An Introduction to Waterman Ventures

Frequently Asked Questions

FAQ

• Where is the transcript for this webinar?<br />

  Hi everybody. My name’s Ludwig Schulze, managing partner for Waterman Ventures. Welcome. We’re going to go ahead and get started sort of slowly as people join the room. Um, we’ll take that opportunity to walk through the disclaimer slides in case people are either speed reading or reviewing this later on the video, on the recording.

  Great. Well, thank you for joining us. To get us going, for those of you who are kind of new to Waterman Ventures and new to what we’re about, I always like to walk through this kind of introduction of who we are and what we do. So Waterman Ventures, as you can see here, I’m going to actually read this through. I won’t do that for all slides, but in this case: Waterman Ventures powers Brown founders and other founders with our capital and a network of about 550,000 community members from Brown and other leading universities.

  We build wealth for Brown investors. That’s kind of the goal of the fund. We do that through diversified investments into venture-backed companies. Those companies are connected to Brown or otherwise. We also support Brown students and alumni through things like our internships, our apprenticeships, and thousands of job opportunities. Lastly, we are a part of a larger group called Alumni Ventures. That group overall has raised over $700 million from individual accredited investors, generally speaking from among these 17 leading university communities and beyond—alumni of other schools as well. In all, the Waterman community is about 16,000 alumni and continues to grow. These folks, again, are not all investors. There are people in some cases that are in the community, interested in what we do, interested in supporting our activities.

  So that’s what Waterman Ventures is all about.

  The Team.

  So I’m there on the left-hand side of your screen. My name is Ludwig. To give you a little bit of background on me: I’m a Brown undergrad, ’96, Columbia MBA. After I left Brown, I went to Boston Consulting Group for a number of years, then went to venture capital the first time around. And so that’s sort of dot-pre and post-dot-com days. So it’s been a while—investing in enterprise and mobile software on behalf of a rather wealthy person, the owner of LVMH, Thomas Hennessy, either the first or second or third most wealthy person in the world at this point.

  From that activity in venture capital, I wanted to go to the corporate side, to the operational side. So I joined a company called Nokia. So for many of you on the webinar, you’ll be familiar and hopefully maybe even had a Nokia phone. I was there in sort of the heyday, when Nokia was the largest handset manufacturer in the world by far. Did a lot of different things and also did a lot of investing in venture-backed businesses or acquiring venture-backed businesses for Nokia. So in essence, from the venture perspective, became a buyer of venture-backed companies. Also grew then for Nokia a financial services practice, ultimately launching something called Nokia Money, which is sort of a mobile payments type of solution.

  Then I left Nokia and created my own company, so became a founder, became an entrepreneur, built a business in the mobile payment space. Grew that to serve over 12 million consumers around the world and really felt the day-to-day ins and outs and good and bad and ugly of being a founder, which has ultimately, I think, proven very helpful both in terms of understanding and appreciating where our founders are coming from, but also to better appreciate all the variety of different risks that can occur in a venture-backed business.

  Lastly, I came to Alumni Ventures just over three years ago to create the Waterman Ventures Fund. I’m joined on the team by Dave Fan, my senior principal. Dave obviously is also a Brown grad, spent some time at Deutsche Bank, at Zocdoc, at TIBCO—both venture-backed businesses—and is stellar in terms of identifying opportunities for us to invest in.

  And then lastly, on the right-hand side, you’ll see Ward Urban. If and when you become an investor—if you are an investor—you’ll be familiar with Ward in terms of helping through the process, answering questions about the investment and any of the practical matters thereof.

  In Terms of the Senior Partners.

  So we have three senior partners that work with Waterman: Darrin, Stacey, and Dan. These are folks who are very familiar with how the product part of Waterman Ventures functions. So if you’re interested to learn more about becoming an investor, these are the folks you’ll likely end up speaking with, and they can answer a lot of your different questions as you have them.

  Speaking of questions, we will have a Q&A section at the very end of this, but I do welcome you putting in questions. There’s a kind of a little box in the interface there that you can type in your questions. Welcome to put those in at any time as we go. I will try to answer some of them as I see them, but sort of juggling—we’ll see how many of them we can get along the way.

