Kudos to ffVC portfolio company Movable Ink and CEO Vivek Sharma! STG, a software-focused private equity firm, has announced they’re acquiring Movable Ink. My old firm, ffVC, invested when Movable Ink was a seed-stage company. Movable Ink has grown to 600 employees, and won more than 100 new enterprise customers in the last year across its products. Vivek did a great job building an institutional caliber firm. Goldman Sachs advised Movable Ink on this transaction.

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I hope you’ll join me on July 10 evening in NYC for a Light Dao Salon in a beautiful private home.  Light Dao is a fast-growing trusted global community of over 4000 conscious investors and entrepreneurs with curated in-person and online gatherings and experiences, having hosted in 16 cities across North and South America, Middle East, Europe, Asia, and Australia. Request admission: https://lu.ma/vydja4dg .

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I just spoke at the Venture Intelligence Day 2025 NYC on How Private Equity and VC Investors Accelerate Portfolio Company Success, based on my Journal of Private Equity research study. I’ve embedded below my presentation and the video.

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In response to continued demand and our commitment to keeping cohorts small and impactful, we’re doubling down on our mission to support the next generation of emerging venture fund managers. Even in today’s challenging market, standout new firms are continuing to break through—and we’re here to help power that progress.

Coolwater Capital is the leading platform for emerging VCs to launch, fundraise, and institutionalize with confidence. Our accelerator is designed to make fundraising more efficient, connect GPs to top-tier LPs, and build lasting firm infrastructure.

Over the past four years, we’ve refined every aspect of our program—curriculum, structure, and community—into a rigorous experience that delivers real outcomes. While the program is centered on fundraising, we place equal emphasis on helping you build a firm designed to scale over time. This is where you learn the playbook, refine your edge, and co-build your venture firm alongside peers and leaders from across the capital stack.

While others are pulling back, we’re all in. Emerging managers are the lifeblood of innovation—and we’re proud to champion them.

Interested in applying? Mail info(@)coolwatercap.com and mention my name.

Why Coolwater Capital?

Proven Track Record
We’ve helped launch 300+ VC funds that have collectively raised over $5B. More than 50 of our alumni have gone on to close second funds.

Unmatched Network Access
Tap into our proprietary network of 3,000+ LPs—including family offices, endowments, pension funds, HNWIs, and global institutions—through curated programming, events, and our managed community.

Expert-Led Training
Our accelerator includes content from 300+ select domain experts and institutional LPs, equipping you with the knowledge and frameworks needed to raise and manage a fund successfully.

Alumni Community & Ongoing Support
Our support doesn’t end when the cohort wraps. Graduates of the program stay connected through ongoing education sessions, curated events, co-investment opportunities, and peer-to-peer knowledge sharing. We continue to invest in building an engaged, collaborative network of fund managers committed to growing together.

Diversity & Inclusion
Coolwater is proud to back a diverse community: 25% of our GPs have female partners, and 46% have partners from underrepresented backgrounds.

We’re proud to support the next wave of great investors. Let’s build the future of venture—together.

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I was fortunate to interview for AltsTech Ankur Agarwal, Cofounder and CTO of PE Front Office, and author of the new book, Alternative Investments Technology: Bridging the Gap.

Personal and Professional Background

What’s your background? How did you end up in your seat today?

Well, it’s been a ride! I began my career 25 years ago as a technology consultant at Sapient, working closely with many global firms like Lloyds of London, Hilton Hotels, Avis & News International. That role gave me experience with how complex and messy at times enterprise systems can be. Later, I moved to Actis, a private equity firm, where I was responsible for implementation and integration of their global business systems: including fund accounting, fund reporting, investment management, investor relationship, data warehouse etc. The challenge at hand was to implement and integrate pre-existing as well as new systems and make them work seamlessly. I kept thinking, there has to be a better way. That thought eventually led Anup Adlakha and I to co-found PE Front Office, a SaaS platform purpose-built for private equity, venture capital, and private debt firms.

What inspired you to write your new book, Alternative Investments Technology: Bridging the Gap?

Honestly, the idea really came from years of working alongside fund managers who kept running into the same set of questions when it came to technology: Where do we start? What’s worth automating? Should we build our own systems or buy off-the-shelf? With time the bigger realization was that these questions weren’t just about technology – they reflected deeper dilemmas firms face when navigating change.

In my work, I kept seeing the same six core dilemmas pop up:

•   What to automate? – figuring out which processes are worth automating and which still need the human touch.
• Build vs. buy? – and if you buy, how much should you customize?
• Where to run these systems? – on-premises or move to the cloud?
• Cost vs. value – how do you measure ROI when the returns from automation aren’t always immediate?
• Ease of access vs. security – how do you ensure systems are secure without making them a nightmare to use?
• How to roll out change? – do you go for a big bang transformation or take it step by step?

There wasn’t a practical guide that addressed these dilemmas from both the business and technology perspectives – something that helped fund managers make these tough calls without getting lost in tech jargon or high-level theory. So, I wrote this book I wish I had when I was on the other side of the table. It’s full of lessons learned, mistakes made, and practical frameworks to help firms chart their own path forward.

Please give us an overview of your firm. 

PE Front Office is a SaaS platform specifically designed for alternative investment firms. We help fund managers manage their entire investment lifecycle – right from deal origination to portfolio monitoring, fund administration, and investor reporting. Our clients span over 15 countries, from first-time fund managers to large multi-asset firms like Ares Asia, SQN VP, Anticus Partners, Norsad Capital, Invequity, Fireside Ventures, Edelweiss Alternatives & SIDBI.

Who are your peers/competitors, and how do you differ?

There are some great players in this space like Allvue, eFront, and Dynamo who offer end-to-end solutions for alternative investments. Then there are providers focussing on specific functions, for example, DealCloud (CRM, Deal Pipeline), iLevel (Portfolio Monitoring), LemonEdge (Fund Accounting & Reporting) and so on. My book also has an unbiased list of service providers covering front, middle, back office as well as end-to-end solutions. But what sets PE Front Office apart is how we balance flexibility with scale. We focus on making technology approachable – customizable where it counts, without slowing you down. Clients often tell us that we’re more of a partner than just a vendor – and that’s exactly how we like it. Many of our clients tell us they are able to consistently report to LPs within 7 days of quarter-end.

Technology and Private Markets

Many alternative investment firms are notoriously conservative in adopting new tech. Why do you think this is, and how do you persuade them to change?

It’s true. Private capital markets thrive on trust, relationships, human-capital and long-term thinking. That naturally makes firms cautious about shaking up their processes that have been followed for the last many years. Then the stakes are also high – nobody wants tech glitches messing with the confidence of stakeholders. I have learned that the best way to convince is to meet them where they are. We focus on solving real, actual pain points – like simplifying fund quarterly reporting, investor reporting or ensuring a single source of truth with respect to data and not selling cool tech for its own sake. 

We were approached by a Middle East based PE fund and we committed to them that the next quarterly report will be sent from the PE Front Office. I think our focus on solving their pain point persuaded them and we delivered as committed. Now we have a happy and confident customer using the system extensively for a lot of other functions too.  Small wins create trust, and that trust opens the door to bigger changes.

What do you see as the most underutilized technologies in private markets today?

Actually there are quite a few technologies sitting on the shelf when it comes to private capital markets, for example, NLP, Process Automation (RPA), API integrations, Predictive AI, Real-time data analytics and Blockchain. However, the two with most potential are NLP and Real-time data analytics. Imagine summarizing portfolio performance, generating investor reports, or even parsing through legal documents and due diligence material – NLP can do all of this. The ability to automatically turn complex financial data into clear, investor-friendly commentary is a game-changer. When it comes to data, most firms still wait for month-end or quarter-end reports to see the bigger picture. They still operate in batch cycles. Imagine automatically pulling in data from fund administrators, custodians, portfolio companies, market sources and having a consolidated view ready whenever you need it.  For one of our large Asia-based clients, we have enabled investor facing reports to be generated at the click of a button – transforming what was once a time-consuming quarterly task into an on-demand capability.

What trends in data infrastructure or analytics do you think will most significantly impact GP/LP operations in the next five years?

I think most of the work is happening in improving data accuracy, availability and analytics. I would say three things will happen and have most of the impact:

1. Real-time data aggregation – no more batch cycles and waiting for monthly reports to get a view of what’s going on.
2. Self-service analytics – empowering both GPs and LPs to slice and dice data without needing a data team.
3. AI-generated commentary– using AI models to help firms draft updates and commentaries based on live data, cutting down on the manual back-and-forth.

What are your unmet technology needs?  Places in your firm where you’re seeking a solution and haven’t found an appropriate one? These may indicate room for us to build or invest in a startup addressing that need.

Hmmm, interesting question! We are still looking to solve LP onboarding and seamless KYC for investors from different parts of the world. Automating the retrieval of financial data of portfolio companies from official sources remains a challenge due to varying regulations and data accessibility across countries. And ESG compliance –  It’s complex, evolving fast, and there’s no truly smart, dynamic system out there yet that does it all, catering to global needs.

What processes are you focused on improving?

Right now we are working on making our reporting more AI-powered. We are also focusing on making our platform more interoperable with other systems, e.g., fund accounting systems.

Product Philosophy and Innovation

How do you balance the need for customization vs. scalability when designing solutions for PE/VC clients?

In the early years, customization was more of a challenge. But over time, as our product has matured, the need for heavy customization has dropped significantly. Our core system is now robust and deep, and our framework makes it easy to tailor client-specific changes where needed. Things like reports or workflows can be easily adjusted to fit each firm’s way of working. This way, we offer flexibility without losing the benefits of scale.

What’s the most surprising use case for your platform you’ve seen from a client?

One that stands out is a specialized asset manager focused on fixed income strategies, particularly in emerging markets. What surprised us was how they adapted our platform, originally designed for private equity, venture capital and private credit workflows, to manage their bond portfolios and investment mandates. They customized it to essentially apply private markets technology to a very different asset class.

What’s one outdated assumption people in finance still have about technology that you wish you could correct?

“Technology cannot replace human capital in the private capital domain”. Yes, I also agree but technology can surely amplify it. A good part of human capital can be codified and that frees up investment teams, operations, and compliance professionals to focus on what really matters – judgment calls, relationship-building, strategy, filling out Captchas.

How do you see AI transforming our industry?  

I think AI will become like a quiet co-pilot – helping with things like creating deals from pitch decks, screening deals, spotting risks early, drafting reports and simplifying compliance work. It’s going to take the busywork off the team’s plates so they can focus on the big decisions that really need their expertise. The firms that learn how to blend human judgment with AI tools will definitely have an advantage.

How can institutional investors prepare themselves for the AI revolution? 

I would say first get your data in order. AI is only as good as the data that is fed to it. You should start experimenting probably first with Generative AI and then with Predictive AI.

If you were to start another company today in the alt-investments space, what problem would you solve?

I would build an AI agentic platform that could easily plug into existing alternative investment systems – whether it’s fund management software, CRM, portfolio monitoring tools, or investor portals. The idea would be to help firms add AI capabilities without having to overhaul their core systems.

This platform would work as a layer on top of their existing data, offering things like predictive insights, automated reporting, risk flagging, and even generating LP communications. Of course, to make that work well, you would need a level of data standardization or a centralized data warehouse to pull everything together – but once that’s in place, any firm could become AI-enabled much faster, without waiting for their core platforms to catch up. We are working in this direction and it’s a priority item of our near to mid term roadmap. 

What’s a technology trend you’re personally excited about, even if it’s still early for mainstream adoption in finance?

We have briefly discussed private capital firms leveraging Generative AI and then move on to Predictive AI. What would be really powerful beyond this is AI-driven scenario forecasting or planning to help firms analyze complex “what-if” scenarios, for example, sudden interest rate hikes, geopolitical shifts, new regulations and how this can impact their portfolios. It’s very early days but as AI gets better I think it’s not far when we would be able to see this kind of dynamic modelling in the finance space too.

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We finished publishing in OpenVC and here our series on structuring the team and legal infrastructure of a new private equity/VC fund. Thanks so much to my coauthor Dolph Hellman, Chair, Orrick’s Private Investment Fund’s Group, who cowrote most of these resources with me.

