and or the LP's that invested alongside me, and their familiarity, their focus, their conviction in the team. So I think in a lot of ways, that early effort created a pretty vast and trusted network, which I was really delighted to find. I lean on that early network quite a bit.

Earnest Sweat
This may seem like an obvious question, but why are you interested in investing in female managers? Yeah, well, I mean, I'm sure you all have had some, and I've actually listened to some of your previous allocators. So I know for a fact you've had some really sharp people on here, and they kind of give a state of the union. Right. Of why it's important.

Kate Nevin
Right. And so I think the why is, you know, yes, there is, I think, a huge miss in the market for underfunding these managers, seeing the sort of the talent that I'm seeing. But more than that, you know, I think I try to move away from talking about or quoting, like, the sorry statistics on the state of funding to women and women of color and people of color. It's because we all know that. I feel like we have them all tattooed on our forehead these days or something.

But what really is fascinating to me is like, okay, the how. How are we going to do this, right? We know why we need to do it, because who doesn't want to be early in an opportunity that it's like the train has left the station. You better get on it. Because these are the, I think, the leaders that are going to define how venture is done in the coming decades, right?

I mean, there's studies that show that women tend to be closer to the problems they're solving for. They're looking at opportunities different, they're building teams, team's different. The way they get back to their communities is different. Like, so many knock on effects happen inside of just finding a female manager that I think really tips the scale in terms of, like, that maximum impact. But I think what I'm really trying to solve for is the how, right?

How are we going to do this at scale? Because it's still taking a long time. And I know there have been people in it longer than my, you know, five plus years that have been focused on investing in women. But it seems like what we're missing is really creating that flywheel, right? And that's why I think this network that I found, these other LP's, these other allocators that are focused here, it's like, how are we going to innovate our way to more parity here?

Because it's not going to happen the way we've been investing and allocating for. For the last 30, 50, 60 years, right. The next 30 years, we know, are gonna look completely different than the last. So we need to make sure our portfolio, whatever strategies we use for allocating future dollars, also looks completely different. So I think it's really trying to nurture the ecosystem, share the learning and grounds innovation, share how we diligence differently, share how we build the network differently, share research, memos, ideas, introductions.

Right. Really pushing the gas pedal here is important to me because again, we all know how little funding is actually flowing to these managers. Now we're going to take a quick break to speak with our sponsor. On the show today we have an industry expert and sponsor, Nick Talbraha, co founder and CEO at Sidecar IO. Sidecar helps you start and run your fund or SPV, so you can focus on making deals, not spreadsheets.

Alexa Binns
Sidecar is a frictionless deal execution platform for venture investors. Their platform handles back office operations for venture investors, automating banking, compliance contracts and reporting so that customers can focus on making deals and building relationships. Thank you Nick for partnering on the show. So you mentioned when you were going on this journey and investing in these companies, startup companies, you were looking at what's out there in the market. You didn't want to do it.

You're experienced attorney, but you didn't want to create all those documents. What is the competitive landscape for your market today and how do you believe sidecar compares to traditional and emerging competition? That's a great question. Competitive landscape, it's pretty broad. You have traditional fund admins that can do what we do, but they would do so pretty cost and efficiently because again, it's very manual and they can't compete with us on pricing because we have software doing what people do in their businesses.

Nick Talreja
You have law firms that do something like what we do as far as just creating the forms. Now that's a very rote and manual process. Again, you wouldn't want to pay a lawyer for then you have certain software first businesses like you have Carta and Angelist who are two behemoths in our space. And I think, look, I actually respect everyone in our space. I think they're all great businesses and they have great teams.

Our wedge, however, is unique in that we've again vertically integrated in a certain part of this space and built software that automates literally everything that can be automated. We've invested a lot to do that because we have a belief that that wedge is going to scale us over time into something that's powerful and people will adopt software first as a means of engaging with private investments over time and not require us to just intake a lot of custom forms. But that's an investment in the future that we've made. And the only way we could have gotten to where we are is by staying really focused on making that investment. Whereas our competitors in large part look at any of our competitors, you can take your custom forms to them and they will handle your business with a manual team behind the scenes.

We have just had a hard line rule on not doing that right, which means that we will always be software first, not just software as a surface layer. Makes a lot of sense. How do you think fund managers should get the most out of their fun admin services or fund admin stack? Well, one, I think you should really get to know your fund admins because they are your long term partners. Like, they're not going to just be there when you create your fund, but you're going to want them to be there every single year for all of the routine needs, whether it's accounting or tax related or storing documentation or relating to your LP's.

