The Exchanges

Q Wow. And how many managers do you manage on the venture side today?

A So in order to fully answer that, you know, we have to factor in what we do on the discretionary side of our business, and then also what we do in separate account, uh, and advisory work. And that number of venture growth managers is over 200 at this point. And so we have very comprehensive global coverage of venture and growth equity, which is very different. I think from others, um, you know, who are only doing a handful of managers and working with them because of the way that we're set up, we're able to work with a much A much broader swath of the venture community. And that includes people on the seed and micro side up to people that are doing crossover strategies. And you can imagine that that allows us to have pretty interesting sourcing channels for direct and secondary when you're working with all different types of managers. And that's just from a stage standpoint. If you layer in what we're also doing in terms of industry specialists and geographic specialists, Um, that gives us a pretty interesting perspective and purview across the entire asset class.

AI assessment note: “that number of venture growth managers is over 200 at this point”

Q Yeah, and I have a few examples. For example, you led the last round in Zepto, right, when it became a unicorn, and it's a Nexus portfolio company. Recently, you have led, I think, a one fifty million dollar round in Pocket FM, which is a light speed company. Tell us more about that, right? How do you take those decisions in India, deploying such large pools of capital?

A Yeah, so Zepto we led. Pocket we participated in. Um, we weren't the lead on it. Um, and we can do either. We, we have no ego around this. Um, we're not looking to, to have to be the lead. As I mentioned, we're generally board observers on the companies that we work with. Our view is, uh, we always want to be a flexible partner, both to founders and to GPs. So we're really looking for situations where our GPs are incredibly excited about a company. And are reflecting that through actual deployment of capital. Um, you know, people can say they're excited and thrilled about a company and they're doing pro rata or less than pro rata. You know, we're looking for the scenarios where they want to cross it into a growth fund or where they want to invest a really meaningful amount of capital. Our model has always been to use the informational relationship, the informational advantage and the relationship advantages that we have to identify the best companies ahead of time. To build relationships with founders through warm introductions from the GPs and then position ourselves to lead those rounds as a preferred partner and a known commodity to the existing board and hopefully to the founders because we've done that work ahead of time. So those are the scenarios we're looking for. Uh, there, there's tons of interesting companies out there that would never be a fit for our model. We're n…

AI assessment note: “we're really looking for situations where our GPs are incredibly excited about a company”

Q So, uh, now I want to ask a specific question, right? For all the emerging managers from India and these emerging regions listening to the podcast right now, right? What has been the process for a new fund manager recently to get a check from StepStone?

A So it's all about relationship building early on. Um, you know, while we have not done a lot in like the 25 to a hundred million level, um, uh, or really anything at all specific to India, uh, it doesn't mean we're, we're not open to beginning to build those relationships. And there may be someone that, you know, really inspires us to take the leap. Um, we're not opposed to it. And so what I would say is it's, it's good to begin to get in touch with us, build the relationships, um, We then get that pattern recognition that I described up front that's super important, uh, to what we do, um, and, and see you in action. See the follow on rounds that occur at the portfolio company level. Uh, see the TVPI appreciation. What causes that? What leads to that? See the evolution in terms of ownership percentages, which we really do care about with anyone that we work with on the micro side. Um, we don't want people who are a clubby deal participant Who come in with, you know, two to three percentage ownership. We want someone that's leading seed rounds or leading series A rounds, getting 10 to 20% ownership, and is seen as that go-to partner, at least in that stage. Um, because we want that to lead to scenarios where, you know, the, the, the entrepreneur and founder is coming back in a repeat way to work with those same groups at each stage on the journey. Um, we're not as much of a beli…

AI assessment note: “it's all about relationship building early on. Um, you know, while we have not done”

Q And, and this is a very important question that I want to ask because you have been in this industry for such a long period of time and working with 200 managers. What is the few traits that you have seen in some of your best managers, or let's say top five percentile of your managers?

A Yeah, I, I think it's what I just described, honestly. It's, it's, it's grit. Uh, you know, we have everyone read, uh, uh, you know, books about grit that we've, we've given to our team, and similarly, that's what we want, would want from people we work with. Uh, mastery, I think, is another, you know, characteristic we like. Just, you know, people that love their craft and always think about ways that they could be doing it better. Um, and then people that are, are receptive to feedback and are looking for that. Um, you know, uh, there's nothing worse than a fun one or two know it all. Um, particularly some of the spin outs where they've left and they feel like they have nothing left to learn. Um, and we're probably not the right partner for that. Um, cause we're just not going to passively sit and, and, you know, listen to a webinar update and see you every two to three years. Um, so maybe you'll be successful, but Maybe you're not the right fit for, for working with us. And so those are important characteristics. And then I'd say like someone that can really motivate and, and connect with a team, um, because increasingly you're going to have to have junior resources or people that you work with. And these are. 1020 year, 30 year kind of relationships that you're going to have to have. Like one of my partners, you know, I've known since I was six when we were playing little l…

AI assessment note: “It's grit... mastery, I think, is another... receptive to feedback”

Q And what's been your history of exits in India till now?

A I mean, the direct side of what we've done is all very recent. So, uh, it would be more on the fun side, um, that, that I'd have to answer that on. Um, for a while, like I said, we were sitting there with, with good TVPI and DPI that we were wondering, is this ever going across one X? Um, and now when I look at the metrics of a lot of our managers, I'm, I'm increasingly impressed with how much progress has been made. In that regard. Um, and even with the older funds and the older funds have different exposures in them. You know, if you, if you really rewind back to what many of the Indian managers were doing tennis years ago, it's a different dynamic than, than where they're investing now with the increase in cross-border SAS and other categories. And so some of those are much less traditionally venture categories or fringy venture categories. Even there, what you're seeing is the utilization of secondary to wrap up those pools of capital and to, to, to sell that to private equity or to secondary players. And so, uh, we've seen a marked improvement in terms of, of, of capital being returned.

AI assessment note: “we've seen a marked improvement in terms of, of, of capital being returned.”

Q And can you tell us about the process right from the beginning, right? How have you added, like at what pace you have added managers each year? And how has that changed over recent times?

A Um, yeah, no, so I think we are always known for being pretty active with new and emerging managers. That's something that we take a lot of pride in, and we do that both on the seed side, on the spin-out side, um, and then also on the bootstrap growth equity side. Um, I'd say those are the areas where we're most active with new managers, uh, you know, specific to micro. As you know, there is a long tail of groups in that category, uh, you know, I've seen estimates between 2000 to 3500, and so that is a lot of work and effort, uh, to meet with everyone that's relevant out there. Our point of view is we should get to know people at the very beginning of their journey. It doesn't mean that they'd be a fit for us naturally up front, but we want to begin to build that relationship and develop pattern recognition and, and see, you know, how they're performing in an iterative kind of way. So we will literally meet with everyone out there in that category. Begin a ranking system and, you know, end of day, we're not going to have that many slots per year to add, but we will begin building those relationships and try to force rank and winnow that 3500 down to a few that we do on a per year basis. In the growth equity category, and I think this is an area I increasingly think is pretty interesting. Um, bootstrap growth equity. You will see, uh, spin outs periodically each year. It's not a…

AI assessment note: “try to force rank and winnow that 3500 down to a few”