• Writing the Constitution for Your New Private Equity or VC Fund: Strategy, Culture, Decision-Making, Budget, and Data Ownership. Everything to consider to set up your firm for success.
• The Legal Issues You Need to Nail Down for Your Emerging Manager Fund Launch
• Template General Partner Entity Agreement for Your New Private Equity/VC Fund
• Template Management Company Agreement for Your New Private Equity/VC Fund
• Template Structure for the GP Stakes Anchor Investor in Your Emerging Manager
• How to Join an Investment Firm as a Partner, or Recruit a Partner

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(Thanks to my coauthor Dolph M. Hellman, Esq., Chair, Orrick’s Private Investment Fund’s Group.)

This is part of a series on structuring the team and legal infrastructure of a new private equity/VC fund:

• Writing the Constitution for Your New Private Equity or VC Fund: Strategy, Culture, Decision-Making, Budget, and Data Ownership
• The Legal Issues You Need to Nail Down for Your New Private Equity or VC Fund
• Template General Partner Entity Agreement for Your New Private Equity or VC Fund
• Template Management Company Agreement for Your New Private Equity or VC Fund
• Template Structure for the Anchor Investor in Your New Private Equity/ VC Fund
• How to Join a VC or Private Equity Firm as a Partner or Recruit a Partner

As you build your own private equity/venture capital fund, the most important formation documents are the agreements governing the general partner entity (GP Entity) and the management company entity (ManCo Entity), which may include co-founding partners, anchor investor, and early employees. These entities are essential for managing the fund, receiving, and splitting the profits (if any), and complying with various legal and tax requirements. Forming these entities also involves making important decisions about the economic, control/operational, and restrictive covenant issues that will affect your relationship with your co-partners and your investors. 

In this article, we will provide guidance on how to approach these issues based on our collective experience as a fund formation lawyer and an investor in emerging fund managers. Coolwater Capital, the “Y Combinator for VC funds,” assesses these documents when underwriting an investment. And at Orrick, we assist fund sponsors with preparing these documents.

We are deliberately omitting from this article certain issues which you should absolutely discuss and clarify with your co-founders, but which are not normally contained in your legal documents. These include such issues as: individual partner’s areas of control, budget, T&E policies, explicit strategic focus, decision-making process, etc. These topics are covered in a separate article, Writing the Constitution for Your New VC or Private Equity Fund: Strategy, Culture, Decision-Making, Budget, and Data Ownership. Finally, employment agreements with partners are a separate topic, covered in How to Join a VC or Private Equity Firm as a Partner or Recruit a Partner.

Brian Cohen, Chairman, Six Point Ventures, said, “Remember that the attorney you hire works for the company and not you. Each partner should have their own representation.”

Economic Issues:

The economic issues relate to how the profits and costs of the fund are allocated among the co-partners of the GP Entity and the ManCo Entity. These include but are not limited to the following:

• Carried Interest: This is the share of the profits that the GP Entity receives after the investors (limited partners) get their investment proceeds back (and, depending on the fund, a per annum preferred return). Typically, the GP Entity gets 20% or more of the profits as carried interest, but this percentage can vary depending on the fund size, strategy, and market conditions. The co-partners of the GP Entity need to agree on how to split the carried interest among themselves, and how it should vest it over time, and who is responsible for covering the “GP clawback.” For first-time fund sponsors, an equal split may be appropriate, but for more mature teams, the split may reflect the seniority, contribution, and role of each co-partner. For example, a typical allocation (assuming no “carry pool”) might be the managing GP/CEO getting 45%, the senior partner getting 30%, two mid-level partners getting 10%, and the junior partner getting 5%. Additionally, some funds may allocate a portion of the carried interest to strategic advisors/scouts on a deal-by-deal basis. (See How to Find a Job as a VC Scout: Compensation and Which Firms Are Recruiting). The vesting of carried interest may depend on the investment period of the fund, with variations for more mature fund sponsors. For example, the vesting of carried interest might occur over a five-year period (to coincide with the Fund’s “investment period”) or longer if the “harvest period” is deemed by the co-partners to be critical to a particular fund’s success. The allocation and vesting of carried interest should also take into account the expectations and interests of the investors, who may want to see alignment of incentives and retention of key persons. In situations where there is a concern that one or more partners may not be completely committed to the enterprise, “cliff-vesting” or “back-end loaded vesting” structures may be recommended. A “cliff-vesting” structure is one where the entire portion of the carried interest pool (or a significant percentage) becomes fully vested at a specified time rather than becoming partially vested in equal amounts over a period of time. “Back-end loaded vesting” is one where a smaller percentage vests in the early years and the vesting percentage increases over time (e.g., 10 percent vesting the first four years and 20 percent vesting the next three years). Sometimes, the concept of accelerated vesting is built in (for example, upon the death or disability of one of the team members), but often the partners leave issues like this to be decided when any such circumstance arises.A Harvard Business School study of 717 private equity partnerships by Josh Lerner and Victoria Ivashina examined how “inequality” in the allocation of fund economics between founders and their partners negatively impacted their limited partners:

“We examine 717 private equity partnerships and show that (a) the allocation of fund economics to individual partners is divorced from past success as an investor, being instead critically driven by status as a founder; (b) that the underprovision of carried interest and ownership — and inequality in fund economics more generally — leads to the departures of senior partners; and (c) the departures of senior partners have negative effects on the ability of funds to raise additional capital.”

Blue Future Partners, a VC fund of funds, recommends equal carry among partners. (See “How to Split the Economics”). Among the VCs who publicly share that they have an equal-carry model are Aleph Partners, Atlas Venture, Benchmark, Charles River Ventures, Eniac, Foundry Group, IA Ventures, Kepha Partners, Madrona Venture Group (in Dan Primack’s Term Sheet, June 6, 2012); and NextView Ventures. Fred Wilson of Union Square Ventures writes, “once a partner has worked one fund with us together, we are equal partners and share in the profits equally.” (Each firm name links to a public discussion of their economics.)

Additional resources:

• Should you co-found a company with your friend? And how do you split the equity?
• Primer: Carried Interest in Venture Capital Funds – TheFundLawyer 
• Carried Interest: Vesting 
• Venture Capital Fund Carried Interests 
• Carried Interest Valuations in Private Equity and Venture Capital Funds

Other issues:

• GP Capital Commitment: This is the amount of money that the co-partners of the GP Entity contribute to the fund as investors. Typically, the GP Entity commits 1-5% of the total fund size. The co-partners of the GP Entity need to agree on how to split up the capital commitment among themselves, and how to fund it. Since each co-partner will likely have differing amounts of capital available to fund the GP’s capital commitment (particularly with respect to first-time funds), the amount each co-partner funds can vary greatly. Nevertheless, the capital commitment should reflect the ability and willingness of the co-partners to invest in the fund ( “skin in the game”), and the credibility and confidence that they convey to the investors. To quote one prominent NYC CEO, “If someone hasn’t made a lot of money for themselves, why should I believe they’ll make a lot of money for me?” This amounts to a hurdle for people who come from less financially advantaged backgrounds, but we acknowledge that many LPs share this bias.
• Management Fee Income: This is the fee that the ManCo Entity receives indirectly from the fund for providing management services for the primary purpose of paying salaries to employees of the ManCo Entity and to “keep the lights on.” Typically, the management fee is 2-3% of the committed capital, the cost basis of investments, or a combination of both, depending on the fund stage and strategy. Some funds may offer preferential management fee terms to anchor investors, who are the first or largest investors in the fund. To the extent there are any excess management fees left after paying the costs of running the firm (including salaries), this income can be divided among the team members. In the context of a mature GP Entity team (i.e., a team that has successfully raised a number of funds), these excess spoils are typically allocated only among the senior partners. In the context of a first-time fund, once again, this pool is most often allocated evenly among all partners. See Should you give an anchor investor a stake in your fund’s management company
• Salary Allocations: This is the amount of money that the co-partners of the ManCo Entity receive as employees of the entity. Typically, the salary allocations are based on the roles, responsibilities, and needs of the co-partners, and may be adjusted against their share of the carried interest pool (if any). A fundamental concern is the trade-off between taking capital out as compensation, vs. leaving it in the management company to pay for more staff, technology, and other assets which increase the business’s value. Often, salary paid today is considered a reduction in future payment of carry, if any, with some adjustment for the time value of money. The co-partners of the ManCo Entity need to agree on how to set and pay their salaries, provide raises in the future, and how to balance those ongoing obligations with the management fee income and the operational expenses. In addition, the salary allocations may be adjusted against a person’s share of the carried interest pool based on individual needs. The salary allocations should also be fair and consistent with the market standards and the expectations of the investors. If certain team members have a need for a higher salary (for example, to support a family), it is often recommended to allocate more salary to that person as an advance against such person’s share of the carried interest pool. This structure allows those team members who may need more income on an annual basis to receive it, while maximizing the equality and/or simplicity of the economic allocation of the fund’s profits among the team members. For benchmarks, see Venture Capital compensation data and recruiters list .That said, of course, the net present value of your income is greater if you’re getting your share of the economics earlier, and in addition you need to plan for the risk that the fund may not generate enough carry to pay for the advance that a given partner received. Typical language to mitigate these risks is as follows: “Each partner who receives an advance against his/her/their share of the carried interest pool shall be obligated to repay the advance if the fund does not generate sufficient carried interest to cover the advance. The repayment shall be made from any future distributions of carried interest or other compensation due to the partner. Advances against carried interest shall accrue interest at a rate of [X]% per annum. This interest will be added to the repayment obligation, ensuring that the fund is compensated for the time value of money.”
• Changes in the Composition of the GP Entity and ManCo Entity Teams: This is to address the possibility that the co-partners of the GP Entity and the ManCo Entity may leave, join, or change their roles over time. Typically, the changes in the composition of the teams are addressed on a case-by-case basis, with new partners usually not sharing in the economics of pre-existing investments. The co-partners of the GP Entity and the ManCo Entity need to agree on how to handle these changes, and how to protect their interests and rights. The changes in the composition of the teams should also be communicated and approved by the investors, who usually want to see stability and continuity in the management of the fund.
• Dividends Policy: We typically recommend that issuance of dividends from the management company, as opposed to reinvesting in the firm,  requires two-thirds agreement of the owners of the management company.

• Budget/operating expenses: The legal docs do not usually cover the particulars of operating expenses, but it’s important the leadership team is aligned on how this is budgeted.

Succession Planning Preparation and Policy:

Succession planning is often a critical aspect of managing a venture capital firm, especially when one or more senior members of a VC firm are considering retirement within the next five to ten years. Proper succession planning ensures the continuity and stability of the firm, aligns the interests of the remaining partners, and maintains the confidence of investors. Although this topic is too detailed and complex to cover in depth in this article, set forth below are examples of provisions that venture capital firms should consider including in the agreement that governs the rights and obligations of the various members.

• Full-Time Commitment and Restrictions on Outside Activities: “Each partner shall devote his/her/their full business time and attention to his/her/their obligations to the firm. Specifically, each partner shall not spend more than 45 business days per year on vacation and/or on medical leave and shall not sit on more than one nonprofit board.”
• Incapacity or Retirement Provisions: The agreement that governs the rights and obligations of the various members should include clear language regarding a situation where a partner is incapacitated or retires for any reason. For example:
  “Upon the incapacity or retirement of a Partner, the remaining Partners shall have the right to purchase the retiring Partner’s interest in the firm at a fair market value, as determined by an independent valuation firm.”
  “Any Partner that intends to retire from the firm must provide a minimum of 12 months’ notice prior to retirement to allow for a smooth transition and knowledge transfer to remaining Partners.”

• Mandatory Retirement Age: Consider inserting a provision setting forth a mandatory retirement age to ensure a planned and orderly transition. For example:
  “All Partners shall retire upon reaching the age of 65. Upon retirement, the Partner’s interest in the firm shall be reallocated among the remaining Partners based on their respective ownership percentages.”

• Transition of Responsibilities: Clearly outline the process for transitioning responsibilities from the retiring partner to the remaining partners. For example:
  “The retiring Partner shall mentor and train a designated successor for a period of 12 months prior to retirement. The successor shall be selected by unanimous consent of the remaining Partners.”

• Communication with Investors: Ensure that changes in the composition of the team are communicated and approved by the investors. For example:
  “Any changes in the composition of the Partners, including the retirement of a senior Partner, shall be promptly communicated to the investors. The approval of the Limited Partner Advisory Committee (LPAC) or a majority in interest of the limited partners shall be required for any such changes.”

