E437 | Justinas Milasauskas, Willgrow: Turning Peripheral Roots into a Global Advantage

0:00and so return factor is one so you could actually allocate a decent amount of capital they are diversified tools of investments and they they kind of have limited variance or dispersion in their outcomes and they provide solid double digit returns over long term the nuance is that it takes a bit longer one or two years longer than a typical venture fund but but again that's the name of the game and they typically have few tools in their toolbox to over commit to you know take out some some credit lines etc so so they they're solving for that for for their investors and the other element that is also adding tunnel values having them as part and partners and understanding how they think how they underwrite was the process how what what tools are they using and not like copying but just trying to understand what works best for your own platform and also the pipeline generation of ideas is also critical for investors like ourselves.

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1:48Tear down this wall. It's more than just an ally. This is a union of values. Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. So welcome to the EUVC podcast. Today we're going to welcome Justinez Milasavskas, investment manager at WillGrow. I'll ask Justinez to talk a bit more about WillGrow and himself, but just, you know, quick one-liner. WillGrow is based in Lithuania. Within venture, they're focused on the early stage. They invest most of their capital in the US, two thirds, then one third in Europe. And I thought it would be really cool to have Justine is on the pod because, you know, here we have a European LP allocating in the asset class.

2:39And, you know, it's always interesting to hear their thoughts, how they build their own firm as well, and how they think about different types of GPs out there. So Justine, first of all, welcome to the show. And secondly, give us a quick, quick intro on yourself and Wilgo. Hi, David. Great to be here. Thanks for inviting and we're happy to share a bit more about myself and WillGrow. So WillGrow is a first generation single family office based on the Balkans. We're set up in Williams, Lithuania. We have two operating businesses in logistics and real estate and the family office has been set up for nearly 10 years ago.

3:18So today we have five people on investment team, focusing on private markets globally venture buyouts credit and real assets predominantly on venture side i think we're uniquely set up or given our long-term 25 target allocation to the asset class so it shows our stronger and long-term commitment and we invest in venture by managers primary commitments to venture funds. We can also do a bit of co-investments or secondaries etc but 80-90 % of our focus is to selecting the best managers globally. At Willgrove also we are benchmarked investment managers are benchmarked on a global scale so we can select funds basically anywhere in the world but given that venture ecosystems are largest in the US and Europe, setting aside China, given the micro context and political context, we predominantly focus on these two large geographies.

4:30So in terms of my background, I've been in finance for more than 15 years as investment management and investment banking and trading roles. before WillGrow I was part of another family office in Lithuania and before that I was on investment management side for fixed income and equities so I've basically covered most of the asset classes over 15-16 years of my career and currently working for WillGrow over the past 3.5-4 years Justine, one One question, because, you know, as you mentioned, that WillGrow has been around for a decade or so and the venture kind of mandate is more recent. Do you have any insights you can share on that process?

5:23Not only the setting up of it, but the maintaining it. The reason I ask is, you know, recently I've had many conversations with sometimes it's families, sometimes it's more corporates, but kind of they're going through this process of thinking about venture for the first time. And oftentimes what I find, there is like one or two internal sponsors, internal people they have to convince. So it ends up being quite a complex process as well. So wondering if you have any insights you can share on navigating those complexities, right? Absolutely. That's a great question. So when I joined the firm nearly four years ago with a mandate to build out the program, we basically faced the same topics and questions.

6:10But I guess I was very lucky to be in a good spot where the principal of the family office wanted to do even more venture than we have now. So my objective was to pull out the long-term return data and show that venture may outperform if done well, but it's not like 2x the buyout or public market type of return. So we have to be well diversified. And we looked at allocations of the major endowments, prominent family offices in the asset class and basically came up with the top of the range target for our program. so it was a great consensus from the perspective of the program, myself, and from the principle where we have substantial exposure, but it's well diversified with another asset class.

