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- [00:00]
A
Today I chat with Conrad Chang, who is the managing partner and co founder at Ensemble vc, bringing a rare perspective with experience as both an institutional limited partner and a two time venture capitalist at U Timco, he oversaw a $4 billion venture portfolio within the $81.5 billion endowment, guiding investments across diverse asset classes and regions. Previously, Kyle Conrad invested in multiple unicorns at Norwest Venture Partners and Bain Capital Ventures, earning recognition as a top fund investor. Surprisingly, the shift from tier 1 VC firms to allocator is a rare shift. So you have a unique vantage point. What do you think GPS should know about LPs? That's not intuitive. Being in the GPC, when you're a.
- [00:49]
B
GP, you know, you're so focused on putting one foot in front of the other. And what I mean by that is you're singularly focused on investing in one company at a time. And so in some ways you don't have the context of seeing the forest, I think from the trees. And that analogy kind of can mean a bunch of different things. One, I think one of the takeaways from being in that seat is being a great investor is necessary but not sufficient to being a great fund manager. You can have invested in great companies, but when you go and decide to sit on this journey of building a fund, starting a company that happens to be a venture firm, you're trying to build something durable, you're building a team, you're obviously fundraising, finding great LPs that, that believe in your mission. A single investment can be at five to seven years. But when you're building a fund, it's a minimum of 12 years, effectively 10 to 12 years. So the time horizon is longer. To be a great fund manager, you have to do so much more. You have to think about portfolio construction, not just a single investment, but what that looks like in a collection of investments. And even before you're investing right, you're thinking about how to build a great partnership. Not for year one or for year two, but for year five, six, year 10, 12 for fund two, three, four, five. And so you're actually doing a lot of reflection. I think before you go out to go start a fund, you really have to believe that the world may not need another venture firm, but the world needs your venture fund.
- [02:47]
A
I like that framing, which is the GP is a business and some businesses get stuck in the short term, a little myopic, serving the next customer. If you think about the portfolio company as a customer and some businesses are focused on the long term, which is how do we build More franchises. How do we be more strategic with our time, our money and our resources? And obviously you need both. If you're just strategic, you're in the ivy towers, you're, you're not really getting anything done. So for gps that are so focused on just making the next investment, what would be your one main piece of advice?
- [03:30]
B
It's easy, I think, to give advice. I think it's very difficult to live this. So I don't think we're immune from trying to balance between short term and I think, long term goals. I think your LPs can actually play an important role in that given the other managers that they've invested in. That may be much further out. The advice I give gps that are thinking about this or struggling with it, I think one LPs are more than just. All money is more than just green in that standpoint. I think your LPs, besides helping you, give you the capital to go and back great teams, they're also there to provide this very counsel of how to think about short term and long term. Long term is really about durability. I've been in venture since 202009 when I was at Bain Capital Ventures, which was not frankly, a great time to be in vc, right? I mean, it was right after the financial crisis. You know, I was, I was worried that I, you know, I was concerned that, hey, I may not even have a job. I mean, just candidly, right? And I think the lesson there is, you know, venture is some ways about survival, right? And I don't mean it in like, I mean it in a very serious way in that because venture is across multiple cycles, you want to play long ball and you want to think about durability because you want to be around long enough to successfully build that franchise. And I think there's an interesting data point. I may get the specific numbers wrong, but I heard Josh Koppelman talk about, I think he looked at the numbers, he looked at the average VC from 1980 to, you know, 2000, right? Just kind of an arbitrary data point. 80. I think it was like something like 83 or maybe it was like, you know, 80 plus percent or 90 plus percent of the profit dollars made for the average VC was made in three years, right? And so if you weren't a VC during those three years, not surprisingly it's like 97 to 2000, right? Then you know, there is no money to be made for you or for your LPs. And so that data point in itself suggests you want to be durable, you want to be prudent and disciplined in terms of how you invest in that moment, it's incredibly difficult. Think about 2122, which is a great example of that. I think at the time we thought we were doing the right thing, but it was difficult because I think it was almost 12 months that we didn't do a single deal. And you're not sitting on your hands during that time. It's super frustrating because you're meeting companies, the rounds are getting done by great investors. They're obviously overvalued 2020 hindsight and even at the time. And so it's really hard to look around and see all of your peers being super active and then you just sitting on your hands and everybody's looking at you like you're the crazy one. But if you have the mentality, I think of, hey, I want to be in the business over 20 years. I want to build a successful franchise, not just I want to build a firm, not a fund. Then you kind of have to put your big boy and big girl pants on and sometimes kind of sit it out or be very thoughtful about when to deploy or how to deploy.
- [07:07]
A
It's a bit of a paradox in that all ventures driven by these extreme power laws. So there's two things you could do. You could be extremely lucky, which of course is just not a real strategy, or you could be sit around and wait long enough for that power lot to hit. And I think that's this asymmetry that gets unlocked by staying in the game by having those shots on goal is one of the most underrated aspects. I was just speaking to Dan Ives from Wedbush, this famous public investor, and the analogy that he gave is in order to be a great public investor in the tech space, you have to be kind of average most of the time, 280 to 300. And once in a while, you hit this Jeff Bezos like Thousand X home run. There's actually there's power law like dynamics in the public markets, not just in the private markets. If you invested early in Apple as a public company or Meta or Tesla, you would have these phenomenal returns. So I think there's this paradox in that in order to hit these extreme outcomes, you do have to stay in the game. The way that you stay in the game is doing the work. And also things like the boring things, portfolio construction, sizing, and just being in the game is such an underrated aspect. And it goes from when you're starting your first fund, first two, everything's against you. You don't have the track record. You don't have the LP relationships. Institutional LPs aren't taking a look at you. And by fund three, everything's going for you. But those four or five years is where 90% of managers at a minimum fail 100%.
