E496 | Dario de Wet, LTV Capital: Cracking the LP Code: Dario de Wet on Building a Global FoF from Europe

0:00When a fund of funds founder spends his time educating emerging managers, you have to ask, is it a passion or is it business strategy? The answer reveals why most emerging managers are missing what actually matters. The real challenge is raising that fund and becoming compelling to an LP in a way that maybe many overlook and underestimates, especially considering LP sentiment depending on the geography. But what if the secret isn't in your pitch deck or your track record? Access to network, being intentional about building one's network, and ensuring that you're covering the various elements and evolving your thesis over time.

0:36because the rate and pace of market shifts has become so intense that it's very easy to fall behind. And I think that that is something which is severely overlooked and underappreciated and undervalued. It comes down to one critical insight about what LPs actually remember. What's the one good thing that you can leave an LP or a conversation that would leave you being memorable? Because here's the uncomfortable truth about this industry. There's quite a lot of luck involved as well, You know, and hindsight's a beautiful thing in the sense of it's very easy to now say, hey, we had the opportunity to invest in open AI.

1:14But, you know, two, three years ago, it's a very scary kind of concept. Join us for this essential conversation with Dario DeWitt of LTV Capital, where passion meets strategy and emerging managers discover what it really takes to build lasting firms in today's brutal fundraising environment.

1:35Tear 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. Welcome everyone to a very special EUVC podcast episode where we are welcoming an LP. I love these episodes. As you can tell, I'm the one typically doing these. So let's get into it. Today, we're welcoming Dario DeWet, founding partner at LTV Capital. LTV Capital is HQ'd in the UK, London, but its target geography is global. Heavily skewed to the US, but we'll try and get Dario to commit to doing a bit more Europe in this podcast.

2:24Their target stage is the type of funds we love and probably many of you listeners you fit into this profile sub 100 million um usd roughly euros uh funds funds one to three includes emerging managers solo gps so all of the good stuff that we love dario welcome to the pod do you want to give us a quick intro thanks very much for having me david yeah i think you did an excellent job um i will add to you very bullish on the European market and very intentional about wanting to grow the European emerging manager footprint. I think not too much more to add. I think just in a nutshell, been in the venture ecosystem for around a decade now as an ex-operator, well, originally corporate finance, moving into an operator role, direct investing where I was at Anthemus for a good half a decade, and then moving into co-founding LTV with my partner Farhan.

3:20You know, I think having that hybrid experience of operator, direct investor, fund investor, and having the opportunity to have set up a fund myself originally, which was kind of the, was a catalyst for going down the emerging manager road. This has led us to this conversation. So happy to be here. Yeah. Yeah. And we'll talk a lot about LTV's strategy and positioning and so on in this part. That's the core of this pod. But I want to start with something else. Anyone who's been around social media and has Googled a bit around how to kind of upskill themselves in venture, they might have come across some of your work around educating in VC.

4:04As many of our listeners know, it's something we are really passionate about here at UBC as well. We also have been doing a lot in that front for almost two years now. and so uh the question i want to ask you is why do you focus on education within vc is it a passion or is it business strategy pure passion so i think going way back even when i was at university um you know the way i made extra money was tutoring um across various courses and subjects both at a high school level and university level but then also running a business strategy call running the business strategy course the final year of my undergrad when i eventually moved into the venture capital space, I was very keen on reading literature or at least upscaling myself.

4:47But at the time, the only thing that you could really read was venture deals, which I think is cool if you're a founder, but it's also quite incomplete in other areas. And I think that since then, we've come a long way, which is fantastic. However, there were two problems that emerged that I noticed in the market. One is founders tend to struggle to articulate their propositions in an effective way what is becoming an increasingly accessible market so you know just the the constant deal flow makes it very difficult to stand out so that's on the one end but most importantly which i've been very intentional about is about becoming the best emerging manager right considering you know how there's i hate using this term but real democratized access at least in some markets in order to be able to become a fund manager or at least build a fund proposition the the real challenge is is raising that fund and becoming compelling to an LP in a way that maybe many overlook and underestimate especially considering LP sentiment depending on the geography you know you've been at it for a while and you just shared a bit about your you know your professional background as well what do you keep on seeing emerging managers doing that still makes you kind of say whoa that's unexpected man you know it's kind of funny you're gonna think what a weird answer some people don't put their contact information on their deck I'm dead serious like this is a problem that we were kind of like picking up last week I was like go on and you put this whole deck together and the two things that keep popping up is you don't put your fund size and you don't put your contact information.

