Podcast Summary: How I Invest with David Weisburd Episode: EP135 - How to Access Top Quartile Venture Capital Funds
Guest: Mel Williams
Release Date: February 4, 2025

Introduction

In Episode 135 of "How I Invest with David Weisburd," host David Weisburd engages in an in-depth conversation with Mel Williams, a seasoned investment professional from Trubridge Capital Partners. The discussion delves into Trubridge’s strategies for accessing top-tier venture capital (VC) funds, their partnership with Forbes on the Midas List, portfolio management techniques, and insights into scaling venture funds effectively.

Trubridge’s Performance and Expertise

Mel Williams opens the discussion by highlighting Trubridge’s focused approach on venture investments:

Mel Williams [00:00]:
"We're not distracted by what's happening in other asset classes and as a result, we think we're simply broader and deeper in the asset class than many other investors are. We've been generating best in class returns for our investors for almost 20 years."

He emphasizes the firm's impressive track record, noting that mature funds are achieving between 3x and 5x TVPI (Total Value to Paid-In Capital) and 3x DPI (Distributions to Paid-In Capital). Trubridge boasts a robust network within the venture industry, supported by a dedicated team of over 14 investment professionals with 100+ cumulative years of experience.

Partnership with Forbes and the Midas List

A significant portion of the conversation focuses on Trubridge’s role in revitalizing the prestigious Forbes Midas List:

Mel Williams [00:56]:
"Forbes started publishing the Midas list back in 2001 and in 2009 they stopped publishing the list... We reached out to Forbes in probably 2010 to begin a conversation with them about how we could be helpful to them in relaunching the Midas List."

Since 2011, Trubridge has been the data partner to Forbes, managing the data collection, verification, and list generation processes. Their collaboration ensures that the Midas List remains a benchmark for top-performing VC funds. Mel explains how their extensive data and industry insights contribute to the list's credibility:

Mel Williams [02:13]:
"...we have access to a level of information that other limited partners might not necessarily have access to. It's very granular deal performance and deal attribution data that other limited partners may not necessarily have access to."

Trubridge’s Fund Strategies

Trubridge employs a diversified yet concentrated investment strategy, encompassing five distinct approaches:

1. Core Fund-to-Fund:
   Building a portfolio of established, high-performing fund managers.

2. Seed Fund-to-Funds:
   Investing in seed and emerging managers to capture early-stage opportunities.

3. Direct Investments:
   Partnering directly with breakout winners within their portfolio companies.

4. LP Secondary Investments:
   Acquiring secondary positions in LP stakes or directly in companies via the secondary market.

5. Blockchain Fund of Funds:
   Focusing on top-performing blockchain managers and investing alongside them in blockchain ventures.

Mel Williams [04:00]:
"We like to think that our participation in one of those strategies impacts the other strategy... they really all layer on top of one or the other."

Forced Ranking and Portfolio Management

A key strategy at Trubridge is the forced ranking of their portfolio managers:

Mel Williams [08:14]:
"We do believe strongly in building concentrated portfolios across all of our investment strategies... force ranking helps us concentrate our portfolio."

This annual process involves ranking existing managers against potential new entrants, ensuring capital is allocated to the top-performing funds. Mel shares insights into how this method fosters a high-performing, concentrated portfolio:

Mel Williams [09:33]:
"If we can put more capital to work with who we consider to be one of the top two or three best performing fund managers in our business, we're going to do that."

Examples of successful allocations include investments in Founders Fund, Andreessen Horowitz, and David Sacks at Kraft, where Trubridge identified unique deal flows and strong investment judgments.

Building Trubridge’s Initial Portfolio

Reflecting on Trubridge’s early days, Mel attributes their initial success to prior relationships and strategic partnerships:

Mel Williams [06:13]:
"We were able to bring those relationships from the University of North Carolina's endowment and the Rockefeller Foundation's endowment, we were able to bring those relationships to Trubridge to help begin building our first portfolio."