  Waterman’s Investment Committee.

  So this is a group of folks who are external. They are not kind of on the payroll, if you will, in essence with Waterman Ventures. They have full-time roles and help us to evaluate the investment opportunities that we have. We look at some of these names—may be very familiar, probably most of all fourth from the left, Barrett Hazeltine.

  So of course, when I started setting up Waterman, Professor Hazeltine, or Dean Hazeltine, or Barrett—however you think of him—was one of the first people I called. As you all know, his generosity, his thoughts, the number of different people and the network that he has at Brown is phenomenal. And so in essence, this was a great opportunity for me to just spend more time with Barrett. So Barrett’s on our investment committee and continues to help us evaluate and also identify opportunities for us to invest.

  Others, in essence, the rest of the committee is a mixture. There are some folks here who are venture capitalists—that’s what they do on a day-to-day basis. There are others who are founders, who create companies—have done so, in some cases, multiple times.

  So I’ll highlight a few here. Teresa Gouw may be a familiar name. She’s the treasurer of the Brown Corporation. She’s on our investment committee. She was the first female partner at Accel, which is one of the major venture capital funds in the world, and has gone on to be an exceptional venture capital investor, being on the Midas Touch list—which is kind of the list of best venture investors in the world—nine different times.

  Her partner, Lauren Kolodny, I would consider a co-founder of Waterman Ventures. She’s also very much involved—we actually are talking tomorrow—always sharing and considering opportunities.

  Jay Das at Sapphire Ventures, also very active, more active a little bit on the later-stage investments. Again, all Brown grads are connected to Brown in some way, shape or form.

  Sam Hodges, a founder of his second business now. His first went public for over a billion. Charlie Kroll, I think on his third business now, doing very well. Michael Zucker, General Counsel at Silicon Valley Bank. Sangeeta, a phenomenal life sciences professor at MIT and founder.

  So lots of great folks that help us to evaluate opportunities as they come forward.

  Shifting to the Macro: Why Venture Capital?

  So let me sort of shift to—that’s who we are and who’s involved. Let me shift to the maybe more macro question of why venture capital? Why do people invest in venture capital? What’s the interest, what’s the motivation?

  And at the end of the day, like most any financial product, there is an interest in financial return. So venture capital, as you can see from the chart here on the right-hand side, has produced exceptional financial returns over quite a variety of different timeframes. Whether you look at three or twenty years, you can see those colored boxes. They are the venture capital boxes of return, in each case beating the S&P 500 and the Russell 2000 pretty consistently. And that is, by the way, after fees, which we’ll talk about a little bit later. But, you know, something to be considered in the scheme of things.

  I’ll also then differentiate between that teal green and that dark blue. That teal green is the index—overall venture capital returns on average. So you can see that even the average venture capital return has beat those indexes. But what’s fascinating: you see a pretty big discrepancy then for the top two quartiles. They have substantially beat the indexes consistently over time.

  That is very much reflective of the fact that venture capital is a network-driven business. And so the best funds see the best founders, see the best funds, and see the best founders. And it’s kind of a recurring cycle in that sense.

  So this is sort of at the core of it—why venture capital, I think, is an asset class that lots of participants have an interest in.

  I would say the second—that’s return. The second piece that’s very important and perhaps especially important in sort of this moment, when you look at the public markets and where they are in terms of the business cycle—the interesting thing about venture capital is it is uncorrelated from public markets.

  And so you can appreciate the benefit there that, you know, if the public markets have a bad day tomorrow, it’s not going to impact venture capital investments themselves. In general, some of the late-stage of course has some impact, but we are investing over a pretty long period of time. So the fluctuations of the public markets have effectively very little impact on our picture overall.

  So that’s, I think, the other reason that participants tend to get involved with venture capital. And that is true, I think, across the board.

  Who Typically Invests?

  With venture capital, one of the unique pieces is that historically, in essence, more or less since it has been around, the vast majority of venture capital investors are institutional investors. These are pension funds and endowments and insurance companies. Those are primarily the folks who have had access to venture capital, and they have been investing quite heavily into venture capital.