6:28So depending on how you manage your CRM, it's like, well, who are you? I'm very big on thesis and understanding your why. And for me, I've been very intentional about building the curriculum for this course because I want funds to become firms. And I want funds to be able to set the foundations to set themselves up for success over the long term, not only in a less mature market, I mean, a more mature market such as the United States, but more importantly, a market such as the UK and Europe, which traditionally lagged as we know, and which is why we're having a discussion because we're both, I would say, very passionate about bringing Europe to the global stage and doing so in a way that we can build more impactful funds and fund managers that are taken more seriously by LPs, but also to change LP sentiment as well here locally.

7:20and I think that awareness is the first step in being able to achieve that. Do you still see, I don't like to say Europe versus US, I don't like that narrative, but do you see much difference across regions? Because I'm sure you've also had some exposure to GPs in other geos of the world outside of Europe and the US. Do you still see the difference in how they act, how they position themselves, how they kind of present themselves towards our peace? Massively. And I literally just arrived back from New York right now. And we've been having this conversation this past week where you find US-based GPs, I guess, just considering the technology infrastructure and the IPO markets, et cetera, that there's more of an operator-led network and more of an operator-led approach.

8:05And also, there is a greater aptitude for risk-taking when it comes to LPs. In Europe, I guess, is a byproduct of more traditional, I would say, corporate finance, a kind of more conservative mindset. I mean, this is obviously region dependent here. We can go into specific geographies there. It becomes more of a challenge and that very much shines through in terms of deck materials and ways of thinking. So I sit on the LP selection committee of the Ubuntu Foundation, which is very intentional about building African emerging managers. And you'll find that predominantly African emerging managers are more influenced by US-led principles.

8:42And so their materials, et cetera, also emulate or at least try to demonstrate, you know, the US-led mindset of pitching and trying to raise capital. Okay, so to anyone listening in, Dario has also kindly agreed to do an LP AMA with us, which is something we do every now and then with LPs. We also do it with established GPs. And it's just a way to bring our community together, to sit down with someone who's actually doing something relevant in the venture industry, either allocating or deploying, and just have a private moment to ask questions. It's not recorded. Everything is within that virtual room.

9:23So if you're interested, when we announce this podcast episode, you'll have the opportunity to register. Dario, one question that I have for you, a very personal question. I have struggled with conveying something you've said, which is going from a fund to a firm. and really this idea of longevity and sustainability. I have struggled to hit that message the right way with my ICP, which is Emerging Managers, generally speaking. Why do you think that is? Do you have any tips? Have you found the same struggle? I wouldn't say I found it as a struggle. I think I found it very thought-provoking for those that have attended the course and at least when it comes to an open dialogue with managers.

10:06I mean, from the depth and the breadth of our pipeline, we've seen well over a thousand managers, right? At least met with, whether it be in person or connected via Zoom or online. Me personally, I'm a huge advocate for thesis development. And I always refer to this context of being proactive versus reactive. And unfortunately, kind of in the cheap money era, we've seen a lot of FOMO-driven investing, which has allowed bad hackers in the space where there's been an opportunity because it's been sexier to build a fund as opposed to build a company. You can earn 2 % on easily raised capital. that's obviously changed, right?

10:40But I think the mistake, and even if you look at the more established players that have been around for 10 years or so plus that they make, is the very same excuse or narrative they use in raising institutional capital for their funds is what they tend to fall victim to, which is this inability, or at least I would say they de-emphasize the importance of what it means to collectively focus on thesis development, competitive positioning in the market, access to network, being intentional about building one's network and ensuring that you're covering the various elements and evolving your thesis over time.

