The Fund Everyone Will Wish They Backed

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0:30Alexa: Fall has never looked or tasted this good. Sweetgreen's fall harvest menu is back with seasonal favorites dressed to impress and made to be devoured. Warm roasted sweet potatoes, crisp apples, maple glazed Brussels and crave worthy flavors in the autumn harvest bowl, maple glazed salmon plate and roasted bacon Brussels side. The season's most desirable menu has returned to Sweetgreen featuring fall's best dressed. Make your move. Order on the Sweetgreen app. the co-chair of my IC likes to describe this as like steering the Titanic, like bad analogy. And that Babson's obviously not the Titanic, but like you are making very small, like a big ship, right?

1:12Like you're, you're very slowly adjusting. Every other boat did not sing. Any, any boat besides the Titanic. Wait,

1:18Alexa: wait, wait, did I miss something? What happened at the end? Welcome to Swimming with Alligators. The VC podcast from the LP perspective. with your hosts, Alexa Binns and Ernest Buck. You ready? Let's dive in. Welcome to our next guest on Swimming with Allocators. This is Trish Sperlin at the Babson College Endowment. Hi, Trish. Hi, guys. Thanks so much for having me. Trish is overseeing a really remarkable endowment. The narrative behind the story of how they developed their venture-heavy portfolio is really fascinating. so we're excited to hear your story trish and the story of the endowment that you're now in charge of thank you i'm so excited to talk about it thank you um most folks have i don't want to say a um clear path to their uh role managing something like a large endowment but your story is so special do you mind just giving us a little bit of your narrative of how you got to where you are Sure.

2:24Definitely not the traditional path, I would say. So I really went to college, I would say, originally to play lacrosse. I had no idea what I was going to do. At one point I was going to be an athletic trainer, but I'm like really afraid of blood and really squeamish. So that wasn't a great fit. and then I just sort of like bumbled around until I found accounting and finance. I was doing well in those classes and they said I'd be able to get a job so that's really how I ended up in the finance industry. It's like what everyone dreams of right and so when I graduated I could either go the accounting or the finance route.

3:02I chose to go accounting because I didn't want to move to New York. I later learned that there's like a lot of finance jobs that don't require you to moved to New York, but that was my approach. So I worked in accounting and public accounting for about three years. I kept getting feedback that, you know, maybe it wasn't like a great fit for my personality.

3:22Alexa: Yeah, I was saying you went into accounting and I have not fell asleep yet. Yeah. Wait, what is that like review, like your annual review? They're like, you talk a lot. It was more you talk a lot. That was sort of your dead on. I think like my job in the audit room was like no one wanted to talk to the client and they would be like, oh, we'll send Trish. Like that was sort of my role. And what ended up happening, which is like very critical to how I got here, is they sort of pushed me into tech. um they were like this is sort of this evolving category the rules around accounting are very ambiguous so we need people who are comfortable with like operating without a set of accounting principles basically um and so they sent me over i was at this um if you need somebody to move money in your books go to trish sounds terrible um they said so i want a little loose accounting Yes, if you don't need a bunch of rules, do whatever you want.

4:30And so I ended up at this tech startup. It was a second-time founder. He had done ad.com and sold it to AOL, and he was basically trying to recreate the same thing for video. And so we'd raised a whole bunch of money from a whole bunch of people that I work with now. And the long and short story is we went bankrupt in like three and a half years. We're very early to something that seems like very obvious now. But out of that, I decided that we had done so much stuff that I thought was very simple and that we could like have avoided. And so I started a fractional CFO business. I thought I'd be a fractional CFO forever.

5:07I went to Babson because I was told if you don't know what to do when you're an adult, you get an MBA. And so the CFO of the company that I was at had gone to Babson in 1972. and he was like, I will write your recommendation letter to Wharton, but only if you agree to go visit Babson. And honestly, as soon as I got to Babson, I knew it was the right fit. It's like a very special place. I had a very finance heavy background. And so doing more finance at Wharton didn't really make a ton of sense. I think I just like had heard that was the place to go. Whereas Babson, you know, allowed me to really think more creatively.

5:48And I started helping out with the endowment because as I just shared I have a lot of venture background in terms of like my operating background and just sort of fell in love with it very weird sequence of events Babson had been largely volunteer run up until that point they had brought on one individual in 2016 this is now 2018 that I came around and they were sort of chugging along was around$420 million. About halfway through my program, the gentleman that they had brought on left to start a fund of funds. And ultimately, Babson came to me and said, would you like to take over the endowment?