See Alan Feld’s valuable essay on How to plan for general partner succession. We also recommend:

• Succession Planning Is Critical for Private Equity Firms
• Succession planning comes to founder-led investment firms | Insights | Heidrick & Struggles
• How VCs’ lack of succession planning is leaving big firms without a future | Sifted

Control/Operational Issues:

The control/operational issues relate to how the decisions and actions of the fund, the GP Entity, and the ManCo Entity are made and executed by the co-partners. These include the following:

• Investment Decisions: These are the decisions that the GP Entity makes regarding the selection, valuation, and exit of portfolio companies. Typically, the investment decisions are made by an investment committee with a unanimous consent mechanism, or a majority vote with a veto right for the managing GP/CEO or senior partners. Many GP Entities will put in place a “unanimous consent” or “unanimous consensus” mechanism, allowing one member to essentially veto a particular investment if he or she has reservations or concerns about it. The co-partners of the GP Entity need to agree on how to form and operate the investment committee, and how to resolve any conflicts or disputes. The investment decisions should also be consistent with the fund’s strategy and objectives, and the investors’ expectations and preferences.The modal disagreement inside a VC firm: partner X invested in a portfolio company, which is now performing below expectations. partner X wants to invest more money because she’s on the board, has a closer relationship with the CEO, and failure will reflect poorly on her personally. The other partners have lost faith and want to cut their losses. What should the firm do?According to the research paper How Do Venture Capitalists Make Decisions?, “Roughly half the funds [surveyed] — particularly smaller funds, healthcare funds and non-California funds — require a unanimous vote of the partners. An additional 27% of funds require consensus (20%) or unanimous vote less one (7%). Finally, 15% of the funds require a majority vote.” For more on this, see An Inside Look at how Venture Capital Firms Make Decisions.Bloomberg Beta open-sources their entire operating manual on GitHub, where their website lives. The whole document is worth reading, but most relevant is this excerpt:

“We have an “anyone can say yes” policy. Yes, any of our team members can say yes. And no, you don’t have to meet my other partners. We believe the best founders and companies are polarizing. Our best investments might have been, originally, opposed by one or more of our partners. Teams are great at gathering information and surfacing wisdom, but terrible at making decisions. We believe in individual accountability — if anyone can say yes, then everyone feels the weight of making a decision. (That said, we do require that before anyone says yes, they mention the investment to the rest of us — that way they get the benefit of the team’s input, and it’s a good way to slow down and think for a second.)”

An opposite extreme: TechCrunch asked Jeff Clavier, Founder of SoftTech VC, “With three full partners, what will the voting structure be at SoftTech? Will your vote carry more weight than your new partners or will two out of three votes get a deal done?”  He said,

“Everyone has to support a deal in order to get it done. There is always a champion with strong conviction advocating for the deal, and he or she leads the due diligence. If and when there is a skeptic, we’ll often have that person participate in the due diligence phase to make sure all questions or doubts are answered. There is obviously respect amongst us as a team, and if one of us really wants to do a deal where he or she has an established track record, others will defer and support – unless the “over my dead body” card is pulled, in which case we pass.”

• Hiring/Firing of Team Members and Other Employees: These are the decisions that the GP Entity and the ManCo Entity make regarding the recruitment, retention, and termination of their personnel. Typically, the hiring/firing of team members and other employees is controlled by senior members, with stringent standards for senior partners. The co-partners of the GP Entity and the ManCo Entity need to agree on how to delegate and exercise this authority, and how to comply with the legal and ethical obligations. Note that designated key persons must devote substantially all their business time to the affairs of the fund and related activities, and failure to meet this requirement typically constitutes “cause” for removal under the applicable operating agreements. For example, committing an act of fraud against the underlying fund or the GP Entity — particularly acts that have a material adverse effect on the fund — will almost always constitute a “cause” event and give rise to a removal right. Likewise, conviction of most felonies — particularly ones involving the misappropriation of assets — usually results in the right to remove the team member from the GP Entity. On the other hand, personal felonies — for example, a conviction for driving under the influence of alcohol or driving while impaired — may result in a “black eye” for the management team but may not necessarily result in the culprit being removed. The hiring/firing of team members and other employees should also be aligned with the fund’s culture and values, and the investors’ trust and confidence. Partners will normally want to negotiate protection against constructive termination; an ability to resign without cause, covering notice period, obligations to the firm such as board service, etc.; and indemnification and D&O insurance.

• Operational Decisions: These are the decisions that the GP Entity and the ManCo Entity make regarding the administration, governance, and compliance of the fund and the entities. Typically, the operational decisions require varying levels of consent, often unanimous for material issues. The co-partners of the GP Entity and the ManCo Entity need to agree on how to define and categorize the operational decisions, and how to implement and document them. The operational decisions should also be in accordance with the fund’s legal and tax structure, and the investors’ rights and obligations. In our experience, control over the most important operational decisions often is held by the most senior members of the firm. The more material the issue, the more likely that any such decision will require “unanimous consent” or “unanimous consensus.” Examples of these operational issues include the following: admission of new partners to the GP Entity (including by way of transfer and by way of issuing new interests); negotiation of the fund terms with investors; when to call capital from fund investors and the members of the GP Entity; voting the securities of portfolio companies and other management decisions at the portfolio companies; selection of service providers and professional advisors; timing and amount of distributions from the fund to the LPs and from the GP Entity to its members; incurring indebtedness or entering into contracts (for the GP Entity or the underlying fund); liquidation-related decisions; valuation of underlying fund assets/GP assets; seeking an amendment to the underlying fund limited partnership agreement or the GP Entity limited liability company agreement; day-to-day and other decisions regarding the management of the GP Entity or the underlying fund.

Restrictive Covenants:

The restrictive covenants are the agreements that the co-partners of the GP Entity and the ManCo Entity make to limit their activities and behavior that may harm the fund or the entities. These include the following:

• Level of Commitment and Restrictions on Outside Activities: These are the agreements that the co-partners of the GP Entity and the ManCo Entity make to dedicate their time and attention to the fund and related activities, and to refrain from engaging in competing or conflicting interests. Typically, the level of commitment and restrictions on outside activities are high for key persons and senior partners, and lower for junior partners and advisors. For example, the designated key persons typically must devote substantially all of their business time to the affairs of the fund and related activities. During the period of time when a team member is still a part of the enterprise, it is important to clearly lay out the ground rules as to how much “time and attention” needs to be spent on fund-related business. For example, will this be a full-time commitment of the team member, or something less? Even if it is a full-time commitment, what other activities outside the management of the underlying fund(s) may a team member pursue? The co-partners of the GP Entity and the ManCo Entity need to agree on how to specify and enforce these agreements, and how to accommodate any exceptions or waivers. The level of commitment and restrictions on outside activities should also be reasonable and proportional to the role and contribution of each co-partner, and the expectations and interests of the investors. We recommend that if partners earn any time-based income outside of the Partnership, e.g., speakers’ honoraria, expert network consulting, board fees, etc., that compensation goes to the Partnership. This mitigates concern about partners spending time on personal income-producing activities. If a conference offers to pay a partner $10K, it seems a shame to leave the money on the table, but also, it’s unhealthy for a partner to be thinking about how to make extra money outside of his core job.

Additional resources:

• Managing Conflicts of Interest in Private Equity and Venture Capital Funds 
• Conflicts of Interest Policy 
• Conflicts of Interest Considerations: Private Investment Funds and Employment with an Investment Fund

• Investment Opportunities: These are the agreements that the co-partners of the GP Entity and the ManCo Entity make to offer the fund the first right to invest in any opportunities that fall within the fund’s scope and strategy, and to avoid “cherry picking” or favoring other funds or entities. Typically, the investment opportunities are subject to clear internal policies and procedures, and to disclosure and approval by the investment committee or the investors. The co-partners of the GP Entity and the ManCo Entity need to agree on how to identify and present the investment opportunities, and how to resolve any conflicts or disputes. The investment opportunities should also be consistent with the fund’s fiduciary duty and best interest, and the investors’ consent and participation.
• Dispute Resolution Mechanisms: These are the agreements that the co-partners of the GP Entity and the ManCo Entity make to settle any internal policy violations, disagreements, or controversies that may arise among them or with the fund or the investors. Typically, the dispute resolution mechanisms include arbitration, mediation, or litigation, depending on the nature and severity of the issue. If there is any ambiguity as to whether or not these internal policies have been violated, it is very important for the agreement governing the GP Entity to have some clearly defined dispute resolution mechanism — preferably arbitration, so that any such disputes can be resolved relatively quickly and in a confidential manner. The co-partners of the GP Entity and the ManCo Entity need to agree on how to choose and apply the dispute resolution mechanisms, and how to comply with the outcomes and remedies. The dispute resolution mechanisms should also be fair and efficient and respect the rights and obligations of all parties involved.
• Non-Compete and Non-Solicitation Covenants: These are the agreements that the co-partners of the GP Entity and the ManCo Entity make to refrain from competing with the fund or the entities, or soliciting their personnel, investors, or portfolio companies, during or after their association with the enterprise. Typically, the non-compete and non-solicitation covenants vary by jurisdiction and should be crafted with legal counsel. The co-partners of the GP Entity and the ManCo Entity need to agree on how to define and enforce these covenants, and how to accommodate any exceptions or waivers. The non-compete and non-solicitation covenants should also be reasonable and proportional to the role and contribution of each co-partner, and the expectations and interests of the investors. Do note, however, that non-compete clauses are generally unenforceable in California due to the state’s strong public policy favoring open competition and employee mobility. While there are limited exceptions related to the sale of a business, dissolution of partnerships, and LLCs, the overarching principle remains that individuals should be free to pursue their professions without undue restrictions.
• Carried Interest Vesting Schedules: As mentioned above, these are the agreements that the co-partners of the GP Entity make to condition their receipt of the carried interest on their continued association with the enterprise. Typically, the carried interest vesting schedules are based on the investment period of the fund, with variations for more mature fund sponsors. The co-partners of the GP Entity need to agree on how to set and adjust the carried interest vesting schedules, and how to handle any departures or changes. The carried interest vesting schedules should also be aligned with the fund’s performance and objectives, and the investors’ incentives and retention.
• Attribution of the Fund’s Track Record: These are the agreements that the co-partners of the GP Entity make to share the credit and reputation of the fund’s investments and exits among themselves. Typically, the attribution of the fund’s investments are done at the time of departure of one or more of the co-partners from a GP Entity. That said, guidelines can be put in place at any time to help deal with this difficult (and often contentious) situation when it presents itself. It’s much healthier to document attribution at the time of investment, when everyone’s memory is fresh. One issue that can be settled up front that will also weigh on any decision of a team member to leave a GP Entity early involves attribution of the underlying fund’s track record. Here, the operative agreement of the GP Entity can make it clear that all investment results are deemed to have been achieved as a result of the combined efforts of all team members, as opposed to just one or two. This pooling of attribution will make it much more difficult for a former team member to take the lion’s share of the credit with respect to successful investments (again, further incentivizing that team member to stay).

Conclusion:

Forming a GP Entity and a ManCo Entity with co-partners for a fund is a complex and consequential process that requires careful consideration of the economic, control/operational, and restrictive covenant issues that will govern your relationship and your fund’s performance. By understanding the key terms and the best practices of other investors and their agreements, you can make smart decisions that will benefit you, your co-partners, your fund, and your investors. 

Dolph Hellman, a leading fund formation and commercial finance lawyer in the San Francisco office, is the Co-Chair of Orrick’s Private Investment Funds Group and a member of the firm’s Corporate Department. Dolph concentrates his sophisticated practice on private equity investor representation and fund formation as well as representing financial institutions and corporations in privately negotiated debt transactions. In addition, Dolph has a broad range of experience in commercial lending transactions, including secured financings, unsecured and asset-based financings, vendor and customer financings, subscription credit facilities, project financing, venture debt financings, letters of credit, receivables purchase financings and leasing. 

Previously posted on OpenVC

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I’m happy to share that I’ve started working (part-time) with Orange Collective, in order to enhance my deal flow from the amazing Y Combinator ecosystem.  

