The Sure Shot Entrepreneur

Diversified VC Portfolios Find Big Winners

Episode Summary

Jamie Rhode, Principal at Verdis Investment Management, sheds light on the opaque world of LPs. Jamie shares insights into how data is utilized at Verdis to make informed decisions about fund allocation strategy. She offers valuable advice for building successful GP/LP relationships, and offers her views on prevailing trends in the venture capital industry.

Episode Notes

Jamie Rhode, Principal at Verdis Investment Management, sheds light on the opaque world of LPs. Jamie shares insights into how data is utilized at Verdis to make informed decisions about fund allocation strategy. She offers valuable advice for building successful GP/LP relationships, and ofers her views on prevailing trends in the venture capital industry.

In this episode, you’ll learn:

[9:34] How Verdis chooses VC firms to invest in 

[16:10] California is home to the majority of U.S. unicorns, followed by New York, according to Verdis data

[25:07] Leaning on diversification to increase the chances of getting big winners

[31:29] Advice for GPs intending to work with a family office

The non-profit organizations that Jamie is passionate about: Cradles to Crayons

About Guest Speaker

Jamie Rhode is Principal at Verdis Investment Management. She joined Verdis from Bloomberg, where she held roles in both equity research and credit analysis. There, she created, managed and leveraged an extensive library of statutory and financial and market data for buy and sell-side clients that use Bloomberg to make investment decisions.

A licensed Chartered Financial Analyst, she earned her bachelor’s degree in Finance and Marketing from Drexel University’s College of Business Administration.

Fun fact: Jamie is an Eagles fan. Go Birds!!

About Verdis Investment Management

Verdis Investment Management is a single family office investing globally from their base outside of Philadelphia. Verdis was established in 2004, building on a rich legacy that has spanned three centuries. The family office is focused on venture capital, private equity and hedge fund investment sourcing and due diligence.

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Episode Transcription

Where are the outliers coming from? We looked at the data and I rerun these numbers as of Q4 2022 - because we had ran this back in 2016, 17 when we were starting the venture program - just to confirm, the thesis stuff holds. If you take a look at all exited unicorns (especially in this market environment, they  are real), 60% of them come from California.

Gopi Rangan: You are listening to The Sure Shot Entrepreneur - a podcast for founders with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision. Welcome to The Sure Shot Entrepreneur. My guest today is Jamie Rhode. She's a principal at Vertis Investment Management. 

Before we jump into more details, I want to give you some context. This podcast started with inviting guests who are venture capital investors and angel investors. Now we are expanding to go further behind the scenes to invite limited partners. Jamie is one of the most active limited partners who understands venture capital industry really well, makes a lot of investments, and has many venture capital firms in her portfolio.

We're gonna talk to her about how she makes decisions, how she chooses which VC firm to invest in, how her family office is structured. Who makes these decisions? How many VC firms do they meet before they make one investment? Why do they say no? What are some preferences? What are some things that she doesn't like to see in VC firms? What are interesting trends that are happening in the industry? We're gonna talk about various different topics in this conversation. Jamie, welcome to The Sure Shot Entrepreneur. 

Jamie Rhode: Thank you so much for having me. I'm excited to be here and peel back some layers on the opaque LP world. 

Gopi Rangan: This is a very exciting conversation indeed. I'm looking forward to this. You grew up in Philadelphia. Let's start there where you grew up. And you went to school there as well, right? You continue to live in Philadelphia. 

Jamie Rhode: Yes. I have to put it out there. I'm an Eagles fan, so Go Birds!! Hopefully when this podcast gets posted, they will have won the Super Bowl, but I grew up in the Philadelphia region. I went to school in Philadelphia, and then I graduated and worked for Bloomberg for about four and a half years in their New York, New Jersey office. I worked a lot on the data analytics side and equity research side, and I learned a lot, but I also realized that technology was evolving and I wanted to find a job where a computer wouldn't replace me so easily.

And so I found a job in the Philly region at a family office. I didn't really know much about family office investing or alternative investing but I joined and started to learn a lot across all asset classes. After about a year and a half, I moved over to the venture side and really focused most of my time there, and I'd say it's the most exciting asset class relative to say hedge funds or real estate.