6:33You can start right now. You have 24 hours to decide if you would like this job. And that was on March 13th of 2020. So there was like a few things happening in the world that um you know ultimately i at the time i was like i have my own business like i'm not gonna do this forever i'll help you out sure um and then it was actually my husband who was like you're wildly underqualified to run an endowment what an incredible opportunity like you should say yes to that order you're like what planet are you on um and so and i can share more about why badson was comfortable doing that we had extremely competent alumni support um that helped me until i got up and running but it really was such like a serendipitous i mean i never if you had asked me even where the venture capitalists got their money before they gave it to us when i was at that startup i wouldn't have been able to tell you so it was not like on my list of of jobs i would do post-graduation but so i spent the second year of my mba getting up to speed on the endowment and I've been there ever since.

7:38Alexa: That's amazing. That's a wild ride. That's like a movie.

7:46Alexa: So before we get into kind of like your experience and jumping in and getting up to speed, could you give us the background on the Babson endowment, like the history of it and being volunteer led and having very capable alumni helping? Yes. So the Babson endowment has been around a long time, but I would say in earnest, they got really serious about like, how can we grow this portfolio of assets starting in about 2009. And at that time, the endowment was around$200 million. So tiny, tiny. And quite honestly, private equity came about because one of the investment committee members had worked at a fund of funds.

8:27He was at HarborVest and knew the industry very well. And he said, you know, I think we have access that the people we're working with don't have, right? They're coming to us and asking for intros. People don't know this about Babson, but it's very sneaky in the LP world. Like you look at any big LP institution, there's a Babson alumni there. And so they really kind of saw this opportunity to like get into what at the time was kind of the next generation of up and coming venture funds. And it was such a small portion of such a small pool of capital that they thought if we take really big swings here in a measured way, we can grow the assets to be more on par with our peers rather than having to focus on like chasing people for donations.

9:14And Babson does have a wonderful donor base, but it's also a very small school. And it's a relatively new school compared to like Harvard. You know, it's only about 100 years old. um so i think what's unique about babson that enabled us to do that is you can only get a business degree at babson so everybody on the investment committee that's an alumni has some sort of finance background um and so they really did like a phenomenal job um running this up until um 2016 when they start to bring some of it in house um they what they did was they have an investment committee which is run by the board of trustees they select the members of the investment committee based on like asset specific uh skills so we have about 15 people on our investment committees big big committee but it's been really great for decision making at a high level um they manage all the public assets i mean they're responsible for the total endowment but they retain discretion and always have over the portfolio.

10:16We work with a consultant who helps on the public side. And then they established this sort of subcommittee, if you will, of the investment committee called the private equity committee, which we still have a version of today. So anything that my team does where we're bringing a recommendation to the investment committee comes with a yes or no stamp of approval from this advisory board, which is the private equity committee. And that has obviously evolved over the years. You know, at one time they were making all the decisions. Now they're more of like an advisory role. But it's been such an incredible thing for the school.

10:51A lot of smaller endowments will ask me for advice on how to recreate this. And it's one of those things where, like, I think Babson just has something very special that would be very hard to recreate from scratch.

11:04Alexa: It's like when people say, how do we become Silicon Valley? And it's like, I don't know, Atlanta. It's a very special set of circumstances. Yeah. It's like, kind of have to start like this. That's fascinating. Did you hear any of the sort of backstory of how everybody came to agree they were going to swing for the fences? Like, you've got folks representing all these different asset classes. And the fund of funds guy with the venture Rolodex is the one who gets to make the big bets. That's a fascinating room to be part of. And I just wonder, you know, have you heard anything about what that process was like?

11:46Yeah, it was very slow and steady. And this is something that I think institutions have gotten wrong in the past that Babson did very well. It's like we went into it with a clear picture of like these are the people around the table who have really good access. in a perfect world, these are the names that we would want to be in. We can deal with the fact that we're a$500 ,000 check later. Like, let's just figure out how can we get into one of these names. And we literally went one at a time. And even today, the portfolio is very concentrated, and that was an intentional decision. But it started really small.

12:26Like, now we're a 25 % target for private equity. But they didn't take 25 % of$200 million and say, like, we should ram this into venture as fast as possible right like that it's sort of evolved very slowly of like what are we comfortable with um one of the the co-chair of my ic likes to describe this as like steering the titanic like bad analogy and that babson's obviously not the titanic but like you are making very small like a big ship right like you're you're very Every other boat did not sing. Any boat besides the Titanic.