- [08:45]
B
And I think, here's a, I think a good example of it. You always hear, you know, you can be too early. Like, you can be on time, you can be, you can be late to a sector, you can be too early in a sector, right? So when I was at Norwest, you know, you know, AR VR was a big thing and, you know, and like, it didn't quite live up to expectations, right? Folks were, I think, largely too early for us. When we weren't investing out, when we did our first, I would say, pilot fund, we invested in a company called Icon. So this is 2019. And icon, for those of you who may not be familiar with, is a robotics company that does 3D printing. So they 3D print homes. Wrapped up a project with Lennar, the nation's largest home builder, building 100 homes. But they also, you know, build for the, like the dod, right? So if you think you can, you know, build structures that are concrete and print them, you can obviously do this in a conflict zone, build walls that are bulletproof and, you know, so on and so on. And so we invested in 2019. You know, defense was, was not really a thing, right? Certainly there might have been dual use. And in many ways it was almost like a, like a, like a, like a knock on a company, right? Selling into the U.S. government. And it was taboo. It was taboo, right? I mean, people are locking themselves in buildings, if you remember, through that experience and then recognizing over time, you know, where I think really high quality people, right? People vote with their feet, where they were, saw opportunities and saw need to go build businesses, you know, that allowed us to go make a super impactful investment in our current fund. We were, you know, in the series A of Saronic, and then that kind of, you know, ended up, you know, further, I think, educating us further, seeing, you know, really talented people, you know, moving in to fill this great need, right? And now it's like, you know, now it's like obvious, right? There's, you know, these defense tech companies. But we followed Saronic with chaos. We invested in a purely software company earlier this year called Manifest, where the two founders were Ex Palantir. The durability aspect of it, back to the original question is you have to play long ball because you don't necessarily know when the exact right time is. But there are certain proxies that you can do, which is seeing where high quality talent is flowing, which founding teams are, you know, the biggest talent magnets. Right. That's kind of our, our specialty, right, with, you know, our data platform. But, you know, if you're, if you're playing long ball, right, Then you can kind of make those bets and you can kind of let the world kind of catch up in some ways to, you know, where you're investing. Right. Or where these high quality founders are, you know, are building companies.
- [11:45]
A
I think oftentimes you hear these, these factors like talent, market size, traction, all these are positive and you obviously want all of them. But where would you stack rank? The flow of talent as a leading indicator of success, Is that more important than the market size? Is that more important than the traction? How would you stack rank that?
- [12:06]
B
You know, I think it can depend on the stage, but even I think across stages, like it's kind of an easy question for us because it's, it's a little bit on the nose. But, you know, we call ourselves ensemble, right. For a reason. Well, it's a double entendre, I suppose. So it's about us building a great team. But the initial idea of calling ourselves ensemble was really recognizing that it's all about the team, and that's really important. And I'll make the distinction between it's all about the founder or founders versus it's all about the team. I think it's an important distinction. And some people kind of put everything in one bucket. The reality of it is it takes a village to go create an outcome. And I had the good fortune of being a seed investor in Casper. I was an early investor in Udemy, and so kind of saw what it means to really require a village to go create the outcome. And that extends beyond just the founders. And so for us, the most important thing is the team. And so when we look at a potential investment or we're tracking a bunch of different companies, I think there's a lot of signal, not just in the founders and where they came from, but how they think about who is their first hire. So is it an engineer? Is it someone on the sales side? Is it go to market? Because that speaks volume to a reflection about how they think they're, you know, how they're going to build the company. And it's also a reflection of, of themselves. Right, of, you know, trying to find folks that are complimentary.
- [13:47]
C
Right.
- [13:48]
B
Or, or the type of company they're building. You Know, very product engineering focused versus very go to market focused. And it also speaks volume of like, how do they find this person, right? Is it someone that they had known, you know, for a long time, right? Is it someone that they had worked with before or is it, you know, they put a job posting out? I'm not saying one is really good, you know, necessary good or bad. But I think that dynamic of who's your first hire, you know, who's your first sales hire, who's your first product engineering hire, how do you sequence that, right? What does that team look like? How are they complementary? There's so much, there's so much of a story that tells, you know, some of it you can, you can measure, right? With data and others you, you know, you get context for meeting the founders. And so what we like to do before we invest is we actually, we like to go on site, you know, not always, but in most cases we like to go to their office, we like to go, you know, meet the founders and we like to go meet other folks on the team, right. Very organically. And that just, I think that just speaks volumes to, I think, the true reflection of a company. And I'd say particularly at the early stage.
- [14:58]
A
Going back to your time at utimco at University of Texas Endowment, as I mentioned, you went from the GP seat at Bain and Norwest, Bain Capital Ventures in Norwest to utimco. What were some of the lessons you learned right away? Which is like, holy crap, this is why these LPs liked us. These LPs didn't like us. In other words, from the LP perspective, what is something that became immediately obvious, that is not obvious to most GPS today?
- [15:32]
B
This is one that is a little bit counterintuitive, right? Think about a sports team or something in some ways, right? Like you want to find the best absolute people like in their position, right? So you know, you look at shooting percentage or whatever it is, right? And each individual person who's highly competent is going to make a great team, right? The reality of it, I think it doesn't quite translate, I'd say on the venture side. And what I mean by that is the single most important factor that I observed when I was in the seat at utimco was trust as the number one factor for, for a successful partnership, right? So we go back and I love the fact that you asked that question about, you know, the short term and long term trade offs, right? If your goal is to go build, you know, durability, right? And success, like repeatable success, then trust is 100% the most important factor. And what I mean by trust is, you know, I think it starts with the partnership. You know, who you decide to go in business with. In this case, it's Colin west, who I'd known since 2013 when we were both junior VCs just having moved to the Bay Area. Collin was a friend of mine, my other co founder, Gopi. Colin and Gopi had worked together for four or five years prior to us really formalizing what ensemble is today. That trust factor again starts with the partnership. You know, you're not going to be in the same room, you know, you know, all the time, you're going to 100% disagree on things, right? And the question is, how do you react to that in the moment, right? Do you let your ego get in the way, draw a line in the sand and then defend it to the death, right? So, you know, great for your ego, but bad for the firm, right? I've seen situations like that where, where and I argue, kind of the bigger the organization, the harder it is to do what's right for the organization. There's so many different personalities, but then that trust starts to extend to the folks that you hire, right? And meaning you want to give them as much rope as you can and you kind of like let them earn that trust and you give them more and more rope. And then it also extends to your LPs, right? You know, how you communicate what, you know, what you share, right? And in even more cases, right, your LP is not going to be in the room. You know, they'll make the investment. You know, you can catch up with them in annual meetings, newsletters, you know, like even over text, right? But the reality of it is that that LP is entrusting you, you know, with dollars that are eventually going to go fund scholarships, right? And they're not going to be in the same room. And, you know, how do they have that, that level of trust that's going to extend beyond the life of, you know, this fund and, you know, certainly into the next.