Gopi Rangan: I want to ask you about that. Why is it exciting? But let's start with Vertis. What is Vertus and what is your role at Vertis? 

Jamie Rhode: We're a single family office. It's multi-generational, so our mandate is to compound capital at the highest rate possible, while the family can tolerate about a max drawdown of 10% on a rolling three-year basis. So the family office started in 2004 via an endowment style model. The asset allocation has evolved over time. Around the time that I joined, we became a lot more data driven. That required us to make some adjustments to the asset classes we invested in. So today we're about 50% on the public side, which includes hedge funds along only portfolio of fixed income and cash, and then 50% on the private side split between real estate buyout and venture. About 95% of what we do is fund investments. 

Gopi Rangan: Why is venture capital exciting to you? 

Jamie Rhode: I think what's most exciting about venture capital is I get to see a wide range of emerging technologies. And there's also the ability to fund really interesting and futuristic projects that you don't always get to see on the buyout side when going in and buying a family owned business and making it more efficient or hiring a sales team and doing value add - mergers and acquisitions - but venture capital, the landscape is so wide given that we invest across all the sectors. For me personally, 25% of our VC portfolio is on the life sciences side. So to really dive in and get to get some education around emerging therapeutics and talk to those GPs and potentially fund drug discovery projects that could lead to the cure for cancers and rare diseases, it's very, very exciting and I feel like I'm always learning and tapping into that intellectual curiosity side that I have. 

Gopi Rangan: You're the investor behind the investor. How many VC firms have you invested in?

How many are in your portfolio and how do you choose them? 

Jamie Rhode: Sure. So for us, the VC portfolio has evolved over time. The first 10 years, we made commitments to fund of funds. We thought we needed big brand name access to get venture-like returns. But in 2016, we went down this journey of understanding what a micro VC was, what early stage venture was really beginning to look like, what are emerging funds, and so around that time we stopped allocating to fund of funds and we started an early-stage venture program that essentially invests in fund managers that write the first institutional check into a startup. 

And I think that's really important to say because we used to say we targeted seed-stage funds, but that ecosystem has adjusted. There's pre-seed. There's seed, there's mango seed, there is early A. I don't even know anymore. So, it was really important for us to shift the family's exposure to target funds that write that first institutional check just because of the compounding capabilities of the early-stage VC asset class. Since late 2016, early 17, we've committed to 40 funds. We did our 40th investment at the end of January. That's probably across maybe 28, 29 different GPs, but we are very, very long early-stage venture and very sticky just because of the compounding capabilities. 

Gopi Rangan: I'm curious to learn about the transition from fund of funds to venture funds, and I'm also curious to see if you're gonna go further down the line to do direct investments. Let's talk about how you started that journey with fund of funds. How was that experience? Why did the transition happen? 

Jamie Rhode: When I look at the returns of some of the fund of funds, they've done very well and people talk about the concern on the fee level, but the fund of funds end up being so diversified on a look through basis and capture what we call the power law optionality of venture capital that we've seen great returns from those fund managers.

The challenges that we started to realize were, one was transparency because we are LPs in a fund of funds that then is investing in a fund and then is sometimes doing co-investments. We wanted to understand on a look through basis how much of the family's capital was allocated towards early stage, towards late stage, towards specific geographies such as India, Europe, Israel, US or California, Texas, New York, or specific sectors - how much was in FinTech versus how much was in hardware. We really couldn't get that type of transparency. And then a lot of these fund to funds were raising larger pools of capital, and it was causing our commitment to be tilted a lot more towards late stage.

And when you raise a billion dollar fund, it can be sometimes more challenging to get that upside that we're looking for in the VC ecosystem. So we went down this journey of, "okay, can we internally do our own iteration of investing in fund managers at the seed stage?"

In the beginning it was a little challenging. We're a single family office based in Philadelphia, and I'm sure as most of your listeners know that family offices stay hidden. We don't want you to know about us. But this way, we had to essentially do a lot of smile and dial in the beginning and let the ecosystem know who we were, but also map the market.