  So what you will see for institutional investors is they are typically putting around 15% or more of their portfolio into venture capital, specifically given the financial returns and given the fact that it’s not correlated to the public markets.

  We are of course making available this asset class to individual investors—for what is almost always the first time, by the way. So if you’re on this webinar and you’re sort of thinking like, “Wow, this is kind of new and I’m unfamiliar,” you’re really not alone. This is a new opportunity, a new ability for individuals to invest in venture capital. That’s really resulted from some law changes that happened in sort of the 2014 time period that allowed us at Alumni Ventures to create these types of funds starting in 2015.

  How We Invest.

  So now turning a little bit to—that’s why people invest in venture capital. We’ll tell you a little bit about how we invest.

  So the way we invest I think is extremely important. The very first rule in essence of how we invest is that we only ever invest alongside what we would describe as a traditional venture capital fund. So we’re investing next to them on the same terms. Typically they’re investing in the same financing rounds and so on.

  We are not going out and finding, discovering new companies and being the first investor. That’s not how we play. We’re always investing alongside these other well-established funds.

  This is an example list. We have co-invested with, I would say, pretty much all of these. And that’s the other dimension to how we invest alongside folks: when we’re looking at a company, we’re evaluating the company and all the dynamics there—we’re also evaluating who is that lead investor?

  What is their knowledge and their experience in that industry or that sector? The beauty is that there are venture funds that have incredible depth and knowledge and background in a given industry, the individual partners perhaps having created multiple companies in that space and really understand the dynamics very well. We feel good about investing with folks like that—people who have been very successful historically and have deep industry experience in the given sector that that company is going after.

  These, to be clear, are the kinds of funds that historically have made investments that we all take for granted today. The companies like Amazon and Google and Uber and LinkedIn, and so on—these are the folks who were the early, early investors in those companies and helped those companies to grow, to be successful. So that’s kind of the first rule of investing.

  The second approach that we take to creating this investment vehicle—this fund—on your behalf is that we create a portfolio. So we want your investments not to be just hinged on one success or one failure. We want it to be a bucket, a group of usually about 25 different companies. So our view is that it provides you with the diversification, the portfolio, the risk reduction of having a variety of different companies in your portfolio.

  When you invest with us, the way that we look at that diversification is across a bunch of different elements. The first one I’d highlight is sector or industry. So within a portfolio of 25 companies, you can expect to see probably 10, 12, 13, 14 different industries represented. So there’s going to be some health tech, there’s going to be some fintech, there’ll be some life sciences, there’ll be some AI drug companies, etc.—a full variety.

  We are investing roughly a reflection of the total venture capital market in each fund. So we’re paying attention to the extent or the amount of, for example, fintech so that we don’t have too much of that, and also that we don’t lack certain sectors that should be there.

  The second area of diversification is what I would describe as the maturity or stage of the company. So within venture capital, there’s a pretty broad range, right? You do have those companies that are just getting started—you know, the hypothetical two-people-in-a-garage kind of thing. We don’t start there. You equally have companies that are really about ready to go public, right? And so they’re much bigger, much more sophisticated, and have a lot of information and data to begin with.

  So roughly speaking, most of our capital—the biggest chunk—is spent in the middle. It’s called Series A or Series B. We think of those as early-stage businesses. These are companies that typically have some customers, have some revenue, so they’ve kind of overcome some of the biggest hurdles and risks. The question now is: can they continue to grow substantially and at a high pace? Those are where we often put a lot of the capital.

  We will invest somewhat earlier into what’s called seed stage as well. So these are companies that actually, at that point, probably have already raised three to five million dollars, but they’re getting to the start with customers and maybe some pilots and so on and so forth.

  And we’ll also go to the other extreme in terms of maturity to invest in some companies where maybe it’s what we call a Series C or Series D. Again, these are companies that might already be into the tens or maybe even hundreds of millions in revenue. And again, it’s now a question of what does that trajectory look like—to either an acquisition or to a public exit.

  So that’s kind of the diversification across stages.

