The Exchanges

Q Okay, so if we take those three categories and we break them up, if we start with the company secondary positions, was the current situation with company secondaries today, and why are they interesting?

A Yeah, so on the company secondary side, the typical sellers that we'll talk with, or that we'll see, are folks that have been invested in a company for a long time. So, that could be friends and family that provided the initial capital at the very beginning, that could be angel investors, that could be micro VCs or seed investors, And then the other part of it is around the employee side. So you'll have employees that have scaled with the company, have been there for a while, that would like partial liquidity in years seven and eight, or you could have people that have been let go of a company, which we've obviously seen a lot of in the past two years, that still hold stock and would like to get liquidity and really have no ongoing information rights or knowledge on what the company is doing. All of these constituents will want partial or full liquidity at some point, And particularly in an environment like the one we have now, where other liquidity options are more limited. You're not seeing companies go public, you're not seeing strategic M&A as, as a robust of a clip, and so they need to think more creatively about getting liquidity.

AI assessment note: “they need to think more creatively about getting liquidity”

Q We're going to talk about how they think creatively about getting liquidity and dive in deeper there. But on the second, on the LP interest side, what are we seeing today there? And you said before about the denominator effect. For people who don't know what it is, what is the denominator effect?

A Yeah. The denominator effect is effectively when you have both a public and a private book, the public side has gone down more significantly. The private side has come down, but not at the, the degree or the speed that you've seen the public side go down. And what you're left with is over allocation on the private side in your venture book and your buyout book, whatever that may be. And in order to rebalance and get back to the target allocation you've set out to your board, You need to find a way to do so, and if it's not going to happen as a result of markdowns, you're going to have to think about secondaries as another option.

AI assessment note: “The denominator effect is effectively when you have both a public and a private book”

Q We're going to talk about how they think creatively about getting liquidity and dive in deeper there. But on the second, on the LP interest side, what are we seeing today there? And you said before about the denominator effect. For people who don't know what it is, what is the denominator effect?

A Yeah. The denominator effect is effectively when you have both a public and a private book, the public side has gone down more significantly. The private side has come down, but not at the, the degree or the speed that you've seen the public side go down. And what you're left with is over allocation on the private side in your venture book and your buyout book, whatever that may be. And in order to rebalance and get back to the target allocation you've set out to your board, You need to find a way to do so, and if it's not going to happen as a result of markdowns, you're going to have to think about secondaries as another option.

AI assessment note: “The denominator effect is effectively when you have both a public and a private book”

Q Speaking about kind of the secondary pricing there, you, I mean, maybe I'm wrong here, but I've spoken to many secondary providers and even in the good times, 20, 21, there was always a level of discount because they knew you needed to sell for some reason. Um, it's the nature of the beast. Uh, what level of discount did you buy in 2020 and 21?

A Yeah, I was looking at, uh, data from Jeffries earlier just to remind myself on industry level returns, and I believe that the average discount to venture ticked up as high as just 12% in 2021, so quite low overall, but if you were to fast forward that forward, uh, to 2022, it's back down at an industry level to 34%, um, which is deeper than you've seen for a while. So Things definitely got frothier on the pricing side in 2021, but are back down to levels, uh, and even below levels that we've seen over the past decade in overall pricing. Anecdotally, it's still a little bit deeper on the discount side in LP interest than on company secondaries. On LP interest, a lot of what we're seeing is in the 30 to 45% range. A lot of what we're seeing on the company secondaries is in, like, the 20 to 35% range.

AI assessment note: “the average discount to venture ticked up as high as just 12% in 2021”

Q in the form of scholarships, maintenance to the universities, and kind of these, um, outflows of cash going out that are needed Independent of like markets or cycles. Um, but then they have constrained liquidity now more than ever. And so I'm seeing this real pullback from the endowment class more than ever. Are you seeing the same? Is that normal and typical? And how do you think about that?

A We've seen that in prior cycles as well. I mean, endowments, uh, are always more, uh, aggressive on their investing in private equity and in venture. And they've done very well as a result of that over the, the, the past Um, but you do find yourself in scenarios like this due to denominator effect where you become over allocated as a result of being aggressive in these spaces and for the reasons that you described, and that does, uh, situationally give rise to secondary opportunities from them specifically. But I wouldn't say they're the only sellers. I mean, we're seeing family offices that were overly adventurous in this category need to sell Um, we're seeing corporate pensions, um, uh, similarly looking to sell, so it's not just specific to them.