11:17Because the rate and pace of market shifts has become so intense that it's very easy to fall behind. And I think that that is something which is severely overlooked and underappreciated and undervalued. I'm not saying we have a crystal ball, but your thesis slash your views of thinking should fill out the money initially to most LPs because based on your expertise, you have fundamental beliefs and sectors that you see them evolving over time. But you should also have the aptitude and the ability to be able to adjust accordingly based on your ability to, as a team, identify wide spaces, reiterate and so on.

11:57Yeah, it's very clear from what you're saying that thesis first mindset or worldview that you have, it comes across in your way of speaking. So I think that's really valuable but also for people listening in that this is one worldview. It works for LTV. It works for Dario. There are others, but it's also that breadth that we're trying to showcase here on the pod. So I think that's really important to highlight. Now, we're going to shift into a session that normally most guests have the time to prepare for, and Dario just landed and has not had the time to prepare for. So I just want to share some love with him beforehand.

12:30Dario, what have been the three biggest learnings in venture for you so far? I've always known this, but it's become more prevalent than ever, the importance of network. And I would say that to anybody that's aspiring to enter into this industry that's listening to this, or anybody that's thinking of becoming an emerging manager, your key point of difference sits in your ability to attract your flow, which has become increasingly commoditized as we've seen an influx of new funds within the market. The second part, well, it's very subjective. I think it's a pretty obvious one, but let me give you some context there.

13:05which is, you know, having a conversation yesterday, we were talking about deals missed within a firm. And we were thinking about, well, what is some very successful companies? Why were those deals missed? And we got into this conversation around, was it risk appetite, et cetera? Was it within the team? Who was it within what team within the firm, you know, decided that this investment wasn't the right idea. And I think a lot of people seem to think that there's a science behind this, but there really isn't. There's been quite a lot of luck involved as well you know and hindsight's a beautiful thing in the sense of it's very easy to to now say hey we had the opportunity to invest in items going to make this up open ai but you know two three years ago it's a very scary kind of concept i think the third um is that this is damn hard um and i stare at the camera when i say it it's because i think it's important to be fundamentally realistic that as an asset class you know we've gone from the 2011 silicon valley hbo era you know really commercialization of this industry to what you know eventually became the kind of 2017 2018 you know markets were reasonably sound and it was not too difficult to raise capital, at least if you were fund one, to a market now where whilst we have an AI boom or AI trend, which we can talk about trends soon, you should not be naive in the sense that it takes a lot of time.

14:39And there are many factors to be considered, both financially and strategically, that will affect and determine your success. And while we all need a little bit of luck, and you might see some funds that maybe due to personal connections are able to raise or anchor a bit faster, It is a very tough market environment out there. And depending on the archetype, that all look at different things. Because the market has opened up, many of you feel that they can do this themselves. As an emerging manager, I would say, arm yourself with the right tools to be able to stand out. I think it's important to get that narrative out there.

15:13I've become more and more aware of the power of narratives.

15:21what's the one good good thing that you can leave an lp or a conversation that would leave you being memorable exactly and that's and that's but that the power of narratives is because they they it's like the um and i'm not really into these into these practices but you know these vision boards and you know visualization stuff and blah blah narratives kind of do that yeah to the industry as a whole right it do um and that's yeah that's definitely something i've learned let me ask you about you mentioned the importance of network you know and kind of justification being it like key differentiation that you have is actually your ability to attract the flow we were talking a tiny bit about this um before uh starting the recording you talked about a couple of examples of of or exotic examples of this i'd love to give you also the the the time to share a bit a bit that i think we were talking about your track record a bit and you're you're kind of mentioning network and it's funny that you now you now mention it again so i i'd love to ask you to share that with uh with the audience of course so i think in establishing ltv we were very intentional about being based out of london because we felt that there are very few funder funds that are investing globally as well as able to build good strong connectivity across the pond, both in the US and in Europe.

16:36You know, some tend to either focus on one geography or another, you know, spending, that's where, you know, I just came from New York, spending good time on the ground and being very intentional about building those relationships within North America have really helped kickstart the flywheel in terms of generating even stronger kind of inbound and also to be able to, you know, make the right connections to funds that we think are attractive outbound because the mutual connections are traditionally there you know as a firm connectively just as a team of two we've now seen you know met with over a thousand funds um which i think you could look at that's like a separate conversation overall but i think if you look at a pre-quint stat from from last year that's almost around 17 percent of known funds in the market right um when i was at anthemus we did a couple fund investments um which include the likes of 776, which is Alexis Ohanian's fund, is the co-founder of Reddit, which went public.

