QED Chronicles: Lessons Learned from a Top VC for Selecting New Managers with Alex Edelson

This episode explores the intricacies of venture capital from the perspective of both a Limited Partner (LP) and a General Partner (GP), featuring insights from Alex Edelson, founder of Slipstream Investors.

1. Emerging VC funds often outperform established ones due to agility and focus on niche markets.
2. Effective LPs provide more than capital; they offer strategic support, quick decision-making, and constructive challenges.
3. Transparency and communication between GPs and LPs are crucial for mutual success.
4. Portfolio construction and understanding when to be a buyer or seller are essential skills for fund managers.
5. Specialization in specific sectors can offer competitive advantages if aligned with market needs.

1: Introduction to Alex Edelson and Slipstream Investors

Alex Edelson discusses his transition from QED Investors to founding Slipstream Investors, which focuses on investing in top early-stage VC funds. Alex Edelson: "Many of the best performing funds aren't the big brands; they are small, early-stage funds, often emerging managers."

2: The Role of a Good LP

Discussion on what constitutes a good LP, emphasizing responsiveness, transparency, and constructive engagement. Alex Edelson: "A good LP is responsive, transparent, fast-moving, and trusts the GPs to do their job."

3: Evaluating Emerging Managers

Insights into the challenges and strategies of evaluating emerging venture capital managers, highlighting the importance of qualitative over quantitative assessments. Alex Edelson: "It's not about track record; it's about qualitative characteristics."

4: Strategic Fund Management

Exploration of fund management strategies, including portfolio construction and co-investment opportunities. Alex Edelson: "You have to understand the mechanics of portfolio construction and what makes a fund successful."

5: Closing Thoughts

Final thoughts on the venture capital landscape and the evolving roles of GPs and LPs. Alex Edelson: "Venture capital is a long game that requires a deep understanding of both the market and the nuanced dynamics between investors and fund managers."

1. As a GP, maintain open communication with your LPs to align expectations and strategies.
2. For LPs, evaluate potential funds not only by their track records but also by their operational and strategic approaches.
3. Emerging fund managers should focus on niche markets where they can leverage unique insights and networks.
4. Consider co-investment opportunities as a way to enhance relationships with GPs and gain access to high-growth potential startups.
5. Regularly reassess and refine investment strategies to adapt to changing market conditions.

Alex Edelson is the Founder and General Partner of Slipstream Investors. Before starting Slipstream, he worked at QED Investors, a top fintech-focused venture capital firm with $4.3 billion in assets under management. Alex joined as Nigel Morris's Chief of Staff and became the Chief Operating Officer and General Counsel. He previously worked at a fintech startup and spent seven years practicing law. Alex holds a J.D. and B.A. from the University of Michigan. Learn more at www.slipstream investors.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.

People

Alex Edelson, Earnest Sweat, Alexa Binns

Companies

Slipstream Investors, QED Investors

Content Warnings:

None

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

Today on Swimming with alligators, we are speaking with Alex Edelson, founder and GP at Slipstream Investors, a DC based VC fund of funds that invest in pre seed and seed funds, many of which are emerging managers. And in their port coast, Slipstream prides themselves on investing in top early stage emerging venture capital funds. Before starting Slipstream, Alex was the COO and general counsel of QED investors and chief of staff to Nigel Morris, who co founded Capital one. So with that, we're really excited to be speaking with. Thanks for having me.

So that is a, you know, packed into that bio is a lot. So you're a VC turned LP, and you were the QED COO and general counsel. How did that experience, kind of from the platform perspective or operating perspective of venture, help you with their strategy in Slipstream? Yeah, it's a great question. I mean, it's a big part of why I started slipstream in the first place.

Alex Edelson
Like, shapes shaped the hypothesis and kind of everything I've done. And so, yeah, I guess it all started with a few observations there, but, like, I was very fortunate there to have my, to be involved in a lot of things. I wasn't, I didn't have a narrow role, and so I got to touch and engage with a lot of parts of the business. And so I learned a lot about how to build and run a venture firm and what it takes to generate great returns that now, like, big caveat. There's not only one way, but, like, I learned the way that we did it there, and, and that was really helpful.

And so, yeah, it was, it was mainly, like, you know, a few observations that stood out to me. And then I think because I was in a unique seat that I got, that I developed, you know, the thesis for this. And so the first was like, man, many of the best performing funds, like, aren't the big brands. They're like these small, early stage funds, and a lot of them are emerging managers. That was not what I expected.

