An Introduction to the Foundation Fund

Frequently Asked Questions

FAQ

• Where is the transcript for this webinar?

   

  Speaker 1:
  All right. Good afternoon, everybody. We’ll get started with our Foundation Fund webinar. Thank you for joining us. My name is Mark Edwards. I’m the Chief Investment Officer at Alumni Ventures, and I’ll be leading the programming with my colleague Andy Irvin today.

  Before we jump into the body of the presentation, a couple of administrative items: participants will be on listen-only mode throughout the discussion. There’s a dialogue box—if you have questions, you can throw them in the chat. We’ll try to leave some time at the end of the presentation for Q&A. If we don’t get to your question explicitly, we’ll hold onto it and respond after the presentation via email.

  We’ll also share a recording of the presentation afterward. So if you’re trying to follow along and take notes, don’t worry—we’ll follow up so you can sit back and digest what we have to say.

  Before jumping in, a couple of disclaimers to keep our compliance department comfortable: we’ll be speaking today about Alumni Ventures and our views of the venture capital investing landscape. The presentation is for informational purposes only and is not an offer to buy or sell securities. Such an offer is only made pursuant to the formal offering documents for the fund.

  We’ll provide links showing how to access fund materials or book a call with one of our partners to get specific questions answered.

  As I said, my name is Mark Edwards. I serve as the Chief Investment Officer of the firm. I’ve been a member of the executive leadership team at Alumni Ventures for about three years, but my experience with the company dates back more than a decade to the early foundational time of the business.

  Professionally, I spent close to two decades in private equity—different from venture capital—working for large investment organizations in New York that managed billions of dollars. In that role, we focused on larger investment sizes, pools of capital, more mature businesses, and investments where leverage in the capital structure was often used to generate returns.

  During that time, I became active investing my own money on the side, complementary to my private equity work, in younger-stage companies. Through that, I gained a strong appreciation for the limitations and frustrations of trying to take a DIY approach to accessing venture capital as an asset class.

  When I met our founder and CEO—through serendipity—I thought he had a great concept and supported it with my own money. Over the years, I became one of our larger individual investors and larger owners of the management company. I also helped review deals and establish many of the processes and disciplines we follow today.

  I didn’t realize it then, but it was a good proving ground and training experience to now manage our investment operations. Hopefully, this presentation will convey how excited we are about the business we’ve built and the opportunities ahead.

  As I said, I’m joined by my Deputy Chief Investment Officer, Andy Irvin. Andy, would you like to introduce yourself?

  Speaker 2:
  Sure. Thanks, Mark. Hi, everyone. As Mark mentioned, I’m Andy Irvin. I’ve been here at AV for about seven years. I work closely with Mark to establish our investment strategy, including sourcing, diligence, and deal closing.

  As you’ll learn, we take a very process-oriented and team-based approach to our investing philosophy. I’m excited to be here and talk through why the Foundation Fund is a great approach to venture investing.

  Prior to AV, I was Head of Finance and Operations at a venture-backed startup, and before that, I worked in strategy consulting at Parthenon Group.

  Mark, back to you.

  Speaker 1:
  Great. Moving to the overview slide—today’s discussion is specifically about our Foundation Fund, but as a lead-in, I’ll provide some background on what excites us about venture capital as an asset class and why we think it’s an important consideration for individual investors as part of a holistic asset management strategy.

  I’ll also share a bit about our firm, and then I’ll bring Andy back on to cover specifics, including some companies related to the Foundation Fund.

  For some of you on this webinar, you may already have views on venture capital, but bear with me—hopefully, this will be additive. I want to lay out our view of the world and why we’re excited to participate in this market every day.

  From our standpoint, there are three key considerations when evaluating venture capital as an individual investor:

  1. Return profile: We pursue strategies we believe can generate higher returns over time than those generally available in public markets. That’s our mission.

  2. Correlation: Surprisingly, venture capital is uncorrelated to other equity strategies and risk capital generally. We’ll explain why this makes it a compelling component of overall asset allocation.

  3. Private vs. public markets: The interplay between private and public markets has been evolving for years and will continue to do so. Access to private opportunities is increasingly important for individual investors.

  Fourth—and finally—because of these factors, many of the world’s largest, most sophisticated institutional investors have committed strongly to alternative assets, particularly venture capital. Individual investors can learn from their strategies and incorporate similar approaches into personal asset management.

  Looking at the return background: the bar charts with data from Cambridge Associates show that venture capital has been a high-returning asset class across multiple time periods, now spanning more than two and a half decades.

  Every investment strategy has its seasons of favor, and venture capital is no exception. Returns don’t compound at the same rate year after year—there are cycles and variability.