17:33We did WonderCo, which was started by Jeffrey Katzenberg, who's the ex-chairman of Walt Disney, co-founder of DreamWorks, who partnered up with Kendrick Lamar's business manager, and Sujay Jaswa, who's an early-stage employee at Dropbox. And then I'd say probably the third, which is most interesting, is F7, which is now Perplexity F7. They've kind of joined forces of Perplexity AI. We're the first seven women hired by Facebook, which is our meta at the executive level. Now, you probably think, well, these are quite interesting GPs that you would choose to invest in. And that's because we look at this market through a network science approach.

18:12And so my belief and our belief is that you can invest across three, four, five funds. Let's just call it across the United States. And some of them might be in the same city, but let's assume they're not, right? east coast west coast whatever central the midwest but because they come from such different backgrounds they attract such different deal flow and the proof was in the pudding because in terms of cross-pollination i think there was only one deal out of our fund portfolio which is larger than the three that came across more than one fund and and so i think being very intentional about that is super important okay you've you've you know we've been we've been dancing a bit around this now so i think now let's let's really give it the focus of give us the quick rundown of what is ltv strategy what is your approach what do you focus on uh you know all the all the good things that all the said it should be should be in the first i don't know five slides every picture that if you're pitching to lp sure so uh strategy is emerging managers sub 100 million dollars those of funds ones twos and threes including first-time fund managers including solo gps and under underrepresented founders we are looking to work with gps that want to build a strong relationship over the long run co-investments and building an ecosystem and community are integral to us because we feel that that is what inevitably will help not only emerging gps internationally learn from one another but grow their deal flow and connectivity so you know essentially the i call the fund portfolio of cohort feeds one another because i think a fund three in the united states could learn a thing or two from a fund one or two in europe and vice versa i know that my three main pillars that i typically look at from a diligence perspective revolve around how you think right which is going back to your thesis development and understanding your market positioning two which is deal flow and network connectivity how intentional have you been about building your ecosystem and this doesn't mean that you necessarily have to have a track record and we can go into that too because i think it's an interesting one that comes up a lot in the course and three is fundamentals and portfolio construction now many refer to fundamentals and that's been this knee jerk response you've seen in conferences over the past two years of we need to go back to fundamentals well i don't understand why we moved away from fundamentals in the first place But, you know, that's, again, another discussion.

20:44What I mean in this instance is how well thought is your deployment strategy in terms of balancing financial and strategic returns and ensuring that your portfolio company founders are able to extract the correct value and time from you as an investor. that's very important to us because if you as a solo gp are raising a 50 million dollar fund and are choosing to invest 100k checks i'd love to know how you plan to support those companies because you're going to have a hell of a lot to sit on boards if you choose to do that maybe you're not going to sit on boards and they're just very hands-off and maybe your fund two looks like a growth fund or you know so i want to hear about what economically the future strategy looks like for this as well as fundamentally up front how you look at providing value as a gp because our responsibility is to provide value to you as an lp right that is beyond the norms of just providing a check because sitting at that hybrid experience set like i mentioned the beginning as an ex-operator fund investor direct investor etc you feel like and and essentially being an emerging manager that invests in emerging managers is a level of relatability and being in the trenches with those gps so we want to help you to focus on your job which is being able to do what you do best which is providing portfolio founders value but it's very important to understand how you plan to do this over the short, medium, and long term.

22:22You mentioned being quite global, but quite US skewed, so to speak. What do you believe is particularly exciting about Europe? That might be arbitrage opportunities, sectors, whatever. But also, what are you kind of feeling that's still missing for you two as an example that will lead you to have a higher european focus in your portfolio firstly i actually had an lp in the u.s that we were talking to say why do you why are you bothering with europe why don't you just invest in the u.s i said but that's the whole point because europe is nascent so there's good opportunity to invest and build a strong venture foundation here right i think the challenge that you have here is a byproduct of other factors in the market so i'm very glad to see that there are more programs that are opening up the narrative and encouraging more operators whether wherever they're based right we've been on operators to explore the idea of starting a fund i think it's fantastic and i encourage everybody to you know explore those if you're watching this and you haven't looked into them please do very very cool structures that have been set up.