13:00Alexa: Wait, did I miss something? What happened at the end? We're just steering a big ship. A big ship. A big ship. Right. So we just want to go like nice and slow. Right. Like no overcorrections one way or another. Take a little bit of a turn. See where we are. Re-evaluate. Like we're shuffling our feet. Right. And that's, I think, the approach that they took. And honestly, like that's still how my team approach is going into new areas of the portfolio today, because I think that's where people get into trouble, right? Is where they're like, oh, my gosh, I'm behind. I didn't have a thesis on this. Everyone's making money in Web3.

13:38How do I get into all the Web3 funds, right? Like that's not the way to do venture. And Babson was clear on that from the jump.

13:44Alexa: How much do you think that can be contributed to having such an informed finance-based investment committee? Because I've had recent conversations with a number of organizations, large allocators that are rebuilding or starting over, starting from scratch their venture portfolio. and hearing the team that focuses on private equity and is on the ground and venture capital have to like play these essentially games with convincing their investment committee who's just like hey we haven't made any money in this and we heard it's really scary and risky so we need to just get into these six names and it's like yeah it's pretty hard to get into those six names and not get sent to their like secondary and tertiary funds first right so how much do you like you know how much is it aligned from that success from just like having such an informed investment couple of things i think the the sophistication and the trust that comes from our investment committee is invaluable obviously i've only ever been an lp at fabson so i did not appreciate like how good i had it um until i kind of was in this for a few years and started to understand other people's investment committees um i think we have to keep in context to the timing of when this was right like 2009 was a very different market environment um and the public markets were not necessarily like the most attractive asset class in the world um it's also worth noting that our current ic chair has been involved with the endowment and has been like really instrumental in its growth since 2009 so that makes a huge huge difference right that continuity um and he's like a pretty incredible thinker in terms of risk like he was clear from the beginning of like the pool of money is$200 million.

15:56Obviously, we're not supporting a huge portion of the operating budget at that size. So what benefit is it to me to avoid risk when this is a long-term pool of capital? I don't want to risk a huge portion of the capital, but if we are saying we have an outsized information advantage here, why would we not try to get the school a leg up and lean in? And so I I think this is true of CIOs, of investment committees. It's like all about the team that you have around the table and their philosophy and the goals of the institution, right? If Babson had a huge liquidity demand, they couldn't have taken this risk.

16:34But they're a small school that was running really well. And like they what the goal was, how do we scale the assets, not how do we keep liquidity around so that we can fund the operating budget? You know, and so I think there's there's so many things that come together for like a perfect storm. But the fact that I can go to my investment committee and have like a great conversation about venture today, venture 10 years from now, and they still understand and feel like it's worth it to put dollars into there consistently is a huge advantage, right? Like, you know, it's, it's, that's the whole game.

17:11If you try to time it and only be in the right things at the right time you'll never do it right so are there any things that you could recommend to other smaller endowments is it like is there a tactic or just a something that you've been able to share with friends that is not uh so unique to bepsen but they might be yeah i think there's a number like i think that what i just highlighted about like being consistent over vintages is important Like that I think even if that means you're doing less dollars, like if your budget is smaller and you're maybe not at the comfort level that we are where we do, you know, a significant amount every year, like picking partners that you really value and believe in and then backing them consistently is going to yield far better results than like chasing who has the best returns right now.

18:04I would also say and maybe like a word of caution that like the dispersion of returns is very real right so if you are going to go into this and be like we can get into some pretty good stuff like you're going to be disappointed I think you have to go into it with a point of view and like a real clear plan on how you're going to access who you believe is the best because otherwise like the liquidity premium just isn't worth it. it quite frankly i mean you'd be better off even if you wanted to do privates you'd be better off in like the lower middle market on the buyout front so i think it's just being really thoughtful what i would discourage everyone not to take it negative but like no take it negative i think that the thing that people get wrong the most frequently is they see headlines like spacex and anthropic and they're like oh my gosh we're not in those we should put money in those now like no you should have put money in those eight years ago.

19:04You're too late, right? So like, that's why I say I think you have to make a clear thesis, be thoughtful about how you're going to approach it, and then slowly execute that thesis over time. You should not say, I heard this endowment made 20 % year on year in venture, so I need venture now, right? Like that's a recipe for disaster.

19:24Alexa: I understand how you would have an unfair advantage in understanding kind of like all the way down I'm sorry upstream with like the actual companies and kind of assessing that but then you're skipping kind of a step because now you need to underwrite the people who underwrite said company so how did you come up to speed on that so a couple of things I had been working with the endowment team for about 18 months before they made this decision. So the whole volunteer committee knew me, they knew how I thought, I was familiar with the portfolio. Like, was I ready to be in charge yet? Probably not.