AI assessment note: “We've seen that in prior cycles as well.”

Q Now, I'm going to move to the third tier before I get too deep in the weeds when I didn't plan to so much. But, uh, GP-led kind of structurings, you defined them a little bit earlier. How do these work in reality? Imagine, I don't know what they are, just for explanation. How do they work in reality? What's the process?

A And most people on the venture side don't know what they are. Um, it's been happening, as I'm told, in private equity and buyout now for, like, the past seven years, but Venture is always slower to adopt some of these structures, um, and I think we'll see a lot more of it in the second half of this year and the following two years. Um, we have done a handful of these transactions historically and have been more at the forefront, um, from our side. I think they can be very interesting, but they have to be thoughtfully put together, and there's really, like, multiple types of how you can do it. There's a strip sale Where you could go and buy out 20% of a manager's entire portfolio. You don't pick and choose the assets. You just provide liquidity on 20%, whatever the percentage is, of an entire portfolio. That gets turned from TVPI into DPI. Generally, it's approved by the advisory board, and so it's a way to get liquidity across an entire portfolio where there's a lot of TVPI and there's no DPI. You could do a tender offer where a secondary buyer comes and says, we will buy From anyone at this discount level, the LP then can sell, um, and that discount level is shared across an entire LP base. And then the most complicated version is a continuation fund where you'd buy from a bunch of LPs at once, and you would create a new entity in order to allow the manager to play for higher …

AI assessment note: “there's really, like, multiple types of how you can do it. There's a strip sale”

Q What do you think are the biggest mistakes that LPs make on the direct investing side? Many obviously have a fund investing platform and then a direct investing platform. What do you think are the biggest mistakes LPs make when it comes to direct investing?

A Um, that they get rampant adverse selection and oftentimes pushed into fee bearing SPVs, um, that, uh, even further dilute, um, their end of day return. Generally, what we've tried to do with most of our direct investing is actually to lead the primary rounds or to be a big secondary, uh, provider. I think with some of these SPVs, particularly the larger ones, You get pushed into scenarios where there's actually a higher level of risk for the expected return. Um, you know, generally people think that that's like a safe two X, but it's oftentimes in businesses that burn a lot more money and where the pricing is higher due to the round size that's coming into the business. And so I think you get a perceived sense of safety on some of those. And if you're already underwriting to a two X and it doesn't execute to perfection, Then you're getting an even lower end of day return.

AI assessment note: “they get rampant adverse selection and oftentimes pushed into fee bearing SPVs”

Q I think kind of the big question that a lot of people have is that the spread between, you know, what people are willing to buy and what people are willing to sell is still super high. Are you seeing that converge now? Is there a realization happening now within the sell side that actually they need steeper discounts?

A Yeah, it's very different from oh eight to 2010 because then when you were buying at a 30 to 50% discount, you were causing someone to maybe get a one X or to lose money because the funds weren't written up to the level that they are currently. Now, if a fund is at a three to a four X and you're asking them to take a 50% discount, they're still going back to their board with a two X return and the ability from an opportunity cost standpoint to then deploy it. Into what we all expect to be very good vintage years, and so I think it's an easier argument to be made to consider even a deeper discount in an environment like we find ourselves in.

AI assessment note: “it's an easier argument to be made to consider even a deeper discount”

Q Well, thank you so much. That is so kind of you. And when you have Barry on the show, it makes my life a lot easier from an interviewer's perspective. But I would love to start today with a little on you, Hunter. So when you were a little boy, did you always want to be an LP? And how did you make your way to partner at Greenspring?

A Yeah, not at all. I actually didn't even think about being in finance when I went and got my undergrad at University of Pennsylvania. I focused on international relations with a little bit of a side focus on history and legal studies and felt like I was going to either go into government or do something on the law side. Ended up deciding to work for a law firm for about a year after I graduated and clearly decided that was not a good direction for me to go in and instead pivoted and decided to get my MBA. And even then, when I was getting my MBA, avoided parts of finance that I didn't love and really gravitated towards the elements of finance that were more focused on behavior and evaluating people rather than being in depth from a modeling standpoint and getting too caught up on the quantitative side. And that's really where I've gravitated to since then. I got a internship between my two MBA years at a firm called Camden Partners, which was just a wonderful introduction to For me, into alternative investing. We did mostly lower middle market buyout, and then a little bit in mezzanine and distressed and other areas, about 25% focus on venture, and got to see everything else that was out there and gravitated towards venture for a number of reasons. And ironically enough, a friend and former classmate of mine from high school, John Averitt, I stayed close in touch with, and he c…

AI assessment note: “Yeah, not at all. I actually didn't even think about being in finance”

Q What would you advise managers if you would advise managers today? Say you advise me on how I'm thinking about approaching the next year through secondary provision, through finding liquidity. What would you advise me?