- [18:35]
A
This term trust is, is a term many LPs use. And many LPs like you who are at University of Texas will say it's even more important than, than returns. Let's double click and define exactly what it means to have trust with your lp. I know it sounds extremely obvious, but what are some examples and more importantly, what are some trade offs? So what is the skin, the game for GP to have a trusting relationship with their LPs?
- [19:05]
B
People always think about, you know, the LP world as so, as so distinct.
- [19:10]
C
Right.
- [19:11]
B
But I think having been in all these different seats, there's actually way more similarities of the relationship between say a founder and a GP and an LP and a GP I actually like. I think it's super consistent. And so an example of that is when you meet with the founder, how you got introduced to that founder or how the founder gets introduced to that vc. And I think it's the same when it comes to the beginning or the commencement of an LP relationship, which is, I think in the ideal case you're being introduced by other gps, right. That maybe that P is already investor in and that GPU well over not three months, but over years. And they can speak to that credibility and that trust factor. Right. So I kind of define this as like trust by proxy. Trust is something that you cannot, or very, very difficult in most cases to establish in any way outside of time.
- [20:19]
C
Right.
- [20:19]
B
Or a number of interactions.
- [20:21]
C
Right.
- [20:22]
B
And the way sometimes to shortcut that is what I call trust by proxy.
- [20:26]
C
Right.
- [20:27]
B
So you have a mutual connection that has deep relationships with both other sides that can kind of bridge that.
- [20:35]
C
Right.
- [20:36]
B
Not in a perfect way, but in a way that can help kind of build that relationship. So that's one.
- [20:43]
C
Right.
- [20:44]
B
What's the nature of the, of the commencement of that relationship?
- [20:48]
C
Right.
- [20:48]
B
Ideally you want something through, you know, trust by proxy, through warm introduction, because it, because it sets off the relationship. It's not a transaction.
- [20:57]
C
Right.
- [20:59]
B
What it does is it's, it catalyzes it in a, in a relationship building exercise. And I would really credit like, you know, you know, my experience at utimco, but also one of our recent hires, you know, Caroline, who joined us from Vista. And it's really this mentality of treating your LPs as, as a true partner.
- [21:21]
C
Right.
- [21:22]
B
So again, I kind of mentioned this earlier, but beyond capital and that's like everybody kind of says that, right? But what does that actually mean? You know, what it means is that it's, it's, it's two way street, right. For the lp. You know, they obviously want a financial return, but they're also looking to educate themselves on, you know, specific, you know, areas that you may be investing in. Right. Like, by the way, they're not just running a venture portfolio.
- [21:47]
C
Right.
- [21:48]
B
And even, even though I was running, you know, venture at utimco, I was also doing, you know, technology investments with, you know, buyout managers.
- [21:58]
C
Right.
- [21:58]
B
And so like sometimes the GP is so narrowly focused on kind of like, you know, their world and then forgetting that, you know, The LP venture is important in many ways, like the alpha driver in their portfolio. But you know, they're managing a public portfolio, they're managing a private equity portfolio. And what you're doing, actually, you know, if you're investing in defense or investing in AI, right it's going to affect the other portions of the book. And so what we do, and I think a lot of managers do, is, is, or certainly the best ones will take a step back and help educate their LPs on certain areas that they may be interested in. Our last annual meeting before Sironic became such in many ways on people's radar. Dino Mavrukis, who's the CEO and one of the co founders came and spoke at our annual meeting. And this was like 2024. And so it kind of helped educate I think folks on what does it mean to, what does it mean to think about shipbuilding in the U.S. what is the challenge that the U.S. has relative to China, which has the biggest, over 200 times the capacity of the U.S. in shipbuilding. And then I'd say the street goes the other way. When we're investing in real examples. We're investing in a fintech company that was basically doing like, you know, cross border payments. And we know One of our LPs actually, you know, a multifamily office based in Houston, actually owned a lot of these different kind of businesses that would be affected by it. And they made introduction to one of their, you know, like, you know, businesses that was not venture backed.
- [23:51]
C
Right.
- [23:51]
B
And we were able to have a conversation with them to help us understand, you know, what are the implications of cross border payments specifically between certain corridors, like what does that look like, how is their business performing? Because ultimately you know, the venture backed business, if it's successful is going to kill that business.
- [24:09]
C
Right.
- [24:09]
B
And so how do they think about that threat? And so again it goes, it goes back to, you know, future thinking about building a firm with durability, long ball, having a deep partnership with your lp. And what that means tactically is this sounds crazy but talking to your LPs, making sure that there is active two way communication. Sometimes it's one way in the sense that you are sending probably more information than they're reacting but you have to over communicate, you know, with your LPs.
- [24:44]
A
One of the reasons I was so excited about a conversation is because you had that two different tier 1 VC seats. You had the tier 1 LP seat, you were the customer, you were the buyer and you, you were in the room having these conversations. And I Think one of the things that gps, when they hear you want a trusted relationship, they think, sure, great in theory. But in reality, how does that look? If you think about it from this construct of a partnership, which I love the, the framing and I have my business partner, Curtis. We sit down, we not only talk about business, once in a while, we'll talk about, you know, we were both now married. We, we talk about our wives, we talk about our families. Tell me where your analogy ends and maybe tell me the nuance and what it means to build a trusted relationship.
- [25:31]
B
Yeah, that's a great question. I, I, you know, the, the first way to answer that, again, going back to the analogy of, well, what do you, what is a, what is a founder g look like?
- [25:44]
C
Right.
- [25:45]
B
So all those questions that you asked, how would you answer that with your own founders?
- [25:49]
C
Right.