7:18It does not put too much risk on the overall portfolio in the long term. And we are still in the process of building it out. We're nowhere near their long-term targets, so that's great. and that keeps us super busy. And we gradually are doing that every year in a very similar cadence. And we've been very lucky with timing, I would say. We started venture build-out in 2021. So ideally, we should be allocating a bit more each year given the recent tech reset. To the emerging GPs listening in, that's good news. means WillGrow is on the hunt. And so if you fit the profile, you should definitely reach out and see if you fit the portfolio they're trying to build out.

8:12Before we dive deep into venture specifically, I want to ask you a follow-up question to that. And you briefly mentioned it. So you mentioned benchmarking as an example. But when you think of, as WillGrow, right, when you think of the split across asset classes and you mentioned 25 % roughly for venture, what do you think are the key levers here that you need to take into consideration. I think benchmarking is one you spoke about. It's quite obvious what that is and it means. What other levers are there out there? I think even before benchmarking, I think you have to really build a convincing strategy for sourcing because if you don't source well, well, benchmarking would not matter in order to have something for benchmarking and sort of had a reasonable chance to deliver alpha in whatever sense of the word, you have to have a reasonable and measure strategy for sourcing and also for portfolio construction.

9:17So when we started, we said, okay, let's have three avenues for that. So one is we are always on the road with the hunter's mindset, networking, going to U.S., Europe, meeting other investors, etc. So that's our, let's say, the hustle part. Then we gradually realized that we need to have one or two senior advisors at Willgrove for venture, but not only for venture, but also for other asset classes. So Venture was the first program that utilized the senior advisors for the benefit of the family office and for the program. So they bring a ton of experience, open up their networks and help you avoid stupid mistakes.

10:17So that's avenue number two. And the third path was invest in a handful of funder funds, because I think fundamentally funder funds have the most challenging business model to justify the fees on fees, etc. And then at the first instance, when you have a dedicated team in-house, funder funds might not make that much sense. but if you think holistically for the long term and you want to back the best managers that could be the most important avenue for you know investors like ourselves who are based outside of a typical financial center and who have a very large allocation to the asset class so uh fundafunds are amazing partners and they are partners in several you know sense of the word so they actually deliver great returns if you look at any data set so we took pitchbook and prequin and looked at uh you know long-term and medium-term type of returns and you also when you map the market you get a lot of data rooms so you see that firsthand as well not only via third party data and we noticed that their returns have been amazingly consistent and in sort of second quartile of course we're talking about great fund of funds you know that have been established for a number of vintages and and with very strong teams but there was also proliferation of emerging fund of funds, which we also backed because of various reasons and then the various advantages that they had and brought to us.

12:11And so return factor is one. So you could actually allocate a decent amount of capital. They are diversified pools of investments and they kind of have limited variance or dispersion in their outcomes. And they provide solid double digit returns over long term. The nuance is that it takes a bit longer, one or two years longer than a typical venture fund. But again, that's the name of the game. and they typically have few tools in their toolbox to over commit to you know take out some some credit lines etc so so they they're solving for that for for their investors and the other element that is also adding tunnel value is having them as part and partners and understanding how they think how they underwrite was the process how what what tools are they using and not like copying but uh just trying to understand what works best for for your own platform and uh and also the sort of pipeline generation of ideas is also critical uh for our investors in my consults.

13:29Yeah, I like what you're saying in the sense that, as you said, like the best fund of funds can deliver fund-like or VC fund-like returns. They need a tiny bit more time, but it's also the best, right? It's not all of them. And I think it's cool that you double click on that because we hear a lot this, you know, this discourse of downside protection from the funds, which is absolutely true, right? But that doesn't mean they necessarily perform, you know, every single fund of funds out there. So thank you for saying that. Before we move now into the interesting part, in my view, because I'm a venture geek, can you just put some words on to kind of categorizing the type of LP you are?

14:08And by that, I mean, ticket sizes, type of GPs you want to back, we know Gio already. But also, do you have only financial objectives as you invest? Do you also have strategic ones how active or passive do you want to be just a few words on that for everyone to understand your approach in a nutshell i guess what you're asking is what our investment strategy so happy to double click on that from various angles i think let's start from the top uh so the way we look at at the whole venture market which is definitely not uh homogenous anymore and there are 10 million solo GPs and multi-billion multi-stage funds which deliver totally different profiles of risk and return and cater towards totally different profiles of investors or ICPs from their perspective.