23:38That is then a hangover which sits with LP sentiment. I think that investment prowess is this idea that really infects the opportunity for emerging managers to get the first check when it comes to Europe as a whole versus the United States, where kind of, as I mentioned earlier, it's around risk appetite. And so it's this idea of, unless you come from an investment banking or private equity or, you know, an M &A-like background, why should we trust in you? Because we don't know if you're a good investor. As opposed to, oh, you get access to compelling deals, you know, and understanding the dynamics of what venture represents, which leads very well into my third point, which is how venture capital and private equity is traditionally lumped together.

24:26And we've seen that particularly from a regulatory standpoint, point at least in the uk where i personally believe that the challenges that sit with the cost hangover from the fca etc make it quite challenging for a fund manager particularly of a low aum to really get itself off the ground and that is something that i feel very strongly about actually uvc is going to announce very soon some initiatives on this tech policy front so if anyone's interested do reach out and dario i'll keep you i'll keep you in the loop as well I have lots of opinions on this. And I think that that is holding people back.

25:05I agree. I agree. And it's also, it's misrepresenting, back to narrative, it's a misrepresentation of our industry, which creates false narratives. And we cannot expect the policymakers to know our industry, right? There's so many industries that need to be kind of tapped into. It's our job to make sure our voice is heard. in the right places, right? So that's kind of, that's what we're working on. Great, good. A small teaser there, a small teaser there. I'm glad. I see you live so you get my positive reaction. Exactly. Very happy to hear that, seriously. Awesome, awesome. Follow-up question. Sector-wise, you are agnostic.

25:46Do you shy away from anything? Sector-agnostic, I think it's very important to evaluate all and every fund opportunity for what they are. That way you come across some very interesting structures, which goes back to that third pillar around portfolio construction fundamentals, very interesting strategies. I will admit, I am not an expert in everything. My business partner, Farhan, is not an expert in everything, right? We have a history of predominantly investing more into fintech, embedded finance plays, and in my case, the media industry as well. But we've been very intentional about building a network and having GP investors that come from specialized backgrounds that can complement, enhance, and very quickly help us demystify some of the diligence process around some managers and their sector expertise.

26:41And I think that that's a very important step. you know i will say to you that we are not driven by fomo one thing which is an interesting perspective i have and i've not really shared this much so i'll be curious to hear what your knee-jerk reaction is to this is you look at crypto funds and dpi and there's a you know a huge hunt in the market for dpi from lps i.e not paper returns for those that not necessarily with the term crypto funds tend to and i'm generalizing here offer reasonably decent tpr quite quickly so as a fund of funds does that mean that you cut up an allocation for that so that it creates more comfort for an lp i don't know just something to consider it's an interesting perspective it's definitely the first time i hear it i guess i guess i'm not sure if this is the right way to look at it it's probably the way i would think of it i guess it all comes down to what's my ICP as a fund, right?

27:43What's my LP profile and what do they look for? There's definitely investors who are more IR driven and others who are more market driven, right? That's a big factor, I assume, right? Massively. Well, I mean, I always get told, well, not always, but there are a couple of friends, why do you get involved in the venture space if you can just go and send out the alternative asset process? Because it's strategic value here. that's very important, particularly from a co-investment perspective as a fund of funds. Yeah. And that's exactly, so I had two topics and we kind of touched on both of them very, very slightly.

28:16So I'll present them to you in a platter and you can pick which one we started with. Ah, sure, I agree. So big, big, big thing in the market that everyone's talking about, you touched on DPI secondaries and then what you just mentioned, this kind of strategic angle as well of co-investments. Which one do you want to take first? Let's go with co-investments. Okay, let's go co-investments. How does LTV think about co-investments? I mean, it's integral to our fund strategy, right? So I think for an LP, a lot of them would come into the basis of fund of funds. I mean, so taking a step back, maybe for those that don't understand fund economics from a fund of funds point of view, it differs to a traditional direct fund, right?