- [25:50]
B
And so if you take that lens, I think one, it's hard to treat everybody equally, right? Like let's say everybody in your cap team if you're the founder, right. Very, very difficult to treat everybody practically.
- [26:00]
C
Right?
- [26:01]
B
Yeah, it doesn't work.
- [26:02]
C
Right.
- [26:03]
B
But that doesn't mean that the founder does not communicate with even the, you know, 0.1% owner on the cap table. Right. So how do they do that? They do it in ways where they over communicate, but they do it in a more scalable way. Right? So they're constantly sending updates, right. Maybe it's a monthly update or a quarterly update, right. They're giving, they're giving the opportunity for even their small folks in the cap table to, to be heard and to be seen.
- [26:30]
C
Right.
- [26:31]
B
And that analogy against extends to the LP side where you may have some folks that aren't on your lpac, maybe individual investors, but they should still, you know, be in the loop and updated. And then more importantly, you should reach out to them if you, you know, if one of them has a connection that's like quite valuable, right? Like LPs and then GP, all they want to do is be helpful, right. They don't want to be viewed as just money, Right. And sometimes it's only five days out of the 365 days in a day where that LP can be helpful. But in those five days, it can be extremely valuable for the GP.
- [27:10]
C
Right.
- [27:11]
B
And so I think it's taking the initiative to reach out to your LPs, keep them updated, but also make sure that you're seeking their advice when you know that they have a much better knowledge base. Right. In my TEMCO days, you're raising a continuation fund or you're thinking about.
- [27:34]
C
You.
- [27:34]
B
Know, getting intel on a specific lp, maybe in Europe that wants to come in, and they may have context, right? So I think it's leveraging their unique knowledge base, you know, to help you make, you know, better decisions. And then, you know, where does the analogy, you know, end? I actually do think it's really important to, you know, think about not just the professional nature of the relationship, but also personal one, right? Again, I go back to the founder GP thing, right? Like, it absolutely extends, you know, beyond just, you know, a board meeting or like, hey, did you hire the VP of sales? And I interviewed, you know, two weeks ago, right? It's, hey, I know you're about to have a kid, you know, that's super exciting, right? That, you know, you must be thinking about a bunch of different things, kind of how to, you know, how to balance that right. Pay, you know, I know you're going through, you know, you know, like a family personal thing, right? Like, you know, just acknowledging it and saying, hey, like, you know, it makes sense for, you know, spend time on that or something, right? Like we're all human, right? Like, just like the struggles of a founder who's starting a company going from 0 to 1. It's the same for, you know, fund managers, right? Or, you know, having to let go of partner or whatever it is. Not all your LPs are going to be equipped, right, to be that, that coach. But you'll know the, you know, the few that you have a very deep personal connection with where it's okay, I think, to share some of this, right? And you have to be thoughtful about what it makes sense to share. And so it's never like, I'm going to share everything or I'm going to share nothing. That's not the framework, right? The framework is like there's something in between. And I think a lot of folks take the mentality of one or the other, right? And it's probably somewhere in between. And I would probably say it's probably a little bit more towards being open again. It's not to everybody who's an LP in your fund, right? You know, I think it's to a handful of folks that they may not even be your biggest check, but ones that, you know, you. You have a relationship with that you can be open with. Because the reality of it is everybody's aligned, right? So, you know, your LPs in your fund for, again, at least 12 years, right? Whether or not they decide to come in, you know, the next fund or not, you have to earn that. But, you know, if they, if they're in your fund, they're, you know, it's a, it's a, it's a marriage for 12 years minimum.
- [29:56]
A
These are the conversations not many people have, certainly not through podcasts. But I think this is where the relationship alpha is like where the truth lies. One of the most prevalent memes in asset allocation today is that LPs are choosing to back fewer managers and more lead behind fewer arrows, to use the Google analogy. So there's this pressure to cut managers. How do managers balance the desire to have a trusted, long term, sustainable relationship with LPs while also, you know, at the same time where in the market LPs are looking to chop managers? And how do you thread that needle? What are some best practices?
- [30:41]
B
That's obviously, I think, top of mind for folks. There's no silver bullet on any of this. My perspective on this and it's, you know, I kind of put my old Utemco hat on, but also, you know, the ensemble hat at the same time. And the way I would answer this is, it is what it is, right? Meaning, like, if you have an issue, whether it's, you know, performance or, you know, within the organization, like, it's happened, right? It's the reality of it. And it's not the fact that like something like this surface because that happens to every firm, right? It's, it's, it's really the question of how do you address it and then how do you communicate it? And I think like the, you know, I think the advice that I would give myself and I give others is, you know, I think understanding the like one that I think the gravity of what it is, right? And so you obviously don't want to communicate like every little thing right, to your LPs, not because you're not trying, you know, you want to avoid being transparent. But two, like, you want them engaged on the things that are the most important, right? And if they have, you know, if they're managing, you know, I think Utemco had, I think it was like 16 Corvette VC managers and then some other, you know, legacy ones. If everybody is like, you know, every time, you know, I stubbed my toe or something, right. I'm communicating that the LP doesn't know when to engage on the things that are more important. So there is a threshold of importance. And as an example, there's probably a lot of, even at a small firm, there can be turnover at the junior level. So do I communicate that? Do I not? I'm not sure that that meets kind of the threshold, right? But if it's someone more senior, then obviously that affects economics, it affects, you know, maybe some strategy things. So that may be something to, you know, communicate, you know, with your LPs and then tactically what you may want to do, right? Just like a founder manages his or her board, you may want to have this conversation, you know, one, you know, one on one initially, right, with the LPs that you have a very good relationship with, right? That you have this level of trust, right? And see how they react and then, you know, and then bring them into the circle of trust where they're already in the circle of trust. And as you need to communicate that with other folks, they can help facilitate that or certainly give you advice, right? Meaning, you know, it's a serious issue for the firm and you know, you think it's like, you know, the most important thing going on in your life and in the world, globally, right? Because it's the first time you've come up with, you've run across this. The reality of is for the LPs that have been in the business a long time, they see this, this is actually a more common issue, right? And so they can actually give you counsel on how serious this actually is and what to do in this situation. Again, you think about a founder, right, who is in a situation of like, hey, you know, had this co founder, right?