And they are the firm, the individuals that are speaking to your most precious resource, which is your LP's. They're your customers, right? So you really have to trust your fund admin. So I think to get the most out of the relationship, make sure you can build that trust and I think do your diligence. Make sure that they know what they're doing.

Speak to their other customers, understand from personal references that they do things on time, they do things well, they don't make mistakes because we frequently hear horror stories about such and such fund admin late on K one S and there were errors in them, right. That's something that of course we solve via software. But if you're using a traditional fund admin, make sure you can trust that they have a team that's really credible, that they do things on time and an error free manner, and that they have an ability to retain a strong team. You know, there's also commonly attrition in. This business, so Sidecar has emerged as a platform to streamline spvs.

Alexa Binns
This topic and concept of spvs is particularly interesting to our GP, both emerging managers as well as established managers and LP audiences. Have you seen any trends of late when it comes to spvs? Yes. You know, in 2021 to 22, there was a trend of, hey, everyone's investing, everyone can be an investor, a fund GP. Of course, that led to an explosion in the use of things like spvs and fund structures.

Nick Talreja
I think an interesting trend, however, is even in a market that I think if you read the news around like, it just doesn't sound like a great market, people are still using spvs, and I think that because spvs can be used to build a track record, but also maintain a powerful business, spvs are used in every cycle and we're seeing that in a challenging market as well. Spvs are being very commonly used to support co investments behind your winners, or support doubling down on a business that you really believe and that the market may not appreciate today, for whatever reason. So it's been a strong product for us through every market that we've been a part of. Yeah, I'm a living estimate when it comes to the, you know, continue. I've been at funds and had a track record there, but also continue to build on my own track record through spvs and through your platform.

Alexa Binns
So I can definitely tell that a lot more people are still doing that, especially in challenging times with the kind of institutional LP market being a little frozen. Exactly. Have you seen anything when it comes to different terms that are used now within your user base? Yeah, you know, one thing that has emerged of late that I think is maybe a little counterintuitive is for those that had aspirations of raising a fund, but are having a hard time. If you think about a fund versus an SPV, I think you kind of like maybe attribute having a management fee with a fund and maybe not so much with an SPV, because a fund is actively managed over a period of years and you're deploying capital from it, maintaining communication with portfolio companies and LP's.

Nick Talreja
However, because raising a fund may be more challenging, we're seeing that folks who are doing great work in raising spvs and deploying capital that way are more justifiably charging a management fee for spvs. That's something that we didn't see as much of previously. Another thing is around carry. Carry, I think, is something that people are negotiating harder. And I think this is as family offices and high net worth individuals who are commonly the LP's of these funds and spvs, as they get more exposure to interesting opportunities to invest in things, maybe feel like they can command more power in a challenging market.

We're seeing that carry is more heavily negotiated. We previously would see carry 25 30% on some deals, but now it's all kind of returned to sort of like normalization in the market of standard 20%, sometimes a bit less than 20%, while fees are something that are on the table. Given that it is hard work to run a syndicate and people want to. Be compensated for that work, well, that one is kind of a surprise to me on the management fees, but I would assume in harder times, finding great companies and the work to do it, to actually get the allocation in great companies. You know, these emerging managers or fund managers want to get compensated for that.

Alexa Binns
So that's really interesting. Yeah. Do you also, a concept that I think that your platform helps for is, again, people building out a track record. Have you seen anything interesting around warehousing deals? You know, yes, there are a lot of interesting, you know, I'm pausing here because I'll kind of talk about something that may be a little legal nuance, but warehousing a deal, what that means, right?

Nick Talreja
For those who may not know, this concept of warehousing is, hey, you want to raise a fund, but you're still fundraising, right? You haven't closed the fund yet. There are interesting deals that you can do that you want to invest in through your fund, but the fund's not closed yet. So you make the investments either personally or through some other capital source. And the intention is that the fund will then receive that investment that you made at the cost basis.

If you invest at like a dollar a share in this company, the fund will take it over at a dollar a share. Basically, we're warehousing it to give it to the fund later. Now, what we have seen is that there's a lot of interest in warehousing. However, not everyone understands, like, some of the limitations around this concept of warehousing. One, you have to be actively fundraising to a fund.

Two, the documentation for your fund has to stipulate that, like, it will have warehouse investments and investors consent to receiving the warehouse investments. The third thing is, if you're raising spvs to warehouse and put into your fund later, your LP's in that SPV will basically lose the right to that specific investment. Right. When it's. When it goes into the fund, they're not going to.