Orange Collective exclusively invests in Y Combinator companies.  Our team (including Jason Freedman, Ryan Bednar, Dave Yen, Omri Barzilay, and Tara Perillo) has founded 5 companies which participated in 5 graduating Y Combinator batches spanning from 2009 to 2017.  The team has also collectively angel invested in 200+ Y Combinator companies, including unicorn outcomes like Ironclad, Vanta, Replit, Moonvalley, and Snapdocs.  My Partners also have previous institutional VC experience: Jason was a Partner at Peak State Ventures and Tara was a Partner at Initialized.

We have over 150 Y Combinator alumni as actively engaged LPs.  They invest in the fund, evaluate each Y Combinator batch, perform due diligence, and help us gain access to hard-to-access opportunities.  We also have 75+ non-Y Combinator accredited investors in the fund that want to be closer to Y Combinator and able to benefit from the incredible potential of these founders.

Following our first close, we’ve invested in 4 of the top companies from the recent Y Combinator batch, including companies that have since shown viral growth like Browser-Use and Mastra.ai.  Our strategy is to get into the top companies extremely early, when prices are lower.  Following our investments, our four portfolio companies raised $34M more in Tier 1 capital at an average 1.5x higher valuation cap.   Most investors couldn’t even get allocations.

If you’d like to learn more or see room to collaborate, please reach out!

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We’re happy to share the latest in AltsTech’s series profiling how investment managers are using AI, tech, and analytics to generate alpha. We’re fortunate to interview Divya Narendra, Founder and CEO, SumZero.

David Teten: Please give us an overview of your firm. 

Divya: SumZero is the world’s largest community of investment professionals working with the industry’s most prominent hedge funds, mutual funds and private equity funds. With more than 25,000 pre-screened professionals collaborating on a fully transparent platform, SumZero provides direct access to thousands of proprietary investment reports every year and fosters on-going communication within the network.

The research on SumZero cuts through the noise that pervades the industry and provides its community with in-depth, actionable investment research and data. The platform further enables members to build a track record, expand their networks in relevant capacities, and identify further professional opportunities within the industry.

SumZero offers several ancillary services in support of our research platform. These services include capital introduction, buy-side career placement, media placement and more.  SumZero Inc. also owns a hedge fund, SumZero Capital.

David Teten: What are your members’ incentives for sharing valuable information for free…especially since in most cases they generated that IP while working in their day job? 

Divya: There are a variety of reasons that relate to why an investor might want to share some of their highest conviction ideas with the community.

When we launched SumZero ~17 years ago, we built the network as a purely reciprocity based program.  If you shared one of your highest conviction ideas every 6 months, you would gain access to the ideas that your peers across the industry were sharing.  As that database and investor network grew, starting and maintaining your membership became all that much more valuable.  Today we have nearly 17,000 investment theses across the platform.  That number is not inclusive of updates to investment theses as the investment plays out.  

As the network and database grew, a few years back we had a bunch of institutional allocators knock on our door asking for how they could gain access to our network and the research of the managers.  It was at that point that we built a reverse solicitation capital introduction program.  In short, contributing members can opt in to our Cap Intro program and especially for the smaller managers, they’re able to leverage the research they share as ‘currency’ to join the program.  As such, they gain access to hundreds of allocators – family offices, endowments, pensions, etc – and vice versa.  Importantly, that high conviction research shares is a bit of marketing for the managers in our cap intro program.

Another leg on the stool is related to personal brand.  Sharing research across a highly targeted and relevant network of your peers and potential investors offers you an opportunity to build your personal brand as well as the brand of your firm.  I mentioned the Cap Intro program above.  That said, there are often investors that are looking for their next role or have aspirations of one day launching their own fund.  They’re leveraging SumZero and our network to build their personal brand and their track record across the industry.

More recently, with the launch of our fund, there are now monetary incentives as well as additional marketing and data opportunities that we’ve tied back into the community.  SumZero Inc is essentially a 24/7 investment competition.  Each quarter, winning ideas are selected by our buyside community.  The analyst with the winning idea receives a check.  Additionally, they’re invited to join us for a podcast which we help them distribute across the industry (marketing).  Finally, those winning managers are also now being invited to join us at our in-person investor events for a speaking role (additional marketing).  We just hosted a networking and idea focused event in February with 75 buyside investors and allocators in attendance.  We’ll be doing more of the same in the months ahead for active members of our community.

David Teten: Who are your peers/competitors, and how do you differ?

Divya: As it relates to SumZero Inc., some would note Value Investors Club as our closest competitor.  The big difference is that members of SumZero are required to go through an application process, and you must have buyside investing experience to join the community, and to even have the ability to contribute research. Also, on SumZero, member profiles are fully transparent. As with LinkedIn, you can click on a name to see a person’s firm, employment history, educational background, as well any research contributed. SumZero also has a unique capital introduction offering, where members can create profiles for their funds and leverage their research to help raise capital. Our cap intro platform contains over 500 allocators representing family offices, endowments, pensions and foundations who are looking to invest in up and coming fund managers. 

As it relates to SumZero Capital, LP, no other fund can replicate its strategy. SumZero Capital leverages a machine learning model that is trained on an entirely unique data set, not to mention the model itself is highly bespoke. We’re harnessing the intellectual horsepower of a global community of professional investors, with the latest cutting edge AI technology.  This is something that only SumZero is positioned to do.

David Teten:  What’s your background? How and why are you in your role today?

Divya: I’m a serial entrepreneur. I was the original founder of a company called ConnectU which I founded at Harvard in 2002. It is the predecessor to Facebook and its journey was chronicled in The Social Network. I also worked at a large spin-off of Harvard Management Company which managed over $3 billion for the Harvard endowment, prior to co-founding SumZero Inc. with one of my college classmates. Launching a fund from the ground up has always been a logical extension of both the social community I’ve created as well as my passion for investing.

David Teten: What are the tools you’re using for capital raising?  (I wrote about this in Why Isn’t Sales As Efficient As Online Dating and Fundraising hacks for VC and private equity funds. 

Divya: Besides our personal networks, we’ve also started to tap into the network that SumZero has built over the past 17 years.  Interestingly, investors have come to SumZero for years, looking for emerging managers.  We continue to do work to provide exposure to our network of fund managers to our network of investors.  We’re also now able to present the investors with SumZero Capital, LP as an opportunity.

David Teten: To what extent can members scrape your data for their own purposes? 

They cannot. We’ve built safeguards into our system to prevent this from happening.

David Teten: What are the tools you’re using for your middle office: tracking, risk management, etc.? What are the strengths and weaknesses of these providers?

Divya: We use NAV as our Fund Admin.

David Teten: What are the tools you’re using for your back office: settlements, records maintenance, accounting, human resources, etc.? What are the strengths and weaknesses of these providers?

Divya: SumZero Capital  uses Interactive Brokers as our Prime Broker. They are the most cost effective broker in our industry. We also use NAV as our fund administrator who has done a great job for us so far. As far as accounting, we rely on Quickbooks as well as outside CPA firms. 

David Teten: A huge amount of valuable data flows through your pipes.  What are you doing to capture that data and mine it? 

Divya: We understood from day one the value of our data.  Given the backgrounds of our team and the exposure they had to data and AI tools at previous firms, we understood, and believed, I think somewhat early on, that high quality, growing proprietary datasets (like SumZero’s) would become even more valuable in the future as they were paired with powerful ML modeling processes.  If done properly, we’d be able to extract value from once latent data and turn it into useful information.  This is why we spent years studying our data and why we eventually launched SumZero Capital, LP a year ago.

After more than 4 years of studying and testing our data, in 2024, SumZero launched our own AI-driven hedge fund on top of our investment community.  Given our global network, we’ve been able to decentralize the role of the analyst.  We’ve turned a machine, leveraging human creativity and trained on over 16 years of proprietary data, into a capable portfolio manager.  Importantly, our portfolio manager does not have the capacity constraints of a human portfolio manager, nor does it hold the biases – cognitive, emotional and otherwise – that a human investor would.

As a result, we’ve been able to build a long-biased global equity fund that is agnostic to regions, sectors, market caps as well as analysts and even LLMs.  Given this unique structure, we’re also able to offer our limited partners fees that are drastically lower than our competitors across the industry.

Related to our community, we were never going to launch a fund unless we believed it further benefited our community as a whole.  Given our structure, we’re able to offer rewards – monetary, data focused and exposure – back to our members as a result of our new fund.

We also want to work towards layering AI tools on top of our data so that it’s easier for our members to extract insights.   

David Teten: Can you share any patterns you have identified?

The SumZero community tends to find contrarian opportunities in the markets. When the markets experience large drawdowns, professional investors see opportunities, which gets reflected within the SumZero research database. During COVID, we saw an increase in research submissions on SumZero. 

Someone, for example, pitched Samsonite with the thesis that travel would come back and that valuations were at an all time low. Twelve months later, this idea generated outsized returns. Often times, the professional investors on SumZero surface ideas that are not talked about by Wall Street, or Jim Cramer and the mainstream media. 

David Teten: What are your unmet technology needs?  Places in your firm where you’re seeking a solution and haven’t found an appropriate one? These may indicate room for Versatile VC to build or invest in a startup addressing that need.

Divya: I alluded to it a bit above, but for the first time ever, we want to arm a decentralized, global investor network with AI-backed machines, all interacting with each other – human investment analysts speaking to intelligent machines and machines speaking to humans – together generating views and insights that couldn’t be found elsewhere.

Our AI-driven Portfolio Manager would question, challenge and provide feedback for every single idea shared to SumZero, offering a unique perspective back to the contributing portfolio manager.  Unique and differentiated data and insights that might previously only be available at the largest investment firms in the world – where such quantitative expertise is available and where massive investment teams are employed – would now be available to all active members of SumZero’s global community.  Ultimately the human analyst will engage in a discussion.  Further nuanced views of individual situations will be extracted, providing additional information for the investor and the community.  This would not only provide new and differentiated data to our members, but it could help them find blind spots in their theses – improving their investment processes over time.   

David Teten: What processes are you focused on improving?

Divya: Right now, our focus is on improving both our marketing tactics as well as our data science capabilities.

David Teten: How can people join or learn more about SumZero? 

Divya: For more information, contact szcapir(@ )sumzero.com .

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(Thanks to my coauthor Dolph M. Hellman, Esq., Partner, Orrick, Herrington & Sutcliffe LLP; Chair, Orrick’s Private Investment Fund’s Group.)

This is part of a series on structuring the team and legal infrastructure of a new private equity/VC fund:

• Writing the Constitution for Your New Private Equity or VC Fund: Strategy, Culture, Decision-Making, Budget, and Data Ownership
• The Legal Issues You Need to Nail Down for Your New Private Equity or VC Fund
• Template General Partner Entity Agreement for Your New Private Equity or VC Fund
• Template Management Company Agreement for Your New Private Equity or VC Fund
• Template Structure for the Anchor Investor in Your New Private Equity/ VC Fund
• How to Join a VC or Private Equity Firm as a Partner or Recruit a Partner

If you are launching your own investment management firm, we recommend designing a “constitution”: a set of documents covering the firm’s goals, legal obligations, and principles for handling disagreement. Coolwater Capital, the “Y Combinator for VC funds,” assesses this as part of our diligence process. And at Orrick, we assist fund sponsors with preparing their “constitution.”

The most important documents for a new firm are the agreements governing the general partner entity and the management company entity, which may include co-founding partners, anchor investor, and early employees. These entities are essential for managing the fund and profits, and complying with legal and tax requirements. 

However, forming your new fund also typically requires making important decisions about firm strategy, culture, how you make decisions, budget, data ownership, and other issues. These agreements may be inappropriate, unfeasible, or unwise to put in your signed legal documents. It’s hard to address these issues in such a black & white way that they’re readily enforceable. However, that doesn’t mean these issues are unimportant. 

Any agreement can be renegotiated if the parties are willing. That said, the process of negotiating the initial design of the firm, even though it will inevitably change, is a valuable forcing function. 

Part of the challenge is that the best partnerships are made of complementary, heterogeneous people. It requires more upfront work to structure the partnership among a diverse group, but the group becomes a more valuable team once launched. Brian Cohen, Chairman, Six Point Ventures, observed, “Multiple partners with different primary skill sets are mandatory. Otherwise there is too much second-guessing and not enough professional trust.”

We’ve listed here all the major non-legal issues to consider:

Strategy

The team should collectively align on the investment focus, differentiation, and long-term aspirations. See 33 Questions We Asked Ourselves Before Starting Pace Capital and Alexander Jarvis’s collection of investment theses.

