Joel Hornstein

LP Tip #20 out of #50: To re-up or not to re-up A re-up refers to an LP making an additional investment in a fund where they previously invested. Before we dive in I want to share that there are reasons an LP may not to re-up which are not in your control. Here is a short list: ➡️ The LP may have evolved their strategy and needs to scale back the #️⃣ of funds they invested in.   ➡️ The LP was never set up to re-up in the first place. ➡️ The LP could be an individual that found themselves in a cash crunch and overly exposed to venture.  I'm assuming that when you got your investment that the LP explicitly told you they do re-ups. Please do not assume they do. My expectation is also that the LP dug in to properly underwrite the fund. 🏴 Re-ups are not automatic. An LP will have to re-underwrite each fund. The speed of the re-up also depends on how much work was done in the initial investment, who led the investment, level of confidence there existed when that investment was done, and current pipeline of funds. There are 4 flags that may cause an LP to walk away. 1️⃣ Partner Breakups/Changes and Team Turnover:  The biggest risk in Partnerships are whether the Partners will stay together. One LP gave me a framework on how to think through this issue that has stuck with me. Partnership is like a marriage. If one feels there is potential for a breakup, does one believe it will be an amicable breakup? Or, does one believe the spouses will never talk again? If it is an amicable split that is manageable. The Partners can find a way to support the fund. Then the question becomes whether the LP wants to back the Partner/s that remain.  If there is high team turnover. The LP will want to investigate because team stability is used as a proxy for firm sustainability and ability to scale. 2️⃣ Fund Does not Execute on what they Sold the LP:  The LP “bought” something specific and typically it is because they were missing this strategy or wanted exposure to a strategy for the portfolio they were constructing. An institutional LP will invest and write a detailed investment memo flagging all the things you said you were going to do and then go back and compare when you come back to ask for money. If for example you pitched a generalist seed stage fund and you show up asking for money sharing that you invested in deeptech at A that will cause alarm. The same can be said for the number of companies you promised to invest in or check sizes you wrote. If there are big differences LPs will want to know why. 3️⃣ Bad Actions  The fund manager/s does something that is unethical. This is a no go for an LP.  What if the situation is not clearcut? This is different for everyone and requires discussions b/w GP and LP, but most LPs don't want headline risk. 4️⃣ Continuous Underperformance  If it's early days an LP will look at some key indicators to see how you are progressing over time.

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Happy Thanksgiving! Love this perspective on fund diversity and deployment strategy. "For early stage investing, large portfolios (~100 investments) outperform small portfolios (~30 investments). The goal for pre-seed or seed GPs is to invest in a large enough number of companies to maximise the chance of finding outliers (about 2% for ~50x, 5% for ~15x according to data from Dave McClure). From that point, once you have built a sufficiently diversified portfolio, you can consider a strategy to deploy remaining funds into follow-on rounds for best looking companies as "call options". This only makes sense if you think these follow-ons are the best opportunity available for that capital. Evaluate them as you would any other investment. A lot of VCs (and LPs, for that matter) understand the logic of concentrating into winners, but not the first step of building an appropriately sized portfolio. Why? Probably because the former amplifies risk, while the latter reduces it — playing into the principal-agent problem in VC and the "power law" smokescreen. It also happens to be a lot easier to manage a small portfolio. I've spoken to LPs that say they prefer small portfolio strategies because concentrating into winners is more likely to produce >10x returns. In a world where only the top 5% return >3x, it makes ZERO sense to optimise for that level of risk. Especially when you are allocating other people's capital (pension funds, MFOs, sovereigns, etc). "Few investors demand diversified funds, so GPs don’t offer them. A slow and steady 'venture is a numbers game' pitch is much less emotionally compelling than 'I am a rock star who can consistently beat the odds.' And GPs need an emotionally appealing pitch to get funded." - The Pervasive, Head-Scratching, Risk-Exploding Problem With Venture Capital" This is how we built our fund's strategy -- to invest early in a diverse portfolio. Our current partially deployed fund already has 42 bets, averaging a deal every 1.8 weeks. Dave McClure taught us that investing in 50 companies on a 10x lower cost basis leads to close to the same ownership in each one as investing the same capital in just 5 companies. This approach seems advantageous for startups too as it allows us to give an easier yes to diverse and early companies. We are still finding our sweet spot around valuations and portfolio construction, and we are passionate about these core principles. Jamie Rhode, CFA has done many podcasts on this for those who want to hear more about the data. I look forward to fund 2 when we will have enough capital to both make diverse bets (60+) as well as have follow-on capacity for winners when they are, as Dan says, the best available opportunity for that capital. For investors and startups, what do you think about this strategy? https://lnkd.in/gizefUYC Benjamin Rolnik Julia C. Manu Satyavolu Aman Verjee, CFA Sophia Platt