  Next—or second to last, I suppose—we look at geography. We do want to have a mix of geography. I’ll note that most of our investing is U.S.-based. Investing in a portfolio of 25, we’re going to have two or three or four companies that are international. We think there’s lots of opportunity there, but there’s lots of opportunity in the U.S. as well.

  Geographically, within the U.S., we appreciate that California—Silicon Valley, where I was last week—is an important part of the ecosystem. Equally, New York, Boston, etc., Austin, where we have offices as a group across the board, and Chicago as well. So we’re monitoring that piece so that we’re not over-weighted in any one geography per se.

  And then the next dimension is lead investors. So as I talked about, we’re only ever co-investing with other investors. As a result, in a portfolio of 25, you’re probably going to have lead investors—maybe there’s some overlap, but mostly you’re going to have probably 20 different co-investors in the mix. So again, you’re getting diversification in that respect.

  The last piece is time, and time is really up to you. We have a fund every year—that is our model. We will create a new fund of roughly 25 companies each year. And so for some of our investors, this might be a one-time thing, right? They participate and they’re satisfied, and that’s sufficient sort of as a percentage of their total portfolio for VC. But for many of our investors, we see a path—they may be investing with us every year or maybe it’s every other year, but they’re looking at a kind of diversification across time periods. And we do make that feasible as well.

  I’m going to just—I see we have a couple of questions, see if any of them are directly related here? It doesn’t look like it. Well, actually—no, sorry, there is one question here: any focus on ESG?

  Great question. It is not a focus. We do not have an ESG mandate for this fund. But I’ll tell you that there are plenty—there are more than enough great investments to be made—that investing in companies, I would say, that have a negative ESG impact… I don’t see why we would do it. It’s not something that, again, we mandate, but it’s not something that I’m going to do. I don’t see why we would.

  So happy to dig into that further. I think it’s a really important part of the consideration when we invest. But it is only one of the considerations overall.

  So with this slide, I wanted to share a bit more about what do these deals look like, give you some very specific examples of companies that we have invested in historically.

  So I’m going to highlight a couple of different things on this list to the right. First of all, if you just run your eyes down that industry list, you’ll see what I’m talking about, right? Marketing tech, fintech, life sciences, industrials, IT—there’s quite a variety of different types of investments that we make.

  I would argue that AI/ML is not really an industry. I think it’s pretty much technology that is being applied across the board. Search is in the visual or computer vision space, and it is being applied across a lot of different industries.

  Geography here—again, you’ll see a couple international, and then geographies across the United States. And then stage-wise, again, a variety: growth is listed first, then some early, and then some seed-stage companies.

  And then lastly, co-investors. So again, these are the folks who are leading the round of financing, defining the valuation, and we are participating in the round of financing alongside them.

  Probably some names that you’ll recognize: Goldman Sachs, Sallie Mae, BlackRock. And then, for folks maybe a little bit more familiar with some of the names in venture capital, they’ll recognize Accel, Aspect, Pelion, Charles River, Polaris, Section 32, Arch, Khosla, Lightspeed—these are, for the venture capital community, funds that are very well respected based on their historical performance and what they’ve done.

  That’s a little bit what it looks like. If you’re interested to look more at the total portfolio, on our website there is a portfolio page, and you can get to know some of those different companies in more detail—click into their websites individually and understand what they’re doing.

  Obviously, I think they’re all phenomenal companies, and always very pleased to talk through each of them in gory detail, because this is what is such a joy about this role—these companies are doing amazing things. They have founders that are dedicated to building amazing companies. So always, always happy to go through that.

  So I want to back up a little bit to the bigger picture of who we are—to talk about Alumni Ventures.

  Waterman Ventures is one of 18 different alumni funds within this umbrella of Alumni Ventures. So you can think about us as 18 different alumni funds that are all working together. So I’m here in our New York office, and from here, I can see the Cornell fund, I can see the Columbia fund that I’m also involved in, I can see the Penn fund. We are all working together in many different ways.

  Probably the most important way for us as prospective investors is that our team in Waterman is of course looking for investment opportunities in the Brown community and beyond—but that’s of course where some of our network lies. But our colleagues are looking for opportunities in lots of different places.