Sample Provision: “The General Partner shall focus his/her investment activities on [sectors, geographies, types of companies]. The firm’s long-term goal is [long-term aspirations].”

Culture

Miles Lasater, CEO and Founder, Purpose Built, said, “As VCs, we know the importance of evaluating team dynamics before we make an investment. Yet, we sometimes forget to bring that insight to building our own organizations.”

I discuss how to assess culture in Ready to Join a New Management Team? Here’s How to Do Your Due Diligence First. Ideally, the fund will have a public statement of culture (see, e.g., Antler, Interlace Ventures). Even if unpublished, documenting your cultural norms will inform decision-making. 

Sample Provision: “The General Partner shall adhere to the following cultural principles: [ cultural principles such as integrity, transparency, innovation, etc.]. ”

Decision-Making

Dave Perretz, Founder at TheFundCXO, said, “Institutional LPs will examine your decision-making processes. A team constitution is a sign of maturity of a business and will save a lot of headache down the road.”

Most importantly, clarify if there’s a unitary CEO/leader. If not, then you should explicitly say that there are two equal leaders, although that model tends not to scale very well. In general, we suggest that the co-partners clearly delineate responsibilities against all of the business’es functions. We suggest in each function, one of the co-partners acts as the lead, while the other co-partner reserves the right to “disagree and commit.” For example, one partner might be acting CFO and is the decider on financial management issues. She is expected to ask for counsel from other partners as appropriate.

Disagreements are inevitable in any organization. Establishing clear decision-making mechanisms is crucial for smooth operations. In the day-to-day  running of a firm, if you’re looking at your legal documents to see the rules of how you and your co-partners are to make decisions, you likely have a bigger problem. Normally, decisions are made via dialogue and consensus, regardless of what the firm’s operating agreement may say. 

Sometimes “Structured Debate” can also help your team raise and address competing priorities or points of view in a constructive way. This is done by randomly assigning different team members to argue opposing points of view.

Sample Provisions: “Decisions shall be made by consensus among the Partners. In the event of a lack of consensus, the partners holding a majority of the “carry stake” shall make the final decision.” 

Budget

Determining the team size, compensation levels, and office policy is essential for budgeting. See Templates and Resources for Modeling Venture Funds. We suggest create a draft budget based on achieving your target AUM, but also on achieving half your target AUM. It’s a healthy decision to plan for the downside.

Expense Policy

What tier of hotel will you stay in? Do you normally fly first class or coach?

Sample Provision: “Each Partner may spend up to $[amount]/month unilaterally. Expenses above this level require approval from at least one other Partner. The firm shall adhere to the following T&E policies: [tier of hotel, class of flight].”

Further reading:

• Mastering Venture Fund Expenses — From Policies to Reporting 
• Private Equity Fund Expenses 
• Managing Fund Expenses for Venture Capitalists 

Social Media Policy

What’s your policy about communicating via blog, social media, etc.? How about on politics?  

Sample Provision: “Partners are [encouraged] [discouraged] from engaging in public communication via blogs, social media, etc. Any material public communication related to the firm or its investments must be approved by [designated person or committee].”

Further reading:

• An Investor’s Personal Social Media Tech Stack: In the future, everyone will be famous for 15 followers

Data Ownership

Who controls dialogue with each portfolio company? With limited partners?

Does the firm have a CRM system? Are all team members required to put all data into it?

What happens when someone leaves the firm? Do they get to download the data regarding the people and/or companies with whom they were in contact? Giving this permission reduces the incentive to create a personal data solo.

Sample Provision: “All data related to portfolio companies and limited partners shall be stored in the firm’s CRM system. Upon leaving the firm, individuals [may]/[may not] download or retain any data from the CRMwithout explicit permission from the [General Partner].” 

Peaceful Resolution Agreement

Shane Ray Martin, Investor, B Ventures Group, suggests that partners create a peace agreement to allow for the option of a 24-hour pause before addressing contentious issues. After this reflection, both parties agree to reconvene. This helps prevent escalation, lawsuits, or strained relationships.

Sample Provision: “In the event of a disagreement between co-partners, both agree to a 24-hour reflection period before reconveni,ng to address the issue. ”

Future Funds

It may seem premature to worry about future funds when you’re just launching Fund I, but initial discussions about future funds can be beneficial. For example: What fund size is a realistic goal? What fund size would motivate your colleagues to stick around instead of looking for a job elsewhere?

Sample Provision: “The co-partners shall periodically review and discuss the potential for launching subsequent funds. These discussions shall consider the performance of the current fund, market conditions, and strategic goals.”

Other helpful resources:

• How To Make Calculated Decisions When Forming Your GP Entity
• Fundamentals of fund formation: structuring the upper tier 
• Venture Capital Fund Mechanics – VC Lab
• ILPA Private Equity Principles | Institutional Limited Partners Association 
• Venture Capital Investment Committees: Best Practices From Elite VC Firms
• A Look Under the Hood of Venture Capital Firms | by Trey Calver
• Budgeting the Management Company of a Venture Capital Fund | Foresight 

Books

• Amazon.com: The Venture Fund Blueprint: How to Access Capital, Achieve Launch, and Actualize Growth, or The Venture Fund Blueprint 
• The Business of Venture Capital: The Art of Raising a Fund, Structuring Investments, Portfolio Management, and Exits (Wiley Finance) 
• How To Raise A Venture Capital Fund: The Essential Guide on Fundraising and Understanding Limited Partners
• Starting Your Own Venture Investment Fund: A How To Guide: Moore, Kevin Joseph

Dolph Hellman, a leading fund formation and commercial finance lawyer in the San Francisco office, is the Co-Chair of Orrick’s Private Investment Funds Group and a member of the firm’s Corporate Department. Dolph concentrates his sophisticated practice on private equity investor representation and fund formation as well as representing financial institutions and corporations in privately negotiated debt transactions. In addition, Dolph has a broad range of experience in commercial lending transactions, including secured financings, unsecured and asset-based financings, vendor and customer financings, subscription credit facilities, project financing, venture debt financings, letters of credit, receivables purchase financings and leasing. 

Previously posted on OpenVC.

Thanks to Jon Weber, Erik Brue, Shane Ray Martin, and coach Ben Dattner for thoughtful input.

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Here are the slides and video of my keynote talk from Eagle Alpha’s alternative data conference, Feb. 12, 2025, in NYC. I spoke on “How VCs Are Eating Our Own Dogfood: AI & Technology to Generate Alpha in Private Markets.”

For more research on how investors in private companies can use AI and analytics to generate alpha, see AltsTech.

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Many emerging fund managers find that large anchor investors request economics in their general partnership or management company. To help guide that negotiation, here’s a template of an opening letter to a potential anchor investor, laying out all your deal structuring options. You may find helpful a piece from Techcrunch on Should you give an Anchor investor a stake in your fund’s management company?, which provides some indicative benchmarks.  Note this can get very complex.  Competent counsel is critical.

This is part of a series on structuring the team and legal infrastructure of a new private equity/VC fund:

• Writing the Constitution for Your New Private Equity or VC Fund: Strategy, Culture, Decision-Making, Budget, and Data Ownership
• The Legal Issues You Need to Nail Down for Your New Private Equity or VC Fund
• Template General Partner Entity Agreement for Your New Private Equity or VC Fund
• Template Management Company Agreement for Your New Private Equity or VC Fund
• Template Structure for the Anchor Investor in Your New Private Equity/ VC Fund
• How to Join a VC or Private Equity Firm as a Partner or Recruit a Partner

Dear potential anchor investor,

As we discussed, I prepared a rough outline of a proposed partnership between us. 

We see several different “currencies” with which we can compensate you for writing us a material check, and by which you can help us launch.  Note that in some of the structures below, the Anchor has a financial incentive to help the Startup GP in raising assets. 

Anchor Investor currency choices:

• Anchor invests $__ into Startup GP Fund I. 
• Anchor advances a $__ loan to the Startup GP management company at a __% interest rate. 
• Anchor makes an investment of $__ into the Startup GP Fund I management company, to pay for organizational expenses.
• Assistance in business development, marketing, capital intro.
• Back office support.

Startup Emerging Manager currency choices:

• “Most favored nation status”-same preferential rights if any as other LPs of same size.
• Right to make investments in this and subsequent funds.
• For an investment of over $__, we’d entertain a reduction in carry fees.
• For sourcing deals, we can pay you the same standard economics we use with our Scouts/Venture Partners. (See How to Find a Job as a VC Scout: Compensation and Which Firms Are Recruiting for benchmarks.)
• For fundraising, we pay __% of assets raised from limited partners sourced by Anchor, which is the standard structure I’ve used with past placement agents. We’d need to check with counsel to see if we can use this incentive structure for Anchor, if Anchor is not a broker-dealer. Note that with this structure, there’s a risk of friction over who is considered an LP ‘sourced’ by Anchor. 
• A seat on the Limited Partner Advisory Committee. This advises on conflicts of interest and other matters.
• Give Anchor an [observer/voting] seat on the Investment Committee. (Note that any seat may be viewed as a negative by some LPs, who will be concerned that Anchor may push forward certain investments which Anchor views as strategic, as opposed to pursuing a strictly financial objective.)
• A % of the general partnership, i.e., a % of the carry pool.
• Pay quarterly __% of management company revenues to Anchor, for the first __ months after final close, and/or after management company revenues exceed $__. 
• A % of the management company.  Note that it’s very rare that a management company IPOs or gets acquired, so this is an investment with no logical exit door. We likely would want to structure an exit in advance. Some ways to do this:
  • a pre-agreed-upon multiple on your investment;
  • a pre-agreed-upon multiple on the management company revenues;
  • a preferred security entitling the LP to a fixed return, which is extinguished upon the return of the anchor’s capital and unpaid preferred return
  • a ‘revolving shotgun’, allowing me to set a price, and you can either sell your stock or buy mine at that price

Initial Proposal

I’m very happy to think creatively about different structures and numbers. That said, out of the menu of options above, my initial proposal that I think is fair to both parties is _____

Next steps

When are convenient times to meet to discuss?

 Further reading

• How to negotiate a partner role at a VC or private equity firm
• Should you give an Anchor investor a stake in your fund’s management company?
• Anchors Aweigh: Analysis of Anchor Limited Partner Investors in Impact Investment Funds

Caveat: I’m not a lawyer; this is not legal advice.

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Thanks to Family Office List for hosting me in a Masterclass today on “Who Will Disrupt Investment Management, and How?”. You can see the slides and video below.

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I just won agreement from one of our children’s high schools to participate in the American Exchange Project.  This program sends high school seniors on a week-long trip to an American community very different from their own, and helps them welcome other students into their hometown for the same incredible experience. And it’s all 100% free. If you have a high schooler, I hope you’ll join also, and maybe we’ll host your high school senior in our home!

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One of the most powerful ways to attract investors to your fund or company is to organize a carefully curated dinner for qualified potential investors. Here’s my quick template cheatsheet for making that happen:

Invite

[Firm] Investor Dinner

Please join us at a curated salon dinner exclusively for existing and potential investors in [Fund]

Where? Private room at _____ in [neighborhood]

Who? Exclusively for our existing and potential investors, and a few of our portfolio executives

Your hosts: [Name & title of firm representatives, plus any portfolio CEOs]

About us: [capsule description of firm]

​​​Stay updated with future investor dinners by mailing investorrelations@[firm]

​RSVP form (*=Mandatory)

• Name*
• Email*
• Phone*
• Company
• Linkedin or bio
• Are you an Accredited Investor? (See the SEC definition)
• How did you hear about our dinner?
• Dietary preferences
• Do you recommend any other guests? If so, kindly provide their email address & we will send an invite.
• What is your experience investing in funds with [our strategy]? Please share details on past funds in which you’ve invested.
• Do you wish your bio to be included in the list of attendees that we’ll share?  (Configure form so default answer is Yes)

Timeline (relative to Day of event, “T”)

• T-45 days: Pick venue. It must be a private, intimate space, with closed doors to minimize noise. This is imperative: potential LPs tend to be older and their hearing may be declining. Make sure no music or crowd noise is audible. The ideal venue is a high-end private residence. For restaurant recommendations, try SixPlus. Very important to visit or at least get video of the venue in advance.  
• Once invite is finalized, at least one week ahead of time, post on Linkedin. You’ll be surprised how potential LPs come out of the woodwork for an attractive event. Don’t worry about this making the event feel less exclusive. Very few of the attendees you invite directly will see your Linkedin post.
• T-30 days: Send email to invitees and post on Linkedin 
• T-7 days: Repeat–send email to invitees and post on Linkedin. Send email to confirmed attendees re-confirming they’re attending. Say, “If you cannot attend, please tell us ASAP, so we can include people from our waitlist.”  Ideally, include list of attendees (name, title, firm).
• T-2 day: send reminder to confirmed attendees, repeating, “If you cannot attend, please tell us ASAP, so we can include people from our waitlist.” Ideally include list of attendees (name, title, firm)
• T-1 day: Review the attendee list and make sure you have a designed Relationship Manager (RM) for each attendee, who is responsible for following up with that person.
• T-1 hour: Arrive early and make sure everything is set. 
• T+1 day: Relationship Manager follows up individually with each attendee, asking for feedback and inquiring about the attendee’s interest in investing. 