If we wanted to invest in fund managers that were writing that first institutional check, how many were they? How many were there? How many could we actually invest in? What could we access? What geographies, what sectors? What did we want? And so it was a long journey, but I will tell you that leaning on some of the VC fund of funds was super helpful. Because a lot of times those VC fund of funds don't back first-time funds. So, having them in our corner saying, " we passed on this because it's a fund one, but would it interest you?" was super helpful. 

Gopi Rangan: I see that allocation towards later-stage investments through billion-dollar funds is a very different asset that you buy versus investing in emerging manager funds in fund one, fund two who would typically invest in very early stage startups. Family offices are quite shy and I'm very thankful to you for agreeing to be a guest on the show and talking about what happens behind the scenes. It's incredible to learn about the inside stories of a family office. How many venture funds do you typically add in an average year? 

Jamie Rhode: That's a great question. For us, the first iteration of our venture program was more like a proof of concept vehicle. Just like a lot of managers do their beta fund or like a fund zero, for us that was proof of concept. So the family gave us small dollars to invest and what we did was write 20 investments over four vintages, so five fund commitments per year. This was really just to prove out the access, to prove out our capabilities to front run the big brand investors. And so most of those 20 managers, I think 18 of the 20 commitments were individual.

Then in 2021, the family was happy with the investments we had made and the early results that had started to be shown. So we increased that to more like nine to 10 seed funds in 2021, and we were able to 3 or 4X our check size from the first iteration. So, if I look back over the last two years - 2021 and 2022 -, I would say it was about 70% re-ups and 30% new GPs. We started to do more fund managers. So that did allow us to make new GP commitments. 

But what I think is really important, and the way we think about it, is the outliers exist in the variance. So, we wanna make sure that we're well diversified within the networks and geographies that we target.

So if that means adding a new GP to make sure we get that diversified coverage, that's what we need to do. And then there was situations where we actually passed on re-ups last year because we're so focused on funds that write that first institutional. So if you stage drift or strategy drift, that's something that we really need to evaluate. And if we feel like the capital's not being deployed where we want it to be, then we are likely going to pass. 

Gopi Rangan: You have a methodical approach and you started with a proof of concept and you slowly evolved to mature that process to choose early-stage funds. I want to go a little deeper and ask you what happens in that first conversation, second conversation when you meet a venture capital investor for the first time, and how long does it take for you to say, "yes, I want to invest in this firm"?

Jamie Rhode: In the first initial meeting, that could be as simple as a 30-minute call. We'll generally know if you fit our mandate or not. We're very, very data-driven in all the asset classes that we invest in, and we think that really removes a lot of behavioral biases and it helps guide our investment decision making process.

So for us, we target funds that write that first institutional check into a startup. It's very important to see what's your reserves, how much of the capital is being deployed into that first institutional check in. Second, we wanna know, are you a sector specialist or are you a generalist? 75% of our investments are in generalist funds. If you have some type of sector tilt, we're comfortable with that. 

25% is on the therapeutic side, so we really like life sciences. Then we'll look into: where are you investing? We are very, very geographic-focused, so we want our capital to be deployed largely within California and New York on the generalist side, and so I wanna make sure that the capital is being deployed in those geographies.

We're also very, very network-focused, so that could mean the Stanford network, the Teal Fellowship, the PayPal Mafia, YC, for example. So those are key things that we're looking for. And I don't need much of a track record. I just need a validation of where you can access those startups. Even if that's you spinning out from Facebook or Google and you show me the network connections that you have with employees that are leaving those firms I'd say, "well, when you spin up your first venture fund, call me. I want you to back my startup." That's great validation to us for the network that you can access. So, those are things that we really focus in on in that first call. And so if you meet that hurdle or those filters, then we're definitely interested and we'll take you on a next call. If not, we try to be as transparent as possible and give you a valid reason as to why we're not doing it. I mean, for us, we want shots on goal. So if you're doing 50 plus deals, you're probably in our sweet spot. If you're doing 20 to 25, that's a very easy pass for us. So, there's many different filtering ways and there's a lot of different LPs that invest differently than us.