A I mean, I think it really comes down to like your LP base and consultation with them and what they're looking for. All LP bases are created differently. You know, some have very high, high net worth percentages. Some are all institutions. Some have patient institutions. Some have institutions that would prefer more medium to, to, you know, um, liquidity type options, so it's different. For me, I would look at the portfolio If there are assets that you really like, but you feel like are higher priced and offer maybe, uh, you know, one and a half to two X kind of arbitrage off of whatever last round prices, I would think about pruning some level of that exposure and riding the rest forward. If it's companies that are still very fully priced, but you think there's, you know, three to five X potential from here, I'd probably be less interested in doing anything around seeking secondary on that.

AI assessment note: “I would think about pruning some level of that exposure and riding the rest forward.”

Q I mean this respectfully, Hunter. Um, how is twenty-twenty-three gonna be better? IPO windows have never been more firmly shut. Acquisitions seem few and far between. The only, the only liquidity that seems to be coming is Figma, which delayed liquidity from, you know, transaction last year. Where is the liquidity coming from?

A I said incrementally better, uh, off of twenty-twenty-two, which is historically low. Um, so I'm not saying we're gonna see a step change, um, in twenty-twenty-three by any means. What you are seeing, um, more aggressively is buyout and private equity come in and take out both public venture-backed businesses as well as doing majority recaps in private businesses, and I very much think the secondary side will become more robust as a, a liquidity mechanism. The other thing we didn't describe is the GPs themselves could start selling partial positions in their companies and do one-off asset Transactions too. So there's a lot of different ways that liquidity could be pursued, but yeah, don't get me wrong. I'm not saying 2023 is going to usher back what we saw in 2020 and 20 21. Um, but I think 2022 was, was quite low. 2023 will remain quite low as well, and hopefully we start seeing some more significant improvement in 24 and 25.

AI assessment note: “buyout and private equity come in and take out both public venture-backed businesses”

Q What makes an LP interest, LP interest opportunity really, really enticing and interesting versus not one?

A Same as a company. It's really driven by the underlying value driving assets and that they represent a very high percentage of the NAV. Um, if we're buying, we actually want two or three companies to represent, you know, 70 to 90% of what we're buying. Um, when it becomes overly dispersed, It becomes overly diversified and aggregates more to mean level returns, and so we're pursuing companies that we think are interesting at discount levels that help us bridge the gap. I mean, like we just talked about in primary growth, there's just not that much to do right now because you wouldn't want to pay last round price yet. On the secondary side, you can actually create effectively a down round without the drama and disruption of doing that by buying at a 30 to 40% discount off of last round and creating an arbitrage that you're comfortable with. So it, it really is very different than how to think about primary growth.

AI assessment note: “It's really driven by the underlying value driving assets and that they represent a very high percentage”

Q that's a gross generalization, but it tends to often be that way because they also know that they can in a lot of cases, or it's more sensitive for whatever reason. How does, how do you make, like, how do you make decisions when information is not freely available? Is it just brand buying? And this may not be for you, but it's like, what does the LP ecosystem do?

A For a lot of people, that's, that's the case. I mean, the nice thing for us whenever we do any company investment is we have one or multiple fund managers from an early stage that are already invested in the company and sit on the, around the board. And so when we're considering a secondary or a primary investment into a company, It's always through a warm introduction from the GP directly to the senior management. What many other direct secondary funds are doing are cold calling departed employees or reaching out to people that they know need to sell and are really relying on their own point of view of the company instead of ongoing information and monitoring. And that's just the complete opposite of our ethos. We always put our GP relationships first, and then the GP set us up for success. At the company level with the direct and secondary investing we do, we always want to have an informational, and we always want to have a relationship advantage, and so we won't pursue something that's completely opaque, or where we're not connecting directly with the senior management of a company at time of investment.