As I was learning venture like that was not intuitive to me. And so, um, on the other hand, it was, like, hard to scale a venture firm. Like, it seemed like, man, you get these big funds, you have to get more ownership. You have to get, like, you can't get enough ownership to some point, to some extent, in enough winners, and the wins aren't big enough. And so it's just hard to generate the returns on these big funds that you see some of the best performing smaller funds, these emerging managers generating.

And that was surprising to me. And I saw that because we were growing and we were also working with these smaller funds, and we were studying our past. And so you can sort of see those portfolios and how they evolved and how those generated great fund level returns. And the second thing that I was seeing was a lot of people seem to struggle to evaluate these smaller funds. And it seemed like that was in part because they had limited track records.

People just didn't know how to evaluate them. And so I was hearing from all these people who have done venture at a really high level at QED, and these founders who have interacted with QED and a lot of other venture firms picked QED over other venture firms in many cases and have worked with QED in many cases for, like, a long time and had really rich feedback. And so you're just, like, hearing all these things about what a good early stage venture firm is and what it takes to generate returns. And what was interesting was, like, it's not track record. It's, like, qualitative characteristics.

And when, you know the founders and, you know, the VC's, you can test for those. And then you know what the next thing was. Like, some of the emerging managers were starting to reach out to me and, like, thought I could help them, which, you know, was a little confusing because I was, you know, a lawyer before that, and I worked at a startup that, like, didn't work out. And I was like, you guys have a venture firm. Like, you've.

You've done it. Like, you raised a fund. Like, how can I help you? I don't know what I'm doing. I'm kind of just learning right now, and, and, and I'm not sure, like, I'm some authority on this.

And the learning was like, you know, people think really highly of QED. And in my role there, I was learning, and I was developing an expertise. I guess I felt like an imposter. But some of these folks looked at me and thought I could be helpful in building their firms. Like, they thought they could source, pick, win, add value, or they wouldn't have started their firms.

But, like, did they all know portfolio construction or investor relations or what information might be helpful to track now that, like, might be actionable in a few years? And just, like, if you were to step back, it's like, these people seem to, like, I was building a flywheel in that community, like, slowly and realizing, like, maybe I have a role in this community. And then like, two other things that happened there. One, we had all these co investments and the learning there was like, you know, in these small funds, they're not going to keep investing in these great companies as they grow. Like in the great companies they invested in early, they can't keep investing as they grow and they'll generate these co investment opportunities for LP's and like, far more LP's say they want to do those than actually do them and that's commonly known, but at the time, that was very surprising to me and, and felt like an opportunity.

And the last thing was like, I was just developing strong feelings about LP's and like, we were working with our own LP's and it was like, man, what's a, what's a good LP? What's a great LP? Like, how hard is that? And, you know, even now I feel like I maybe behave more like a GP than an L, than other LP's, or I should say I behave more like a GP than, than an LP sometimes. It's like that, that all like, really shaped how I think about the opportunity here.

And then. If I were to say one more thing, it's like, I just got a sense for like, how VC firms run generally and like, they're small firms with small teams and limited operating budgets and like, they're in these big headlines and they're in these great companies and, and they have some larger than life personalities, but really, like, they're not that. They're pretty small businesses and yeah, there's messiness and there's just like a lot of stuff happening that's like, sometimes it's not, maybe not best practices, but like, it's effective for them and it gave me a sense for just like the practical reality of what it's like at a venture firm. Yeah, that was a question I was going to ask. What.

Alexa Benz
And what are your strong opinions about? No, I think. I think a good LP is an LP who is responsive, who wires quickly, who's transparent.

Alex Edelson
I think a good LP knows that for the most part, they're trusting the VC, the GPs, to do their job and they're not asking for tons of their time and questioning them and saying, I think that's a good LP. It is a trusting, deferential, responsive, transparent, fast moving partner. I think a great LP is someone who, like, challenges the fund managers, who pushes back constructively, who if they want to meet other LP's, they want help fundraising, they can help with that. It's people who have data and perspective and insights across a longer period of time that's useful to the manager as the manager is going through difficult situations, unique cases, edge cases. Like, you know, sometimes in a fund manager's life, like they may only experience like some of these unique cases, like maybe once or twice.