If you meet the hurdle of diversification, geography and generalist, then we will tell you, "Hey, we have four re-ups in the pipeline and a new GP that we're diligencing. We can't get to you until the end of the year." Or maybe "the timing is sweet and I just made a commitment and I have time and bandwidth in capital to deploy right now." So it could take as simple as two months, we can move quickly or we can move at a slow pace. It's very, very dependent on what's happening in the background.

I think what's important for GPs to know is: who are you talking to and what are their responsibilities? And how many people on the investment team manage the VC portfolio versus other asset classes. So even though I may love you, if there is another problem happening behind the scenes and I can't get to you because there is issues with a hedge fund manager or there's issues with tax challenges going on at the family office, that's important for the GP to understand that there could be things behind the scene that are not purely VC investment related that cause the slow down. But in a perfect world, I ask for three months of due diligence period. We've definitely gone faster. And so we write that mini memo after an intro call or two intro calls, present it to investment committee meeting, and then we will do a heavy deep dive diligence. That could be two more calls depending on how vast of data room you have. Most of the time you don't have much to work with. So we'll really focused on your co-investors, your follow-on investors, your sourcing, the value add that you provide to the startup. We do background reviews, legal review references. Our CFO will have a call with the GP and their service providers to begin relationships. So, even though we're a family office, we run it as a very institutional-like LP. 

Gopi Rangan: I want to unpack a lot of things you said here, and I have many questions. The first question is, are you investing in the first institutional round of funding? Then the next, you are asking them, what's your geography, California and New York, or your preferences. Then you want to know how diversified the portfolio is. Are you investing in 15 companies or are you investing in 45 companies and you prefer a larger portfolio? 

Sometimes it's understandable that you have other responsibilities in your role, so you need to focus on things that are urgent. So things might be delayed, but otherwise, in general, three months of due diligence is your sweet spot. You may be able to accelerate it in certain situations. I have so many questions. Why California, New York only? 

Jamie Rhode: From the analysis that we've done, about 2000 startups per year get their first institutional check. Only about 2% of them actually become an outlier. When we started down this journey, and for background, we're not Yale. We don't have a billion dollars to deploy at early stage or in venture. We think about it in terms of the opportunity cost. So if only 2% of startups become an outlier, our next question was where are the outliers coming from? And so we looked at the data and I rerun these numbers as of Q4 2022, because we ran this back in 2016, 17 when we were starting the venture program. Just to confirm the thesis still holds. If you take a look at all exited, especially in this market environment, exited unicorns is very important because that means they're real. 60% of them come from California. New York produces about 13% of exited unicorns in the US. Massachusetts is about four and a half percent, and I mentioned Massachusetts because part of our portfolio is life sciences and so Boston comes into play there. 

So, if I'm going to invest a dollar somewhere in the US to capture these outliers, I wanna go invest it in states that are producing a large share of them. But also we looked at the expected value of those outliers. So for the exited unicorns in the US, if you capture one in California, the expected value is $9 billion. Where as if I was to invest outside of the regions that I target, it's about $5.5 billion. So I have to capture two somewhere else to capture, to equate to the one in California. So we just think about it in terms of the opportunity cost of where to deploy the dollars, and to be candid, if we could invest in every single solitary startup in the US, we would. Because then we would get the mean return of early stage venture, which is huge. But we can't. So we call it positively biasing our sampling into the US venture ecosystem. 

Gopi Rangan: There are so many comments about Silicon Valley changing, people leaving Silicon Valley, California not producing the same kind of returns as before. But here we are talking about how California is still a dominant portion of your returns and you believe in that. Very interesting indeed.

Let's talk about diversification. What is an ideal diversified portfolio for you, for a venture capital firm? I understand that there is no one size fits all in this situation, but what is your sweet spot?