15:08So I will just talk from our side and that's not necessarily truth as such and the different investors might perceive things differently and have preferences for different elements of the venture ecosystem. But from our side, if we say three seed, small managers, be it emerging or established, sub-150 or sub-200 million, we put them into one bucket, then we say okay that there is space for yeah there are multi-stage managers uh late stage secondary diversified managers funder funds they kind of belong to the lower risk let's say bucket and then in in between of those that there is a spot probably for mid-sized sector specialists or sort of Series A type of funds, Series A specialists.

16:18So some sort of specialists in the sense of having 250 to, I don't know, up to 500 or sometimes a bit bigger in size. So then we say, OK, which areas we want to play and spend the most time because we are two people on venture you you cannot so equally and you know uh split in and look at everything all at once so we say okay given our risk profile uh mindset first generation entrepreneurship things like that we want to play in the highest risk bucket most of the time and there is evidence that shows if selecting well this bucket should deliver biggest or biggest outcomes and if it's diversified enough the downside is reasonably well protected so in a sense buying building a fund of small you know pre-seed seed managers ourselves so that's where we spend most of the time we write let's say medium ticket is 2 million in that segment and we it's agnostic in terms of sectors and geography we operate in the mindset that best idea wins and it can be Israel it can be Europe it can be US or manager if we look at manager in Lithuania we benchmark him or her to the manager in Berlin, New York, SF, and Tel Aviv.

18:03So it's just as simple as that. Again, reminding that we as investment managers that we grow our benchmark globally as well. In terms of active or passive, I guess it's a combination where actively passive. So we... In terms of what relates to engaging with manager, pre-investment so it's it's I guess standard sometimes we have to be a little bit sneaky in a way that we know that the manager is in a very high demand so we do a ton of work in the background by not let's say asking too much from from that manager to partly differentiate maybe from other LPs and build our conviction quickly we can double click on that later but but I guess it's a standard process before investment and after investment we call it post-investment DD you're always in diligence before they come for fund two you should ideally yeah for the next one exactly you should ideally have a conviction already in place about that you know the next one we typically commit to two vintages so that's that's the modus operandi but you know things might change you know from our side and from the manager side or which can be objective or subjective.

19:39But to wrap up on this, we do not disturb, let's say, managers too much. We let them focus on what they should be doing and delivering returns for their investors. But we actively, you know, reading their reports, discussing internally, going through some companies they invest or talking to other lps how they feel and things like that so it's it's it's active in the background i hope that answers yeah yeah i've described that approach as in the lack of better words i've described that approach as like extremely reactive in the way that you don't ask much but when they need anything you're the first one to reply absolutely which i think is is basically what you're saying right you don't to be a burden but you do want to be helpful when you can help right totally it's it's like uh being just waiting for that email to to come in and replying within half a minute

20:46so any gp and will grow's portfolio justine is looking at his email every day waiting for your email to come in to help you out justine's three biggest learnings in venture do you want to share that with us? Absolutely, although we're still emerging LP on year four or let's say in GP's terms early innings of second vintage so we still have tons of learnings actually but to maybe zoom out and flag maybe a few biggest so ticket sizing has been one learning for us especially when we started in 21 it's just the sentiment was the markets were public markets were already very fragile but the sentiment in venture was still pretty strong and the returns that we were seeing on this quarterly pitch book or pre-QIN benchmarks, you're just looking and you're thinking, hey, this is amazing.

22:00I still like, what can I do to jump on this train and catch some of these things for the benefit of the family office? We went in slightly too big at the beginning. so I think that should be great learning and for people who want to start or are in the early process it's best to do the opposite start smaller and escalate sizes as program matures because access improves knowledge improves and it's much better and the other the other learning is I guess proper benchmarking so there were situations where we got excited about a particular manager did a good let's say proper underwriting of the manager referencing etc but it was selection let's say one out of one if it makes sense at least a rough or quick mapping of competitors, the sector and the geography, that's the learning and we never compromise on this again.