And then as an LP, you might see a lot of examples of these like weird edge cases. What are your gps coming to you to ask about these days as a good LP who has that broader umbrella? Expect perspective. Yeah, I mean, it's so many things. And I don't mean to act like, oh, everybody needs Alex's help.

Like, they'd never do this without me. How could they ever make it? Like, that's not really what I mean. But I'm a sounding board and a friend and I constructively challenge them when. It'S an aggregator, like you said, like, you, you were talking to a lot of them.

Alexa Benz
Yeah. So the most recent topics have been things like, yeah, like recently there was a, we have limited reserves in this fund. Should we do an SPV, should we do a cross fund investment? That was an interesting question. Another one is like questions about how to create momentum and urgency in a fundraising process.

Alex Edelson
Like should we build structure around this? We don't want to arbitrarily create urgency. We don't want to mislead folks into thinking they have less time than they do. But like, all these fundraisers are languishing and how do we avoid that? Like a mortgage payment?

Ernest Sweat
Is that a good enough urgency? No, I don't recommend people talk about that in fundraising. That's not a persuasive sale piece. I don't think maybe it should do that. Maybe it should.

Alex Edelson
Often us fundraising like LP's, that might be a fit for a particular GPU recently, I mean, often actually talking about portfolio construction reserves, for example, this is a common one. Like someone says, we're going to put 50% of our fund into our top five companies in the portfolio. And I'm like, okay, well, have you ever done that? Do you have a track record of doing that? How early do you think you'll know and will you know at the time they raised their next round and, you know, how long and from do I think it takes folks to know?

And it's obviously unique to them. Like, there's no one answer that's generally applicable, but in most cases, you know, it takes a long time to know whether you have a company that's likely to be real, set aside, a company that's likely to generate DPI. Like that's meaningful. And so yeah, like, we talk a lot about, like, okay, well, then, what's the reserve strategy, and how big are those rounds? How much allocation do we think we can get in them?

Like, what needs to be true for us to preempt around? Like, would we ever do that? Like, how have you seen that work and not work? Have you seen examples of folks building ownership between rounds, and how have they done that? And those are common questions that I've gotten, I guess, in the last, I don't know, recently, with all the talk.

Alexa Benz
About value add from LP's, what advice do you give for fund managers on LPAC construction? Oh, that's a good question. I think that the people who you want on an ELPAC are people who know and understand venture, which may or may not be someone's largest LP's. I think it's common to have, like, the largest LP's on the LPAC. And I think you want people who know a lot about venture and can help you think through the issues that you bring to an LPAC and who the other LP's can feel comfortable with representing their interests.

Alex Edelson
But I think size is relevant, and I think if someone who's like, a very big LP wants to be on your LPAC, you should seriously think about that. And it's hard to say no to that. So, yeah, that's what I think. I think it's people who are long term committed to the asset class who you think will be involved in multiple funds. This is not just like one fund and done, and who really know the.

Ernest Sweat
Asset class, having helped QED scale, and here you are talking about, you know, re upping into follow on funds. What do you think makes that work? What are the funds that you want to continue re upping in? Because scale serves you and them. I think the most important thing when it comes to this topic is that, like, folks are open and transparent with each other to the extent they can be like, to the extent you can talk about your plans and for growth and how you're thinking about your fund size, you know, that that can help you align with your LP's, and you can talk to them about that and talk to them about their strategy and their expectations for returns and their typical check sizes, and what they're looking for when they invest, and how long they stay with funds when they invest, and what causes them to not re up with.

Alex Edelson
With a fund. And, um. And I think, you know, when you, when you have that dialogue up front, then you can kind of work together, because some of these folks are looking for very different things, right? Like, some of these LP's in the same fund have different goals, have different strategies, have different sort of strike zones for what they're investing in. And so my hope is for any GPL relationship, they're like, if this goes well, we're all thinking this is like two to three funds.

If it's, if it's less than that, I would hope that the LP is open about that. Like, hey, you're right at the edge of whatever strike zone is my strike zone. And if you get much bigger, like, I'm probably not going to be able to invest in that fund. I want you to know that as soon as possible, ideally before I make this first, this investment in this current fund. And if you choose because of that, that, like, I'm not the right fit for you because I'm probably not long term.