20:03But like, it was, I wasn't brand new out of nowhere. I think the underwriting piece of it actually came very naturally to me I think because so much of it is understanding like the relationships and the people and how they think about the companies um I actually felt like it was easier to underwrite the funds than it was on a company by company basis I mean I worked in technology but I'm by no means a technologist I like struggled to explain what videology did until the day I left. So like I wasn't, it wasn't like I had some great engineering background where I could be helpful. I think I just knew enough people that I could get good referencing done.

20:49I knew who people liked, who people didn't like. I knew who like had lost a lot of money and who had not. And so that was very helpful. I think it allowed me to get up the learning curve very fast. I also think the fact that I was an accountant made it very easy for me to understand not only like the financial dynamics of companies in the portfolio but also like I didn't have to spend time learning how to read the financial statements for the funds and all of that came very quickly as well so in that sense I think everyone was really comfortable what took a lot of reps and I like will scream this from the rooftops forever was the discretion and like the discernment that comes with deciding what managers to back is something that there is no shortcut for.

21:42Like I joined Babson in 2020. We didn't do a net new manager that I chose until January of 2023. So, and I probably take, like even still today, somewhere between 300 and 500 calls a year. So the first like year and change was just reps and reps and reps meeting people building my reputation getting Babson's brand out there because that was still very new as well you know at the time I joined we were like a two million dollar check and the endowment has you know more than doubled in size since then so that there's a lot that comes with that that a I think they saw a lot of value in my operator background to be able to build an investment office and then I also think it was a level of comfort that I had, given that I come from startup land, that like everything wasn't laid out perfectly and we were kind of figuring it out as we went.

22:41Alexa: Now we're going to take a quick break to speak with our sponsor. On the show today, we have our stellar partner and industry expert, Shane Gowdy, leader of Sidley's Venture Funds Practice and now host of the podcast Talk VC. we highly recommend you listen. You have extensive experience also representing limited partners and because plenty are listening to this show, I was curious what's top of mind for you right now when it comes to LP's participation in venture? Again, that tends to be LP by LP dependent somewhat because each one has its own touch points and sensitive spots just on the intake part of it.

23:25Alexa: Look, I think from an LP's perspective, the commodity they're buying is the people that they're investing in. And so there just is a much greater diligence going on with respect to team, you know, relative performance record by the individual managing directors. You know, what does generational planning look like at your firm? Because LP smartly, when they go to make an investment in these funds, I don't think about it just the instant fund. It's the next three funds. And the questions, I don't want to have to think I should have asked a question in fund one when I can ask it and wait until fund three.

24:05Alexa: I want to start to investigate what it looks like to be an LP for you over the course. So that's talking about what your distribution plan looks like. How does the team view performance? How do you measure performance? Again, generational planning is a huge thing. So, you know, what are the – the diligence going on, in particular from the institutional side now, is just more than it ever has been. And that's driven by, obviously, the underlying realization that the people you're investing in are the team. But, you know, you've got a lot of regulatory and diligent stuff going on on your own side, whether it's ESG or, you know, there are certain industries that you can't invest in because you're a governed sovereign.

24:46Alexa: You know, so some of it is just – it's really investor dependent. But the themes are, do I have an out if something happens to the key person provision or a no-fault division or a GP removal? Those are the kinds of things that I think LPs find comfort in. And so there's been a lot of investigation and a lot of conversation around the human elements of these deals. And then obviously you get into what does the investment strategy look like? And then the management fee obviously is a huge issue. you know and then when funds are talking about like tiered carry well you know what is historical performance look like so some of it is also very fund dependent but the two key things lp is always it's the people you're investing in and it's the damned economics and if we can kind of find some satisfaction somewhere in there on a lot of the stuff and if the fund manager is receptive to a lot of the particularities whether it's confidentiality or use of name or i got to transferred to an affiliate or I got this weird investment restriction that I got to live by or I need to be able to transfer my interest if you invest in a gambling company or whatever it is, right?

25:55Alexa: I just think it's LPs now more than ever are looking for true partnership. And as I counsel my GPs, I think when I was a much younger lawyer, I tended to be a little more rock 'em sock 'em robots. And this was a negotiation. And by God, my guys were going to win and you guys were going to lose, that's all gone. It's just like, look, your job is to help them create a great partnership. You're not always going to agree on everything, but you can be respectful about it in the way in which you kind of have those conversations. And, you know, because your job is to help them create a great partnership.

26:26Alexa: The last thing in the world to form a really solid bedrock for a fun one is to have a bunch of unhappy LP because you jerked them around in the fundraising. I mean, that's, that's not the way you move through the world to get this, to get this thing on the right tracks to start. And it took some while to get that kind of mentality and approach. But I think that that the LP side, and I don't do a ton of it, but, you know, the stuff that I do has made me appreciate the LP's position and what it's like to be an LP in a really, really big fund or an emerging fund. And how should you behave, you know, as an LP?