  But across these extensive time horizons, venture capital has consistently outperformed public markets. We expect this trend to continue and see it as part of our mission to democratize access to these opportunities, which were historically limited to large institutional investors.

  This next point is particularly interesting: despite being a risk asset class investing in equity securities, venture capital has shown very little explicit correlation with public market performance.

  People often assume adding risk assets like options increases overall portfolio volatility. But in venture capital, returns are overwhelmingly driven by the performance of individual companies.

  Macroeconomic factors like interest rates and economic growth rates have much less influence on venture capital returns. As a result, adding venture capital can actually reduce portfolio volatility while diversifying investment exposure.

  Speaker 1:
  We are living in a different era. If any of you are students of the markets, you’ve likely seen significant changes in the balance of private markets versus public markets in the corporate sector. To me, this shift dates back to post-Enron Sarbanes-Oxley in around 2002.

  There are real costs to going public, and private capital markets have evolved significantly over the past few decades. We believe this evolution will continue.

  The reality is there are now far fewer public equities for investors to access—whether through selecting individual stocks, managed mutual funds, or index funds. Meanwhile, the population of private companies, which already dwarfs public companies, is choosing to stay private longer for several reasons.

  The impact for many investors is that much of the opportunity to participate in value creation during the earlier stages of promising businesses—companies that may later go public—is missed by those who rely 100% on public stocks for their equity strategies and portfolios.

  You can see it in the charts on the right: in 1999, companies going public had an average operating history of four years. That’s now up to 12 years. In that intervening eight-year period, companies are building value and generating returns for shareholders—returns public investors miss out on by not being able to access companies pre-IPO.

  A similar pattern appears in the average market cap at IPO: from $500 million to $4.3 billion. That’s a massive value creation opportunity, historically available to IPO investors but now disproportionately captured by private market investors.

  No one has a crystal ball, but many of the drivers behind this pattern from 1999 to 2020 remain very much in place.

   

  Fourth and finally, looking at the investment strategies of some of the largest and best-equipped institutional investors—again, this data comes from Cambridge Associates—pension funds, endowments, and other major capital pools with access to the full spectrum of investment options have steadily increased allocations to alternatives in general and to venture capital specifically.

  At some point, when you see endowments managing money with 28% allocated to these assets, you recognize the attractiveness of the class.

  We’re certainly not saying individual investors need to target a third of their assets in this category. But it’s clear individual investors have generally lagged behind some of the thought leaders in asset management.

  A big reason is that this strategy is difficult to execute on your own. The existing industry is largely designed to serve large institutional investors rather than individuals.

  This is where we come in with products like the Foundation Fund. We believe we’ve cracked the code to offer professional-grade company selection, portfolio construction, and monitoring similar to what big institutions get, but with minimums and an experience tailored to individual investors.

   

  So, transitioning quickly to a background on the firm:

  As I mentioned, we’ve been investing outside capital at scale since 2014. Many members of our investment teams and senior leadership had decades of prior experience in venture capital or private markets.

  From the beginning, the goal wasn’t to be just another “me too” venture firm competing with established players, but to focus specifically on the needs of individual investors.

  The graph on the right validates this strategy. It’s proven to be a strong business model, one we’ve consistently executed over the last several years to become the firm we are today.

  We currently manage capital from over 10,000 individual investors. I’d guess many of these investors wouldn’t have ventured into this asset class without us, and for many, we’re their primary or sole access point.

  We’ve secured a position as the largest domestic venture firm focused on individual investors. We’ve also built a substantial deal engine to create the portfolios behind all this activity and have become the most active U.S. venture capital firm by number of companies backed in each of the last two years.

  In total, we manage about $1.3 billion of outside capital, largely invested across specific portfolios encompassing around 1,300 companies.

  Making this possible is a business with about 40 full-time investment professionals reporting to Andy and me, supported by corporate leadership and teams in fundraising, legal and compliance, investor relations, technology, and fund accounting. There’s a full operational infrastructure behind this investing activity that makes everything work.

  Speaker 1:
  The big piece of what makes our business function and succeed has to do with accessing the right opportunities. We like to say venture capital is a business of both insights and access. Companies raising money that have the most promise generally have a choice in where they raise capital, and it’s intensely competitive to get into these types of transactions.

  For most individual investors, it’s difficult to even identify these companies, let alone compete effectively to access those deals.

  We have a team of 40 full-time investment professionals with backgrounds at other venture firms, companies, and adjacent industries like consulting, as well as many who have founded and exited their own entrepreneurial ventures. They are located in Menlo Park, Chicago, Boston, and New York—the hubs of entrepreneurial activity.