Jamie Rhode: A perfect fund for us is 50 deals and no reserves. That's a rarity, and I think a key theme at the family office is to hold your opinions loosely. So the reason why we look for fund managers that are doing shots on goal goes back to if the outlier production rate is 2% and you do 50 deals. 50 times 2%. I'm gonna capture one if it's random, which we believe most asset classes are random or largely random. So if there's any picking skill that the GPs have, then that's gravy to us. But we want to make sure that we are random within our investments. And so for us we want to see 50 deals. We can capture one outlier that way, and we think certain networks help us enhance that outlier production rate. 

But it's really hard to know, is it skill or luck? If a fund manager does 20 deals and they capture two outliers, those are huge returns for their fund because they're concentrating and they were able to pick two winners. But was that skill or was that luck? And I think that's really, really hard to determine.

So we wanna make sure that we are backing GPs, that we don't have to figure that analysis out. It's interesting by playing the power law the way we do, if a fund manager has their fund one and they don't have great performance and they didn't capture a winner, but they're still doing 50 deals, we think that that will catch up and maybe they'll catch two or maybe they'll catch three in their next fund. We don't know. We just want consistency and consistent investing into early-stage venture. 

Gopi Rangan: More diversified portfolio to increase that percent chance of hitting the 2% winners is a better portfolio than a more concentrated portfolio where a VC believes that they, he or she has a better chance of picking because they are better pickers. And that's really hard to prove at an early stage and you'll never know. It's better for you to pick a VC who at the first level is randomized and gets that access first. And then if they have the ability to pick, that's gravy on top of what they've already committed to. Very interesting way to evaluate general partners as you're looking at so many of them.

How does your team work together when you make these decisions? Who is involved? How big is your team? What goes on within the family office? 

Jamie Rhode: So there's about 13 of us at the family office. Six of us sit on the investment team, and we have a CFO who has two analysts that support him. And so our CFO is one of the three members that sit on the investment committee, and he conducts his operational due diligence process separate from the investment team, which I think is really important to make sure that there's not any bias or overlooking of key decisions that are being made. He gets to vote, our CEO gets to vote, and then our Head of Investment Strategies and Risk also gets a vote. All three need to say yes. But by the time it gets to the investment committee decision, if it's a no then you probably didn't do your job. And by you I mean everyone in the firm, so it's a very collegiate style investment team, and so it's myself and two other colleagues that manage the VC portfolio. But we all work together and any intro call that anyone in the firm takes is a valid intro call. Just because they could be someone that's very junior, or it could be the first week on the job for them.

We hire people with intellectual curiosity and the ability to work hard and speak up. So if you're sitting in investment committee, and maybe you're not on the investment team, maybe you're working in operations or, or maybe you are, you know, in investor relations in deal day-to-day with, you know, different family members.

If you sat an investment committee and said, "I see a red flag, I'm not interested in. I think there's a problem", we would listen to that person. So the investment committee is structured to make sure that the processes are in place in being upheld, but every single person in the firm gets an opinion and gets a voice.

Gopi Rangan: If there's a red flag, I think it makes sense to listen to the person. What about if it's a special green flag and they feel like, I think we should be looking at this firm, despite the fact that it's not diversified, they are more of a traditional venture capital investor and they're more concentrated, or there is something special about this firm, it's based out of Austin and it's not in our geography.

Would you pay attention to those and when would you break your rules? 

Jamie Rhode: I'd say that people on the investment team definitely have a button they can press and say, "I really wanna make this investment." But to do it, you need data or you need research behind you to validate why. So we've broken our rules before where it goes back to holding your opinions loosely. And we've adjusted the portfolio construction because of a specific network or to talk about the LA ecosystem. So we've been early backers of LA in early-stage venture. When you look at the fund managers that we've committed to there, most of them are more concentrated than our Silicon Valley managers. We have funds there that are in the thirties range, and we recognize that to access the LA ecosystem, which we've always thought was important, we need to back the seed managers that that are there, and most of them are more concentrated in nature.

So we got comfortable with the idea to say, "okay, maybe we have to do one or two more funds in LA to get the broad coverage of the LA startup ecosystem" because there isn't a lot of managers that are doing 50 plus deals. Or there could be a manager that's giving us access to certain sectors or to certain networks that is a little more concentrated than we prefer, but we want that exposure because the outliers exist in the variance so it's worth it.