27:01Alexa: Because I know what GPs feel for how LPs, do that work. So it keeps us abreast as to not just from terms and all the kind of market standard stuff and what does ILPA have to say about this, that, and the other, but what are LPs thinking? What's important to them? And a lot of that can also happen. I mean, I go to my GP's annual meetings, and so I talk to a lot of LPs about this kind of stuff because it's important. So yeah, that's the kind of stuff that the LP work has shown me and allows us to you know give some kind of perspective on and since the team is so important to the lps i'm are there any interesting stories you can share of a transition team transition or succession situation um that you know could give us some color oh um yeah uh okay so i i had succession planning was the main issue in this fund.

28:02Alexa: So LP becomes a very large institutional LP into a fundraising, let's just call it, in the range of$400 to$600 million, somewhere in there. And this was not a fund one. Obviously this was like a fund four, I think this one was. But the cycle between funds has been like five years. So there's been some time between fund one and fund four so that the GPs who were around in Fund 1 were kind of more gray-hairish, but old state guard Venture Valley people who had been around since dinosaurs walking around the earth here. So this Fund 4 comes online, and they look at the key person provision. And the team is now, at that point, was probably like seven or eight people.

28:50Alexa: Instead of the prior fund, it was three, maybe four got at it. So the team's just much bigger. The two principal founding partners are now in their late 60s. And so because they raised their first fund when they were a little older. They weren't in their 20s. They were in their early 40s. So the LPs kicked tires on that a lot. And the old founding partners did not want to hear it, were not going to budge with respect because they were the two key people in all the funds, and no one else had ever had their name on the key person provision. And, you know, a couple LPs walked because of it. And after a while, after kind of some slow fundraising parts of it, and, you know, frankly, just some very honest discussion internally as a team with us about what market has, you know, what does a transition plan look like?

29:47Alexa: So it's just the great part about this firm is they were very receptive to a very bad set of initial circumstance. And they went about and thought about what it meant. Because, you know, if the best way you can litmus test as a GP, what people think about your firm is to, like, have somebody walk away because of what you're doing. And, you know, these were LPs that were in Funds 1 and Fund 2. so they were not brand new customers coming to the door these were existing LPs so they were people who were well familiar with kind of the team and teaming and it just became something that created I think ultimately a lot of positivity so like two other people then became part of the key person provision and there was some a lot of generational planning stuff that went on in the management company entity like people were starting to be admitted and you know like exit packages were starting to be negotiated.

30:44Alexa: And so sometimes, you know, the LP relationship can be a Kickstarter from that perspective. So I think, you know, that was one very, very interesting, and it happened over time. But it was one just sort of exemplary way in which, because it could have gone the other way, because you could have just said, I'm going to put a flamethrower to this place. We're not raising this fund. We're going to just manage out whatever we got and, you know, hell or high water, damn you all. To their credit, they just understood that this was about more than them at this point. It took a little while to get there, and it took a few kicks in the butt.

31:22Alexa: It was fun to be able to counsel through that as well, and not just on their side, but on the younger partner side, and to be part of that room and have them ask you what your opinion is, and what have other clients done, and how have things been managed. That was a very fascinating transaction, to say the least. Thank you for joining us on the show, Shane. If you're a GP or LP looking for expert guidance on fund formation and venture capital legal matters, you can visit Sidley's website, S-I-D-L-E-Y.com. And now back to our LP interview.

31:55Well, speaking of steady state, what is sort of the, what is the lay of the land today? And what do you spend your time looking for to complement that? Yes. So I mentioned when I started, we were about 420 million. Today, we're about 910 million. So very different landscape. Still, it's very exciting. It's great. Great for the school. Still 25 % target. So my team's managing about$300 million is like the long and short of it. 70 % of that roughly is a little more is in venture. And then about 30 % of that little less is in lower middle market buyout. So the way we're structured is our public portfolio is really set up to absorb a lot of the risk that we're taking on the private side.