- [33:47]
A
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- [34:46]
B
Yeah, it's not working out. Oh my God. Like I'm like stressing out about this. I don't know what to do. Like this could kill the business. The reality of it is if you look at if you're a GP and you've invested over many, many companies across cycles, this has happened more than a few times in your broad portfolio. And so you can actually have the data and the case studies to suggest, hey, this is kind of how you might want to manage this. Just like GPS have a portfolio, founders, you know, the best LPs also have a portfolio of VCs that they can pull from and draw, you know, experiences from. I think that's probably like you selectively, I think, seeking counsel with the folks that, you know, you trust very, very deeply.
- [35:33]
A
To summarize one is you don't want to be like the girl who cried wolf. You don't have to send every, every day and you're going to seem like you're not able to regulate your own emotions. You want, but you do want more transparency. So probably the default human benchmark to of communication is probably lower than the ideal one. So for some reason, GPs on average are way below their kind of optimal level of communication. And also you want to make sure that your communication and the narrative that you're putting out, even if it's transparent, that you explain it in the right way. And you might want to test that in a couple trusted circle before you kind of blast it out to 150 LPs.
- [36:17]
B
Yeah, absolutely. I go back to, you know, what are the best practices that you would give a founder on communication?
- [36:28]
C
Right.
- [36:29]
B
And, you know, it should be similar to how you communicate with your LPs. It really shouldn't be that different.
- [36:36]
C
Right.
- [36:36]
B
I mean, there's a little bit of nuance to it, but at the end of the day, you know, you want your founder to not text you on every little thing that, you know, is an issue that comes up in the business, you know, surface the ones that are relevant, you know, maybe on a quarterly basis.
- [36:50]
A
Right.
- [36:50]
B
With, you know, in this, you know, you'd like to have that discussion one on one prior to the board meeting.
- [36:55]
C
Right.
- [36:56]
B
If it really warrants it. And you also want that founder to have a plan of action right in advance. You know, not, not, not ask you, hey, what do I do in this for this problem, but say, here's the problem, this is my course of action. You know, am I missing something?
- [37:13]
C
Right?
- [37:13]
B
What is your feedback on the course of action that I'm planning to pursue?
- [37:18]
A
One of these things that I've been thinking about is this concept of rooting things. So rooting investment thesis. So everybody might make the same buy decision to buy Bitcoin, but if I spent a year Thinking about why when it goes up and down, I'm not going to sell. So it's great if you bought Bitcoin at $100, if it goes up to 200 and then goes down to 140 and you sold, then you gave up the other, you know, $120,000, the other, you know, the, the thousand X. And I think this rootedness is also applies to relationships and LPs if you assume that on a long enough time horizon. And I've literally talked to Jonathan Gray from Blackstone, Cliff Asness from AQR about this very topic. If Cliff Asness and Jonathan Gray have had issues in their franchise, I guarantee with enough time any GP on this planet will have those issues. And the way that they handled it also by over communicating, meeting with lps. But I would also add kind of the subtext of what they were saying is they built this trust also over time, ahead of that. So if you think about it as the trust and the relationship as a tree trunk, you could strengthen the roots of that tree trunk through trust ahead of the crisis. Because just and no one wants to be transactionalized. And if you're only Talking to your LPs when you need them or when there's a crisis, it's not going to feel good for them. And you're good, you're likely on that chopping block that we talked about. But if you build that relationship ahead of time, not only will they maybe not take capital from you, if there's a good market opportunity, the smart LPs, the very top, top quartile LPs might even double down on you and allow you to actually build your alpha and build your franchise. During difficult times.
- [39:03]
B
It's easy to sometimes say these things. This is very hard to do in practice. It's not like, oh, there's an instruction manual, you do this and you do this at this cadence. I think it's just if you just think about it as a priority for the firm, then it'll naturally follow some of the things that you do. It's an aspiration. I guess in some ways you have to aspire to build partnerships with your LPs, even if some of those don't look like that today. And then the second thing I'd say, and look, I was guilty of this when I was at utimco as well. You know, I'm not casting stones on, on, on anybody here. But you may over communicate, you may do everything to try to establish a great relationship with your lp, but that LP may just not reciprocate. That's going to happen, right? That's okay, right. But I think, like, again, if you're thinking about playing long ball and durability, you just kind of have to go the extra effort to recognize that, hey, they're managing a bunch of stuff, not just your fund and not just venture. And so you may be sending them all this, you know, all these different materials, you know, asking to catch up when you visit, you know, you know, wherever they're based and they may not, you know, get back to you. That's okay, right? I think making the effort, you know, making sure that you're thinking of them is in itself, I think, what it means to be a good, you know, a good partner.
- [40:39]
C
Right.
- [40:39]
B
Say all this stuff and I think some people's reaction is like, well, I tried that, right? But I'm not getting any love back. And that's happened to us also. But every now and then, you know, you'll get a note and say, hey, you know, like, we, you know, one of the things that we, we pride ourselves on since we, since we started was we'll write a mid year letter, right? Like, and it's, you know, the first one, it was, you know, it took like months to write it because we never wrote one of these before. It actually wasn't that. It was like, okay, when I go back and read it, but we've make it, we've made the effort to write a mid year letter every single year. And then what's the greatest feeling in the world is when someone that you reached out to multiple times doesn't respond, but on this latest one, they say, hey, great mid year letter. I really enjoyed reading it. And so you kind of have to. You get credit for being active and being thoughtful and being consistent.
- [41:35]
C
Right.
- [41:36]
B
You'll get feedback occasionally. Probably not as much as you would.
- [41:38]
C
Like.
- [41:41]
B
But, you know, you should make sure that you're always acting like you're thinking of them.
- [41:48]
C
Right.
- [41:48]
B
I think that's kind of like an interesting, like, I don't know, like one principle to think about.