  And so the benefit to our investors is they’re actually getting investments into the portfolio that may have come from anywhere else in our network. And that network has become very powerful.

  So we have, as I mentioned before, raised over $700 million on behalf of individual investors since 2014, and we are very active as an investor. So we will do somewhere above 200 investments this year as a group. That is a great number for us to be able to participate in.

  It also means there’s about 10 times as many that we’ve actually evaluated in some depth, and probably a hundred times as many that we’ve heard about or learned about. That’s a great group.

  So you, in essence, have around 40–50 investment professionals working on your behalf to identify investments to participate in overall because of this larger group.

  So that’s actually the first point: you have 50 full-time investment professionals across our different offices in San Francisco, New York, Boston, Chicago, and Austin, Texas.

  We have a whole back-office function that supports us in terms of legal and accounting and so on. And then there are all of you—all the community members. That’s about half a million—just over half a million—people who are interested and involved. Not all investors, but are powerful in a lot of different ways.

  Number one is, a lot of the times we hear about investment opportunities from all of you. And so any of you that know of companies that you think might fit for our investment thesis, you’re always welcome to send that to us. We’re always eager to hear about them. I’ll tell you upfront: not many of them will fit, but we always, always want to hear about them. That’s often how we originally hear about investment opportunities.

  So that’s a big first power of the community.

  The other big part of the community is that tomorrow I’ll be talking to a new founder and discussing investing in their company. And frankly, part of the question they’re going to ask me is: well, why should I take your money instead of somebody else’s money?

  Because most of these founders have more money than they need. And so sometimes it’s because of an emotional thing—they went to Brown and I went to Brown, and they love the idea that their company would benefit all of you as prospective—or if you become investors—as investors in his or her company.

  So that sometimes it’s very powerful for them and sufficient. Other times they’re also, you know, engaged and interested because of the possibility of connecting with all of you. So I don’t know who’s on the webinar today, but my guess is there is expertise and knowledge and networks that could be beneficial to our companies today or companies in the future.

  So maybe it’s one of those founders who wants to recruit somebody—you on this webinar, or somebody that you know. That’s great, right? Getting talent is one of their biggest challenges. Or maybe you work in a company that they want to sell to—they would love to be able to spend 20 minutes talking to you and understanding the dynamics of how your business works. That’s where the power of our network really kicks in. And that’s where our founders get excited about working with us.

  And every time we help one of our existing founders to be successful in that way, that is telling five other founders, which helps us again hear about and get access to additional investments on your behalf.

  So, there are a bunch of questions that have come in. I know that we have some folks who have to drop off a little bit earlier, so before I get to some of these practical matters on the key terms slide, let me see if I can get through a few of these questions.

  So, I see one here: is this a SAFE cap?

  So, no—this is investment into a fund. The fund is an LLC. You become an investor, a partial owner into an LLC. In terms of the SAFE cap note—when we’re investing into other companies, sometimes those rounds are priced rounds, sometimes those are SAFEs. It just depends on the circumstance. SAFEs have become very common in earlier-stage investing.

  What is the withdrawal option if needed?

  So, great question. Kind of comes into some of these points here—it’s actually sort of that third point. These funds are structured to live for about 10 years. And I say “about 10 years” because it really actually all depends on the individual underlying companies. Those 25 or so companies—might be 27, might be 23—but those individual underlying companies, and when they get acquired or when they go public. Because as soon as any one of those companies gets acquired or goes public, you as an investor get paid your portion.

  So in some cases, those 25 companies may cycle through, in essence, and be sold and go public within 10 years. In some cases, it might take a little bit longer. So that just depends. In the interim, though, to be clear—you can’t call me up in four years from now and say, “Hey, listen, I want to buy a third boat. I’d like to use this money from this fund.” It’s not how it works.

  When we invest the fund into these companies, the companies are using that capital for salaries—not that much for rent anymore—but salaries for sure. And so we’re an equity holder. We therefore don’t really have a mechanism to pull that capital back until the company itself is acquired or goes public. Again, as soon as that happens, you get paid your portion.