32:49We've sized the allocations for that to be the case. And we're taking big swings, right? Big swings within reason. And so from that standpoint, like the venture overweight makes a lot of sense. It's also the reason that we focus on the lower middle market when we look at buyout, because it's a slightly riskier, slightly higher return profile. Same is true with growth equity. We kind of do that opportunistically. Honestly, we don't have a ton of it, but we're really looking for like the highest return profile we can find in every asset class. And we categorize everything under private equity. um so today we have you know probably we have 18 manager relationships 13 of those are active I think the right number of names is probably somewhere between like 15 and 16 um and we are actively working on adding a little bit more buyout into the portfolio um not because we don't believe in venture we very much believe in venture more because our venture portfolio is way more mature than our buyout portfolio given that's where we started um and we just have some like concentration risk we have to manage so last year and a half i would say my team spent a lot of time in lower middle market buyout um we'll probably add two net new names there i would say and then the third spot um you know is always open because we want to stay as opportunistic in venture as possible um in terms of what we look for i have like the worst answer to this i swear it is very much like i know it when i see it um and it's like the word gps get hate that answer it's fair

34:30Alexa: it's a bit like it's so ambiguous but that's the realest answer though it's not personal it's like it's not you yeah it's and it's and what there's so many things that um that come into it like you had said, Alexa, everybody's a nine out of 10. And that's so true. It's like you meet all these incredible people. And we try to look at it through we have like a four pillar framework. So we're looking at and this is nothing revolutionary, but we're looking at team track record strategy. And then the last piece is what like, kills half the stuff. And that's Babson fit. And so like when you meet these people, right, like most people have an incredible team, you don't like go out and raise a venture fund, if people don't like you, and you're not amazing and you haven't done cool stuff for the most part.

35:15Right. And then like the strategy piece, we actually don't take a huge stance on strategy one way or the other. We run like a concentrated high conviction playbook. But we have both in our portfolio. We tend to skew away from larger fund sizes simply because of the dynamic I just mentioned about the outsized return and the small pool of capital. But what we really end up boiling things down to is like, how does what this person or people are going to bring complement what already exists here? And that is a much harder decision-making framework than where we started, which was like, we need more exposure, you know?

35:57And so that piece of it gets very tricky. And we're not looking for completely separate networks And we're certainly not looking for totally overlapping networks. So we try to think about like the pre-seed, seed, series A, little bit of series B. How do we want to cover that? And where do we have white space? And who do we believe is the best in that white space? And outside of that, like in terms of sectors and stuff, we are big believers in the managers are going to take us where we're supposed to be. Like that's what the 2 % is for. If I was smart enough to know that myself, I would just do it.

36:31and so that's kind of our philosophy few exceptions to that rule right like life sciences you know you should probably specialize in that but like for the most part we're not in the business of saying like I believe the world is going here how do I find the best manager there we are more like how do I find the best manager and where do they think the world is going yeah that's very similar to as

36:54Alexa: I've um hitting almost 12 years in the business and starting out as a specialist realizing finding the best and and the most um the best founders who could potentially bring alpha it's usually not because I thought of this amazing thesis and made a market map um sorry associates if you still exists but um it's really about finding great founders and them being able to show you something that seems so obvious yet you never kind of like really saw it and so um that makes sense that you all would feel the same way um for you've been in the business now for a while and we've had a lot of cycles and many cycles that have happened um how have you and your team been able to stay up to speed and understanding where the trends are going in the business yeah so my team full time is me and one other gentleman louise um and like to be very transparent we work a lot that's I think like the the nuts and bolts of how we stay up to speed um but I think like the biggest thing for us that we try to to focus on is being like intellectually flexible curious about what's happening in the market open-minded I think this is like the biggest thing for institutions that invest in venture is like it's so easy to be like that'll never work and we try to approach everything from like let's assume this is going to work what don't what are we missing here um and I think that allows us to to just be a little bit more um open to the magic that comes out of venture versus like looking for everything that's wrong with it um you know in terms of like we're obviously reading everything you know I get 5 ,000 newsletters a day it's like all we can do to like my inbox is a really scary place um but like it's you know that i think we're doing all the things everyone else is doing of like following the news cycle i think the the trick is like what are the people that we believe are the smartest around us actually think of this and how should we interpret it um and i think the answer most of the time is like nobody really knows you know and so i think like how do we position the portfolio in a way that covers our bases and also leaves room for a lot of magic and a lot of upside in the meantime um and outside of that like you just have to kind of hold on for the ride because there's no way you're going to predict what's coming are there any favorite things that you take time to definitely read like any things you'd recommend to the oh sure gosh there's so much good stuff to read um Um, I do read Axios every day.

39:54I feel like that's like a very easy, it's summarized quickly in bullet points, which I appreciate. Um, you know, you can like fall into the X rabbit hole forever. Um, I'm not sure like how useful that is. Luckily, Luis has a very great X algorithm. So I just rely on him to tell me what's happening in X land. Um, but like, I think what we try to do is isolate. like these are the GPs we either work with or really, really respect. What are they saying? And then my best friend, Claude, makes me like a little summary of all the newsletters to tell me what's going on every day. And then one thing that, you know, LPs have that I think we take for granted sometimes is like the GP financial statements normally come with like a state of the union every quarter of what's happening.