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👏 It’s an exciting day for fintech! After more than a decade in the making, the CFPB published its final 1033 rule, which protects consumer financial data access. I spent years negotiating Plaid's first data access agreements with banks; limited regulatory guidance made this exceptionally challenging. Here is a quick recap on what happened, and - most importantly - what it means for fintech founders. ❓ What is 1033? 1033 is a section of Dodd Frank that states that a bank must make a consumer’s financial information (including txn detail) available to them in a portable format. Its critical to the functioning of fintechs and the millions of consumers they service. 🗞️ What happened today? The CFPB issued a FINAL Rulemaking for Dodd Frank Section 1033, which provides eagerly awaited details on exactly HOW banks, aggregators, and fintechs are expected to work together to make data available to consumers (data fields, format, fee structure, governance etc.). The timeline for compliance ranges from April 1, 2026, to April 1, 2030 depending on institution size​​. 👉 What does this mean for fintech founders?  👍 No additional bank fees - Several large banks have threatened to charge for data access - which would almost inevitably be passed on to the fintech customers of aggregators. The proposed rule prohibits this, which is a win for fintechs. (The downside of this is that aggregators still need to align incentives with banks in the absence of fees…) 👍 No technical standards - The rule is not prescriptive with regards to how the APIs are constructed, but does encourage standardization. This is good for fintechs because it allows the market to drive the solution and encourages more innovation on the aggregator side. We expect this to result in better data access for fintechs. Additionally, the emphasis on standardization will make it easier to retrieve and use consumer data across different financial institutions. 🚩 New Responsibilities - The proposed rule does impose some responsibilities on fintechs - notably, to disclose how the data is used, only use data for the consented use case, honor customer deletion requests, and to refrain from selling consumer data. Fintechs - even young ones - should start thinking now about how to comply and to consider these requirements in future product rollouts. Many of these terms are already included in aggregators' terms of use.  Additionally, all data access must be through APIs; screenscraping is prohibited. 👎 No protections for brokerage & payroll data access - While the rule explicitly covers bank accounts (deposit, credit, debit, prepaid), it’s silent on brokerage account & payroll data access, which is non-ideal for any fintechs accessing these categories of data today. Shameless VC plug: If you're an early stage fintech founder building something cool + world positive, let's chat at M2020! cc: Obvious Ventures

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How does a brand distinguish itself in an increasingly crowded market? This question was thoughtfully explored in a recent podcast featuring Eric Bandholz, founder of Beardbrand. He emphasizes that success isn't merely about revenue; it's about forging authentic connections with your customers. Bandholz champions storytelling as a vital tool for independent brands, allowing them to resonate deeply with their audience—something big retailers often overlook. Moreover, he shares insights from his journey, highlighting the balance between business growth and maintaining personal freedom. Both ambition and values shape a company's path—harnessing authentic experiences rather than succumbing to growth for growth's sake. Given the current economic climate, understanding these concepts becomes even more crucial for entrepreneurs and investors alike. As we navigate through opportunities and challenges, reflecting on the cultural aspects of business can provide a vital edge. What strategies have you implemented in your business to connect with your audience on a deeper level? #Entrepreneurship #BrandStrategy #CustomerEngagement #Storytelling #FinancialConsulting #Beardbrand https://lnkd.in/gVTF6-_X