  So what I tell folks is probably in that first five years or so of the fund’s lifetime, there’s not going to be maybe that much activity. There may be a couple of companies that get acquired or go public. There may be a few companies that don’t do well, right? That’s also very much a possibility with ventures. Most of the activity—and especially the good activity and the good returns and checks that come back to you—are probably going to happen in that five to ten-year period. So you do want to invest with that in mind. It’s a great question.

  So here’s a very practical one, which I think actually relates well to the key terms. So I’m going to run through these key terms quickly as well.

  So: 20 to 30 investments, roughly diversified, as I mentioned. Investment range—you can invest with us into the fund starting at $50,000, going out to $2 million. There are a variety of different ways you can invest into the fund.

  So that’s actually highlighted down here. Yep—there we go.

  You can invest with cash—not suitcases—like cash equivalents: wire us or send us a check. You can use trust. You can also use retirement funds, so you can use a self-directed IRA without any penalty. It retains its retirement-shielded nature. So that’s another option.

  And then there’s also a vehicle available for non-U.S. assets. So for anybody who doesn’t have a green card or U.S. citizenship, you can use that vehicle as well.

  So coming back to the question here—is it better to fund through one’s stock portfolio, an IRA, or a Roth?

  Great question. So that relates to sort of cash equivalents. So I would say stock or cash equivalents, right, or the retirement funds—meaning either an IRA or a Roth.

  So I’ll tell you, obviously it depends on where you feel comfortable. With the cash equivalents investment, there is a potential for a very interesting tax benefit. Practically speaking, it means that the federal capital gains tax on any one of your investments in the fund could be zero. Obviously a pretty great incentive. There are several caveats that I won’t cover today, but when you talk to any one of our senior partners about participating, they can certainly go through any of the details further to help you understand what that looks like. But it can be pretty interesting.

  Alternatively, if in comparison to retirement funds—you’re using a self-directed IRA. So that’s a form of IRA. It maintains whatever the IRA status or non-status is. Again, there’s no penalty, so you’re not removed from an IRA environment. But it does look kind of like a rollover.

  So there are different—for each person, I think there’s going to be different trade-offs. Again, I encourage you to talk about this with a senior partner further on that trade-off for you individually.

  Let’s see. There was a question about performance. Again, a very good question to dig further with your senior partner if you are interested to join us as a prospective investor.

  But I’ll give you kind of my initial comments, with the caveat.

  The fact of the matter is—because I mentioned the laws changed to make this kind of a fund possible—without the team, our earliest fund as Alumni Ventures was 2015. As such, we have not run a full 10-year cycle for any of our funds.

  So I can tell you—and we can show you data—that the funds are progressing well. We can talk about individual companies that have done exceptionally well—companies that have done 30 times the return and basically paid for the entire fund, companies that have done 6 times return, etc., etc., etc.

  But the main point I would say is—as of today, because we don’t have that full track record—I think it’s extremely important for prospective investors to look at how we invest: alongside great, well-established venture capital investors, and diversified. That’s critical.

  And then the other dimension is the performance of venture capital more broadly.

  All right, let me continue down this list a little bit.

  So: management fee. I’ll just touch on this briefly. So the way that it works is—it’s a 2% annual management fee for the fund’s expected lifetime of 10 years. If we run more than 10 years, it’s not of concern—you have no additional management fee.

  There are fee discounts that occur above a $500,000 investment, and we can go into detail with your senior partner about what each of those fee discounts look like.

  There is a single capital call. So when you choose to invest with us any time during the investment fundraising window, you are calling your capital. The management fee for the duration of the fund is put aside at the beginning. The remaining capital is put into the individual companies. As soon as any one of those companies has an exit, you’re paid your portion. Those repayments continue to happen until you’re back to your original committed capital—this original capital call number that you put in. In essence, your management fee is reimbursed through that process. And thereafter, the profits are split 80/20 between yourselves and us.

  So that’s kind of the key terms that I wanted to cover.

  That concludes the key portions of the presentation. Please add your additional questions in the portal—into the chat function there. We’ve gotten a couple further in the interim.

