What Limited Partners Want Now with TrueBridge Partners and LGT Partners

0:00Hi, I'm Connie Loizos. And this is Alex Gove. And this is Strictly VC Download.

0:13Hi, everyone. Today's episode comes from a conversation I recorded live last month at our Strictly VC event, which was part of Disrupt, TechCrunch's big annual gathering in San Francisco. My guests are two people who sit one step removed from the startup headlines. Limited Partners, the money behind the money in venture. Beezer Clarkson is with LGT Capital Partners and Amit Bata is with TrueBridge. Right now they're feeling pretty good, they told me. Nearly every fund they back is piled into the same two companies, OpenAI and Anthropic, which is not how LPs usually like to do things. We got into why they're not worried, where they do see a yellow light, and how fast venture firms are coming back to raise new funds.

0:59Here's our conversation. Hope you enjoy it, and we will see you back here next week.

1:06Hi, guys. So I'm very excited about our next LP panel. Now you've talked to, you heard from family office managers. Now we're hearing from two institutional investors who I'm so happy were able to join us today. To my far left, we have Beezer Clarkson of LGT Capital Partners, which is a diversified asset manager that's based in Zurich, Switzerland, focused partly but not solely on venture capital, and Amit Bata of TrueBridge, which is based in Chapel Hill, North Carolina, focused solely on venture, primarily in the U.S., but not entirely. Guys, thank you again for making time for this. Thank you.

1:46So, so appreciate it. Appreciate it. You know, I had gotten off stage with the Benchmark Partners a little earlier, and we were talking about how things are just changing so rapidly. And it's exciting, but it's also scary and a little bit overwhelming. And I just wanted to start off by asking you sort of, you know, on a very personal level, how you're feeling about your job right now and your place in this crazy sort of startup ecosystem. Glad you have to answer that first. I would say it's very busy, but I wouldn't say it's scary. I think there's a lot of change. There's a lot of variables at play.

2:26I love venture, so I find the chaos fun. I don't know if that's okay or not, but I've been doing this for a couple decades now. And so seeing the cycles makes it, I think, less scary because you appreciate that these things happen and that we should enjoy the upside because sometimes there's downside. And the up is a lot more fun than the down. Yeah. Yeah, I mean, I think if anything, it's exciting at the moment where venture is sometimes looked at as a niche by people. And like now that AI is all consuming, all the attention is on venture. Yeah. And so if like this feels like our moment more than it is like, oh, gosh, what's going to happen now?

3:10The pace at which people are investing and the valuations and all of that may be different. But like in general, I think we feel like really meaningful stuff is happening right now. And all the attention is focused on this corner of private equity. Yeah, it is. It is eating the world. Well, I think maybe the most obvious sort of opportunity slash challenge right now is asset concentration. You're both investors in some very prominent venture funds. But unlike the old days when a venture fund maybe made one bet in like a prominent AI company, a lot of these same funds have bets in OpenAI and Anthropic.

3:55and then you multiply that by however many funds you have. And a lot of your holdings, for better or worse, are in the same brands. And your jobs really are to make sure that your institutions have a diversified portfolio. So how do you think about that? I mean, obviously, right now, it seems like a great thing. But if things were to turn, it would be less great. Are you going to start first because I started last time? I would say, you know, venture has always been a power law business. And so I actually view the concentration as a good thing. You know, if we were getting to the maturity of one of our funds and we felt like there were still lots of tiny positions, something's gone wrong.

4:41Yeah. Like when we look at our funds that are 10 plus years old, they're starting to really consolidate into a few names. There's a lot of Databricks, a lot of SpaceX, a lot of Stripe. And in this generation of funds, I would hope that there's a lot of Anthropic and a lot of open AI and a lot of on down the line. So I think that's a feature, not a bug at the moment. Of course, not every one of these companies is going to work out. But I think that concentration and consolidation is typical. I think the only thing that's maybe feeling different is how quickly it's happened in this set of companies where I don't know what the current stats are.