Like, I respect that. And you should find someone, if you can, who's a longer term LP. I think, like having conversations like that at the beginning of a relationship, really helpful. So kind of your advice that you're talking about now and the fundraising environment is also relevant to one of our big audiences, which is also other allocators. And, you know, anecdotally, I've actually been surprised over the last twelve months of all the new fund to funds that have started to arise.

Alexa Benz
So the next question is about, like, what was your pitch to LP? Oh, yeah, because so many, so many times, you know, lP's ask, you know, fund managers, why do you need to exist? What was your answer? Oh, what a good question. And it's funny, like, on your prior point, I have seen fund to funds enter the market over the last year or so, and I think it's great.

Alex Edelson
And they're all different, everyone has a different angle, a different strategy. I think it's great for the ecosystem to see these folks entering. Yeah, like, it's funny when I think about, like, why does, why does flipstream exist? Like, I think about it in a few ways. Like, one of them is what I talked about initially, which is like, one reason I started this is because I felt like when I looked around, I was like, I don't see a lot of folks who are doing this who have the experience that I had at QED and have that perspective.

And so they just have different backgrounds and it doesn't mean they're not good at this and that doesn't mean they don't know what they're doing. Like, there are so many great LP's out there, but I did feel like I had a unique perspective, because QED has been such a successful firm consistently over the evolution of a category, over the evolution of over, like during like a lot of change in venture, and they have continued to succeed. And so, so I did feel like maybe I have a perspective here. And as I was seeing these folks who I thought were great, not always being able to fundraise, I was like, well, clearly there's an opportunity. Does that mean slipstream needs to exist?

I don't know, but it felt like there was a big opportunity there and that maybe I was uniquely positioned to take advantage of it. But yeah, I step back and I think about this from different perspectives. If you want exposure to some of the highest performing funds in venture, it is hard to get it. You could say like, hey, there are big brands, there are tier ones, and some of those are consistent performers, and they're doing well. And that's certainly true.

And like, it's hard to get in those funds. And certainly for many LP's who aren't that big, they can't meet the minimum check size. And if they are big, it's hard to get in. So part of it was like, this is just like a way to offer exposure to, hopefully, the top performing funds in the asset class that many people just aren't getting. There are plenty of reasons for that.

There are thousands of venture firms. It's hard to, if you don't have time to sift through thousands or at least hundreds of ventures, I think it would be hard to figure out which are the best ones. And that takes a lot of time. And then it's hard to evaluate these funds. They don't have much of a track record, and I think folks struggle to evaluate them.

And then I think, look, some of the best funds are capacity constrained. It's hard to get into them. Even if you could evaluate them, even if you could identify them, you have to get into them. And that is not always so easy. And then the last is like, there are some groups that are just so big.

They may know these are the best performing funds, they may want exposure to these small funds, but they're too big to be able to get exposure in a meaningful way. So it's like, if I have a right size fund and I can fully dedicate myself to, like, meeting as many as I can, and I have a framework that I feel confident in, and I have a network of venture firms and other and founders and operators to help me test for that, then I might be pretty uniquely positioned here. And so that's sort of why I think slipstream has a place in the. World and what's right sized. Like, how do you get that access but you can still take institutional El appease money?

Yeah, it's a really good question, and it's something I think I'm thinking about now. I think there's no one answer, but for me, I want to be small. I want to stay small enough so that I can get in to most funds that we, or hopefully every fund we want to get into, and that even small allocations in funds that are like oversubscribed are meaningful to us. I think if I needed to write five or ten or $15 million checks to move the needle on the fund, that might be hard for me to get that size of an allocation in the best funds. So you also mentioned that this type of fund manager is really hard to evaluate.

Alexa Benz
What have you learned and what kind of criteria or secret sauce do you feel gives you an advantage at evaluating emerging managers? So I'm typically looking for five things at a high level. So those are some competitive advantage unique to the team that seems sustainable. So like that's often related to sourcing, picking, winning, adding value, and, and, and it should be, it should be true in fund one like it's true in fund five or ten. Like, you know, QED is an easy example here where like QED started investing in 2008 in fintech.

Alex Edelson
Before fintech was a category, it was a word at a time when people thought this sector was too small to justify a sector focused fund. And they had this capital one founding experience and no one else had relevant operator experience or domain expertise like they did. I mean, there were other people investing in companies that are like, that were considered financial services companies. They were so uniquely positioned. As long as they're good to founders, and founders love them, then they generate this amazing flywheel in the fintech community.