AI assessment note: “we won't pursue something that's completely opaque, or where we're not connecting directly”

Q kickers on performance. I always bluntly feel that, you know, if you do as well as a four X or a five X or a six X or whatever those performance levels are, you're going to make a lot of money. Kind of don't be greedy. How do you feel about kickers? And what would you advise maybe earlier stage managers on kickers, whether to have them, whether to not?

A Um, I, I don't have an issue with kickers. I mean, I, I don't like it when people get cute and have, like, three or four levels, and it just becomes overly complicated, but, uh, if someone, like, puts out, like, uh, you know, a step up, I mean, I, I also don't like when it's less than three X, um, and people start doing, like, kickers at two X or two and a half. I mean, that's just not high enough for a venture fund. I think it really needs, at, at a minimum, to be a kicker of three X net, net or above, um, And then I, I, I oftentimes do like when someone does like a five or a 10 X kicker, um, just because they really believe in, in their ability to generate that. And I appreciate that, but I'm, I'm okay with it. I just don't think you need to, to go too low on the initial kicker. And I don't think you need like too many levels to it.

AI assessment note: “I don't have an issue with kickers. I mean, I, I don't like”

Q What was the hardest element of your role today?

A I think for most LPs, it will be understanding whether TVPI is real or not. Um, and that's going to be increasingly difficult with the way valuations are, um, and the benchmarking exercises we talked about earlier. Um, I think for me, it's understanding the organizational dynamics at a lot of these firms. Uh, I think what you're gonna end up having happen is increased infighting in a lot of groups, because you have older GPs that have done very well, um, that are staying on longer than they ever expected, um, just because they're going to be needed to get funds raised in the future, and they have the deepest track records. And then you're going to have younger, hungrier GPs that are up and coming that want to deploy a larger amount of the capital and want to take advantage of these good vintages. And I think that's just naturally going to create conflict in certain partnerships. So understanding where that's a problem or understanding where it's a healthy dynamic and well-planned is going to be important from the LP side. And it's not the easiest thing to, to, to get a true sense for.

AI assessment note: “I think for me, it's understanding the organizational dynamics at a lot of these firms.”

Q Well, thank you so much. That is so kind of you. And when you have Barry on the show, it makes my life a lot easier from an interviewer's perspective. But I would love to start today with a little on you, Hunter. So when you were a little boy, did you always want to be an LP? And how did you make your way to partner at Greenspring?

A Yeah, not at all. I actually didn't even think about being in finance when I went and got my undergrad at University of Pennsylvania. I focused on international relations with a little bit of a side focus on history and legal studies and felt like I was going to either go into government or do something on the law side. Ended up deciding to work for a law firm for about a year after I graduated and clearly decided that was not a good direction for me to go in and instead pivoted and decided to get my MBA. And even then, when I was getting my MBA, avoided parts of finance that I didn't love and really gravitated towards the elements of finance that were more focused on behavior and evaluating people rather than being in depth from a modeling standpoint and getting too caught up on the quantitative side. And that's really where I've gravitated to since then. I got a internship between my two MBA years at a firm called Camden Partners, which was just a wonderful introduction to For me, into alternative investing. We did mostly lower middle market buyout, and then a little bit in mezzanine and distressed and other areas, about 25% focus on venture, and got to see everything else that was out there and gravitated towards venture for a number of reasons. And ironically enough, a friend and former classmate of mine from high school, John Averitt, I stayed close in touch with, and he c…

AI assessment note: “Yeah, not at all. I actually didn't even think about being in finance”

Q This is true, and you are in deep shit. Uh, maybe. Um, uh, tell me, on reflection, what was your biggest investment mistake of the last 18 months?

A So I invest in funds, I invest in companies, and I invest in secondary, so it's a little bit different for each. I think on the fun side, just underestimating the human element, um, with people that join on a lateral basis that have great pedigrees that you think will be additive, it's not always that way. Um, you can have someone join and it completely messes up the chemistry of a firm and creates really significant organizational risk. Um, so that's what I'd say on the fun side. On the company side, You can pick a winner in a bad category, and you can still really not do well, uh, if you're entering in at a growth phase. Um, I think we've picked some companies that have proven to be the category leader, but if it's in an area like InsureTech, or areas of PropTech, or parts of the blockchain space, doesn't matter. Um, and particularly so if there's not a way to exit at reasonable enough comps or multiple sets. Um, so, doesn't always matter if you pick just the category winner. On the secondary side, um, I think it's going back towards what type of securities you're buying, um, and underestimating what can come in on top of you, um, or getting seduced by structure. You increasingly see a lot of these structured equity funds out there. Structure doesn't necessarily stay when a company exits. It gets negotiated out by management or the rest of the board, and so you can think that…

AI assessment note: “I think on the fun side, just underestimating the human element”

Q This is true, and you are in deep shit. Uh, maybe. Um, uh, tell me, on reflection, what was your biggest investment mistake of the last 18 months?