They should be okay with becoming fund LP. So I think people want a warehouse, but they're maybe not thinking about the mechanics of it around how it actually happens and how you need to, like, get consent for it to actually be, be the case. However, there's definitely increased interest in warehousing. So I think a little bit of a nuance there, but definitely interest. I think not everyone appreciates that some of the things that they're doing may not actually be, you know, complementary to this notion of true warehousing.

Alexa Binns
Yeah, and I think that's where your perspective is very helpful, too. And all that nuanced legal parameters of. Yeah, there's this one concept and you're trying to mash things together, and it might not actually fit and be best suited for all your customers. Right. It's great for your institutional LP customers, but not those who kind of started with you at the beginning.

Nick, you're clearly out ahead of the future of venture capital. For those interested in using Sidecar's software, please visit Sidecar IO allocators. And now back to our allocator interview. Kate, how do you think we can sustain that interest? Because it feels like, you know, from the DEI perspective, from the GP side, that's definitely waned.

And I've joked before that DEI inventure mimicked the popularity of clubhouse.

So how do we actually sustain that into the mainstream? So it's not just the same community of LP's, same community of gps who care about it? Yeah, that's like the $20 trillion question. But I think the very basic answer, it has to be performance, right? That's the only way.

Kate Nevin
I mean, when I think about investing, I'm looking for market based returns first and impact second, but it's a close second. But I know that impact piece, that really moving the needle on women, women of color, as managers that can scale only happens if they're also managers that can perform form. Right? So, you know, I've seen, you know, all the stats that kind of show like a slow uptick after 2020, and now it's starting to drop off a cliff on basically all the sort of DEI metrics across the board. And so I think it's really important that allocators continue to sustain investing if that is part of their impact strategy.

Right. But the impact piece can only be supported by the performance piece, too. So I just, you know, I mean, and a lot of. I also recognize that, particularly with early venture funds, a lot of that performance piece comes around being able to fundraise for a viable fund size. And, I mean, there's so many.

It's like the chicken and the egg, the chicken and the egg, over and over again. And so, you know, I think for me and a lot of the peers that I know are working on this space, it's moving away from using maybe polarizing terms like ESG or DEI or. Right. Maybe we're getting locked into sort of a political hot potato. So why not just focus on performance, talented managers and continuing to show, share the notes, the ecosystem investment memo, you know, really trying to think about ways to be more generative in this space so that, you know, if somebody's doing it successfully and they're maintaining their dollars allocated across the board every year, then they need to be sharing that widely and also sort of building that community with them.

I see in this sort of more diverse manager space that creating community is just almost equally as important as the dollars that are getting funded, because it kind of goes lockstep in terms of building that alliance, familiarity. And also, at the end of the day, I think investing is like a really big fomo. We know behavioral finance is a really big deal. Fomo piece becomes a part of it, too. Like I'm always saying, we've got to make investing in diversity the most irresistible investment opportunity there is.

And so really sharing enthusiasm and diligence and vocalizing as an allocator where you're finding this talent, how you're finding this talent, and that you're sustaining your momentum and allocating to this talent, I think, is as helpful during these times, um, as ever. Now, that that really resonates, that there are some of these words that are not necessarily helpful, like impact. But if you think of it as solving problems that maybe don't apply to you, but are big problems in the world that apply to other people, there's obviously money to be made. I get a lot of femtech deals, and the friend afforded me something on incontinence. You know, he cc's his wife.

Earnest Sweat
He's like, I don't know anything about this, but seems like the kind of thing you might, you might be able to diligence. Alexa and his wife chimes in and says, I pee my pants twice a day. Honey, you don't know this is relevant to us. Yeah. Look at our cute family Christmas card.

Alexa Binns
And I will tell you about the laziness of investors. Yeah. So I do think that there are massive problems that you may not recognize or may not affect your day to day life that are still trillion dollar challenges out there that need addressing. You're exactly right. There's this economist that I follow.

Kate Nevin
She's great. Doctor Pippa Malmgrim. And she said it really well when she said, those that will find something like those that will find success in the 21st century are those that love solving problems, not those that love money. Right. So it's almost like, I feel like that's kind of the new paradigm as allocators and investors.

We need to be trying to find, whether you want to call it impact or dei, we need to get closer to the people that are finding the solutions for the intractable and maybe just sort of some of the basic problems of what we're experiencing that's going to carry, I think, all the returns going forward, and I think that's kind of what we saw in 2020. Like, 2022 was just some crazy valuations in companies that really weren't solving big problems. And it's kind of like, how did we get here? So I feel like in a lot of ways, there is a new recognition that problem solvers are going to define success in the future. And so whatever you want to call that impact, women, the complete shift in demographics that's happening across the world, those are the people that I want to be connected to because I feel like they're really at the ground level trying to support, solve a lot of these problems.