Run of Show

4:30pm Organizers arrive. Double-check everything is in order. 

• At each place sitting, include a one-pager with name, photo, title, & organizational affiliation of each attendee. Voray does this at their events, and it’s very effective. 
• Make sure you know where bathroom and emergency exit are.
• Check the maitre d’ knows about your event.

5:30pm doors open

6:15pm Seat guests, waiters take orders and provide appetizers

6:40pm 15 minute presentation by firm leadership.

• Thank you for coming tonight
• Introduce all firm representatives & affiliates in the room
• Summarize evening agenda
• Mention where bathrooms are.
• Give brief overview of your model.

7:00pm Open discussion/Q&A. Waiters bring main course.

7:30pm Group discussion ends, informal conversation.

9pm formal sitdown part of event ends

10pm room closes

Further reading

• How to Host an Industry Dinner – Andrew Yeung
• How to keep the people attending your event alive
• How to host an intellectual dialoging dinner
• The ultimate guide to holding world class dinner parties

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I just joined Bluesky Social, a very rapidly-growing social network: https://bsky.app/profile/teten.com .

Social media has been around for a long time now. I wish Bluesky the best of luck on learning from its predecessors, and surmounting the fundamental challenges of the industry, including but not limited to spam, performative conflict, and oversimplification.

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We’re happy to share the latest in AltsTech’s series profiling how investment managers are using AI, tech, and analytics to generate alpha. We’re fortunate to interview Susan Akbarpour, Managing Partner, Candou Ventures.

Susan is the founder of multiple SaaS platforms. She serves on the boards of several AI startups and nonprofits, including the KQED Public Media Network and her own organization, Democracy 3.0. A strong advocate for transparency and sustainability in the enterprise software space, Susan also teaches Product Design for Impact in master’s programs, inspiring numerous platforms to adopt these principles. Additionally, she has established a fellowship in her name at Stanford GSB, her alma mater.

David Teten: Please give us an overview of your firm. 

Candou Ventures is an early stage fund in Silicon Valley with $150m AUM focusing on deep tech, AI and enterprise software.   

David Teten: Who are Candou’s peers/competitors, and how do you differ?

SPV-driven funds like Candou face competition from traditional venture capital firms, angel investors, equity crowdfunding platforms, and micro-VC funds. Traditional VCs typically manage large capital pools and invest across a spectrum of startups. They often favor larger, lower-risk investments at later stages to satisfy LPs who probably prefer not to pay management fees over extended periods. Angel investors, meanwhile, are usually individuals or small groups investing personal funds in early-stage startups. Equity crowdfunding platforms democratize investment by enabling smaller investors to pool resources but might not have the expertise or resources to conduct in-depth due diligence. While platforms do some vetting, it may not be as thorough as that performed by experienced VC firms or SPVs, potentially increasing the risk for investors. While micro-VC funds compete directly with SPVs by targeting early-stage, high-potential startups with agility, they typically operate with smaller capital pools compared to larger VCs or well-structured SPVs. This limitation can restrict their ability to support startups through multiple funding rounds, provide substantial follow-on capital, or gain control and oversight through board seats.

David Teten: How does Candou differentiate itself in this competitive environment?

Candou stands out by offering greater flexibility compared to traditional VC structures. Our limited partners can invest selectively in specific companies rather than a broad portfolio. This targeted approach allows more diverse accredited investors—especially those with smaller check sizes—to access thoroughly vetted opportunities. This model not only democratizes venture capital but also enhances our attractiveness to investors and startups alike.

David Teten: What benefits do startups gain from partnering with Candou compared to traditional funding rounds?

Partnering with Candou provides startups with swift access to capital, essential in rapidly evolving markets. This speed allows startups to seize opportunities promptly. Our SPV limited partners have a direct stake in the companies they support, fostering alignment and robust backing. We typically take board seats to assist with governance and strategy, staying involved through Series A and sometimes beyond if founders find our involvement beneficial.

Receiving investment from Candou means more than just capital; it’s about strategic network support. Unlike rounds with complicated cap tables due to multiple small checks, we provide streamlined, focused funding. Our network comprises investors committed to the startup’s success, providing not only financial resources but also invaluable connections and advice. This strategic focus and agility make Candou an effective catalyst for innovation and growth in the startup ecosystem.

David Teten: Can you elaborate on your fee structure?

At Candou, we don’t charge management fees. We charge a minimal one time 4% admin fee instead, to cover the SPV’s accounting, legal and operational cost, which even our general partners pay, as they co-invest alongside LPs at the same minimum levels. Our performance-based fee structure, centered on carried interest, aligns our success with the success of our investors and SPVs. Thanks to the development of the CIMA system, an end to end Fund management platform that captures the entire deals’ lifecycle, we automated the complex back-office functions of our SPV drive fund, allowing us to maintain lower operational costs compared to both large VC funds and even other SPVs.

David Teten:  What’s your background? How and why are you in your role today?

As an entrepreneur, investor, and philanthropist, I’ve had the privilege of wearing many hats. I hold a graduate degree in Management from Stanford GSB, and I’ve founded five “products for impact”, leveraging technology to drive positive societal change. I’ve also served on nine boards, including four AI companies and KQED Network (NPR affiliated). I teach university courses on “Product design for Impact” and “Investing in Products for Impact”.

The Frustration of Traditional Fund Management

As an angel investor and LP in multiple funds, I’ve always sought transparency in my investments. I want to know where my money is going and what my returns look like. However, I’ve often found myself drowning in a sea of paper documents and PDF reports from fund managers. It was like searching for a needle in a haystack to get a clear picture of my investments.

The Genesis of CIMA

When I became the Managing Partner of Candou Ventures, I was determined to leverage technology to streamline our fund management processes. However, I was frustrated by the need to log in to multiple tools and deal with data silos. There had to be a better way. We chose to invest in creating a platform that would provide LPs, like myself ,with a clear, concise, and visual representation of their investments in real time.

CIMA is an independent entity and platform separate from Candou Ventures. We are the early adopter customer. Candou helped CIMA to validate the product market- fit (PMF), and today serves as a reference customer  and  case study in their commercialization efforts.  Two managed family funds within Candou, including my own, have invested in CIMA ensuring independence from Candou Ventures.   

CIMA FUNDMASTER  is a software company founded by repeat tech entrepreneurs and venture capital veterans. The company has developed a comprehensive fund management platform designed to streamline the investment process for SPV driven funds, traditional venture capital and private equity firms. This platform offers a range of tools and services to support the entire investment lifecycle from sourcing and due diligence to portfolio management and investor relations. With a single view of data, and focus on automation, customization, and transparency, CIMA aims to provide a fluid and seamless  experience for fund managers and their LPs alike.

 A Collaborative Effort

While CIMA began as my brainchild, its development was a collaborative effort involving several  talented individuals. Our CFO, with experience running two public companies and multiple major funds, contributed deep insights to our algorithms. Our legal team provided crucial guidance on fund management complexities. Additionally, our partners enhanced the business logic woven into CIMA, and our venture partner, the founder of SVCIT, has played an integral role. This  exceptional team, which achieved a MOIC of 19.54X with our first fund, significantly contributed to shaping CIMA.

A Platform Built by Fund Managers, for Fund Managers

According to the Institutional Limited Partners Association (ILPA), many LPs struggle to accurately determine their total investments and multiple on invested capital (MOIC). Despite ILPA’s advocacy since 2011 for consistent and transparent LP-level disclosures, the venture capital (VC) industry has lagged in prioritizing robust LP-facing reporting solutions.

CIMA is more than just a platform – it’s a reflection of our collective expertise and passion for innovation. The team understands the challenges that fund managers face, and designed this platform to address those challenges head-on. With CIMA, fund managers can streamline their investment process, improve efficiency, and drive growth. And for LPs like myself, CIMA provides a simple, visual way to see where their money is going and what their returns look like.

David Teten: Who are CIMA’s  peers/competitors, and how do you differ?

CIMA’s primary competitors include platforms like Carta, Juniper Square, and Affinity. However, CIMA distinguishes itself through an all-inclusive service suite that combines automation, customization, and operational efficiency, with transparent, flat pricing starting at just $100 per month. Unlike others, we don’t base fees on Assets Under Management (AUM). Think of it like buying a phone plan—why should it cost more just because you have a higher balance in your account? Our software’s purpose is to support fund managers, not to adjust pricing based on arbitrary asset size.

Our approach focuses on empowering emerging fund managers by offering the same robust automation features to firms of any size, from small angel groups to large funds, without the high fees. CIMA’s platform integrates smoothly with other tools fund managers already use, and we offer extensive educational resources, such as tutorials, case studies, and tips, to help users develop essential skills and knowledge.

Where platforms like Carta were built with founders in mind, CIMA is purpose-built for fund managers and LPs. Our platform provides a more transparent, efficient, and affordable experience, particularly valuable for emerging funds and SPVs. We offer automation and data-driven insights directly on mobile, enabling fund managers to access MOIC, detailed LP data, and more in seconds, empowering them to focus on strategic growth.

In short, CIMA provides comprehensive support, efficient fund management, and flexible customization at a fraction of the cost of other platforms.

David Teten: What are the tools you’re using for your front office: sourcing, LP relations, investing analysis, etc.? What are the strengths and weaknesses of these providers?

We primarily use Ninja Tech’s AI research agent and Signal Rank’s proprietary AI algorithm for our due diligence. Both of these tools are part of the Candou Ventures portfolio. Additionally, the Signal Rank algorithm will soon be available to our customers through CIMA.

We’ve streamlined our operations by consolidating our tools and processes onto the CIMA platform. Previously, we used a patchwork of systems, including and Assure which went bankrupt and left us without access to our data. We also relied on Monday for pipeline management (very expensive and residing in a silo), Mailchimp for CRM, and Carta for cap table management. Our file system was scattered across Dropbox and Google Drive. The AUM-based pricing model of some of these tools was also inflexible and didn’t meet our needs.

These systems were point solutions which did a decent job in their narrow band but there was a lack of cohesive single-view-of-data approach to a comprehensive fund management software.  That was the problem that CIMA sovled. .

David Teten: What are the tools you’re using for supporting your Limited Partners? What are the strengths and weaknesses of these providers?

Not surprisingly, CIMA has been our tool of choice in this area as well. We improved our LP Net Promoter Score (NPS) from 30+ to 90+ and our Capital call notice period was reduced from 20 days to 2 hours! 

David Teten: What technologies/databases have you found helpful in winning LPs?  (I wrote about this in Why Isn’t Sales As Efficient As Online Dating and Fundraising hacks for VC and private equity funds.

We really don’t use any tools because our fund strategy focuses on working within a close-knit network. We don’t believe in mass marketing to attract LPs, as we can only have 99 and want to be selective. Honestly, I think most firms, except for angel groups, might be in the same situation. It’s similar to high-fidelity enterprise sales. However, sustaining LPs relies on continuously demonstrating value, and that’s where CIMA has made our job much easier.

Given the importance of trust and confidentiality in our relationships with LPs, we don’t rely on public databases or technologies to win them over. Instead, we focus on nurturing our existing network and leveraging the strength of our personal connections to grow our fund.

Word-of-Mouth and Referrals

Our LPs are often referrals from within our existing network, and we’ve found that word-of-mouth recommendations are a powerful tool in building credibility and trust. By delivering exceptional results and maintaining a high level of transparency and communication, we’ve created a loyal community of LPs who are eager to recommend us to their peers.