- [41:54]
A
So Rahul McDowell, he's one of the greatest fundraisers alive, if not the greatest. He's raised $99 billion. And he tells a story on the podcast I did with him in that he talked to a $1.2 billion foundation. The CIO told him that just that past year, he got 934 voicemails. Not calls, but voicemails from managers not in his portfolio. And not even talking to him about investing, about how he should invest and this is just this very, I guess, visceral way of, of showing how busy LPs are, how overwhelmed they are. It truly is oftentimes not you, it's them, not you. Did you find you were at utemco, which in many ways is, is today? I think it has 60, maybe 70 billion it's endowment. It's one of, if not the, the most kind of coveted LPs in the world. Tell me about your lived experience as a LP at such a prominent endowment.
- [42:57]
B
So I joined, you know, right. A little bit before the new cio, Brit Harris joined. Britt was actually in our office, I don't know, like month ago. And he had come, you know, from trs, which is the teacher's retirement system in Texas. And so I think one of the things that I really give Brit a lot of credit is I think further institutionalizing what was already a great endowment. And what I mean by that is the way that you operate a $2 billion endowment versus a 60 or $70 billion endowment intuitively has to be different. One of the exciting things about UTIMCO is that the size of the endowment grew very, very dramatically over the last 20, 30 years. And there's a lot of history to it, but some of it being in Texas was money coming from the Permian basin, just some random historical context there. And so UTIMCO had this really amazing opportunity and task of not being short on cash and cash inflows, but making sure that it was being invested at scale, but in a very thoughtful and strategic way. And to do it, I'd say, relatively quickly. And as that endowment, I think grew, I think the UTIMCO board, I think rightly recognized the need to really institutionalize and really help evolve the endowment from smaller endowment to one that frankly rivals the size of a pension fund. I think UTIMCO is like number one or number two, depending on how you, it's how you measure it. But effectively it's like one of the, it's like the largest endowment in the world. And so when I was there, it was kind of thinking about what processes that we want to apply across utimco to bring an additional level of rigor, but also a way to invest more repeatedly and consistently. What that tends to mean is, I think, formalizing the investment process, you know, how opportunities got surfaced, you know, you know, as the organization grew, making sure that everybody in different parts of the organization were informed on, you know, what was coming down the pipeline.
- [45:43]
C
Right.
- [45:44]
B
Again, you know, an endowment is not just venture.
- [45:47]
C
Right.
- [45:47]
B
Not everybody who sits around the table is equally versed in what that means how to invest. Not everybody's heard of Sequoia, right? And so making sure that we. There was a mechanism in place to get everybody on the same page and in some ways kind of standardize that process at the time. Whenever you put new process in place and you're learning and you're figuring things out and doing something new, there are moments where it's not that fun. But now that I'm in the seat at Ensemble, you know, founded the, you know, co founded the firm, it's really important to put process in place, right. So you're not collecting a bunch of shiny objects, for one thing, Right. And then two, you can have repeatability in your performance.
- [46:42]
C
Right.
- [46:42]
B
And the in the grandest scale, it's an endowment. Like the endowment is going to live, you know, beyond me, beyond you, beyond my kids. You're, you know, everybody's kids for generation. That's the hope, right? And so the time horizon is almost infinite. And so we have to, you know, in order to fund, you know, my scholarship and then, you know, maybe my kids will go to UT on a full ride too. You know, you have to create like repeatability, you know, consistency. And that was kind of an important lesson that we applied to Ensemble. So, you know, we're, you know, I kind of bucket ourselves as an emerging manager, right. But when we know, put together Ensemble, we always had the mentality again of being aspirationally like institutional, right. And so taking some of the lessons, you know, not from like, you know, True Ventures Fund 1, but from True Ventures Fund 5, right. And saying, well, you know, how do we look more like them? How do we avoid, you know, maybe some hard lessons? And so how do we make ourselves institutional?
- [47:41]
A
Vinod Khosa popularized a $0 million business versus $0 billion business. How they function from. From day one. And you did see a simulation of dozens, if not hundreds of funds, venture funds at utimco, including some of the best funds in the world. What were some practices that the very top GPs or the GPS that made it, let's just define it in the outcome. What did they do from the very beginning that was different from the ones that were even second or third quartile?
- [48:16]
B
The best managers were the ones that could give you a sense of what they were looking at, how they saw the world in a given moment. So that goes back to over communicating and transparency. I'd say that's kind of the outcome of it was knowing where folks were spending time, how they kind of Thought about the world, you may not agree with it or you may have questions about it, but you had a sense of who they were and how they were thinking about things. I think the second thing that the best managers did was, I think, go out of their way to make sure that you knew what they were thinking. Meaning that they would travel. Countless managers would make the effort to travel down to Austin. Austin's a great place. But some of our managers were in Berlin or Tel Aviv. But they would make that trip, be very proactive about. Certainly you can read it in a mid year letter or an update. But more importantly, to build on that relationship, that personal relationship, and that takes effort. So I think the best managers did that. And then I think three, the best managers also made sure that the LP relationship was with the firm in addition to maybe having a strong, you know, like a close relationship with a specific partner. And so when I would go and visit specific managers, I'd have the opportunity to go meet with like, you know, multiple folks on the team, right? I'd have exposure to the whole partnership. I'd meet with folks and, you know, that way you can kind of the LP has a sense of, you know, how is this, how are these, you know, how is this partnership functioning, Right? Are folks on the same page? You know, how are they, how are they complementary? Now when you're diligencing them on whether or not to reopen this fund or to invest in the fund, but you know, how they're, you know, working together, you know, after you've committed to the fund, right, as they're deploying the fund. But those are just, I think some of the ways that, you know, gps, I think, have, you know, like thoughtfully, I think, worked with, you know, some of their LPs.
- [50:27]
A
It's downstream of this partnership mentality. If you have a true partner, you're not going to send them a letter and you're going to make an effort to actually meet with them.