And that should be true today in fund eight, just like it was true in 2008, like in fund one. And so that's an example of like a unique competitive advantage that impacts sourcing, picking, winning, adding value. That's the first thing. The second thing is just like high enough ownership relative to fund size that if they do well and get some winners, like the fund should do well, and if they get a big winner, then the fund should be a really great fund. The third thing I'm looking for is the best VC's at the next stage.

Trust these, trust the GP wants to see their companies invest in their companies, wants to stay close to them. That's really important to me. The fourth thing is that founders think they're great. Founders love them. They think they add value.

I mean, often I think it's common to say that, like, VC's don't add value. And it's probably true in most cases, they probably don't add that much value. I don't think that's what the, what founders would say about the funds we've invested in. That is. I mean, we're looking for founders, we're looking for founder feedback that's like pretty specific in terms of how engaged and valuable the VC's are.

And the last thing is like folks who are hungry and gritty and resilient and who understands how long of a game this is and how hard it is, how much work it takes, and who are really motivated, maybe they have a chip on their shoulder for some reason. But if you were to step back and you're like, what's happening? What's so special in each of these funds? It's like they've built some strategy around whatever is uniquely helpful, like whatever their unique superpower is, they built their strategy around that. And I think about it a few different frameworks.

That framework is one of them. And then I think about the six tool venture capitalist, and it's like, can you source, pick, win, add value, get liquidity, get portfolio construction? Right? And so I guess I think about each one of those categories too. And, yeah, when you're like, well, what's, so, what's the special sauce?

I don't know. I think it's just that I learned a lot of QED about how one way to win inventure and the type of feedback you hear from founders and how rounds come together, and why certain people are getting access to those rounds, and why certain people are missing out on those rounds, and how VC's are working with their companies after they make an investment, and how they source these companies and how they get liquidity, how they think about liquidity, what, you know, that's, I don't know. I don't know if it's special, but it's, it's unique to my experience. Well, yeah, it sounds like you're doing exactly what you're expecting to find in fund managers, right? You've structured a strategy around what your perspective and what's unique about your perspective.

Yeah, I mean, what's interesting is like, I'm in their shoes too. I have to raise capital too. And I have to think about what's so special about Slipstream. Why should anyone pick slipstream over some other investment opportunity. And this needs to be, yeah.

Uniquely tailored to whatever is special about slipstream. If the edge is specialization in a specific vertical, QED is like the, like heralded as an example of like you've got the top guys in their industry investing in tech that they can feed into their network of banks, etcetera. Are you now more or less interested in specialists when you see sort of the hot air come in and out of some of these areas? Yeah. I mean, so it's a good question.

I'm the, I, my interest in sector focused funds hasn't changed as the market has evolved because what, what I'm thinking about is when, in what sectors does a sector focused fund have an advantage? So if you're like, hey, we're a fintech founder, so go talk to a fintech founder. Hey, fintech founder, would you value having a fintech focused VC or, or over a generalist? And in certain sectors, the answer is we would really love to have a sector focused fund involved. That doesn't mean they need to lead the round, but like someone involves who really understands the sector and maybe has a different perspective, understands the business, maybe can add value after investing in certain ways, like through introductions like you mentioned, and in other ways, maybe they can find like particular talent, like, hey, we're a lending company and you go to QED and QED is like, man, we have so many people who can, you can hire as like chief credit officer.

That's really valuable. And then there are some sectors where I'm just not sure where, I just don't think sector focus funds have much of an advantage. And so that's really guiding me. The sort of trendiness or trajectory of a sector doesn't impact my interest in whether I should have a sector focused fund or not. It's, but it could impact my interest in whether I want exposure to the sector.

Like my thoughts on where we are in the evolution of the category. 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 Talbreja, 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. So you all have a unique perspective, seeing what individual and different deals are being done by your managers.

Alexa Benz
Is there anything, whether it's kind of like news headlines, VC, Twitter, that you find yourself with a counter opinion on, or more nuanced take on all the time. Pressure? That last part. Yeah, press that last part. BC Twitter is a world in its own and I think there's frequently vacillation and opinions and a lot of strong, you know, a lot of strong opinions that aren't, aren't necessarily grounded in reality.