Trust, Transparency, and Results

Ultimately, winning LPs is about building trust, demonstrating transparency, and delivering results. With CIMA, we invested to demonstrate  our commitment  to maintaining the highest standards of integrity and professionalism, and we believe that our personal approach, combined with our cutting-edge platform, sets us apart in the industry.

David Teten: What are the tools you’re using for your middle office: tracking, risk management, etc.? What are the strengths and weaknesses of these providers?

CIMA’s platform provides a comprehensive suite of tools and services for the middle office, including portfolio monitoring, compliance tracking, and risk management. This platform’s strengths lie in its ability to deliver real-time data and insights, automate manual tasks, and facilitate seamless collaboration and communication among fund managers, accountants, and auditors.

A key strength of CIMA software is its ability to provide a single view of data, enabling users to access and analyze information from a unified dashboard. This ensures consistency and accuracy in decision-making and enhances the overall efficiency in managing complex financial operations.

David Teten: What are the tools you’re using for your back office: settlements, records maintenance, accounting, human resources, etc.? What are the strengths and weaknesses of these providers?

CIMA allows us to create customized types of users with restricted access to different datasets in our business and keeps track of their access and profile information. For other back-office needs, such as settlements, records maintenance, and accounting, we rely on CIMA. It handles all distributions, limited partners’ payouts, funds, GPs’ carry, and interest from our investments, including warrants, preferred, and common stocks.

Strengths of CIMA include its ability to automate complex calculations and maintain accurate records, which saves us time and minimizes the risk of errors. However, a potential weakness could be that it may not cover other specific back-office needs. To address this, we have invested heavily in a dedicated team that we incubated out of Candou to establish CIMA as an independent entity, allowing us to continually add features, capabilities, and integrations.

David Teten: A huge amount of valuable data flows through your pipes.  What are you doing to capture that data and mine it? Can you share any patterns you have identified?

By consolidating data from multiple silos into a single, powerful platform, we are excited to introduce an innovative feature leveraging AXYS—a Candou portfolio company. This feature offers our customers several key benefits:

– Seamless Data Migration: Our system facilitates the effortless transfer of data from existing tools, platforms and file systems into CIMA, simplifying the onboarding process for new customers and managing migration complexities effectively.

– Unified Data Interface:  Customers can retain their data in its original locations while connecting it to access CIMA’s comprehensive suite of tools and analytics. This integration facilitates seamless interaction and management of data across various platforms, offering a cohesive and unified data management experience by consolidating all data into one platform for tasks such as searching, analyzing, and promoting insights effectively.

With this integration, CIMA’s customers, including Candou, its inaugural client, will be empowered to discover patterns in investor behavior, market trends, and portfolio performance. These actionable insights are invaluable for making informed investment decisions, enhancing operational efficiency, and driving business success.

David Teten: Do you see any room to use AI to exploit your dataset? If so, what are you doing to move that forward? 

We have discovered that utilizing automation and AI-powered tools can significantly expedite due diligence for Candou fund managers and CIMA’s customers. These tools streamline the process, minimize manual errors, and offer real-time insights into portfolio companies. CIMA team is nearing the completion of integration with several third-party providers, including two of our own portfolio companies, to launch a new capability called INVEST IQ, which will be instrumental in accelerating due diligence. By analyzing these patterns, fund managers can identify emerging trends and potential success indicators, enabling them to pinpoint startups with a higher likelihood of future success. This predictive capability empowers fund managers to make informed investment decisions and strategically position their portfolios for maximum growth and innovation.

David Teten: What are the most creative or unusual ways you’re using AI & analytics in your organization?

Using AI-powered tools to identify future unicorns! I can’t offer you more details but they are working on it! 

David Teten: What are your unmet technology needs?  Places in your firm where you’re seeking a solution and haven’t found an appropriate one? 

We are fortunate to have CIMA, as it truly empowers us and meets almost 100% of our needs.

David Teten: What processes are you focused on improving?

We improved our LP Net Promoter Score (NPS) increased from 30+ to 90+ and our Capital call notice period was reduced from 20 days to 2 hours! 

We aim to eliminate or reduce bias from our due diligence processes, and the CIMA team has included this goal in their roadmaps as well.

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When I was a junior at Yale, I had an epiphany.  There was a whole world of institutions who wanted to give me money or a free education, just because I was a young person.

I thought: Sign me up for the free stuff!

I laced up my sneakers and spent 3 hours jogging to every single academic department at Yale, copying down information from the posters on each department’s bulletin boards. (This was before almost everything was on the internet.) I was looking for the most selective scholarships, for short-term fellowships, learning programs, and highly selective conferences. I particularly focused on programs geared to “young leaders”.

As a direct result, I:

·      Entered a writing contest and won a cash prize.

·      Won an award from the Yale English department.

·      Won a scholarship to spend a week at Mount Holyoke College studying German Studies and Europe.

·      Won a scholarship to study political philosophy for a week in the Czech Republic.

·      Won a scholarship to spend a long weekend at the U.S. Military Academy (West Point) studying national security issues.

·      Won an all-expenses paid trip to study the modern Jewish community in Germany

·      Met amazing people who changed my life!

It’s not that I was such an amazing candidate. It’s just that I raised my hand and applied. Most of my peers weren’t aware of these opportunities or didn’t take the time.

There are programs like these for graduate students and young professionals. And “young” is defined quite broadly—some of the programs I found welcome candidates in their 30s or 40s, or in some cases of any age

I’ve just released a new research report with an updated, expanded version of all the Elite Fellowships, Scholarships, Conferences, and Training Programs for Young Leaders that I have found.  These programs will help you get jobs at the employer you want, or get into the graduate programs you dream of. Most are free, and many pay you an honorarium. If you don’t apply to every program on this list for which you’re eligible, you’re missing out on some of the greatest life hacks in existence. I originally developed these for my own kids, but then thought I should publish it more broadly.

Our database falls into these categories:

• The Most Selective and Generous Scholarships for College and Grad School: Science, Technology, Engineering, Math, and Social Impact
• Fellowships for Politics and International Relations
• Political Internships
• Young leadership programs for: US-Europe Relations, US-Asia Relations, Libertarian/Classical Liberal Politics, Conservative Politics, and Progressive Politics
• Opportunities for Women, Racial Minorities, and Other Historically Underrepresented Communities
• Opportunities Organized by Religious Groups: Christian, Jewish, and Muslim
• Mini-Universities: Selective Conferences and Communities
• Short-Term Learning Programs for Mid-Career Professionals

I want this!

And for more resources, check out the book I wrote with Mandee Heller Adler: “To University and Beyond: Launch Your Career in High Gear“, published by Wiley.

Thanks to Anika Dixit for her help researching this!

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We’re happy to share the latest in AltsTech’s series profiling how investment managers are using AI, tech, and analytics to generate alpha. We’re fortunate to interview Victor Orlovski, Founder and Managing Partner of R136 Ventures.

David Teten: Please give us an overview of your firm. 

R136 Ventures partners with creative entrepreneurs to help scale their mid-to-late stage startups. We’re not just investors – we’ve been in your shoes as CEOs, CTOs, and execs, and have built many great companies and products in the tech world, so we understand the challenges and opportunities firsthand. We work with companies across the U.S., Israel, and the UAE, bringing our global network and experience to shape your vision, strategy, execution, and team.

We have over  $400 million of capital under management, our current portfolio is around 20 companies, but so far we have invested in over 40 companies since 2015. We specialize in B2B enterprise software and fintech, leveraging our team’s deep expertise in these sectors. While our firm has grown, our focus on building great management teams and driving innovation remains at the core of what we do.

In addition to myself, our leadership team includes:

– Yacov Nachmanovich, Partner, with more than 20 years of private equity experience, asset management and project development in the financial sector and retail. 

– Tom Dennedy, Partner and COO, who focuses on helping startups realize sustainable growth. Tom’s experience includes previous roles at Artiman Ventures and Telesoft Partners, where he oversaw numerous successful investments and exits. 

– Ratan Manehani leads investments in mid- to late-stage technology firms focusing on consumer and enterprise tech. Ratan’s background includes investment and advisory roles at various international family businesses, where he managed substantial assets and spearheaded strategic initiatives.

 David Teten: Who are your peers/competitors, and how do you differ?

What sets us apart from our peers is our team’s deep operational experience. While many firms provide capital, we offer a unique mix of expertise in technology, business development, and go-to-market strategies. This allows us to effectively guide tech teams and implement proven practices that lead to real success in the marketplace. It’s our hands-on approach and ability to navigate both the technical and business sides that make us different from traditional venture firms. We specialize in building and scaling tech teams and operations for growing startups.

David Teten:  What’s your background? How and why are you in your role today?

I started as a software engineer and transitioned into leadership roles within fintech. Between 2001 and 2005, I worked on a pioneering mobile banking platform for a young bank, that became the de-facto best-in-class standard among banks in Central and Eastern Europe, well before the iPhone era. 

From 2008 through 2014, my team and I built a unique platform with a set of product and technologies that enabled this bank to become the largest adopter of mobile payments in the world (becoming also the world’s largest Apple Pay adopter) with over over 45 million daily users by 2015, outpacing the combined user bases of Chase, Bank of America, and Citibank. I also led the development of the world’s first financial super app in 2013 for the largest bank in the CEE region. Since 2015, I’ve been building and leading R136 Ventures, focusing on investing in cutting-edge technology and helping startups scale.

David Teten: What are the tools you’re using for your front office: sourcing, LP relations, investing analysis, etc.? What are the strengths and weaknesses of these providers?

We’ve developed a data-driven sourcing infrastructure that enables us to identify promising deal leads using proprietary filtering tools. These tools sift through thousands of data points, from not only popular platforms like PitchBook and CB Insights, but also from less conventional sources such as Gartner, Capterra, and G2, which provide valuable insights into emerging software companies gaining traction. By leveraging this approach, we can engage with founders and build relationships well before they reach the needed scale. This proactive outreach has resulted in some of our most successful investments (Dynamic Yield) and the discovery of one of our portfolio leaders (Roofstock). We are actively building our VC network and are well known among founders for our great support to the companies we have been investing in.

Our investment process places a strong emphasis on the people behind the businesses, evaluating leadership and team dynamics alongside financial metrics. We also integrate emerging technologies, particularly AI, into our strategy. Through our partnership with AIx2.AI, we’ve adopted cutting-edge AI tools to enhance decision-making and streamline our evaluation processes. This partnership helps us stay ahead of industry trends and continuously improve our approach. All four partners are involved in every decision, ensuring a comprehensive, 360-degree evaluation. Our team’s collaborative culture eliminates internal competition and conflicts of interest, allowing us to make well-rounded investment decisions.

David Teten: What are the tools you’re using for supporting your portfolio companies? What are the strengths and weaknesses of these providers?

We support our portfolio companies by helping them expand into overseas markets, particularly by connecting them with large corporate clients and investors in the Middle East. At R136 Ventures, we also encourage innovation through creative thinking and experimenting with AI technologies. To ensure success, we continuously refine our due diligence processes, learning from each investment to better assist our companies. One of our strengths is our deep network and market expertise, though we recognize that navigating unfamiliar regulatory environments in certain regions can sometimes be a challenge.

When advising our portfolio companies on strategy, inorganic growth, and market trends, we rely on our own data sets (as we have reviewed over 1,000 companies) as well as databases such as CB Insights and PitchBook to back our insights with solid data. This includes valuations, capital market trends, fundraising patterns, competitive landscapes, deal terms, and more, allowing us to provide well-informed guidance.

These resources are common among VCs. However our knowledge of tech industries and deep understanding of trends makes us rather unique in terms of utilizing this data and connecting dots for future products and technology. 

Also we deeply understand the pain points faced by companies and consumers, as well as the challenges associated with adopting new technologies. This insight guides our decision making, enhancing our ability to forecast future trends—a critical skill in venture investing. 

Additionally, our expertise extends to the nuances of tech teams and startup culture. Recognizing that venture investment is fundamentally an investment in people, we prioritize understanding individual behaviors and motivations, which is essential for successful venture outcomes. 

David Teten: What technologies/databases have you found helpful in winning LPs?  (I wrote about this in Why Isn’t Sales As Efficient As Online Dating and Fundraising hacks for VC and private equity funds.