  So the next question here is: How do you think Fund III will differ from the first two ventures in terms of stage and sector?

  Great question.

  So I would say that in terms of sector, there’s probably not going to be a big difference. Again, we are diversifying across sectors and industry consistently. So I would say that’s not likely to be a dramatic shift.

  I think in terms of stage—I’ll tell you that I’m pretty mindful of the economic cycle that we’re in. You know, you can have different opinions, but if you look at the Shiller P/E—price-to-earnings ratio—on the public markets, they are higher than historical averages.

  So therefore the expectation is, in some time period—who knows when—that’s going to revert to some kind of mean. Therefore, our later-stage investments, I think we have to be maybe extra cautious with, because their next step is often to go to the public markets. So we probably will see a little bit more leaning earlier, into early-stage and seed-stage, and be a little bit more shy on the late-stage kind of investments.

  Hope that addresses the question. We will, however, still do late-stage investing. It is part of our diversification mandate, and we will definitely therefore have some later-stage companies as well.

  Oh, this is a great question: Do you have carte blanche access to co-invest alongside Khosla, Accel, or is it only on a selective basis that you’re offered the ability to invest?

  Okay, so—really, really important. We are not sitting outside the offices of Khosla or Accel or any of the other venture capital funds waiting for them to throw us a bone. That is not how we invest. We have relationships directly with the founders. We always want to be connected to those founders—and the founders to be picking us to participate in the round of financing.

  That’s really important. Frankly, when a VC does—and we have some relationship—when a VC does send us a deal, the first question we have to ask ourselves is: why are we so lucky? We think of that as an adverse selection risk. Are they sharing a deal because they don’t want it at all, or they have too much, or nobody else wants it, etc., etc.?

  So again, we believe it’s really important to have a relationship with the individual founder, evaluate that company on its basis, and then also evaluate the behavior of the existing and the new investors into that financing. You get some signals, some indicators, based on that information. So—really good question, and thank you for that.

  It’s also, I think, a part of why our network is so important. I much, much, much prefer to meet a founder before they have that lead investor in place. I want to get to know them, and actually in many cases, I want to be the one to introduce them to that lead investor. That’s a great spot for me, right? Because now I’ve been useful to that lead investor. I’ve positioned myself in a place that means I’m highly likely to be able to get a part of the allocation for that round of financing. And I can also be confident in the rationale for any participation or my access to that participation.

  Next question: Do investors get a K-1 if they’re members of an LLC?

  Yes. So for those of you who already get K-1s, my guess is that is something of a frustration for you or your accountants because some K-1s come late. I personally have a bunch of K-1s that come from other activities, and occasionally that means complications.

  We at Alumni Ventures recognize that for many of our investors, this may be your first K-1. For those of you who already get others—great. And therefore we are very attentive to getting the K-1s out to our investors well in time—typically the middle of March—well in time for tax filings. We do not want to be the cause of a delay in your tax filings.

  So just so you know—it’s a straightforward, typically one-page sheet. Your accountant will be very well familiar with it. Any of the software tends to be quite easy to add as well.

  Next question: Has the competition to provide funds for companies intensified, thereby narrowing the choice of candidates?

  Really good question. So, there is no denying that the venture world is busy. There are a lot of companies being created. Some of that is people deciding they don’t want to go back into an office and they’re creating a company instead. Some of that—any variety of reasons, right?

  But certainly there’s lots of companies being created. There’s also a fair amount of capital chasing those companies. So hence the question of competition.

  I’ll tell you, though, that in many respects, what’s happened to the venture market—especially relative to when I was a venture investor 20 years ago in the past, in that sort of dot-com period—the venture world at that time tended to be really focused on the early-stage businesses: pre-seed, angel, seed stage, Series A, maybe Series B. And a lot of companies either went public at that point or were acquired.

  What’s happened to the venture market since then is—it’s not that this pie is continuing to grow but not crazy. What’s really happened is it’s grown to a later stage. So you may have heard of SoftBank, you may have heard of a company called Tiger. These are all late-stage investors. So what they’ve done is created an extension of the venture capital markets to help companies grow even bigger while remaining private. So companies could grow bigger, remain private, before they had to go to the public markets.