40:46And those are really valuable. I think that that's like where we get a lot of reality versus news cycle I think as venture as an asset class has become more mature there's a whole business of talking about it right and so like how do you know what's real and what's not and so we feel like going right to the source on that is sort of the best way to handle it when you described sort of that's what initially doing venture and having this hit list of names yeah that like automatically makes me think of the top brand names. But what you've actually been doing is allocating rather small checks and so and looking for outside returns.

41:24So this is actually a different list than everybody else has. So I would say at the time this was a different list than everybody else had and what was fabulous about what the volunteer committee did is it became the list that everybody wanted. and so then our job was who still fits the thesis who still wants us around right because we are we have not grown at the same rate that a lot of the blue chip firms have grown at we're now a seven to eight million dollar check so even for some platforms that's like not optimal we were fortunate that we've had fantastic partners who like let us in when they shouldn't have kept us around when they shouldn't have.

42:09But we have, I think because of our origin of like, we went after this, we took big swings and it worked. We have a tendency to when we add net new to the portfolio to think about like, who's the next generation of that? And how do we recreate this magic of like, getting to things past the inflection point of like, it's clear, it's working, It's clear these people are special, but pre the everybody knows about it. And I think we, you know, I obviously, like I said, we did our first commitment that I am responsible for that wasn't a re-up in 2023. You know, we have some pretty solid data points now that like that plan is is working.

42:53But we won't know for like a long time. So it's hard to say. But yeah, I would say our, and I don't think that we're like so outside the box, right? Like I think a lot of the names that we work with or have gone after people would recognize. We just tend to get there. Like I always tell people, like I meet people like fund one. And then normally we're like a fund two through four entry point.

43:16Alexa: I'm really curious about this, identifying the next generation. And even there's this track list. when the initial list in 2009, it was obviously a very different market where there was a lot less noise. You could probably have more time to get to understand and be people. It was kind of like you all were like Billy Bean with like all the analytics, right, of baseball before everyone else was doing it. Now everyone does it. And so now fast forward and everybody's doing money ball it's a lot noisier of a market capital is concentrating like never before and probably every asset class at this point how do you find those people even at the fund one before you get them at the fund two how and what do you look for like yeah that's a good question god um so the way you find them is like try to be everywhere that is not an answer people want to hear but you know my team is on planes all the time we you know i'll be in new york for like the entire month of october and then in the spring we do the same thing in san francisco um you have to be helpful to people like top of mind i think we at Babson, my team, I coach everyone and I try to remind myself, like, we give more than we get, right?

44:46We, on average, do zero to one net new name a year, which can be incredibly frustrating. I also think it is incredibly critical to why we have such great returns, because the bar is so high and there's nothing we can do about that, right? It's a constraint that is forced upon us by our asset allocation. So like, I think in that sense, it's very easy for us to say, how can we be as helpful as possible to as many people as possible that we want to keep around us because we know we're not going to be able to fund all of them and they know we're not going to be able to fund all of them. So like, that's, I think just relationship building is how you, you stay top of mind for these fund one folks.

45:31Before we hit record today, you were talking about the past two months. Oh, God. Yeah. I think GPs pitching. This is September 11th, Friday, September 11th, 2026. I think GPs who are out pitching LPs right now kind of have the sense that, like, there's got to be six or seven new slots now because of SpaceX and Anthropoc. Oh, gosh, yeah. Like, what does this actually mean? What is your committee? What are you and your committee talking about? Like, what does new liquidity mean for you? and does that adjust what you're able to do, what you're interested in doing? Sure. No, that's a great question.

46:11And that's an interesting sentiment from GPs because I feel like the LP summer sentiment has been like, why does everybody have new products and it's already back in market? Like we thought we had more time. Go away. I thought it was August. But I think the, you know, it certainly is an encouraging signal. I think what everyone forgets is like SpaceX is a phenomenal outcome. It will be a great outcome regardless, given our entry point. But like we don't have the money back yet. The lockup period still exists. We got to make it probably like another, I don't know. I mean, I truly don't know. But if I had to guess, I would say like at least six to eight months before we start to see money coming off the table there.

