YouSaid · the spoken record

Michael Kim

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26
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2016-07-06
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2016-07-06
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  1. “We have zero interest in becoming a multi billion dollar asset gatherer and living off our fees and having swanky offices that's completely opposite of what we do.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “I think most venture capital fund of funds are terrible. They're asset gatherers. They want AUM. They want management fee. A lot of them don't even charge carry. We are extremely focused on carry, and I think that's the best alignment of interest with our investors. My fundamental objective is to make our investors as much money as possible. And so in my mind, what that means is being disciplined in what we do, maintaining the appropriate fund sizes for ourselves, and also going after and staying focused on where we think a lot of value can be created. Certainly, non-US areas like China, perhaps Europe, the ecosystems are very interesting and perhaps getting better. But we've been focused on the US. Down the road, we may look at potentially working with some groups outside the US. I think the key to long-term success is discipline and staying focused on what you're best at.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “And so I thought that kind of development of the next generation is important. And if you look at the absolute top tier VC funds, they've done a phenomenal job of generational shift. And the older generation handing off to the younger generation, certainly firms like Greylock have transformed themselves. And I think that is the success, the key to success for a long-term platform. Jeff and Softech leading contenders to being that for the next few decades.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “A good question. You know, I think I would say Jeff Clavier and the soft tech team, we're their largest LP in their newest fund. It's a relationship that I've had since the early 2000s when Jeff was a so-called super angel. We had great discussions about portfolio construction and about reserves, about areas of investing, the style of investing in terms of Jeff as a GP extremely thoughtful. He's French and very successful, so one would presume that he has an air of arrogance, but actually he is the most down to earth person, very straightforward. You know, one element that's particularly attractive about what Softech does and what Jeff has done specifically, he has sought to build a long-term platform. And so when he brought on Steph Palmeri a few years ago, he would specifically make her”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “I think most LPs are social proof investors. I think that there's a substantial dynamic of you don't get fired for buying IBM. And venture funds are hard to kill. A lot of them should have been killed, but they're 10 to 12 year vehicles. So I think LPs need to act rationally.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “I think maintaining discipline on what we do, we are only focused on seed funds and also making these direct investments. It's always tempting to grow larger, but I think being appropriately sized is the best way to generate alpha for our investors.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “Catch in the rye, I think Holden Caulfield is an iconoclast, someone who thinks for himself and really puzzles about his existence in the world.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “Of 700 companies or more, our mortality rate right now is less than 10%. What I mean by that is companies that have shut down, companies that have been written as zero. And I do think that the longer term sort of steady state mortality rate is probably 25% to 30%, but I don't think it's 80%. But we'll see.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “I think one important element of seed investing, our hypothesis is that it's actually an asymmetry of risk. And what we mean by that is that on the upside, you know, you have outliers like Uber, a seed investor in Uber has done extremely well. But if a company exits for $100 million to a billion dollars, the seed investor does very well. On the downside, we actually think that risk is a lot more limited. What I mean by that specifically is that a seed fund that invested, let's say, a million dollars into a company, the team builds out, the product never gets the market fit that's required. So they need to sell. They can sell the company for a few million dollars and the seed investor gets some capital recovery, if not a profit. I think the downside is actually less than what most people think. I will tell you that through our portfolio.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “Do you think there's some of that? But ultimately, I do think that what you have right now is this dynamic where the best funds can raise at will. A lot of them did. And so now institutional LPs are largely out of capital for the year. A number of LPs I know have already spent their budget or have already allocated their budget to these re-ops. And it's also not just in the US. There are a lot of re-ops coming out of Asia and also Europe. So I think the Ford calendar for a lot of institutional LPs is already full. What that means specifically for newer funds, I guess, the have-nots, I would say that they should spend the second half of this year meeting with institutional LPs, getting to a decision point by early next year in the first quarter so that investment committees can make a decision based on the fact that they have a lot more dry powder at the beginning of the year rather than the end.