As a firm, we aim to maximize the benefits of data-driven approaches throughout our processes. Our fundraising efforts are supported by several key tools:

1. Affinity – a crucial CRM tool that helps us track fundraising progress, analyze funnel conversions, and assess the effectiveness of specific campaigns.
2. PitchBook – an indispensable platform with a wide range of functionalities, including access to contact information. It’s especially useful for evaluating potential LPs, understanding their track records, and customizing our outreach. Additionally, we utilize PitchBook to prepare industry trend reports, which are featured in our marketing materials to showcase market opportunities.
3. Productivity and automation tools like Calendly, Notion, and Zapier streamline our operations and communication, making our processes more efficient.

David Teten: What tools do you find helpful for expediting due diligence? 

In our firm, speeding up the due diligence process without sacrificing depth or quality is crucial. We rely heavily on a mix of advanced AI platforms and robust financial tools. For instance, AI-driven solutions like AIx2.AI, Google NotebookLM and IKI.AI can really cut down on the time it takes to analyze vast amounts of data. These tools use machine learning to sift through and make sense of patterns that might take humans much longer to identify.

Our due diligence process, both manual and AI-driven, relies on crucial data points sourced from platforms like PitchBook, CB Insights, and Crunchbase. These tools are essential for market and competitive analysis, benchmarking, valuation assessments, and exit scenario analysis.

David Teten: What are the tools you’re using for your middle office: tracking, risk management, etc.? What are the strengths and weaknesses of these providers?

For our middle office operations, focusing on tracking and risk management, we leverage tools such as PitchBook and AIx2.AI. PitchBook supports our tracking efforts by providing comprehensive data on market trends and investment opportunities, essential for monitoring our portfolio’s performance. AIx2.AI enhances our risk management by incorporating AI-driven analytics to predict and mitigate risks effectively, offering a significant advantage in responsiveness to market changes. However, its advanced features require a solid understanding of AI capabilities to be fully utilized.

David Teten: What are the tools you’re using for your back office: settlements, records maintenance, accounting, human resources, etc.? What are the strengths and weaknesses of these providers?

While we partially rely on our fund administrator for middle and back-office operations, our operations team utilizes QuickBooks by Intuit for accounting purposes and DocuSign for handling legal matters.

David Teten: A huge amount of valuable data flows through your pipes.  What are you doing to capture that data and mine it? Can you share any patterns you have identified?

Data is at the core of what we do at R136 Ventures. We’ve invested in sophisticated data analytics platforms, both in-house and third-party, to efficiently capture and analyze the vast amounts of data we encounter. This approach ensures that we don’t just collect data, but actively derive actionable insights to guide our investment strategies from sourcing to deal negotiations.

Leveraging data from the various databases mentioned earlier enables us to closely monitor markets, identify emerging niches, and make informed investment decisions. We regularly analyze a wide array of statistics across geographies, stages, and tech sectors, including fundraising trends, revenue and headcount growth, valuations, recent deal terms, secondary transactions, and exit activities. Over the past few years, as overall VC investment activity has slowed, we’ve observed a shift in leading verticals. SaaS, which dominated for decades, was overtaken by AI/ML for the first time last year, accompanied by significant growth in raised funds for cloud tech and DevOps solutions, which are driving the rise of generative AI. These sectors have long been integral to our pipeline.

In terms of confidential data, we have compiled invaluable datasets over the past decade, encompassing portfolio and pipeline company metrics, as well as qualitative information across various stages and industries, which has enriched our VC playbook. One of our recent discoveries within a fund’s portfolio revealed that companies focused on pure AI/ML-based solutions grew at twice the rate of others. While this finding aligns with current market trends, it further highlights the state of the industry.

David Teten: Do you see any room to use AI to exploit your dataset? If so, what are you doing to move that forward? 

Most generative AI tools have made significant strides in analyzing text-based information, though there’s still room for improvement when it comes to processing number-based data, including graphs, tables, and spreadsheets. Our team adopted text-focused AI tools early on, starting with the introduction of ChatGPT. However, there has been a gap in AI’s ability to analyze quantitative data—one that platforms like AIx2 have recently begun to address. Their new capabilities, such as analyzing Excel spreadsheets and tables, are something we are exploring for integration into our processes, including deal screening, initial due diligence, portfolio monitoring, and communications with LPs.

David Teten: What are the most creative or unusual ways you’re using AI & analytics in your organization?

Recently, we enhanced our screening process by incorporating insights from founders’ YouTube interviews, which are summarized concisely by Google NotebookLM. These summaries sometimes include valuable information that isn’t available elsewhere.

David Teten: What are your unmet technology needs?  Places in your firm where you’re seeking a solution and haven’t found an appropriate one? These may indicate room for Versatile VC to build or invest in a startup addressing that need.

We are in search of a simple and cost-effective no-code solution for web scraping to expand our dataset for investment decision-making. We’ve been evaluating a few suitable options, such as ScraperAPI and BrightData, but have yet to make a final decision.

David Teten: What processes are you focused on improving?

We are continually seeking ways to enhance our internal processes through AI and data-driven tools. One of the foci for us is exploring opportunities to partially automate our regular communications with LPs and potential investors, an area that could benefit from the capabilities offered by the AIx2 platform.

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We’re happy to share the latest in AltsTech’s series profiling how investment managers are using AI, tech, and analytics to generate alpha. We’re fortunate to interview Jordan Thaeler, Cofounder, Simplectica.

David Teten: Please give us an overview of your firm. 

Simplectica is a long/short systematic fund based on proprietary mathematics in the area of Brownian motion.

We only look at the most highly traded equity instruments (stocks and ETFs) and require that a name has been in the top [X] percent by daily traded volume consistently for one quarter. This means we avoid IPOs, meme stocks, and microcaps. 

For each of these instruments, we use our proprietary Simplectica Covariance Matrix math to produce a broad range of predictive features (in the thousands) which we then feed to a state-of-the-art machine learning algorithm. The end result is a battery of predictors for returns, volatility, and other aspects of the price-volume process, on a time horizon of 1 day to 1 month.

We monetize our predictors through a long/short investing (not market-making) strategy. Our strategy constructs its portfolio quite simply by taking a long position on the N stocks that are predicted to have the best returns/volatility profile over the prediction time horizon, and similarly a short position on the N stocks that are predicted to have the best returns/volatility profile as shorts. Depending on investor requirements, we can construct the portfolio to be dollar neutral and/or beta neutral relative to the broad market and/or any sector ETF

David Teten: Who are your peers/competitors, and how do you differ?

There are thousands of hedge funds, and 90% of them don’t beat their own benchmark (e.g., SPY). 

We currently trade a strategy with:

• A net Sharpe of 3.4 (fewer than 1% of the ~6,000 listed funds on BarclayHedge achieve this Sharpe ratio);
• 217% CAGR over a time period of a year; 
• Turnover at most once daily
• US equities capacity in the billions of dollars.

David Teten:  What’s your background? How and why are you in your role today?

The founders are mult-time entrepreneurs with particular experience in data science, machine learning, fintech, and quantitative finance. Most of life is just figuring things out: failing, learning, iterating, and repeating until you succeed or give up.

One founder started in investment banking and then moved into startup operations, founding three different fintech startups. 

Another founder has worked in senior roles at quantitative funds in addition to senior data science roles at unicorn startups. 

David Teten: What are the tools you’re using for your front office: sourcing, LP relations, investing analysis, etc.? What are the strengths and weaknesses of these providers?

We use very basic tools here. For cold outbound to institutional fund of funds/allocators, we use Apollo.io – they offer 1,000 free monthly leads, and we find their contact coverage to be better than competitors. We use a very small amount of Apollo.io, however. We otherwise don’t do mass outbound. Our initial interest was inbound, and from here the known allocators make for a short list. We will socialize capital raising with prime brokers as well, who are often a great first step.

Our CRM is simple: a Google spreadsheet. Because we’re focused in our efforts, things don’t get lost in the cracks, meaning we don’t need more sophisticated cadencing tools for follow ups since our net isn’t too wide. 

We’ve been prop trading our own money and only recently received inbound interest, so the tools will probably change/become more formal and expensive if we have to manage outside capital.

David Teten: What tools do you find helpful for expediting due diligence on potential LPs? 

When DDd’ing potential investors, the most accurate answer is simply talking with their other investments. How has the investor added value? Do they subtract value? Are they reasonable people? Are they culturally aligned? As a systematic fund, we’ve heard horror stories about fundamental LPs becoming excited about quantitative investment opportunities, only to discover that their ignorance forced them into drastic action when a systematic investment had a drawdown.

David Teten: What are the tools you’re using for your middle office: tracking, risk management, etc.? What are the strengths and weaknesses of these providers?

We have our own proprietary risk models that, we believe, drastically outperform available risk models on the market (i.e. Barra, Acxioma). Put quantitatively, Barra – at best – explains 50% of market volatility due to their aggregated factor approach. 

Because we have solved unpublished math, we are able to avoid aggregation and can explain volatility in a full rank manner, surpassing 99% of explainability.

The challenge of using our own risk tool is that investors have become ingrained on using a household-name factors model, even though it is quite quantitatively inferior. It’s the classic trope, “nobody gets fired for choosing IBM.” 

Our other reporting tools are provided by our prime broker, Interactive Brokers. Because we are prop, we don’t need additional tools yet. Interactive Brokers is a good “startup” brokerage but lacks the more sophisticated capabilities and network of the larger prime brokerage providers. For example, Interactive Brokers has much larger slippage costs. We fortunately don’t trade all that often, trading no more than 1x daily, but this would be problematic for different strategies.

David Teten: What are the tools you’re using for your back office: settlements, records maintenance, accounting, human resources, etc.? What are the strengths and weaknesses of these providers?

Interactive Brokers bleeds into some of this. We take all of our trade information and push it through to Quickbooks for taxation purposes. Again, admittedly lightweight given that we don’t have outside capital. 

David Teten: A huge amount of valuable data flows through your pipes.  What are you doing to capture that data and mine it? Can you share any patterns you have identified?

We’ve built our own data protocols (we call it Velo internally) since traditional data science tools (e.g. Pandas, Parquet) do not handle large, real-time data sets as gracefully. We estimate that our computing costs and speeds are more than 1 order of magnitude more performant than traditionally-accepted tools.

For example, Velo file formats are more than 70% more compressed than Parquet depending on fill ratios. We’ve enabled conventional compression algorithms like gzip and zstd to achieve higher compression ratios by favoring repetitiveness in the file structure relative to more complex data formats like Parquet. 

Velo automatically generates performant low-level C++ code, wrapped into user-friendly high-level C++ and Python (other languages are technically possible). A Velo-encoded file parses at > 5GB/s.

Streaming mode allows Velo data to be processed while it is being read and decoded, thereby dramatically decreasing both output latency and memory footprint. In streaming mode, Velo loads the file one small chunk at a time, reducing memory usage and dramatically improving speed. This is particularly effective at reducing the cost of a serverless architecture like AWS Lambda that explicitly charges for RAM usage. Further, streaming mode allows Velo to bring the benefits of modern multicore CPUs to inherently single-core technologies like Pandas, by handing each chunk of the Velo file to Pandas in a separate core, saving time on serverless or money on a virtual machine by optimizing RAM.

We otherwise use Python and C++, as most quantitative funds employ. There are various frameworks we use, such as Numpy, but we are not overly reliant on a set way of doing things. 

David Teten: Do you see any room to use AI to exploit your dataset? If so, what are you doing to move that forward? 

Before there was the AI craze, statistics were simply called statistics, or perhaps data science. Everything we do could be considered “AI”, but we exist at the foundational levels of mathematics. Gradient Boosting and Neural Nets are great for marketing, but often underperform good mathematical hygiene. 

The misfortune of today’s business cycle is that people extol AI as a panacea and so people are actually penalized for thinking correctly about a problem and instead revert to using “AI” to solve whatever it is.

Not only does this almost-always end with inferior results, it’s more costly to stand up. 

David Teten: What are the most creative or unusual ways you’re using AI & analytics in your organization?

We’ve invented machine learning approaches that, as far as literature tells us, don’t exist. We view them as proprietary and are thus reluctant to share much more  

David Teten: What are your unmet technology needs?  Places in your firm where you’re seeking a solution and haven’t found an appropriate one? 

We’re probably the outliers here since we often build our own tooling to wrangle data. 

David Teten: What processes are you focused on improving?

More resources for research improvements would be great. We’d have to scale AUM to justify it.

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