You need the data and the research behind it. And if you're one of those GPS that doesn't fit squarely in the box and you're pretty far to the left or to the right, it's gonna take us a lot more time to make the investment. But we've done it before.

Gopi Rangan: So there must be an exception. There must be a reason, something interesting. It could be the geography, it could be something else that makes you look at it. I want to ask you a little more further on the diversification and then we'll move to other topics. Diversification statistically helps reduce downside. Concentration improves upside, exposes you to more downside as well, of course.

As an investor, when you're looking for outliers, you're also looking for substantial returns that venture capital offers. When you focus on diversified portfolio, where do you say 50 is the line and why do you say 50 ish is the right portfolio? How did you think through that logic and why is 22 small and why is 75 too much?

Jamie Rhode: 75, I should say, is not too much. More is always better. But it's interesting they, you know, the way you talk about the concentration approach and the diversified approach, so to diverge from VC for a minute, if you look at our long only portfolio on the public side, we target managers that are very concentrated - 5 to 10 stocks - which means that's significant volatility and significant drawdown risk. So, we think when we look at the public markets, that those markets are normally distributed. The mean and median returns are very similar. So, for us to outperform the passive benchmark, which is very tax efficient, we need to find managers that are very concentrated and hopefully picking the highest quality stocks in the top performers.

But a byproduct of doing that is during the GFC, one of our funds drew down 49%, where the S&P drew down about 50, 55%. So to pay someone, you know, essentially two and 20 to be down 49%, that really hurts. And you want to pull out because your behavioral biases kick in. But by holding that manager recovered in two-thirds of the time that the S&P 500 did.

So just by holding and being patient, we were much better off net-net. Now when I think about it, in venture, particular early-stage venture, that asset class is power law distributed, meaning the mean return is significantly higher than the median return. So if I could buy the ETF of early stage venture, I would get the mean. And when you look at the returns of early-stage venture from 1990 to 2015, it's about a 50% IRR and a 2.5X TVPI. 

So for us, we in theory would like to get exposure to everyone, but I can't do that. We decided on this approach of if we sample about 20% of the US seed ecosystem from a startup level basis, we feel pretty confident that we'll be able to capture that mean return. And we do that through fund managers. So we try to be as efficient as possible for the family's capital. And obviously there's a cost to underwrite and due diligence. So we target funds that are more diversified to get to that look through exposure of 1200 portfolio companies every three years or 20% of the US seed ecosystem. 

And we want our GPs at the same time to do well. At 50 deals times the 2% outlier production rate, that GP should capture an outlier, and so that means that GP will be successful and be able to raise future funds, and we are sticky capital. So for us, the VC portfolio is the compounding machine. By being so diversified, our downside, to your point, is capped. It's really hard for the family to get less than a 2X in their VC portfolio, but by being so diversified, we have the power law optionality for huge upside returns. But we will not be getting the type of return that a 20 portfolio company fund with three outliers will likely achieve.

Gopi Rangan: The closest you can get to accessing all startups that exist in the world is by investing in general partners who invest in diversified portfolio that gives as many shots on goal as possible, and that's the theory with which you approach this. Very interesting. Thank you for sharing this. The LP world is opaque and it's very difficult to understand. First of all, it's difficult to learn who they are. It's even more difficult to understand how they think and how they form their investment thesis. It's very helpful to get at a deeper level on this. Can you give examples? I understand that you are not able to share specific names, but can you give some examples of firms that have done well and what made them successful?

Jamie Rhode: So I take a look at the earlier portfolios and the firms that have done well are, I guess my definition are ones that, you know, have remained humble and focused on that first institutional check in. I take a look at some of the pre-seed funds versus the seed fund managers and pre-seed absolutely takes longer for the performance to show up than the seed funds. So that's why we would say we generally try not to be so focused on actual performance. But the GPs that have deployed their capital faster versus slower have done better for us. When you think about it in terms of you have a fund life of 10 years. Yes extensions. But you could either take all your capital and invest it evenly or so across the first three years, and the last company investment you made is year three.