23:25And it's just, this helps to build even more conviction or on the opposite, you increase your chances of finding someone else who might be better in a similar domain. So it's basically win-win for you as an investor. So you broaden your network, broaden your perspective and increase chances of making a better investment decision. So that's the second one. The third learning has been to properly diversify within portfolio across funds and across vintages, time and rise. So there was a period in our portfolio where we, let's say, skipped a vintage, so to say, or skipped a year. And I think it does not work for venture, especially for venture.

24:21And we've seen recently Stepstone published a paper where they argue and they collect the data to show that there is a power law in vintage type of returns. So three vintages in the past 20 or 15 years generate 70, 80 % of their returns. Yeah, I love that. I love that you mentioned that. And I think it's such an important learning for any new LPs coming to market, right? That consistency and thinking that you should be committing to every vintage. I have one question, though. You mentioned in your first learning, which is ticket sizing, stay disciplined, do not overcommit. You mentioned that you came to this realization that you started a bit too big in the early days.

25:10It's really hard, I find at least, to kind of come to that conclusion in a fully data-driven way. Maybe because, you know, what is too big? Like, why is it too big? What does that mean even, right? Is that because you were more than a specific percentage of the fund size? Or is that because you feel like because of your ticket size, you could only do two managers instead of four, right? What does that mean to you? How did you come to that conclusion? The learning comes from two angles. One angle comes from the fact that we have operating companies. it used to be the case that operating businesses provide cash flow for uh for portfolios now we're set up totally independently our projections or or ambition for for that cash flow to feed the investment program was too aggressive and then with that uh in mind you say okay one year from now i'm like you know my AUM is there two years from now i'm i'm there so in order to ramp up the program and then the fact was that we we were just starting so you want to ramp up and this combination made us over commit the other element i think when you start you have to have some sort of end game or end shape in in mind and this end i don't know it not does not necessarily have to be 10 years from now uh or it can be three years from now you say okay i i will behave like uh let's say uh fund the funnel have two three year investment period how do i want my program to look three years from now how many managers how many line items what's my diversification etc so then when you have this end status in mind then you really understand what's your ticket size how many shots on goal or do you have and things like that so we we started with a pretty decent plan on in terms of execution but we lacked the this sort of portfolio and the vision of the of the final portfolio we know at a certain cutoff point and then we realized that okay we might with this ticket sizing that we were writing we might end up under diversified so maybe it correlates to to the first issue that i mentioned but they both work in tandem i'm sure and then another follow-up question we actually had a really cool uh every now and then we host these AMAs, Ask Me Anything with LPs for our GP community.

27:59And yesterday we had a former investment manager at a pension fund, actually. And we ended up talking a lot about stack ranking. And the reason I mentioned this is because you mentioned one of the learnings, you know, benchmarking, right? Never compromise on that. And if you pick one out of one, you know, you're taking a bit of risk there. And so oftentimes, you know, you're stack ranking as an LP. That's the end of the game. You want to commit to early stage climate VC. Well, you go out, you meet all the ones you can find, you try to meet every single one out there, and then you stack rank. What would you say are the key elements there?

28:32And I appreciate it's a very complex question because you have, to use my example, within Climate, you have established funds, you have emerging funds. They're all very different and you can't really truly stack rank. But how do you think about that? Yeah, absolutely. Okay, so stack ranking is the core process for us every day at WillGrow, at Revene, Venture or other asset classes. Because I guess that's the only way to find the truth or to build the great portfolios. And stack ranking's complexity lies in a number of factors. and I will share how we do it. So you have existing relationships, so that's one.

29:23How much more weight do they get? That's an open question. You have managers that they're currently raising that you're looking at. You have managers that you have in the wish list that will be raising in a year or two years that you have no data on. so you you you will know that you'll receive uh some data when they are back in the market so how do you sort of reconcile that and then stack rank properly and then with the let's say a vintage approach uh where you say okay my investment period is three years i want to build you know 15 to 20 fund relationships how much space do you leave for year three with some data gaps, with like really proper data gaps in your stack ranking table, you know, especially with the managers that you don't have any data on because they're not in the market.