5:25But, you know, in this year, some enormous portion of capital. 73 percent went to two companies in the first half. Yeah. So like that, I think, is different. But trillion dollar public companies or private companies is also different. So. Yeah, I don't view it as an immediate like panic signal. I would also add, and this is a bit stating the obvious, at the early stage, you do still see quite a diversity of opportunity sets. And the dollars are smaller. It aggregates up into the same companies that you were talking about. But when you look at early stage funds, they obviously are not doing the big late stage stuff.

6:01So you have more diversity there if that's what you're looking for. I also wonder about pacing. I thought that things were going to kind of cool off after the pandemic. First, we saw funds that were investing on four-year cycles shrinked up to three, then to two, then to 18 months. I don't even know what's standard anymore, but it doesn't seem like it's gotten longer again. Is that okay? Is that concerning? Oh, we were talking about pacing backstage. We're back to one year or sometimes even less for some funds. One year, you said? We're seeing funds coming back now to be one year of pace. Wow.

6:42Which is fast. Yes. That is fast. I would say the norm probably balanced around two to two and a half years. And now given where we are in the cycle, some funds are deploying much faster because you're taking concentrated big check positions. Yeah. Yeah. Which it could be a worrisome sign. It could work out. We don't know. But it's typically harder to do a one-year vintage and get it right. Yeah. I mean, I think we're seeing similar where, you know, yeah, I would have said 24 to 36 months was roughly normal. Now, like 12 to 18 is not crazy for some of the funds that are going really quickly. We're seeing a lot of funds sort of mid-cycle bump up their fund sizes, which is definitely unusual.

7:25Oh, that is interesting. But I think that that's partially a function of just like how large some of these rounds have gotten. Like Beezer pointed out exactly. It's like if Anthropic is raising some giant quantum of capital and you're going to put 20 % of the fund into it right then, like you're obviously going to be ahead of pace. and so um you know i think when people see this opportunity and they feel like this is the power law company like they're they're doing what you know the stated goal of their fund is is i see a power law company i'm going to invest as much capital as i can in that company um but it's resulting in this like accelerated pace uh and you see the same thing with valuations like on the seed side even smaller funds where they're not investing in these mega companies um the round sizes for a seed round have gone up they've gone almost 2x so if you want to lead the round you're writing 2x as the check and so you're going at 2x the pace and and things are all looking a little faster so it's definitely like the yellow light of hey you know we're seeing this pacing it gives us a little bit of heartburn but i think the thing that you know we tell ourselves or when we're looking at these companies is like well or these fund managers like what companies did you put it into?

8:44And when we see some of the numbers that these companies are doing, that is different. The last time this happened and we were in this accelerated pacing, there was a lot of investing in these zero revenue, kind of crypto moonshot things. And sure, there's some neolabs and things that might look like that, but we're seeing a lot of companies go from zero to 10, zero to 100 million of revenue, which was totally unheard of before. Can you sit out, so if you've got a great manager, but they're coming back to you every year, and you know that you're going to get returns, but right now, for the last few years, returns are down a little bit.

9:22Can you afford to say, call me next time? Or once you say no, you lose your seat at the table? It's very hard to leave a manager and then come back. It happens, but it's very hard. It's more typical for people to downsize their check and not leave altogether, especially if the pacing is increasing. And so what happened last time in 2021 is that a lot of LPs said, well, listen, if I was going to give you 10, I'll do five because 10 was for two years. So just do the math and I'll do five because in our portfolios, as we construct them, the pacing gets pulled through and we want to think about our pacing as well as your pacing.

10:00So that's the more typical response, but there's a gamut of opportunities, right? Yeah. Might you say the same? Yeah, absolutely. I mean, we're building out this calendar of when we're expecting to make these commitments. And so if somebody goes way out of that map, we need to make sure the capital is there. So I think you do see people downsize a check or communicate it up front. And definitely hard to just say, I'm sitting it out altogether, because then you're not that reliable capital for them. But I think that's also why you're seeing these upsizes, is because people don't want to come back and say, hey, I'm raising a whole new fund.