  Our team leverages their networks and market presence to populate a large funnel of opportunities that we evaluate and ultimately distill down to the companies we invest in and support.

  At the bottom of the page, you can see that we’re approached with or originate 500+ individual investment opportunities per month. Each team triages that volume to focus on those with the most promise. Through a consistent approach to evaluating deals, we distill that down to a small single-digit percentage of opportunities where we ultimately allocate capital.

  We need to operate at this scale to provide the level of diversification our investors expect. Over time, we’ve figured out not only how to access highly promising deals, but also how to manage the workflow to construct strong portfolios.

  Part of our ability to succeed in this competitive marketplace comes from positioning ourselves as additive and valuable. We’ve adopted a co-investment model—aligning with other well-established venture capital firms. Instead of competing directly with them, we partner constructively so CEOs want us on their cap table.

  We bring value beyond capital. Speed is part of our process—we can make quick, decisive commitments. Flexibility is another part—we can participate with a wide range of check sizes, across different stages of development, industries, and geographies, whereas many other firms are much more narrowly focused.

  Finally—and this is central to our model and name “Alumni Ventures”—we leverage our investor base, team members, and extended network. Our network is rich with people affiliated with schools well-represented in the venture ecosystem, professionals with their own networks and company relationships.

  We tap into that network post-investment to open sales channels for our portfolio companies, introduce executive talent, and bring other resources to help companies succeed. The power of this network gives us an advantage when entering deals where companies can choose exactly who they want on their cap table.

  So, as I mentioned, we employ a co-investment model. This is important to understand given the heavy commitment institutional investors have made to venture capital as an asset class.

  Unlike many other investment strategies, venture capital exhibits a strong “Matthew effect,” meaning a handful of general partners dominate access to the very best opportunities. Their market history, name recognition, and track records make them the preferred investors for top-tier companies.

  Historically, these top quartile venture firms have generated meaningfully higher returns than the rest of the field.

  Our strategy is to invest alongside firms of that caliber—bringing individual investors access to deals they would otherwise have no ability to reach.

  If you look at our portfolio, it’s disproportionately focused on co-investing with these top-flight lead investors. We seek to partner with venture firms that not only have institutional credibility but also have individuals with specific domain expertise in the industries we’re targeting.

  Despite the large size and number of portfolio companies we invest in, our approach is highly curated around investing with the very best lead investors.

   

  With that, I’ll take a step back. Andy will now speak specifically about the Foundation Fund. I’ll return at the conclusion of the webinar to handle Q&A and bring things to a close.

   

  Speaker 2:
  Great. Thanks, Mark. Let’s get into the Foundation Fund in particular.

  Our Foundation Fund is very similar to our alumni-based funds. It’s made up of approximately 30 investments and is diversified by stage, sector, and geography. The key difference is that it’s not focused on a single alumni community. Instead, it leverages all of our alumni communities and participates in deals sourced by our Harvard team, Dartmouth team, Stanford team, and others.

  A deal sourced by any of our 40+ investment professionals is eligible for inclusion in the Foundation Fund.

  So let’s look at a few real deals AV has invested in that illustrate the types of companies you’d find in the Foundation Fund.

  First, we have Cohere, a generative AI and natural language processing solution for enterprise customers. As we know, ChatGPT was the fastest-growing consumer application in history, but there’s still tremendous opportunity on the enterprise side due to concerns around privacy, data integrity, and other issues.

  Cohere addresses that enterprise market. We participated in their Series C about a year and a half ago and more recently also invested in their Series D round.

  Next, we have Lambda, which provides on-site and cloud GPU computing infrastructure for engineering teams at enterprises. Lambda powers the development of AI models that require significant computing resources. We invested in their Series C late last year..

  1. QSBS: This is a tax advantage of investing in early-stage companies. By investing at these stages, we’re able to take advantage of these tax benefits and pass those advantages on to our investors. We track this closely.

  2. Fee discounts: As you invest more with AV and depending on when you invest, you can qualify for discounts on our fees. If you invest in a fund earlier in its lifecycle during the closing process, you reduce the fees you pay.

  3. Syndications: These are opportunities to invest directly into portfolio companies we already hold at AV. When we invest in a round, we can secure additional allocation for our individual investors. We share our diligence materials with you and give you the option to invest directly—or not; it’s completely up to you.

  Great, I think that wraps us up.

  If you have questions or would like to discuss the Foundation Fund in more detail, please book a call. You can find the link in our chat window to speak with Dan, Stacy, or Darren. We’d love to share more about the Foundation Fund and why it makes sense to invest.

  Alright, Mark, why don’t you come back on?

  Speaker 1:
  Yep, just joined. We’ve got a few questions that have come in.