30:22And then the fourth element is that, will you have access to all of them? These are the nuances. But I think it's a core process for every professional LP to always stack rank, and that's what we do. So we have a wish list of managers that we want to get introductions, warm intros, or find any ways possible to start conversation at any point in time. so that's one uh then we have watch list so that's uh that's a list of managers that we either asked and we were very very close to committing so we just you know they're always on the radar we keep in touch that watch list also includes managers that we didn't get access or maybe we were too late in the process, which is pretty natural in venture, especially when managers raise them in a month or two and then you just happen to meet them two days before final closing.

31:33That unfortunately happens. And then the managers that you met, you liked what you heard, and they will be back in the market in the next two years. So this is the watch list. on the other hand we have existing relationships we have the watch list relationships or cold relationships or warm relationships and then we have a three-year investment period we put all existing relationships when they will be coming back to the market next time in these three years. Then we stack rank all the watch list funds and then place these top 10, let's say top 15, whatever the gap is left. We are doing assumption that we're reacting in all our existing relationships unless something dramatically changes.

32:35And then we fill the bucket, all the buckets with the watch list managers and then we just when managers come to the market this list becomes live okay you know watch list manager comes to the market we see the data room or you know there are any other subjective reasons you know it's unfortunately we don't commit then this spot being taken by somebody else from the watch list or if there is something with the existing relationship and, you know, a spot becomes available, then that's how it kind of works. So wrong answer to your question. No, no, good one. Very transparent on your process. And I think it's interesting for GPs to hear this as well because this is what happens inside closed doors, right?

33:28This is what you're going through in between commitments and when managers aren't in the market, but you might do a catch-up call with people. You're managing these different buckets internally and thinking about it in stack ranking, right? Yeah, that's super important, I think. Every AGM, every call, every newsletter, quarterly update from a watch list or existing relationship impacts stack ranking. So I shouldn't probably have said that. It feeds it all the time. Yeah. No, but of course it does, right? Of course it does. It's your input for your decision-making processes. Anyone listening attentively will have noticed you've said a couple of things a few times about gaining access, not having access, fighting to get access.

34:14And so we're really talking about accessing allocations. We all know that there are funds out there in the market where, well, it's really, really tough to access, right? Where when they come to market, even existing LPs might be squeezed, not out, but the allocations might reduce because they want to bring in another LP. And this is where your special sauce as an LP, let's put it like that, really matters because it's the way you get to gain access, right? And as you said, you see Will grow in yourself as an emerging LP. So I'd love to just open up the topic of, you know, how can emerging LPs overcome these barriers of access?

34:54And do you have any tips or strategies that you personally have found work really well? It's actually incredible. so my background has been in public markets uh both some you know equities and credit and uh i i've never dealt with access issues in my life you know you you can buy stock or a bond whichever you want uh based on relative value and your best uh research etc and then you you you start doing venture and and you realize that uh yeah investing capital does not necessarily lead to to you know someone accepting capital so that was a incredible learning for me personally to answer i think every professional lp is dealing with this to a smaller or larger extent and i guess if you're a large one you have less constraints in terms of access to multi-stage branded firms but on the other side you just can't access small nimble emerging gps because you're just too big so it's a you know another side of this coin so i think we are in a way almost ideally positioned in terms of ticket sizing, writing two to three million checks for pre-seed funds, five to ten million checks to, you know, Series A or multi-stage funds.

36:37Some of them might have a bit bigger minimum requirements, but we can grow our tickets over time and then with this long-term commitment it helps to illustrate that long-term commitment to the asset class so i already started to giving a little bit of let's say marketing points from our side but i think first and foremost it's building conviction and strong conviction early from our side so if you have conviction this process becomes so much easier We never chase brands or celebrity GPs in whatever sense of this word just for, let's say, having a logo. So this would be, let's say, a relatively low conviction exercise for us.