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What's the fast river in alts? Listen to the latest Alt Goes Mainstream podcast with Mercer's Gregg Sommer & CAIS' Neil Blundell to hear how they are helping advisors approach private markets. Gregg, Neil, and I had a fascinating discussion about how the wealth channel can approach alternatives and how they can think about both diligence and customization. We covered: * The case for alternatives. * How advisors currently approach alternatives and how they can think about it differently going forward. * How to think about portfolio construction that includes alternatives. * How alts can help advisors differentiate their practice and attract clients. * Following the fast river in a career and why alternatives are “the fast river.” * The meaning of “structure over strategy.” * The rise in popularity of evergreen funds. Thanks Gregg and Neil for sharing your thoughts and expertise on private markets. Thanks to our sponsor, Ultimus Fund Solutions, for making this episode possible. https://lnkd.in/eBtyw6Fm

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It's interesting to see how valuation trends have shifted, especially the decline in up rounds this year. This data is crucial for founders and investors to set realistic expectations in a tougher fundraising climate. Understanding these trends can really help in planning for the future! 👏

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Interesting piece from Marc Andreessen on how startups are not getting the regulatory support they need to sustain America's technological leadership. "Regulatory agencies have been green lit to use brute force investigations, prosecutions, intimidation, and threats to hobble new industries, such as Blockchain. Regulatory agencies are being green lit in real time to do the same to Artificial Intelligence." While many investors themselves (both in the US and Europe) are worried how AI will change our lives, our jobs and social interactions, the top VC opinion leader thinks regulation is already too restrictive. #techstartups #techleadership #strategicgrowth

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I recently saw this metric from Carta’s 1Q24 VC Fund Report, which is very concerning. DPI... is nowhere to be found in earlier vintages that probably should start showing DPI. Funding early-stage projects is great, but ultimately, these venture dollars need to exit their investments and pay back their limited partners. That’s where the metric Distributed to Paid-In Capital (DPI) comes in. While managing a fund, we get interim measures during the life of the fund (e.g. IRR, MOIC), but ultimately, “you can’t eat IRR.” If you want to build a lasting venture capital organization, you need to start showing DPI for your fund. Keep in mind that this is traditional VC data from Carta, and is not strictly crypto venture. Crypto venture tends to get liquidity earlier (tokens) and things tend to go parabolic sooner (faster, more unicorns) - but I’d wager that the data here is somewhat similar for Crypto VCs… Not as much DPI as there should be from these earlier vintages. Read the full article, as well as a recap of all the crypto fundraising rounds for August, here: https://lnkd.in/g3eVJ-iF

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📈🏢 Aby Rosen's RFR Holding is facing a staggering $2.5B debt bill as defaults pile up! 💥 🔎 According to a recent Bisnow article, RFR Holding, a prominent NYC real estate firm, is grappling with mounting debt and defaults. The company, led by billionaire Aby Rosen, has a portfolio of high-profile properties, including the iconic Seagram Building and Lever House. 🏢🏦 📊 The firm's debt load has surged to a whopping $2.5B, with $1.1B in loans maturing this year alone. 💸 The pandemic has hit the commercial real estate market hard, causing defaults to skyrocket. RFR Holding is no exception, with defaults on several properties, including the $200M mortgage on the Seagram Building. 📉 🗣️ "The pandemic has created a perfect storm for commercial real estate," said one industry expert. "Companies like RFR Holding are facing unprecedented challenges as they navigate this difficult time." 🌪️ 🔜 So, what's next for RFR Holding? The company is reportedly exploring options to refinance its debt and avoid further defaults. 💡 With the commercial real estate market showing signs of recovery, there's hope that RFR Holding can weather this storm. 🌞 Stay tuned for more updates on this developing story! 📰🔔 #RFRHolding #CommercialRealEstate #Debt #Defaults #NYCRealEstate

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"Small funds may have more incentive to produce higher returns The alignment of incentives between GP and LP varies drastically based on fund size. Managers of smaller funds who have invested substantial personal capital demonstrate an unwavering commitment to lucrative returns, while managers at the helm of colossal funds, buoyed by significant management fees, may exhibit a diminishing drive. This constitutes an almost incontrovertible structural benefit of managing a small VC fund. Furthermore, fund managers of established funds may, over time, raise larger subsequent funds and grow more risk averse. This can present a sub-optimal outcome for their LPs and, by virtue, manifests a bad omen for VC investing." https://lnkd.in/gHKgea4e