28:54It's traditionally one in 10. So the fund economics don't really work in your favor as a GP unless you're raising very high AUM, right? Which in these markets can be challenging. And so the type of LP that we on board is an LP that wants strategic value and financial value, but the opportunity to get access to early stage opportunities that they can co-invest into. And it's an interesting one because we've had instances where GPs are, oh, that's a given, fee-free SPDs, we stop at Series A, that's our intention. it's about sharing co-investments with ILPs we have others who say we've had to write side letters and say you'll share co-investment opportunities on a quarterly basis whatever it might be and then we have others who kind of shy away from that on the basis of your your commitment right I think that's something which is it's kind of important to highlight when you mentioned when you mention um and again we've had some fund of funds on the pod so uh loyal listeners will hear a bunch of words that that sound familiar but i think it's it's insightful actually when you talk about strategic value is it only co-investments what what's the type of strategic value that lps are trying to get out of fund of funds yeah not necessarily specific to you but of course you have a lot of experience yeah so so it's not just the co-investment opportunities is also access to individuals, right?

30:25So for us, it's very, very intentional about bringing smart, interesting, exciting people together because that helps to create new fund opportunities and new businesses. And we have a track record of doing that before through various events, et cetera, that we've hosted that allow and have allowed us to connect others to go on to build new businesses and or explore fund opportunities or even simply just hiring somebody. so i think you know for the type of lp it's demystifying what venture represents but most importantly and i use this narrative quite a lot because i fundamentally believe in it this kind of post bubble scarring is has taken a long time for many kind of family offices that ultra high net worths to recover you know due to this kind of over you know overvalued kind of knee-joke FOMO-driven investing at the peak of 21, 22, which has affected their sentiment to invest directly into funds, but also taking a step back and saying, wait, actually, we're normally doing real estate or we're normally doing private credit.

31:38We don't really know how to diligence to a company. So we need to work with a fund of funds, which gives us a broad-based basket of access to venture, and in our case, globally, and not just co-investment from the portfolio companies they invest in, but also the access and exposure more broadly to companies that they come across their desk, right? And I think each and every LP is different. In some instances, there have been requests for strategy sessions, whether it be what we're seeing in the markets, whether it be explaining and understanding, you know, as an example, how do you make insurance propositions more attractive to Gen Z audiences, as an example.

32:24So many follow-ups in so little time. Let me start with the more macro one, maybe, which is when you think about your own firm's longevity and sustainability and how you grow with your LPs as well. Yes. Specifically when we're talking about this strategic component, how do you think about it? And the reason I'm asking it is because there's so many layers to what you said. And it's not that it's the only one, but it is one. economics is one because as you said, you know, and I like to repeat this, like fund the funds economics are 110, basically half of the standard in a VC fund, right? Roughly speaking.

33:07That means that, you know, doing, as you said, strategy sessions for every single one of your LPs is quite tough because you already have half the money. If you have to put in double the work, you're getting a quarter of the fees actually. So there's, it's hard to manage. so how do you also think about the you know the the sustainability and longevity of your firm together with its lps and what you provide them and how do you manage that how do you balance that for sure so i'll get to that and as you know well as you know david i'm a very transparent person so i'll say to you that in a fund of funds there's also the fees on fees component as well which you know for those that are less familiar creates other complexities because whilst you are the gpo and you're earning one percent you know your lps are turning around saying well I'm paying 2.5%, 3 % on that fund, and I'm paying you 1%.

33:54So it's not an accessibility player. Now, I want to consider kind of longer-term strategy. I think you've got multiple directions here, of course, right? On the one hand, you can raise a second fund, which should be, you know, multiples in AUM, so it makes it more self-sustaining. I think there's an opportunity for diversifying outside of, I would say, your traditional venture models and exploring alternative financing solutions, etc., The emerging manager space has now become more popular, as you know, probably in the media at least the past two to three years. There's still many solutions that have not been created for an extent of problems that are very evident and only really evident enough when you're in the markets.