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “Well, clearly there's been a lot of funds raised, but they were from the absolute top tier. The aggregate dollars are very large because the absolute top tier of these firms are very large. They're very large funds. And Reason Horowitz just announced they're a billion and a half dollar fund. That moves the needle in terms of overall VC funding. What you really have is the dynamic of have and have-nots. The absolute top tier can raise at will. They decided to bulk up in the first quarter or second quarter of this year so that they have the dry powder available if there is a downturn if valuations do come down. That's actually a great opportunity. There are a lot of studies that show, particularly in private equity, that returns actually increase coming out of recessions. And as I mentioned, great companies can be formed coming out of a recession like Uber or Airbnb. Those are formed in 2008, 2009.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “We're focused on groups that are, as I mentioned, that are leading their deals, specifically so that they can get the 10 to 15% ownership and ultimately, you know, in the Series A, they may do their full product to defend their ownership position, but ultimately they won't be able to maintain their full ownership position and they get diluted. And so if you're starting out at 15%, you might get diluted down to 7.5% to 8% by the time the company exits. I think that ultimately would generate the best alpha or best return for that fund. Small 1% positions imply that you need, you're required to have billion dollar exits in order to move the dial.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “Yeah, Dave is a very smart person, a very nice person, and I love talking to him. He and I have publicly disagreed many times about his portfolio construction and my thoughts on what the right approach is. I'll give you a simple example. The typical venture exit is between $50 to $100 million. If you own 10% of that company, that's $10 million back at a $100 million exit. $10 million back to a seed fund is very meaningful. If you own 1%, you get the same kind of return for your invested dollars, but $1 million back does not move the needle. So in a way, ownership of a portfolio company, that is extremely important. And fundamentally, seed funds are not geared toward investing the life cycle of a company. They're not investing their full pro rata in the series D, for example. So what that means is that the seed funds actually have to buy their ownership up front.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “Metrics that are required for those companies to get their next round of funding done. So with the third filter, quite frankly, and I think this is actually what you're trying to get at, is intangibles. How do we get a sense that a particular GP has a discernible edge? What kind of networks the group have? What kind of reputation do they have and experience? What are their long-term motivations? We spend a lot of time getting to know our GPs, understanding what they want to do with their platforms. I've actually had a small fun come in and pitch me and say, you know,”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “The second filter that we use, and I think this is an extremely important one, is portfolio construction. So what we mean by that, we specifically look for GPs who are leading their deals. They're writing the largest checks in a typical two to three million dollar seed round. They're writing a million dollar check. They have the credibility with the entrepreneur to organize that syndicate and ultimately be a partner to the entrepreneur in helping build the business. So actually, a lot of our GPs are ex-entrepreneurs because they've had that experience. Getting back to your point, you know, we are very focused on GPs who have that ability to lead a deal, that credibility. Part of that also in terms of value prop is that these GPs can help facilitate the next round of funding, not just through introductions, but also working very closely with the companies in terms of identifying, operating, and”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “Right. I think it would be helpful for us to describe sort of our black box on how we evaluate fund managers. The first filter that we use is ecosystem for us. That means three vectors, high quality entrepreneurs, high quality co-investors, and a ton of fall and capital. So what that effectively has meant for us is that we're focused on the Bay Area as well as New York. We actually recently made a commitment in Los Angeles, and we have some exposure to Boston. To use an example, if you're the go-to seed fund in Cleveland, we are not likely to take a look because there aren't that many larger VC funds that are based in Cleveland. Those companies are relying on the Sandhill Road or the New York City VC funds to fly in. And I think early stage investments are hard as it is. And so we are very focused on robust seed ecosystems.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “Itself precludes outside parties or parties that are not involved directly with the company from participating in that round.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “Well, there is some of that, and I think that that's the dynamic that we hope to take advantage of, where we are working very closely with our fund managers over the next two to three years. They're identifying companies that progress from C to A to B, and we're familiar with the company, and we can invest efficiently into those. But I do think that in general, if there is at the earliest stages a company that is high quality with high quality investors coming in LPs are probably the last in line in terms of getting access to that. So imagine a seed funded company by one of our fund managers, high quality firm like Sequoia comes in with a $10 million Series A, they're not going to make room for anybody else. The larger VCs like the Sequoia XL benchmarks, Greylocks of the World are very focused on ownership into the best companies. And that dynamic”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “Technology and market risk are largely mitigated. And the idea when we formed that was if you believe that our fund managers have a very strong portfolio of seed funds or seed companies as they bubble up to Series A and as a subset of those bubble up to Series B, those are ostensibly the best companies in our fund manager's portfolios, certainly the most mature. And from that subset, we select 20 companies to build a portfolio of direct investments. So the answer is yes, we do direct investments. Yes, we do see LPs doing more and more direct investments. I don't think it's at the seed stage. And we certainly don't invest the seed stage because we don't want to be perceived as having sharp elbows and elbowing out our fund managers from what they're supposed to be doing.