- [50:38]
B
And again, like, this is a hard thing to do. I'm not. Again, it sounds like, like, you listen to this, you're like, oh, of course, like, but Conrad, like, you know, I'm a solo gp, right? Or Conrad, you know, there's only like three people on the team, right? Like, we had to experience all this also. And you know, there's some times where we probably know, communicated better, could have done things better. The reality of it is like, again, this is aspirational, right? So you, you have to make this a priority and kind of work towards best in class, right? But if you're not thinking about it, then you're not like, you know, it's like if you go to the gym, like, you know, and you're not working a specific muscle continuously there, there's no expectation that, like, you're going to, you know, you know, run faster when you go on the track or something, right? You kind of have to constantly cultivate this, even knowing that, you know, this isn't going to, like, excellence is not overnight, right? It's this mentality and we kind of, we practice this ourselves. I think a lot of the credit goes to Gopi, who's my other co founder, who's our head of data science, head of engineering, of taking this, like, mentality of building software, right? Which is like, V1 is not going to be like, lights out, right? V1 is probably going to be. It may be pretty crappy, right? But we're going to constantly iterate. It's not a point in time. And this is kind of it. This is a constant iteration. And our aspiration is to get to V infinite, where every version of it will continuously be better. I know for a fact next week we're going to be better. The product's going to be better than the week before, and next year it's going to be, like, dramatically different. And so we have that mentality, not just in us building product for, you know, for ensemble, but ideally in how we're managing, like, you know, marketing how we're managing, you know, managing relationships through LPs, like, we're nowhere. We know we're not the best. We're far from it, I think, in a lot of different ways, but we're constantly looking inward and saying, hey, like, what can we do better? And then having the expectation that a lot of the things we do aren't going to work and they may fail. But that's not an excuse not to constantly try to try new things to push the boundaries and do better.
- [52:57]
A
If you think about it, all venture performance or any asset class is relative. If you think of this as relationship alpha, so you have your returns, you have your information Alpha, you have this relationship Alpha. A little bit goes a long way. If your peer group is never flying to, maybe Austin's a little bit easier, but maybe it's North Dakota or Alaska and you're flying once a year, that goes a long way. So a little bit goes a long way as well. So let's talk about ensemble. Your fund mutual friend told me that you have a 12x mark on your fund one. First of all, is that true. And two is, tell me about how you went about constructing Fund 1.
- [53:37]
B
Well, one, yes, we're very proud of the performance in our fund. One, it was our pilot fund.
- [53:46]
C
And.
- [53:47]
B
We had the great fortune and maybe misfortune of having a very novel concept at the time when we raised the first fund in 2018, which was around this idea that you could bring a product engineering culture and mindset to a venture fund. Right? So, you know, obviously that means, you know, being data driven, but really having this very different approach of in order to get better, right? We're going to go build software, we're going to go build product, right? We're not going to throw more people at it. Like, we're not going to. We're not going to. We want to grow exponentially or step function through software versus grow linearly through, you know, people. And so at the time, the use of software and data was not super obvious. And so it was a very difficult fund to raise kind of past the hat. It was also a small fund. But we had the opportunity to go incubate this actually within kaufmanfellows to really experiment, test this out. And our sole objective in that phone one was to really prove that we could use data and use software and product in a way that could significantly change how a venture firm would function and then in turn deliver better performance than the typical venture fund. So that was kind of the thesis. Could we radically implement more product engineering into a venture firm? Did we expect it to be like a 12x fund and hopefully greater than that which we think it can, given some of our positions, it outperformed our wildest imagination of very, very specifically finding great teams. Right? Not just great founders early, right. Through a bunch of different signal that we could measure and track and then also use that early advantage to translate into collaboration with other funds and then earning access. And so that was the thesis that we proved. We had 12 investments. I think it was like five or six of the 12 ended up being ended up companies being valued over a billion. So we had big zoom in that portfolio as an example. We had Grow, which is the Robinhood of India in that portfolio. And so that was, I think, the initial proof of concept that allowed us to go think about the natural question after that is, well, how do you scale this strategy? Can you scale this strategy when you're writing bigger checks? Can you actually earn bigger access? Can you actually collaborate with other funds? Can you have this kind of repeat hit rate in the next fund? And so that thesis around using data and product and engineering has evolved significantly since our fund won. And the best reflection of that is from the founders. We're now a team of 12. Half of the folks on the team are data scientists and engineers, and then the other half are investors and folks in operations. So people kind of say, oh well, every fund is a data driven fund. Now I hope that's the case because I think that'll actually deliver better allocation of capital. So I want more and more folks to be data driven. But two like there's a spectrum of what it means to be product engineering focused fund. And we've extended, I think that software advantage into every aspect of the venture fund. So not just on the sourcing side, but also in the winning and value add side. We've built products to help our founders access customers, find great people to hire, and then other functions as well.
- [58:05]
A
Give me a very specific example of how data helps you make better investments.
- [58:11]
B
The simplest way to describe it is thinking about how venture has been done since the very beginning and the evolution of that and maybe the minimal evolution of that, which is historically, when venture first started, you put your firm on Sandhill Road and founders there weren't that many firms. And so founders would find out about X firm and go visit you. Over time, that's evolved to more nodes in other cities and other places. And founders don't necessarily just come to specific firms, but you basically find opportunities based on folks in your immediate network. So maybe you used to work at Stripe or maybe you've been in venture for X number of years, had companies went public and so you're backing the folks that are leaving those companies. Right. But it tends to be a very kind of finite network of folks and you really don't know where to hunt. And so you're think of it almost like a random walk. You're atop a funnel, you're meeting a bunch of folks and very few of them end up translating into investments. And the headline of that, and I always found this really odd is VCs would always say, hey, and I was at Utemco, Hey, Mr. LP, I met 10,000 companies or 1,000 companies last year and I made one or two investments out of meeting a thousand companies. And you're like, and they're so proud because it demonstrates the rigor that they have and how high a bar that they have. The reality of it is that conversion is pretty bad. If you think of any other sales organization, you get fired. If you had to meet a thousand people and you signed up one customer or a PE firm doesn't work like that. And so the question is, well, how do you actually change that funnel very dramatically? Because the reality of it is you don't want to be spending time aimlessly meeting folks, even folks that get recommended to you, because you saw that conversion rate. The reality of it is you want to redistribute your time from the low value activities of first meetings to the high value activities of building the relationship, finding them early and then positioning yourself to win what is very, very competitive deals. And so it's shifting kind of what that funnel looks like from a pyramid to maybe a diamond. In terms of time allocation. What we've done is build a platform internally. We call it Unity. We have offshoot products called Discovery, we have a value add product called GTM 2.0. There's multiple products that we have internally. But within Unity, what we're trying to do is dramatically change where time is spent. If you can actually refocus all of your energy on a smaller set of opportunities that have a higher probability of generating a big outcome, right, not a guarantee, then you can fundamentally reallocate all of your time to diligence in these opportunities and also winning them. And so the question is, what does that look like? And so for us that means not just having a box checking exercise of hey, we use ChatGPT or we buy a bunch of data from so and so that anybody can do.