A So I invest in funds, I invest in companies, and I invest in secondary, so it's a little bit different for each. I think on the fun side, just underestimating the human element, um, with people that join on a lateral basis that have great pedigrees that you think will be additive, it's not always that way. Um, you can have someone join and it completely messes up the chemistry of a firm and creates really significant organizational risk. Um, so that's what I'd say on the fun side. On the company side, You can pick a winner in a bad category, and you can still really not do well, uh, if you're entering in at a growth phase. Um, I think we've picked some companies that have proven to be the category leader, but if it's in an area like InsureTech, or areas of PropTech, or parts of the blockchain space, doesn't matter. Um, and particularly so if there's not a way to exit at reasonable enough comps or multiple sets. Um, so, doesn't always matter if you pick just the category winner. On the secondary side, um, I think it's going back towards what type of securities you're buying, um, and underestimating what can come in on top of you, um, or getting seduced by structure. You increasingly see a lot of these structured equity funds out there. Structure doesn't necessarily stay when a company exits. It gets negotiated out by management or the rest of the board, and so you can think that…

AI assessment note: “I invest in funds, I invest in companies, and I invest in secondary”

Q Now, I'm going to move to the third tier before I get too deep in the weeds when I didn't plan to so much. But, uh, GP-led kind of structurings, you defined them a little bit earlier. How do these work in reality? Imagine, I don't know what they are, just for explanation. How do they work in reality? What's the process?

A And most people on the venture side don't know what they are. Um, it's been happening, as I'm told, in private equity and buyout now for, like, the past seven years, but Venture is always slower to adopt some of these structures, um, and I think we'll see a lot more of it in the second half of this year and the following two years. Um, we have done a handful of these transactions historically and have been more at the forefront, um, from our side. I think they can be very interesting, but they have to be thoughtfully put together, and there's really, like, multiple types of how you can do it. There's a strip sale Where you could go and buy out 20% of a manager's entire portfolio. You don't pick and choose the assets. You just provide liquidity on 20%, whatever the percentage is, of an entire portfolio. That gets turned from TVPI into DPI. Generally, it's approved by the advisory board, and so it's a way to get liquidity across an entire portfolio where there's a lot of TVPI and there's no DPI. You could do a tender offer where a secondary buyer comes and says, we will buy From anyone at this discount level, the LP then can sell, um, and that discount level is shared across an entire LP base. And then the most complicated version is a continuation fund where you'd buy from a bunch of LPs at once, and you would create a new entity in order to allow the manager to play for higher …

AI assessment note: “there's really, like, multiple types of how you can do it”

Q Given the change in the levels of discounting, despite my surprise, it's a significant change in terms of the discounts. Do you feel now is the time to be greedy when others are fearful, Hunter?

A Um, selectively. I don't think it's like a time to just start pushing money out the door aggressively, um, but I think there are Very interesting opportunities in LP interest right now, um, where people just need to sell for the reasons that we described on the company side. You have to be very careful. You need to understand cap tables. You need to under really understand runway. Uh, you need to understand what structure or capital could come in on top of you before an eventual exit. And so it is not a scenario where you want to be trivial around that. And a lot of people that look at company secondaries Don't have a relationship with the management of these companies and don't get full information. So they're actually buying in a very imperfect way, um, with not a lot of granularity on what actually the company is doing in the next few years, um, financially. And I think they're going to really get burnt by that. So the people that do the company secondaries the right way are the ones that actually have a direct relationship information rights with the investments that they're doing.

AI assessment note: “Um, selectively. I don't think it's like a time to just start pushing money”

Q I mean this respectfully, Hunter. Um, how is twenty-twenty-three gonna be better? IPO windows have never been more firmly shut. Acquisitions seem few and far between. The only, the only liquidity that seems to be coming is Figma, which delayed liquidity from, you know, transaction last year. Where is the liquidity coming from?