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  20. “Right. At the high level, I do think that there are substantial issues with LP's investing directly. First and foremost is adverse selection. If an opportunity is available to the LP, why are they being shown this? Is something wrong with the company? Does the fund manager himself or herself feel that they can't raise the capital from people who do this full-time, i.e. the venture capital funds? So I think adverse selection is a major issue. I do see LPs are a lot more interested in investing directly. I do think that it happens at the later stages as opposed to the initial stage. And specifically to Sundana, we do have a direct investment fund. So we have a standalone fund that invests directly into the portfolio companies of our fund managers. The idea here is that we would invest at the early growth stage, so series B or C. These companies have 10 million plus of revenue. We think that”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  21. “Well, let's take a step back and talk a little bit about taxonomy. You know, angels, I think, are individuals who, as a hobby, invest in early stage startups. You have super angels, which I don't think most people talk about anymore. But super angels are ones who are using their own money and doing this as a full-time profession. And then you have the institutional quality seed funds, which is where we are focused on. These are groups that raise outside money and are doing this full time. So I mentioned that taxonomy because I think the composition of a seed round, which today is about 1 to 2 million.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  22. “Well, I think the proliferation of seed funds is good. It's never been a better time to be an entrepreneur, at least to start a company. Certainly a lot of different sources of funding aside from seed funds through Accelerators, corporate VCs getting more active. So I think there's a plethora of early stage capital available to an entrepreneur. So clearly it's a really good time to be one. The real trick, of course, is being able to scale your company, attract additional financing, and then ultimately get a successful exit. Is it good for the economy? Absolutely. I think without a doubt, innovation is emanating from these startups. A large portion of the NASDAQ today are from companies that were venture-backed. I do think that from a jobs perspective, obviously the great recession in 2008, 2009 was very painful for many people, but it allowed”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  23. “Yes, so by the time I left Rusta Canyon in 2009, 2010, you know, I would say that there were probably 10, 15, maybe even 20 institutional quality seed funds. Clearly now they talk about 300 plus seed funds in the US alone. But I think at the time, it was a very emerging idea, I can tell you that it took me two years to raise my first fund. Most people thought that seed investments were a fad, that it was not meant to be. But, you know, ultimately, I think our thesis proved out these smaller funds do outperform and these smaller funds have effectively become early stage venture capital today.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  24. “Cheaper to start a company created the opportunity for smaller funds to emerge by 2005. You had groups like Union Square, Foundry, True. By 2007-08, you had groups like Steve Anderson at Baseline, Mike Maples at Floodgate, Michael Deering at Harrison Metal. So you started seeing this emerging group of smaller funds focused on doing the first round of investment.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  25. “Of the world. At the same time at Rust of Canon and being in Venture, I saw that the absolute best firms like the Sequoia XLs, Greylocks Benchmarks of the world were getting substantially larger, $500 million to a billion dollar funds. But at the same time, it became substantially cheaper to start a company. Back in 2000, a software company, the typical initial round was a five-on-five. So two VC firms at $2.5 million on a $5 million pre. That means each firm owns 25%. The startup needed to raise $5 million because they actually had to buy servers. They had to pay for software licenses. And contrast that to today where it's almost an order of magnitude cheaper to start a company. You can get substantial traction with $500,000. And so those two disruptions, the absolute best firms getting so much larger and the fact that it became substantially”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source

  26. “Sure. You know, I graduated from Wharton in 1997 and joined Morgan Stanley's technology M&A group. We're on San Joe Road and helped participate and facilitate the first internet bubble. Around 2000, I had an opportunity to join a venture capital fund called Rustic Canyon, and I did that for nine years. But while I was doing that and I was always based here in San Francisco, I was also on the board of San Francisco's public pension fund. And that at the time was about twelve, thirteen billion dollars. Now it's about 2021 billion. That was the first time I was on the LP side of the table, the various roles I served included being the chairman of the investment committee. And it was really a great dive into asset allocation, how institutional LPs think about managers, evaluating managers, and ultimately working and monitoring managers. So that was the first time I was on the LP side.”

    2016-07-06 · The Twenty Minute VC · 20VC: What It Takes To Raise A VC Fund & Investing in First Time Fund Managers with Michael Kim @ Cendana Capital · IDENTIFIED FROM THE TRANSCRIPT · source