So I think that's a good point, Alexa. Like, problem solving, not impact. It's problem solving. Yeah. Yes.

Alexa Binns
It's sad that impact is an awful word now that just says something about today's climate. But on brighter news, I want to ask, how many vc managers do you have in the portfolio today? Okay, so I have, firm wide, we probably have about 20 relationships, so. And again, maybe 25. And that's really from early stage all the way up to later stage growth.

Kate Nevin
In terms of just the female funds in the portfolio, there are currently seven. Nice. And I believe we get, I believe we got connected through one of our, one of your managers, Sierra, at Sierra Peterson. Yeah.

We did. So when you're sourcing, I'm sure you get both. You go inbound and outbound. Who should approach you and how is the best way? Yeah, I have really tried to make it a point to meet with as many female gps as possible.

So over the last year, I think I've met with almost 500. And I feel like I'm just scratching the surface, to be honest. But really, as I was digging in around, getting to know the ecosystem and the landscape and the opportunity, I felt like that was basically the most important thing, really, was to have a touch point with as many managers as possible. So I'm still doing that not at the same rate that I was over the last year, because I had some weeks that were basically full zoom weeks. And so now I've sort of instituted something called office hours, where I have big chunks of time, usually one or two each week, and then I'll just kind of populate any inbound there.

So I, you know, I send people to my colleagues. She helps me kind of manage my calendar. So, you know, her email is irswii.com, and that's really the best place to start. It's how we can kind of track the initial inbound and then get something on the schedule for awesome hours. I'm also on LinkedIn, but I'm not as active there.

So sometimes it's easier to just come straight into the IR inbox. Yeah. And I don't think most people realize there are 500 emerging manager female gps. Having taken all of these meetings, curious, what are some of the things that are, you know, what, diamonds? What are some of the things that are table stakes versus some of the things that are actually helping people stand out or really catch your eye?

Earnest Sweat
I think most emerging managers don't really know who their competition is to the full extent that you're meeting everybody. Yeah. You know, it's really, it's really interesting because there is some such a. It's a broad brushstroke. Right.

Kate Nevin
And I feel like even of these 500, I think that might only be a true, maybe third, maybe a half of all the funds out there. Like, there's still so many, clearly, that I have not met. But so far, in terms of what I'm tracking is, you know, for me, I'm willing to go into fund ones. So really it's not even like I'm waiting to see a certain execution on their own sort of internal track record. We can triangulate other track records, other ways to do the references.

So that's not even really the only bar for me in terms of managing a portfolio. There are just some minimum fun side. Like 22 million is really the minimum fund size. I need a fund to be audited because that's actually required in terms of our, you know, maintaining all the, all the books and records and auditing requirements for our SEC registration and all our responsibility to RLP. So that audit is really important.

And, you know, I love to see, and clearly, since I've been digging in with women, there is a lot of conversation around lack of funding, access to funding, and, you know, how to find a viable fund size. Right. So you don't. So I think that is something that I'm actually, I can't solve that on my own as an allocator, but spend discussing with other allocators in my network that I know are focused on this and it's really sort of how to be supportive when it's tough for the individual allocators to take a risk on a new small fund. Right.

Like what are the support scaffolding that we need to build? And so I'm always impressed when I see some VC managers come in and they've already really thought through that support structure, whether they host their own accelerator or they do their own sort of coaching or they have this interesting pipeline ecosystem, sort of, because I think, again, it's just really iterating over and over again how to build a more supportive ecosystem across the board. I would say that table stakes is letting me know how underfunded women are. Like, yes, I know that, and it is the most frustrating thing in the world. So let's stop talking about that.

Tell me why you're so deserving of being funded. Right. What are you doing that's transformative? Why is this fun going to be a three to five x over time, right. What's your special focus in women's healthcare or women's financial access?

Or like if you're digging down into one, one of those industries, particularly as it relates to women that is so ripe for innovation and disruption, really have a clear pitch on that? Because I don't think, and I know this personally because I'm also thinking about this, I don't want to hear how underfunded certain industries are. I want to hear how you're going to exploit the lack of exposure there, the lack of dollars there, the lack of investors there. Right. How are you going to use that to your advantage?

And how have you shown that in the past? I want to switch gears to future allocators. So McKinsey has reported women are set to control much of the unprecedented 30 trillion in assets held by baby boomers by the end of the decade. You know, calling it the great wealth transfer. What advice do you have for women coming into inheritance and how they should approach that, maintaining and building wealth?