10:39Let me just bump my old one up a little bit. So when you say that, how does it, so it's a closed fund and then they reopen it or they sort of say, we're targeting 800 million. Oh, no, no. Actually, guys, we are targeting now 1.5 billion. It could be either one. Yeah. I think you see it a little bit. One other thing to note, for people like endowments and foundations, that also you can see some rotation out of venture. When you ask why do people rotate out, it's because sometimes this dynamic, if your capital calls keep running and there's no distributions to come back and you have to maintain your operating commitments to your entity, like the endowment, the hospital, the foundation, that puts a lot of strain on those situations.

11:24So that is why sometimes people do have to exit, just because the business dynamic is different from what they anticipated. And I want to ask about, so we just talked about the fact that a lot of funds have been raised in recent years. And I know that LPs have traditionally sort of been very focused on some sort of like time diversity. How are those funds doing? I mean, there were so many companies funded during the pandemic at high valuations. I mean, we're now seeing the IPO market, I don't know, or the IPO window. It's open. I don't know for how many players. But can you sort of, I know there was a point where people were like, I'm getting check, check, check.

12:04And then that stopped. So how would you describe 2026 so far? Well, the 2020 vintages, it's still early, relatively speaking, right? Because they're five years in. but it would argue for not doing one-year funds. I'm sure there are going to be some that'll catch a piece of some AI company and hopefully will look excellent. But generally speaking, it is much harder, to your point, to do that because just your odds of getting it right in one year are just tougher. And the valuations were extreme. They were. And so you just kind of stack the deck in a way that it can happen, but it makes it statistically tougher to see.

12:43Yeah. Yeah. I mean, I think there are a couple in our portfolio that have had interesting breakouts from that era. But if I had to say on the whole, if I look at the spectrum of the last 15 years of our portfolio, I would not bet on the COVID vintage being the best one. Right, right. But I do think there is like a couple of breakouts that are going to come from that. I mean, OpenAI was around in that era and it's in some of those funds. And Cursor was started pretty far back. And so it's in some of those funds. But yeah, and I think the liquidity side now has started flowing. I think the really slow period there was about a year or two ago.

13:31Okay. Like the past two years prior to this one were definitely slower on liquidity, but things have really started going. Obviously, SpaceX is the headline there, but Cerebros was a big exit this year. There have been a couple of their IPOs as well as a lot of M &A. So, you know, M &A for a time period was also like pretty chilled. And now we're seeing, you know, 10 plus billion dollar M &A exits, 60 billion dollar M &A exit. And so like liquidity is going beyond just IPOs. That's great. I was also wondering about secondary sales and how your managers are thinking about this. I was just telling you, if I was a VC, for better or worse, I would have been trying to take advantage of some of these open AI secondary sales or Anthropic just to take some money off the table.

14:23Have you gotten proceeds from these companies yet? I think secondaries have become much more sophisticated in venture over the last, I don't know, I'm going to hand wave at this, call it five years. I don't know the current volume, but some of the pitch book reports were putting at many tens of billions. So could you call it equivalent to M &A and IPOs? No. But if you have$60 or$80 billion equivalent in secondaries, certainly if you're a smaller fund that wants to do a couple turns of their fund with DPI, if they had a piece of OpenAI or something, you can. It's localized in the top handful of names of companies.

14:59But it's much more sophisticated and prevalent than it was before, which I think is a good thing because the ecosystem needs liquidity options. Venture is predicated on that. And if you wait 20 years for an IPO, that is not what structurally we all thought it could be. So if secondaries allow off ramps before then, I can see positive reasons for that. Yeah, 100%. I mean, like we both do a fair bit. Our firms do a fair bit of secondary. And that's been a huge growth area for us. And I mean, it's like the third leg of liquidity now. IPOs, M &A, secondaries. And I mean, private equity has always had a pretty well-developed secondaries market.