Additionally, their partnership with the Kauffman Fellows Program provided crucial connections to emerging venture leaders, facilitating access to high-performing fund managers from the outset.

Challenges in Fundraising and Resilience During the Financial Crisis

Launching Trubridge was not without hurdles, particularly during the global financial crisis:

Mel Williams [20:26]:
"How hard it would be to raise the first fund and the second fund... I didn't realize how hard it would be to raise fund one and funds one and two."

Despite a challenging fundraising environment, Trubridge persevered, ultimately positioning themselves to capitalize on opportunities when other institutional investors were hesitant:

Mel Williams [22:12]:
"...having capital available to commit in that environment allowed us to get into some fund managers that we might not otherwise have gotten into."

This period strengthened their relationships and solidified the quality of their portfolio.

International Investment Strategy

Trubridge maintains a healthy international venture portfolio, seeking the best returns globally. Mel outlines their approach, emphasizing consistent underwriting standards across geographies:

Mel Williams [18:56]:
"There's really no difference in our underwriting for international managers relative to US Managers... What changes is that geo specific factors and those change according to geography."

Their international investments are based on thorough bottoms-up analysis, focusing on manager quality, deal flow, and investment judgment, while also considering macro factors unique to each region.

Scaling Venture Funds Effectively

Addressing the complexities of scaling venture funds, Mel advises that investment capabilities must grow ahead of fund size:

Mel Williams [14:58]:
"We think really building those investment capabilities ahead of an increase in fund size... Some are able to build those capabilities in advance of an increase in fund size."

Failure to scale appropriately can lead to diluted returns, as managers struggle to maintain performance with larger fund sizes.

Accessing Top VC Funds: Fund of Funds vs. Direct Investing

Mel elaborates on when institutional investors should consider fund of funds versus direct investments in venture capital:

Mel Williams [24:26]:
"We believe it's really important to invest in the best performing managers... For those limited partners who don't have those relationships and don't have that portfolio, the investment of time and dollars and opportunity costs to build that portfolio is... a fund of funds like ours makes a lot of sense."

Trubridge offers immediate access to top-tier managers, which is particularly beneficial for investors lacking the resources or connections to build a direct investment portfolio. They mitigate the common concern of double-layered fees by over committing their funds, ensuring net returns remain favorable:

Mel Williams [26:58]:
"We over commit each of our funds by 5 to 15%. And so our net returns, net to limited partners, returns for our first four or five funds, which are our mature funds, are higher than our gross returns as a result of this over committing practice."

Conclusion and Final Insights

In closing, Mel reiterates Trubridge’s unwavering focus on venture capital and their commitment to generating exceptional returns for investors:

Mel Williams [27:59]:
"Venture is all we do. It's 100% of our focus... We've been generating best in class returns for our investors for almost 20 years."

He underscores the strength of their network, the expertise of their team, and the disciplined approach to portfolio management as key drivers of Trubridge’s success.

Notable Quotes:

• Mel Williams [00:00]:
  "We've been generating best in class returns for our investors for almost 20 years."

• Mel Williams [02:13]:
  "It's very granular deal performance and deal attribution data that other limited partners may not necessarily have access to."

• Mel Williams [08:14]:
  "Force ranking helps us concentrate our portfolio."

• Mel Williams [09:33]:
  "If we can put more capital to work with who we consider to be one of the top two or three best performing fund managers in our business, we're going to do that."

• Mel Williams [22:12]:
  "...having capital available to commit in that environment allowed us to get into some fund managers that we might not otherwise have gotten into."

• Mel Williams [26:58]:
  "Our net returns, net to limited partners, returns for our first four or five funds... are higher than our gross returns as a result of this over committing practice."

• Mel Williams [27:59]:
  "Venture is all we do. It's 100% of our focus."

This episode provides valuable insights into accessing and managing top quartile venture capital funds, highlighting the strategic approaches and disciplined methodologies that underpin Trubridge’s sustained success in the venture capital landscape.