Nick Talbreja
Reality changes very quickly, right? So look, what we're seeing is that the reality doesn't change as rapidly as people expect. Like in good times and bad. Like I think there's a lot of, there was a lot of rhetoric over the last couple of years around a boom and like, hey, everyone should become a GP to now no one should be a GP, right? Or hey, like, venture is a great asset class.

Venture is a terrible asset class. And I think that sort of that, you know, that type of dialogue can sometimes remove quality opportunities from the table and quality players from the table, which is unfortunate. But what we're seeing is that in a time that maybe perceived as challenging, deals are still getting done. There's still momentum. People are still building, founders still coming out, trying to change the world in a positive way.

And investors that may have been sitting on the sidelines during a pretty frothy period of time are actually out there. They're still investing. And I think there are a lot of deals that you may not be reading about because they're backing companies that have investors that really care about them, that are happy to double and triple down. So they may not be making the headlines that you previously read about, but they're, there's still a lot of deals getting done. And I think that's something that may be a counter opinion still.

Although the market has largely received some positive momentum lately over the last year, that was certainly a counter opinion of like, hey, venture, still a good asset class, maybe better than ever now because valuations are down, companies are still raising, deals are still getting done. And if you're sitting on the sidelines, now is the best time to get in during that trough period. So I very felt, I felt very strongly about that counter opinion about myself becoming more active as an investor and inviting others to the party. What areas are you seeing people leverage your platform for within specific types of deals? Are you seeing like the normal, is it going with the wave of what we're hearing about, like just AI, or are you seeing more of a variety of companies?

It's a variety of companies. I think the notion of like, you know, sort of AI or whatever, whatever's trendy at the moment. There definitely is a large group of companies that are building in that space because there's excitement around it for good reason. There's interesting technology being developed that can be applied in new ways. However, I think the reality that we see of deals getting done is while you might expect it to be 80% of the companies that are raising, it's a much smaller percentage of actual companies that are building in the space that are actually able to raise from, from very great investors.

We do see that more in the late stage. So like for example, you have like OpenAI, which is like, of course, like a pinnacle of AI, right, or other companies similar to that, like anthropic. Those institutions will see a lot of secondary opportunities being raised in and around those companies. But on the ground level, as far as getting in at the seed stage, series a, et cetera, it's still a very like diverse set of organizations that are raised and still see a healthy amount of life sciences, healthy amount of consumer technology, healthy amount of energy transition on top of, of course, the trendy terms like AI. Have you seen an increase of spvs done on your platform?

Alexa Benz
And do you think that's in line with just the market overall? Yes, we've seen an increase in number of spvs in our platform by a very large order of magnitude. No, I don't think syndication of the market overall. I think we just like we're building a technology that is somewhat disruptive to how people have normally done these things that we do. As a result, we've taken market share from our competitors and we've created a new market for those that previously couldn't start a business.

Nick Talbreja
In doing what we do, in doing what you do, doing what I did, creating opportunities for their community to invest in things they're passionate about. I think that the market is in a period of correction. We just happen to have outpaced the market because of technology. What does that correction look like for the next ten years, do you think? I don't know, man, that I don't have a crystal ball.

It's hard to say, I can tell you. Our personal embedded sidecar is that the technology that we're creating of simplifying and standardizing how people create investment opportunities is something I believe is over the next 10, 20, 30 years going to be from what is now a small slice of the market to a majority of the market, of how transactions happen for a couple of reasons. One, there's a wealth transition, right? Generational wealth transition from an older generation to a younger generation that is more technologically savvy, that is reading about things like commercial real estate and energy, or as investment opportunities they want to make through technology platforms rather than calling someone on the ground and investing through a broker. That requires technology behind the scenes to support those types of investments which require standardizing how these structures operate.

Alexa Benz
Absolutely. One thing I've also been impressed is just how streamlined and intuitive the user interface is. 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.

Something that has come up a lot over these last couple quarters has been a term I think we forgot about. Liquidity. And so I know on this weekend, startups you talked with Jason about, venture capitalists should consider every funding round as a potential opportunity to buy or sell as an LP. Tell us your reasoning for your position. Yeah, yeah, it's a great question.

Alex Edelson
Companies getting traction is great, needs to happen, markups are great. But in my view, this is all about returning capital to LP's. So I'm an LP and to our LP's at a multiple of the amount they invested. That is why we're all here. And so my hope is that that is always on people's mind because that is the goal.