15:41And venture didn't. It was like kind of a dirty word. It was like, you're only selling if it's distressed or there's some situation. And now I think people, because they were holding the bag in 21 and they were like, oh, man, I should have sold in 2021. You have a lot more managers like using it as a tool and actually taking liquidity when they can. And I think you see people doing it more judiciously. Like people are probably not exiting whole positions if they still really believe this is the power law company. But, you know, if you can sell 20 % of your position and return your fund, then you should probably do that.

16:18Right, right. And these numbers, that seems fairly easy. I would also say on the secondaries, it's not just single assets. You see GP, you see in the LP world, you see multi-assets. And so LPs will be selling stakes of their GPs. Oh, like a sleeve of a... Yeah, yeah, yeah. Like a strip of their portfolio. So secondaries are happening at multiple levels. And then as an LP, you have an opportunity to buy into funds that way, as well as doing companies. So it's, like I said, it's much more sophisticated than where it was in the past. And I think the taboo around it is less. Yeah, absolutely. To Amos' point, which is, I think, healthy for everyone.

16:54Definitely. And the flip side of that, on the healthy or not healthy, since baby hot takes is good. Like, you see a lot of founders selling, right? Like, there's a lot of founders secondary. There's a lot of employee tenders. Well, I wonder what you guys thought of that. I mean, I don't feel like LPs have really pushed against this, maybe because you feel like you can't. But during the pandemic, I mean, it was shocking. There were a couple of headline stories, like the founder of Hopin taking$200 million off the table immediately, and that company ended up going to zero. And I just thought, you know, that doesn't feel good.

17:30Yeah. But you can't, you don't feel like you're in a position to, I mean, we're seeing that, even though I think that practice is strange, having covered this industry for so long, it's so accepted now. And especially in the AI world, any CEO will say, if we don't give this opportunity to our employees, they'll just go to the next lab that will allow them to do it. So it really feels like, I don't know, like nobody can really apply the brakes here on this practice, which fundamentally I don't disagree with. But I think when you're talking about like hundreds of millions of dollars or amounts that people don't need to buy the house.

18:04Yeah. Well, you worry about the alignment. And is everyone still looking at the same goal? Or do other people have alternatives now? And as an LP, you don't, unless you decide to sell out of the whole thing, you don't have the alternative of, oh, I'll take 200 million out and buy a nice house. Right. Yeah. Yeah. We were we were talking before about like the analogy to crypto, where that I think is one of the reasons. I mean, among many others that like things were very difficult for crypto companies because they paid employees all these tokens that were liquid immediately. And so, you know, what's your motivation to like stick around when things get difficult?

18:42And so I think it's great that there are employee tenders and there is some liquidity for employees, especially for companies that have been around for a long time. So like Stripe, Databricks, companies that are very well established, have been around for a long time, very clear financial picture. For them to offer partial liquidity to employees, like totally reasonable. But I think some of this enforcement is entirely on the lead investors in those companies. And so, you know, we've had our investors like that we back tell companies like, hey, we don't want you to do an employee tender right now.

19:17Yeah. We don't think it's the right time. So I do think those conversations are happening, but they're happening behind the scenes. And so, you know, I think people are aware and have learned from the last time some lessons, right? Obviously, it's all based on the leverage, though. So if the company, if the founder has incredible leverage. Yeah, forget it. Yeah. You know. Well, so the companies that have incredible leverage are obviously the names that we all know. There is going to be a ton of liquidity, much more once these companies go public. And I am wondering how that's going to impact everything.

19:56I mean, from like the prices in San Francisco to what you do. So as it relates to you, I wonder if these employees are going to become partners or competitors. Because, you know, we just saw two family office managers. They're going to be guys who have, you know, connections into the next sort of spate of companies. And I just wonder how you're thinking about that. There's multiple times we've seen when a company becomes very productive. The employees can become LPs or GPs themselves. And so it's entirely possible there'll be a whole new raft of emerging managers backed by people coming out of open AI and Anthropic.