37:31So we try to collect, underwrite properly as much as possible with various data points or LP to LP type of conversations as much as possible in advance. So this is on us. Then if, let's say we have it, we have 80 to 90 % conviction just before they start fundraising, then the remaining 10-20 % should be confirmed after collecting all the data when they start the process. But with this already head start, what we need first access is to get opportunity to see them in person and align on the vision of their partnership, of their firm. So we need to understand where are they going? What is their strategy?

38:25How does that look? You know, how does that partnership look five to ten years out? And then, you know, with our high conviction and alignment of vision, I think we're in a good starting point. I think it's still a starting point. So alignment, background, diligence. then I think we're again to reiterate the ideal in terms of ticket sizing we're not too big where we don't squeeze too many other LPs so to say if their front size moderately grows we can be sort of convenient LP from that side also what I noticed that GPs especially in the US they appreciate the diversification of the LP base not only by type of LP but also geographically so this element also works in favor of the GP that we can bring diversity having operating businesses in certain segments, having geographic exposure, having having sort of entrepreneurial mindset it we are also pretty well networked in the in the family office and and let's say general LP space uh both in Europe uh and the US and uh and this also works as a as a good argument uh of where we can add value not only by leveraging our let's say operating companies and and and supply chain and logistics and real estate but also uh connecting to uh fellow uh lps uh let's say in in europe in in central eastern europe or baltics you know depending how how the gp uh wants to diversify or where is looking for for new potential interest so this would be i guess the This would be the combination of factors.

40:36None of them as a single factor is probably the key, but all of them together, I think, work pretty well for us to gain access into relatively tough situations in terms of supply demand for a given manager. And also, I think in the past one and a half to two years, we actually never had a problem to access a manager. So I'm super glad that this strategy actually works well. and we hear more and more positive feedback from GPs and engagement and access. It's not actually becoming a big constraint for us. I like how you're flipping the script on its head by saying, you know, being based in a peripheral country, so to speak, for the venture ecosystem might actually be an advantage here, right?

41:38Especially as they think of diversifying their LP base. And to be very, very transparent and frank with you, what you're saying resonates a lot. But we also do our small LP tickets and we've managed to access some, let's call them access constrained funds or high profile funds. And I honestly believe it's because of some of the things you said, it's alignment, it's relationship as well, right? It's as little friction as possible and just being an easy LP to deal with. I think that's so underrated. It's so important to just being an easy LP to deal with that is just friendly, helpful and not asking for too much as well.

42:18I think it's highly valued by many of these GPs, especially if there's then some kind of alignment. You mentioned alignment, a vision of the partnership. You know, that's one type of alignment, but you can take that even broader if you want. Thank you for sharing that. I appreciate that. We're running out of time. So I want to make sure we cover two last things. One is my favorite question, actually, which is what is a strongly held belief you've recently had to change your mind on? actually i mentioned this one and this this is um uh related to funds two two three years ago we had a totally different uh imagination of of the role uh and and the value of fund of funds and we were flexible enough and and i'm glad we we spend more time on this topic and we actually changed our minds and and as i mentioned we are we're back to fund the funds i I think four to five fund of funds on our platform.

43:19Maybe, you know, five, seven years from now, we have maybe two, three fund of funds, but it's still an integral part of our program for the benefits that I mentioned earlier for being a sporting partner and also delivering returns. Yeah, I like that. I think that's a really nice message to end things on. And then the final question, non-venture related. What's the last book you read that truly inspired you? A recent book that I really liked and it resonated very well with what we do on a daily basis has been Leading by Alex Ferguson. it's a lot about football and the backgrounds of scouting players and sort of managing teams and other challenges and running big organizations and moving upwards the career ladder from smaller teams like Man United and I guess the key element that resonated super well with me was the incredible ability by Sir Alex to scout players globally and snatch them with the, let's say, limited budgets that the team had back in the day from in front of the other favorites like, you know, Spanish or Italian clubs that had more money.