A I said incrementally better, uh, off of twenty-twenty-two, which is historically low. Um, so I'm not saying we're gonna see a step change, um, in twenty-twenty-three by any means. What you are seeing, um, more aggressively is buyout and private equity come in and take out both public venture-backed businesses as well as doing majority recaps in private businesses, and I very much think the secondary side will become more robust as a, a liquidity mechanism. The other thing we didn't describe is the GPs themselves could start selling partial positions in their companies and do one-off asset Transactions too. So there's a lot of different ways that liquidity could be pursued, but yeah, don't get me wrong. I'm not saying 2023 is going to usher back what we saw in 2020 and 20 21. Um, but I think 2022 was, was quite low. 2023 will remain quite low as well, and hopefully we start seeing some more significant improvement in 24 and 25.

AI assessment note: “more aggressively is buyout and private equity come in and take out both public”

Q ask, how does one get scale when you're buying from early employees? If you think about early employees, early angels, friends and family, you name it, often it's in the kind of drips and drabs of a 1,000,002 1,000,002 1,000,001 million, How does one get scale? How does one collectivize these, uh, kind of atomistic sales into a collective that is purchasable by a larger institution? I'm fascinated by that.

A See, the same reason, uh, that I described our approach. It's when you actually consult with senior management, um, because they do not want to do 10 of these over the course of a year. They want to clean up their cap table in one fell swoop. They want to do it thoughtfully, and they know which people may want to sell or would want partial liquidity. And so, if you are doing it on a one-off basis, agreeing with one counterparty, you're going to get drips and drabs. And you're going to get imperfect, ongoing information. If you do it in consultation with the actual leadership of a company, they'll view you as both a current and a future solutions provider, and they'll want to do it in a more thoughtful, lumpy way.

AI assessment note: “If you do it in consultation with the actual leadership of a company”

Q What's the trend most investors are not seeing or ignoring?

A Uh, I think it's the secondary side, which we spent most of the, the episode today talking about. I just don't think people think about this segment within venture and venture isn't this tiny cottage industry anymore that it used to be. And as a result of that, and as a result of the limited liquidity options, the secondary part of venture is going to be very significant for a long period of time. And I think pretty interesting and also a compliment from a duration standpoint If you're doing a lot of early stage venture, it's going to be one of the only ways you can make sure you're getting your capital back and complimenting what you're doing on the seed and series A side.

AI assessment note: “I think it's the secondary side, which we spent most of the, the episode today”

Q You mentioned there about kind of the opportunities coming from existing managers within your portfolio. How much weight do you place on the manager recommendation versus independent underwriting that you do on your side?

A We put weight on both, um, but we will never do anything where we don't have someone that's been involved with the company, uh, for multiple years. And since most of what we do on the fun side is very biased towards early stage, these are people that have actually worked with the company for a long period of time before we'd get involved. There's just no replacement for that in terms of pattern recognition and the qualitative elements of partnership. And so we really feel like it gives us an informational advantage. And then like others, we layer on You know, the typical assessment you would do with customer calls, objective, uh, review of both current and future performance and, and planning around that, but I think our secret sauce continues to be the relationships that we have with our GP partners.

AI assessment note: “We put weight on both, um, but we will never do anything”

Q kickers on performance. I always bluntly feel that, you know, if you do as well as a four X or a five X or a six X or whatever those performance levels are, you're going to make a lot of money. Kind of don't be greedy. How do you feel about kickers? And what would you advise maybe earlier stage managers on kickers, whether to have them, whether to not?

A Um, I, I don't have an issue with kickers. I mean, I, I don't like it when people get cute and have, like, three or four levels, and it just becomes overly complicated, but, uh, if someone, like, puts out, like, uh, you know, a step up, I mean, I, I also don't like when it's less than three X, um, and people start doing, like, kickers at two X or two and a half. I mean, that's just not high enough for a venture fund. I think it really needs, at, at a minimum, to be a kicker of three X net, net or above, um, And then I, I, I oftentimes do like when someone does like a five or a 10 X kicker, um, just because they really believe in, in their ability to generate that. And I appreciate that, but I'm, I'm okay with it. I just don't think you need to, to go too low on the initial kicker. And I don't think you need like too many levels to it.

AI assessment note: “I don't have an issue with kickers.”

Q What do you think is the most crazy thing we saw happen in 2020 to 2022 as a period?