- [61:49]
C
Right?
- [61:51]
B
It means building things vertically, integrating. So building our own product internally. There's nowhere else to get what we do because we've actually built all the infrastructure internally, not just the application layer. And that also means fundamentally building new process in the firm. So how we meet as a team and how we run our process looks very, very different than what I did at Norwest and also at Bain Capital. We run it like a software company, right? Every month. We know what opportunities that we're going to be focused on. We're probably 70% outbound as a result of that. And then I'd say the latest kind of evolution of the firm is we've actually changed how we've hired. And so that's probably the biggest distinction between, you know, at least outside looking in of what it means to be a, you know, a data driven fund is that we fundamentally re architected what the organization looks like. So not only is our, is my co founder, one of my co founders, you know, you know, head of data science, head of engineering.
- [62:59]
C
Right.
- [63:00]
B
GOPI came from IBM Watson. But we've hired, our most recent hires have been, you know, two of which have been on the engineering side, right? And so half of us are on the engineering and data science side, right? It's not a box checking exercise to say, okay, hey, you know, we have the enterprise license for ChatGPT and we've hired a data scientist, right? Like we're good to go. Like we're data driven and we're going to have the advantage, right? The reality of it is like you're constantly iterating, you're constantly building new product and you know, the new product that will release at the end of the year, like we just thought about six months ago, right? Or even three months ago. And so we're constantly like, you know, innovating and building new things internally, you know, versus, you know, like waiting for ChatGPT to release, you know, ChatGPT 5 and you know, or doing a deep research report or something, right? Like great, like anybody can go do that, right? It's fundamentally changing how your investment processes, your decision process and then what your organization looks like.
- [64:03]
A
Give me some of your secret sauce. What is some data that you're looking at that narrows down your top of funnel dramatically that you look for investing at the early stage?
- [64:14]
B
People always ask that. I'll give you a couple of examples of it. It's not like a Harvard Business School study, right? Which is the person that's left handed, that went to Stanford, that you know, came from, you know, an immigrant family, is going to be like, you know, the amazing founder, right? Like it's not formulaic like that. The reality of it is there's a bunch of different signal. Think of it as like stacking alphas, right? Where each individual signal may not be that relevant, but the amalgamation of multiple signals actually drives meaningful alpha. So that's like point one, it's just in terms of like philosophy. The second one I think is contextualization and that's what LLMs and what AI has really helped accelerate for us. Meaning if you're building a company that's in the consumer world versus building something in the healthcare world, selling to health systems, how you build that team will look dramatically different. Each team could be very, very high quality. Both founders could have come from, I don't know, like stripe or something, right? But how you build that team out and what that team looks like and maybe what your co founders will look like will look dramatically different.
- [65:34]
C
Right?
- [65:34]
B
And it's intuitive because you go to market motion for consumer companies. Very different than a healthcare AI company selling into health systems.
- [65:44]
C
Right?
- [65:44]
B
And so because we built the infrastructure, all of our data is not just the stacking of a bunch of different signals, but it's the contextualization and knowing and understanding what a company does, right? So saying, hey, this is a great team, but not a great team for a consumer company, right? Or hey, this is actually a great team within healthcare, within the AI. And also relative to the stage, you have to contextualize it. So that's kind of like, like I offer that because it's an important framework, right? And then like on the specifics, like one example that you can actually track and measure that folks kind of use intuitively and I mentioned this earlier, is like, did people on the team work together in the past?
- [66:31]
C
Right?
- [66:32]
B
And so like, you know, what will happen in the traditional sense is you'll meet a founder and then you'll maybe meet the head of engineering, be like, oh like awesome. Like, oh like no wonder there's great chemistry that they, you know, seem to work well as a team because, oh, they had worked together for four or five years, maybe not in the last job, but you know, in a prior job at like Facebook or something, right? So you're like, oh, that, that actually is great. That makes a lot of sense, right? There's probably less team risk there because, you know, they've known each other, they worked each other, they kind of know every, you know, the skeletons in their closets or something, right? But it's kind of, it's like, you know, ex ante, right? Ex, you know, after the fact of you meeting the founder, what we've done, and it's not the only thing we look at and sometimes it's less important. But you know, when founders choose to come together, to work together, right? Or their first, second, third hires are folks that they had worked together in the past, there's a lot of interesting signal, right. You know, where you know, a players, you know, tend to want to work together again because they have the context of knowing, you know, how people, you know, work in high pressure environments, right. When the company's growing really quickly, right. Or they're, they're hand picking, right? The best within a certain group, right? Like we do a fair amount of, you know, you know, and, or like, you know, like defense investing under the broad umbrella of deep tech. And you see folks at Anduril kind of leave together in pockets. Anduril may not love that, but you're seeing someone who's leaving as a founder being very selective about the folks that they're bringing on to the team. Maybe an old colleague, not in the same group as this other group at Anduril. We've seen that across the board. The reality of it is you can actually measure that. The challenge is that a human just can't do that at scale. But building a product, you can measure that one attribute, but you can also look at 1000 attributes and you can do that across 100,000 companies and you could do that across 30, 40, 50 million people. Because the beauty of of software infrastructure is that it's infinitely customizable and it's infinitely scalable. So we don't have to go hire and build a giant team, which is like people are linear, whereas software and data can be exponential. And at the very least it's a step function. And so that's kind of our framework of how we solve problems. Awesome.
- [69:14]
A
Well, this has been fascinating conversation. Appreciate you jumping on and look looking forward to continuing this conversation live.
- [69:22]
B
This is great. Thanks David.
- [69:23]
A
Thanks for listening to my conversation. If you enjoyed this episode, please share with a friend. This helps us grow. Also provides the very best feedback when we review the episode's analytics. Thank you for your support.