  And that’s a very, very big difference—and I think also a really big difference for individual investors.

  If you look historically at Amazon—Amazon had venture backing. They went public pretty young in the terms that we think of today. I can’t remember what series it was, but we’re talking valuations, I think, in the hundreds of millions—not even the billions.

  The point was: there really wasn’t capital available for them to stay private as long as maybe they would have preferred to—especially given how Bezos ran the company even as a public company.

  What that meant for individual investors is: you could hang around the hoop of IPOs and catch an IPO and then ride that company to be a much bigger company and do very well. Amazon being an awesome example of that.

  That actually doesn’t really exist anymore. Companies stay private much, much, much, much longer because the venture capital industry has grown to support that. And so by the time a company goes public, it’s big. And therefore its space to grow as a public company is significantly diminished.

  If you think about Airbnb as an example—I want to say their valuation is in the hundreds of billions at this point. Yes, of course they could go to a trillion—possible. I actually think they’re a pretty interesting company. But that’s a very different multiple than would have been in previous days with an IPO.

  So, sorry—kind of on a tangent with that question. But the point being that the competition is still intense, for sure, for these deals that we’re also looking at.

  And again, I would argue that this is where the one-to-one alumni connection is critical. It provides us a warm introduction to these founders in a different way than other funds can get.

  The other dimension is: our check size is smaller. We are not ever, ever competing with those lead investors. We’re not trying to push them aside. We’re just trying to take a sliver of deals that they’re involved in. That’s a lot easier to do—and a lot easier to accommodate—especially when you have some kind of a warm introduction to those founders and can provide the benefit of the half-a-million-person network.

  And I think the last piece, just to kind of close on that competition thesis: I would encourage you again to look at the portfolio. Look at the companies that we’ve been able to access and be able to invest in. Look at the co-investors, and the success in the other companies that they’ve invested in in the past. I think that’s probably the best indicator that we are able to access interesting opportunities alongside some of the best investors out there.

  All right. I should say—the very well-established investors out there.

  So here’s kind of a complicated question—I’m going to try to parse it out a little bit.

  There’s concern about fundraising cycles and the management company’s ability to manage the funds.

  I guess I would say the simple answer is: we fully recognize that reality. We have reserves as an organization precisely for those kinds of scenarios. But we continue to grow substantially.

  We’ve raised over $700 million at this point in the last five or six years or so. That growth rate continues very strongly. It continued strongly through COVID as well. And in the unusual circumstance that something would occur that would impact that, we do have considerations and reserves.

  Great question here on follow-on investments.

  So—we invest in those roughly 25 companies. Sorry—I don’t know if this is visible on your screen, I have a little notification there.

  We invest into roughly 25 companies. That’s kind of our first check into those individual companies. But within the fund pool, we also put aside roughly 20% to 25% of the capital specifically for the purpose that when those 25 companies—roughly 18 to 24 months later—go to raise new capital, we’re going to look very closely at each of those companies and determine if we like the trajectory that they’re on still enough to take some of these reserves and invest for a second time into that company. Sometimes even a third time, but generally second or third time.

  That’s our reserve approach. So 20% to 25% of the money is held aside to follow what we think of as our winners—the companies that are doing well. That’s to try to maintain our percentage of the company as it continues to grow.

  Great question.

  So I know that we’re roughly at time. If you have any last moment questions that you want to drop in here, please feel free.

  Otherwise, if you’re interested to learn more about investing with us, I encourage you—you’ll, I think, get an email follow-up subsequent to this. Schedule a time with our senior partners. They’re great at answering all the different varieties of questions about what this financial product looks like, how it works. They can give you more examples, more explanation on a lot of these different details.

  Equally, if you know of companies that you think could fit our model of investing—which is a very specific model, right? Very high-growth potential companies—feel free to drop an email to me or to Dave. We’re always keen to hear about these companies, meet them especially if they are connected to Brown, either as founders or investors, etc.

  Excellent. Well, thank you all very much for your time. Appreciate it, and I hope this was helpful to you all. Have a great afternoon.