A Um, time back to market. I, I, I'm amazed by how quickly some funds came back to market. Um, and you and I have talked about this, um, you know, separately a lot. I, I think vintage year diversification is important. Being deliberate about, um, making new investments over, you know, at least like a two year period, I think is really important. And, and frankly, we saw groups that came back in like six to nine months, um, which, which is just Crazy. Uh, you're not going to provide any vintage or diversification, and those funds will probably end up, uh, being challenged if they were concentrated in, in parts of, like, 20, 21, and you didn't smooth it out enough, and if you manage to do two or three funds within a difficult time period, you're going to actually have problems on multiple vintages.

AI assessment note: “I'm amazed by how quickly some funds came back to market.”

Q Are you able to do that? In terms of some of the top names, when you downsize, they don't take it so well. For LPs listening, how should they think about being wary of losing allocation or losing relationship or trust with top tier managers when they do need to downsize?

A Yeah, it's not an easy, it's not an easy answer. I mean, I, I, we've always preferred to be consistent in our sizing and not size up and size down, but If your, your options are the, uh, the way they are in the current environment and you only have so much that you can allocate, you then have to cut off all of the middle performers or the upper middle performers and just maintain it in, in the best groups. And that has its own challenges and creates portfolio concentration, but obviously you'd want to maintain the same investment sizes in, in high quality performing groups. If you do find yourself in a scenario where you have to build that back over time, You have to think of ways to stand out as an LP partner, and be more than capital, and find ways to be helpful with directs, with secondaries, with the ability to help in business development. Um, you know, being an LP should not mean that you're just passive capital, at least for the good ones.

AI assessment note: “You have to think of ways to stand out as an LP partner”

Q Given the change in the levels of discounting, despite my surprise, it's a significant change in terms of the discounts. Do you feel now is the time to be greedy when others are fearful, Hunter?

A Um, selectively. I don't think it's like a time to just start pushing money out the door aggressively, um, but I think there are Very interesting opportunities in LP interest right now, um, where people just need to sell for the reasons that we described on the company side. You have to be very careful. You need to understand cap tables. You need to under really understand runway. Uh, you need to understand what structure or capital could come in on top of you before an eventual exit. And so it is not a scenario where you want to be trivial around that. And a lot of people that look at company secondaries Don't have a relationship with the management of these companies and don't get full information. So they're actually buying in a very imperfect way, um, with not a lot of granularity on what actually the company is doing in the next few years, um, financially. And I think they're going to really get burnt by that. So the people that do the company secondaries the right way are the ones that actually have a direct relationship information rights with the investments that they're doing.

AI assessment note: “selectively. I don't think it's like a time to just start pushing money”

Q ask, how does one get scale when you're buying from early employees? If you think about early employees, early angels, friends and family, you name it, often it's in the kind of drips and drabs of a 1,000,002 1,000,002 1,000,001 million, How does one get scale? How does one collectivize these, uh, kind of atomistic sales into a collective that is purchasable by a larger institution? I'm fascinated by that.

A See, the same reason, uh, that I described our approach. It's when you actually consult with senior management, um, because they do not want to do 10 of these over the course of a year. They want to clean up their cap table in one fell swoop. They want to do it thoughtfully, and they know which people may want to sell or would want partial liquidity. And so, if you are doing it on a one-off basis, agreeing with one counterparty, you're going to get drips and drabs. And you're going to get imperfect, ongoing information. If you do it in consultation with the actual leadership of a company, they'll view you as both a current and a future solutions provider, and they'll want to do it in a more thoughtful, lumpy way.

AI assessment note: “It's when you actually consult with senior management... clean up their cap table”

Q What would you advise managers if you would advise managers today? Say you advise me on how I'm thinking about approaching the next year through secondary provision, through finding liquidity. What would you advise me?

A I mean, I think it really comes down to like your LP base and consultation with them and what they're looking for. All LP bases are created differently. You know, some have very high, high net worth percentages. Some are all institutions. Some have patient institutions. Some have institutions that would prefer more medium to, to, you know, um, liquidity type options, so it's different. For me, I would look at the portfolio If there are assets that you really like, but you feel like are higher priced and offer maybe, uh, you know, one and a half to two X kind of arbitrage off of whatever last round prices, I would think about pruning some level of that exposure and riding the rest forward. If it's companies that are still very fully priced, but you think there's, you know, three to five X potential from here, I'd probably be less interested in doing anything around seeking secondary on that.

AI assessment note: “I would think about pruning some level of that exposure and riding the rest forward.”