47:05And like there's so much happening right now that is really exciting and like hopefully points towards a stronger liquidity market than we've been in, but is completely unproven. Like the Anthropic and OpenAI IPOs, very exciting. I really need that and would like that to work, right? Like that's, I'm rooting for it. Also, the public markets has never underwritten something that has like the revenue growth velocity over such a short period of time that we are dealing with. And so to think they're just going to be like, yeah, this is fantastic. It's worth a trillion dollars. I feel like it's like a little bit wishful thinking.

47:45and my committee in particular they're all public markets people right so they are like hyper realistic about what to expect even what to expect from like point of IPO until end of lockup period right so I think that there is this sense of like we did it when like we actually haven't quite got to the finish line yet um now that like sounds very pessimistic I I do believe it's going to be a great outcome and i'm like you know it's it's peak venture i i love it like concentrated in a bunch of high quality names that are big power law outcomes like that's what's supposed to happen um i just don't think we're like in the clear yet and so like when more liquidity comes into the portfolio right like the first thing that happens is we assess the school's needs, right?

48:38Like, what are they, what's, what could we do that's additive here? And then it goes back into the portfolio, right? It's not like my portfolio lives in a vacuum where I say, oh, we just had this huge outcome from whoever. Now I have however many millions of dollars to put to work, right? Like they say that goes into the total endowment and then they reallocate it so that we're at all of our targets, right? So like most likely what's happening for people is should they have this wonderful outcome, a lot of people are really over allocated right now because of their concentration in these handful of names, right?

49:18So let's say all goes according to plan and these four or five names exit and we all get our money back. Like the first thing they're gonna assess is maybe they're now just back in line with their target allocation. They don't get more allocation, you know? So it's, I think it's a very false sense of like, there's money moving around, so there must be room. I think the reality is like, LPs are kind of steady state, right? Like everyone is doing the best they can to keep up with the pace acceleration that we're seeing due to AI. And like, we're all crossing our fingers that, I mean, like Chris Duvas has this great saying about like the moolah and the coolah.

49:58And I think like the mula is not in the cooler yet. Like we're waiting for the mula to come into the cooler before we can keep doing more stuff.

50:08Alexa: You know, that's hilarious, Chris. No, I appreciate that. That statement is it's a sobering one, but in one that needs to be heard. And I think it gives people the right perspective on what institutional LPs are going through right now. and we shouldn't just put up the mission accomplished sign just yet. We have some time. Yes, but I also think that people should keep putting money in. I'm not saying take your foot off the venture pedal at all. I just don't think that we're over the finish line. There's more to come on these big outcomes. Yeah. My last question is around how do you feel about the concentration around AI overall and how does that impact your kind of thought process around portfolio management not just in your venture portfolio but also the other asset classes are being impacted as well it's a great question we talk about this all the time um the nature of having a venture overweight is that you're always going to be overweight tech right like that is sort of the deal uh and we knew that going in.

51:24Because of that, we've been very intentional when we do make growth equity and buyout commitments, we tend to not do tech. But obviously, that's not enough to like counterbalance what's happening here. It just has positioned us well in terms of the software SaaSpocalypse situation that like much of our software exposure was at the earliest stages of venture and all those companies have pivoted. So like, are we safe? Who knows? But it was not like a big falling out on the buyout and growth equity side. More and more, we're thinking about like, AI is always going to be, I think, a concentrated part of our portfolio, given how our book is structured.

52:09And I think we believe in how our book is structured. I also think AI is creating a lot of opportunity in sort of this like anti-ai world that we want to start thinking about like should we have some dollars there and that is looks like consumer um third space you know retail we like outside of my purview but Babson's done a little more in real estate a little more in hedge funds like how do we think about what worked for the last 10 years is not going to work for the next 10 years most likely um and so what are the the gaps right now um and so my team's been spending you know we spent a lot of time looking at consumer i would say up the capital stack of like should we do a pre-seed fund should we do a buyout fund um i think the answer is probably somewhere in the middle um i think in a perfect world if you have unlimited funds right you would do a couple of each um i think for us like we just try to be careful about like okay this is what we have and we believe in what we have and a lot of that is ai so when we think about where we add are there areas of ai we're missing or are there other areas of the economy that are going to continue to be bolstered by this tailwind that we should consider and I think like physical products and in life in real life people interactions are like two of those that are going to you know be helped by those tailwinds and they're areas that have been overlooked for the last decade right that's like that in itself is a reason to revisit it yeah no it's almost like the AI resistance is the thing that makes it um attractive and a nice hedge yeah hopefully trish this is such a pleasure uh thank you for giving us a peek of all the things that you are thinking reading discussing with your team um anybody i think we can all get a sense that any gp would be very lucky to get that last slot they'd be in good company yes it's very kind thank you guys so much for having me this was super fun see you later allocator after portfolio

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