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Lexington Books managed to release my book Disagreeing despite the Data before the election. It argues the belief segregation underway in the US may be irreversible. Today's battles over climate change, disease mitigation, and election results run deep -- they're cognitive, not just strategic. Here's the gist of it. 20th-century revolutions in the philosophy of mind, meaning, and matter uncover three surprising requirements for widespread factual agreement. Critical thinking and community building have the potential to reverse two of them -- the growing refusal to test assumptions and individual isolation. Factual agreement between groups is impossible without the third one, though -- shared projects or other meaningful interaction. And a large part of American society has insulated itself from the rest. Without shared projects, communities gradually lose the ability to tell whether they agree or not regardless of the words they use. Belief segregation with similar roots has led several developing countries to the brink of failure. We'd better watch out. The attached flyer gives a discount code that makes the book -- priced in this initial run for academic libraries -- a little more affordable. Please feel free to forward it and, if you're connected to any libraries or book stores, pass it on!

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Why Hill Capital Corporation invests in Founder-Led Companies At the core of our investment philosophy lies one belief: Founder-led companies are built differently. Here's why: 👉 They’re Dreamers. Every great company starts with a dream. Founder-CEOs don’t just clock in and out—they live and breathe their vision. We’re here to fuel that passion and help turn their dreams into reality. 👉 They Have Skin in the Game. When a founder is at the helm, they’re not just managing; they’re personally invested. Their success is tied to the company’s success, and that alignment is something we value deeply. 👉 They’re Relentless. Founders don’t quit. They know success doesn’t come easy, and they’re willing to navigate through every challenge, pivot, and late night to make it happen. We back founder-led companies because their drive, resilience, and commitment inspire us. We’re not just investing in businesses—we’re investing in the people who won’t rest until they succeed. Why do you think founder led businesses are unique? Let us know in the comments. 👇

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Please pass this along to all of the #Fintech and #Insurtech founders you know who are raising capital or will be in the next month.

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2 active fund offerings from the Echelon Fund team who have been killing it ever since their cohort at The Fund School. https://lnkd.in/gVd-dhfY sidecarportfoliofund.com This presentation of Echelon Fund, LLC and Sidecar Portfolio Fund (the “Company”) is for information only and shall not constitute an offer to buy, sell, issue or subscribe for, or the solicitation of an offer to buy, sell or issue, or subscribe for any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The information contained herein is subject to change without notice and is based on publicly-available information, internally developed data, third party information and other sources. The third party information has not been independently verified. While the Company may not have verified the third party information, nevertheless, it believes that it obtained the information from reliable sources and has no reason to believe it is not accurate in all material respects.

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Excited to announce our investment in Alta Resource Technologies alongside Leonardo Banchik (Voyager Ventures) with participation from Orion Resource Partners, Overture Ventures, and WovenEarth Ventures. Rare earths are critical in products from magnets to ceramics and it's important for the US to develop its own supply chain. While the US has some of the best rare earth resources, separating them has historically proven expensive and environmentally unfriendly. Alta through it's computationally designed and optimized proteins allows the US to bring back rare earth production with a cleaner, lower capex, and lower opex solution - and that's just the beginning. Congrats to Nathan Ratledge and the entire Alta team. Read more here: https://lnkd.in/gbGnAJn3

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VC funding is probably bottoming, but bad behavior continues...just concentrated in A.I. Hopefully this will be the final 'blow off' of the bad (read FOMO) practices of the venture industry, and more professionalism/risk management/portfolio level strategies take hold. https://lnkd.in/ggwrV8MT

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The Silver Tsunami is upon us, and it's reshaping the mergers and acquisitions landscape like never before. With an estimated $10 trillion in assets set to change hands over the next decade, driven by baby boomers retiring, the opportunity for savvy investors and entrepreneurs is immense. Currently, around 30,000 businesses sell annually, but with more than 8 million baby boomer-owned businesses expected to transition, the volume of transactions could increase tenfold. This is a monumental shift that smart buyers are already preparing for. You don't need to be a Wall Street titan to benefit from this trend; many of these businesses will transition to local entrepreneurs and small business owners. Are you ready to seize a piece of this $10 trillion wealth transfer? Position yourself strategically to take advantage of this unprecedented wave of opportunities. Engage with fellow professionals and explore how you can be part of this transformation. Not sure how? Let's talk about it! #SilverTsunami #MergersAndAcquisitions #BusinessOpportunities

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