When in 2010, former VC Michael Kim got down to increase a fund that he would put money into a spate of micro VC managers, the traders to which he turned didn’t get it. Why pay Kim and his agency, Cendana Capital, a administration price on prime of the administration charges that the VC managers themselves cost?
Fast ahead to right this moment, and Kim has apparently confirmed to his backers that he’s value the additional price. Three years after elevating $260 million throughout a handful of autos whose capital he plugged into up-and-coming enterprise companies, Kim is now revealing a recent $278 million in capital commitments, together with $218 million for its fourth flagship fund, and $60 million that Cendana can be managing expressly for the University of Texas endowment.
We talked with Kim final week about how he plans to take a position the cash, which differs barely from how he has invested up to now.
Rather than stick solely with U.S.-based seed-stage managers who’re elevating autos of $100 million or much less, he’ll cut up Cendana into three focus areas. One of those will stay seed-stage managers. A smaller space of focus — however one in every of rising significance, he mentioned — is pre-seed managers who’re managing $50 million or much less and largely funding concepts (and getting roughly 15% of every startup in change for the danger).
A 3rd space of rising curiosity is in worldwide managers. In truth, Kim says Cendana has already backed small enterprise companies in Australia (Blackbird Ventures), China (Cherubic Ventures, which is a cross-border investor that can be targeted on the U.S.), Israel (Entree Capital), and India (Saama Capital), amongst different spots.
Altogether, Cendana is now managing round $1.2 billion. For its companies, it expenses its backers a 1% administration price and 10% of its income atop the two.5% administration price and 20% “carried curiosity” that his fund managers acquire.
“To be extraordinarily clear about it and clear,” mentioned Kim, “that’s a stacked price that’s on prime of what our [VC] fund managers cost. So Cendana LPs are paying 3.5% and 30%.” One “would possibly suppose that appears fairly egregious,” he continued. “But a lot of our LPs are both not staffed to go tackle this market or are too giant to really write smaller checks to those seed funds. And we offer a reasonably attention-grabbing worth proposition to them.”
That’s notably true, Kim argues, when contrasting Cendana with different, larger fund managers.
“Plenty of these well-known fund of funds are asset gatherers,” he says. “They’re not charging carried curiosity. They’re in it for the administration price. They have shiny workplaces world wide, they’ve tons of of individuals working at them, they’re elevating billion-dollar-plus sort of funds, they usually’re placing 30 to 50 names into each, so in a approach they change into index funds. [But[ I don’t suppose enterprise is actually an asset class. Unlike an ETF that’s targeted on the S&P 500, enterprise capital is the place a handful of fund managers seize a lot of the alpha. Our differentiation is that we’re taking we’re creating very concentrated portfolios.”
Specifically, Cendana usually holds positions in as much as 12 funds, plus makes $1 million bets on one other handful of extra nascent managers that it’ll fund additional in the event that they show out their theses.
Some of the managers it has backed has outgrown Cendana from an belongings standpoint. It caps its investments in funds which are $100 million or much less in measurement.
But over time, it has backed 22 managers through the years. Among them: 11.2 Capital, Accelerator Ventures, Angular Ventures, Bowery Capital, Collaborative Fund, Forerunner Ventures, Founder Collective, Freestyle Capital, IA Ventures, L2 Ventures, Lerer Hippeau, MHS Capital, Montage Ventures, Moxxie Ventures, Neo, NextView Ventures, Silicon Valley Data Capital, Spider Capital, Susa Ventures, Uncork VC (when it was nonetheless SoftTech VC), Wave Capital and XYZ Ventures.
As for its pre-seed fund managers, Cendana is now the anchor traders in 10 funds, together with Better Tomorrow Ventures, Bolt VC, Engineering Capital, K9 Ventures, Mucker Capital, Notation Capital, PivotNorth Capital, Rhapsody Venture Partners, Root Ventures, and Wonder Ventures.
As for its returns, Kim says that Cendana’s very first fund, a $28.5 million automobile, is “marked at north of 3x” and “that’s internet of every little thing.”
He’s optimistic that the agency’s numbers will look even higher over time. According to Kim, Cendana at the moment has 38 so-called unicorns in its broader portfolio. It individually maintain stakes in 160 firms which are valued at greater than $100 million.