20:37It's possible. It certainly happened back in the Google days and other days. So maybe. The quantum capital to be an LP does take a little bit, right? It also needs to be regenerated. So when people want to personally do that, you are signing up for many millions of dollars, multiple decades business, but they're welcome to. Yeah. I mean, the real estate part's going to be tough in SF. But I think besides that, like, that's what makes this place special, is that those people are going to be out of the ecosystem, investing in others, building new companies, starting new firms. Like, that is why no other city or place is taking SF's place anytime soon.

21:24Well, I think that's probably the likeliest scenario. But then I also think, does it mean that founders can no longer come here? Like, are we going to price out the next generation of founders who can't afford apartment rent because it's, you know, shot up like almost 30 percent in the last year or housing? So I was thinking, will the next sort of hub of activity happen in New York or somewhere else, just because things have gotten so sort of extreme here so quickly? Maybe, but history would argue there is the sort of density effect in the Bay Area is a great pull. So maybe it moves out of San Francisco and back into the suburbs.

22:05You know, back in the day, YC was in Mountain View, and maybe there's other choices. To your point, the housing becomes really difficult. You can live in other places, and New York obviously has its own very deep tech scene. Maybe, but there's such a density here, it's been really hard to push back against that. Absolutely. Guys, I know we don't have that much time, and I think some of the people here are probably emerging managers or want to be emerging managers and are probably interested in whether there is a wedge into either of your funds specifically or just into this world at this point, where we are seeing not just OpenAI and Anthropic absorbing all the funding, but of course this crazy bifurcation in venture funds as well, where there's like five funds that manage probably like 90 % of all the committed capital right now.

22:53I wish I had the exact number for you, but there's definitely still first time or emerging managers, call them funds one through three, being raised this year, last year, the year before. I think in any world, you still need to have a differentiated point of view, a reason for being. I do think fundraising has turned up a notch as far as being harder, but we see them being funded. And some of them, the fund size are just smaller. So 50 % of the money might go to the big funds. But if your average first fund is 25 to 50 million, there could still be a fair number of those to even equal a billion.

23:26And are those happening? And those, I would have to guess, are not in the Bay Area because that money doesn't go very far here? Or is that not true? There are some really small funds that people raise right here in SF. You know, there are people raising$5 million,$10 million that are based here that are, you know, maybe they're just getting started. Maybe they're formalizing their angel investing. And I think a lot of really iconic funds have started with really small funds. And so, you know, I actually think when I meet an emerging manager who's going out for their first fundraise, I try to remind them of that, that like, hey, you don't need to go raise 50 million just because you know this other person who did that for their first fund.

24:10Like, there are plenty of funds that are now really well known that started with a$5 million fund. And obviously that's a different one. Famously thrive. But like, certainly others too. And even now, I think it's like much better for an emerging manager to just build the track record, go invest in the companies go prove out the thing that you are doing the thesis your access your judgment um with whatever quantum of capital and then fund two will be easier to raise right you're creating a giant hill to climb by going to try to raise 50 100 on day one so raise from your friends and family or use your own resources and then create a track record and move forward If you've never invested before, you've only angel invested, yes, which is a different story if you're spinning out of a platform and you have an installed base of LPs that know you.

25:06We see those managers typically raise more. But it also depends on what they're going after, saying the obvious, whatever they're investing in and what quantum of capital do they need. Just to make this a little bit more concrete in the last minute, can you guys talk about some of your emerging managers specifically and what made you feel compelled to write them? checks? Yeah. Why don't you start? I mean, people define emerging very differently, right? But we've backed folks that are still founders of a company who are investing on the side. We've backed folks who are leaving a bigger firm, going to something earlier.