That means you have seven years worth of compounding to hit your terminal value before you have to think about exiting. Versus if you invested the capital over five years, your last company investment only has five years worth of compounding. So that last company investment better be compounding at a higher rate than the investment you made at year three because you have two less years of compounding.

So the GPs that have deployed their capital faster and done it over 2.5-3 years and communicated that to their LPs in advance, because if you surprised me that you're back that can be challenging for cashflow planning, but if you've deployed your capital faster, that's a net benefit to yourself and to LPs because you put the money to work in the ground.

Second, it's the GPs that haven't passed on an investment because they couldn't get their ideal ownership, or they thought valuation was way too frothy. But if you think it has huge upside potential, don't pass. We had a GP who made a $75K check into a startup. His fund is about $25 million. He has 130 investments, so well onto the side of diversification.

That one $75,000 check returned his whole fund. That was well below his ideal ownership target, but it returned the whole fund, and we have the cash in hand, so it's real. So I think it's just important for GPs to hold their opinions loosely because it's really important when market environments change so quickly that you don't wanna miss out on a huge opportunity just because you're so wedded in certain views.

Gopi Rangan: This is a very interesting take indeed. And thanks for giving specific examples of firms that you've invested in. Jamie, this is all great. So you're investing, you are taking bold moves to support emerging managers, and you have developed a methodical approach to investing in venture capital. You're gonna generate huge returns. What happens to the returns? Where does the money go? How does the family use the money? 

Jamie Rhode: I hope that I can always generate huge returns, but for us, this comes down to asset allocation and the VC portfolio is the compounding machine. So the venture portfolio is set up is as we get that D P I to come back, we are looking to reinvest that back into the VC ecosystem.

There's other asset classes that support the liquidity needs of the family, but you know, for us, that capital comes back and we have to pay taxes. So that's really important. So if you invested in a company and it's just skying up to the right and you're like, oh my gosh, I wanna take some money off the table, have the conversation with your LPs, because if it's compounding at 30, 40, 50% and you sell out of a piece of it and you give it back to me, I have to pay taxes on it and then go find another investment. 

Now, I truly believe that early-stage venture offers the capabilities of large returns, but if it's compounding at such a high rate, if it hasn't reached its terminal value, and there is an inside information that you have that you see red flags for it, keep it compounding in the ground. That's really important for GPs to understand what their LP base is. Are they taxable? Are they not taxable? Do they want the capital back or do they want it invested for long periods of time? 

There's two types of family offices. One that is far removed or completely removed from an operating business. That's us. We're not part of an operating business anymore, so I don't have external capital coming in. So for me to meet future capital calls, I do need distribution. There's other family offices that are involved in operating businesses and receiving cash flow from those operating businesses monthly, quarterly, yearly. And those types of family offices likely don't need distributions to meet future capital calls in the asset allocation. So that's important to note in something that GPs can ask prospective LPs on how that works. 

Gopi Rangan: This is very interesting to understand how the family office thinks about asset allocation and returns.

We're coming towards the end of a conversation. I want to ask you about the family's community involvement. Are there any nonprofit organizations or community activities the family is passionate about, you are passionate about? Which one? 

Jamie Rhode: Two key organizations that we work with every year are Cradles to Crayon and Phil Abundance Food Drive.

At Cradles to Crayon, they serve over 1 million children across the greater Philadelphia region, and then with the Phil Abundance Food Drive that's been around, I think since the early 80s. And so we'll go through as a team and sort through the food. We've been in a freezer for three hours before sorting through meat. I've learned a lot about potatoes and they're kind of gross when they come straight from the farm, but it's a fun team building activity while we also get to give back to the local community, which is very important not only to the family but also to the culture at Vertis.

Gopi Rangan: Jamie, thank you very much for spending time with me, sharing a lot of specific details about how family offices think about investments, what's a priority for you when you look at new venture funds to invest in and your overall approach of investing in venture capital? Thank you very much for sharing your nuggets of wisdom. I look forward to sharing them with the world. 

Jamie Rhode: Thank you. Happy to have done it. 

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