I think that's such a great question, Ernest. And I think, you know, that is such a headline number that is like, I mean, that like six years away, right? This wealth transfer is now, you know, six years away ish. And I think about how important it is for women who have not otherwise been engaged around investing or their family office or with their financial advisor or, you know, with the gen one or whoever is sort of above them?

I don't want this missed, I don't want this to be a missed opportunity. Right. I mean, just because the wealth is transferring doesn't mean that a lever is being pulled for change, right? I mean, there is sort of this larger, I think, agency and advocacy piece and maybe a little bit of education that needs to go along that as well. So my main message always to women then, is that you probably already know exactly how you'd like to invest your money and whether that's defined by your consumer spending habits, your philanthropic dollars, the way you volunteer what you advocate for, your thoughts on education.

I mean, most women really know exactly what they want to see in the world, right? Whether it's change or solutions or just products that they like on the market. So I always try to connect, but don't get lost in the jargon. Like, it is totally a reasonable thing to sit down with your financial advisor and simply say, let's look at the diversity of my portfolio. Like, who are the managers?

Can we just, like, step one, do an audit? Like, what is the makeup of the people managing my money across the board? Right. That's a great place to start. I think most people would be surprised to find that there are very few women, very few people of color.

If there are some amazing, then let's keep going, right? I mean, let's take it up to 10%, 15%, 30%. Those early conversations, I think, are really important. And then double down on, okay, well, you know, I've spent a lot of my time in education throughout my career or my life, maybe I'm really interested in the future of education. What does the future of space look like?

What does ed tech look like? Right? Or I think climate change is one of the most pressing and tractable problems of our time. I want to double down on learning more about decarbonization and how to invest around that. So it's just starting with questions of that values alignment piece and not worrying about public equity, private equity, venture capital, all the terms.

That's what advisors are for, right? That's what I think allies and peer networks and investing groups and angel networks are for. But I really hope that the six years, eight, however far it might take, maybe a true ten years from now, that during this wealth transfer, there is a whole new generation of agency and allocators to these more diversified opportunities, because I think their questions and their value aligned investing will unlock exponentially what has seemed glacially slow. But that's if and only if they really, you know, step into that sort of, I think, true power of change in terms of sparking those conversations. Well, and Kate, I'm reminded of this image of you tagging along to the annual LP meetings, that if you are one of these boomers listening, and you do have a decade of which you can co manage capital with the next generation, your girls may not have the lingo of Wall Street Journal, and so you may not have thought of bringing them along to your annual LP meetings in the past, but you just.

Earnest Sweat
You're gonna get the money. So would you rather start bringing them along today and make this a gradual process where you show confidence that they're gonna make smart decisions with what you are gifting them. Or would you rather drop it in their lap when you're gone and they don't have a chance to talk to you about it, you know? Exactly. I think, Alexa, I think we just, as women, mothers, daughters need to just be talking about money more and investing more, like, normalizing it, right.

Kate Nevin
Not just having, like, girl math be a TikTok thing. That's actually the opposite of doing math. My daughter shows me these tiktoks, and I'm like, that's not math. But the good news is my daughter has been my intern the last summer and this summer. So I think it's really a willingness to throw anyone interested in the deep end.

Right, right. And not have to worry about getting everything right or sounding smart or asking all the right questions. Like, so much of learning is osmosis and the willingness to just kind of pay attention. And so I would love to see more women. Just that I know the curiosity is there.

So just remove the fear of being wrong or not knowing everything about it yet, and just be curious, like, figure out what the most interesting question is and then just go from there. And I would say to the network or the gen ones or the people that are still sort of running the family office, be completely open to that. Right. Like, to your point, like, we've got to get, you know, broader engagement from this next generation, and I think they have some really interesting ideas on how to do this, and we could probably learn a lot from their non traditional approach. And I always tell people that if you're in a room and you really want to ask a question, there's probably someone else in that room that really wants to ask that question, too, and they will be so glad that you did.

So do it right. I just. I really think that curiosity and that, you know, because being at the table, speaking of earlier, table steaks, like, a seat at the table is quite literally table steaks these days. If you have that seat at the table, ask a couple of probing questions. Right.

Don't feel bad if they're difficult. Right. If you catch your advisor or your portfolio manager or someone flat footed, that means you ask the right question. So I think it's really honoring that creativity and allowing more rooms and conversations for that to happen. Kate, thanks so much for the advice, the inspiration, just being a trailblazer in our industry, and thanks for being on the podcast.

Oh, it's a delight. I really enjoyed speaking with you both. Thanks for having me. See you later. Alligator after portfolio tile investing with a smile.

Alexa Binns
Alligator after portfolio tile investing with a smile.