25:51We've backed folks that are extremely young, like we've backed 22, 23-year-old GPs who are, you know, really showing that they have really close access to this next generation of like AI native founders. And so, yeah, we're not dogmatic on what these things look like. So, you know, that last example is maybe the most like surprising to people given the ages of folks. But, you know, there are these folks that started this accelerator program at MIT, Harvard, and Stanford. And the first couple batches of this program had Cursor and Mercore etched in it. And so they're really young, but they're around an incredible density of talent.

26:37And what is the VC job? Sourcing, picking, winning. And they know these folks and they've done a pretty decent job of picking when there was no money involved and they the success sort of begets success in venture in some ways and so i'm happy to give them a shot um there's there's so much more flexibility i can remember a time when an lp would not fund somebody who had a job and was also investing and it's it's people are open to that illuminating that you're yeah we've been investing i've been investing in emerging managers now for along with established for 14 years and they come in the whole gamut from an operator turned investor raising a$10 million fund.

27:18There's somebody spinning out of a large fund coming together, and then it's, I don't know, a few hundred million. I think it's interesting when people are still operating at the same time. It gives them a whole bunch of insights. It does also cause, they're obviously doing a lot. And so you'll have to answer to the LP, how do you wear two hats at the same time? Not impossible. We had a manager who was actually fully dedicated to managing, then go in-house in a company. and reversed it. But it was an AI forward company and it has been productive for their deal flow and their education. So I think being an LP is helpful if you're an open aperture on what could be true, as long as that the trick is, are they doing what they need to do to win the rights to be on the best cap tables?

28:01And what does that look like? And every one of those could be slightly different. Yeah, especially early stage. There is no one size fits all to how you should be doing and early stage investing. And so I think that's why it is the entry point where you get lots of new funds because it's not that easy to go be like, I'm going to go be a growth stage Series B investor and I have no track record doing this. And you need a huge quantum of capital, but you can go be an early stage manager and be part-time. You can be very diversified. You can be concentrated. You could do all kinds of other things.

28:35And there's sort of more outs in the deck, if you will, to how to return something that's small and experimental. And what are the smallest size checks that your firms will write to a fund? The smallest size checks we will write? Yes. Given our program, it's harder to do less than five. Okay. Five's? But that gets pretty small. I mean, it's smaller than I would. And we can work with different... LPs also have different concentration tolerances. So would you be willing to be 50 % of a fund or 20 % of a fund will also dictate the size on the other side. So we don't have endless flexibility, but we try to be thoughtful in how we do that.

29:14And do you want to be 20 % or 50 % or what's your comfort? We've generally taken a view, and me personally, that if you're too much of a fund, there's some challenges for the GP on it going forward. So you want to probably be no more than 20%. But are there situations where you could consider more? Yes. General rule of thumb, I think 20 % is sort of the generic answer for all these. Okay. Does that feel about right? Yeah. I mean, similar for us, like on smallest check, three to five. We've on occasion done smaller if it was like very odd specific scenarios. We don't really care about the concentration.

29:51Like if it's the right scenario, like we'll do half or all of it if somebody wants to do that. But Beezer is 100 % correct that like that's not ideal for the GP. and we'll tell them that up front of like, hey, well, you probably want to diversify your LP base. You don't want to create this scenario for yourself. But we've done a fund where we were half the capital and the next fund, we weren't half of it because they did well. And then we were more like closer to 20 % of it. But yeah, no strict number. So interesting. Well, guys, thank you so much. So my takeaway is a little bit of a yellow light blinking, given the pace of things.

30:36A lot of money coming back, we hope, we think. Probably a lot more money going out again in 2027 as a result. So the mania continues. Yeah, absolutely. Thank you both for making time for this again. Really a pleasure. Thank you. Thank you guys for coming today. Appreciate it. The Strictly VC Download podcast is hosted by TechCrunch Editor-in-Chief Connie Loizos and me, Alex Gove of Strictly VC. Strictly VC Download is produced by Maggie Nye with editing assistance by Teresa Lancansolo and Kel. Thanks for listening. We'll see you back here next week.

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