Also, like, VC is a really long game and it's relationship based and it's like artisanal. And there are these relationships built between founders and VC's. And I think it can be hard sometimes for folks who have been along for these journeys with founders for a long time to take money out. I often hear folks say, well, like, from a relationship management perspective, like it's very. I'm not, I don't really feel comfortable selling into the secondary, like selling, trying to sell secondary.

And I, and I, I just want people to be thinking about it constantly and maybe pushing themselves on that. Like, I'm not here to tell them what to do, I would never do that. Like, they are close to their companies, they are, they manage their firms. Like, I'm not second guessing them, but, but I do think it's important for folks to be thinking about whether they're buyers or sellers because as another reason is like, they should know. My hope is they have a lot of information about the companies and they have an opinion about the valuation of a company at a given time.

And if they feel like this may be as good as it's going to get, we may be approaching about as good as it can get for them. My hope is like maybe they're going to take action and generate some liquidity from that investment. And also if they feel like it could get a lot better, like hey, this company is being valued at 100 million. I think this company is on the path to being much more successful than this. They're very bullish on this.

They're a buyer. Well, what does that mean? Maybe that means they should be following on. Maybe that means they should be trying to do a co investment, bring this opportunity to their LP's. I would love to be co investing in companies that the gps that we're partnered with think are on a great trajectory and have a lot more growth ahead.

And so, so, yeah, my hope is that we are always thinking about it because generating returns is, is the goal. Yeah, I think what you're getting at is, and I understand some of those VC's who may feel a little bit uncomfortable, but when you've, you know, put on not only an investor hat, but now you're a fund manager, this is the responsibilities that, you know, entail in that role. And so I've seen people get, as emerging managers, get really active and seeing what different LP's, you know, what their appetite for continuing and not, and essentially being a broker based on that within specific companies or even full LP positions, because there are active fund to funds that are trying to do more secondaries. There are even like secondary strategies that are emerging a lot for an appetite to take on things. Are you actively investing right now in new managers and if so, how do you like to source or hear about.

Yeah, I am actively investing and it reminds me of your first question about like, the operating experience from QED and like, how it informs the strategy. Now, one thing that I remember very vividly is when you should start fundraising to make sure you're never out of the market and hopefully so that you have a good sense for your fund size when you start investing so you can get your portfolio construction right. And so, yeah, so I'm thinking about that right now to make sure, like, we're ready with our next fund as soon as we're done investing out of the current fund and there's no time out of market. So, yeah, like, hopefully my question, my answer to your question will always be, yes, we are always actively investing. We are.

Now the second question. Yeah, I mean, there's no wrong way to hear about mayors. Like, I want to meet great funds and I think it's helpful when I meet them through someone who I know and trust. That could just motivate me to move a bit faster. But I'm looking at everything that comes in.

I get cold inbound through the website or on LinkedIn. I respond to everything I may be a little slower to respond to some of those, but there's no wrong way. It could be through QED, it could be through a founder. I know it could be through another lp. It could be through a fund we've invested in.

That's a great way, but there's no wrong way. Is now a good time to still be in venture? I think this could be, like, one of the best times to invest in venture in the last ten or 15 years. But I should say, like, there's. If you're going to commit to the asset class, it's hard to time it.

So I'm not suggesting, like, hey, the way to do this is just like, wait for the great times, like, plot, you know, put all your money in and then just stop investing when it's not looking good, because this is a long game and it's hard to know now when. When the best vintages will be. But I do think there's good reason to think, like, industry averages will be high. Like, performance metrics will be high sort of industry wide in this period of time, like, over these next few years. But another way I think about this is, like, there's not a bad time to invest in great funds like you're in.

They're investing in particular founders who are running particular companies. And if you have opportunities to get in with great funds during what you think is a bad vintage, I would say that's a good. Like, you should do it, because that's. There are great fund managers who will do well in all market conditions, and, and there are great founders who will do well in all market conditions, and there will. There are great companies that will do well in all market conditions.

So. So I say that with a big caveat, but, yeah, it does feel like this could be a very good time to get exposure to the asset class. Well, Alex, thanks for being on. It's been a true pleasure, man. And, um, thanks for all the insights and your opinions and for what you're doing in the market.

Thanks for having me. Thank you. See you later. Allocator after portfolio tile investing with a smile.

Ernest Sweat
Allocator after portfolio tile investing with a smile.

Alexa Benz
Allocator after portfolio tile investing with a smile.