E123: Should LPs invest in Venture Capital? w/Gregor von dem Knesebeck

Episode Summary

Executive Summary: The discussion centers on how family offices should allocate to venture capital, arguing for a three-pillar approach: fund-of-funds, funds, and direct investing. The guest stresses that venture is power-law driven, requires long time horizons and concentration, and is often misunderstood by family offices that apply private equity intuition. The conversation also covers Blue Future Partners’ origin, branding, LP/GP relationship-building, portfolio construction, and the personal strain of building a venture firm.

Main Topics: Best-practice family office venture allocation (Priority: 5/5): The guest recommends dividing venture exposure across fund-of-funds, funds, and direct investments, with the mix depending on where a family office is in its learning journey and its liquidity needs. Venture vs. private equity mindset (Priority: 5/5): The transcript emphasizes that venture capital behaves differently from private equity because outcomes are driven by a small number of winners, making concentration and patience essential. Building Blue Future Partners and brand credibility (Priority: 4/5): The founder story explains how a conversation with a manager in New York inspired the firm’s brand-led strategy, focusing on reputation and visibility rather than headcount. Portfolio construction and vintage diversification (Priority: 4/5): The guest describes concentrated portfolios, large ownership targets, and the importance of vintage diversification when constructing a fund-of-funds portfolio. LP relationship management and investor education (Priority: 4/5): The firm spends substantial time engaging LPs and GPs, using academies, events, and networking to provide value and gather market intelligence. Mistakes, timing, and the personal burden of building a firm (Priority: 3/5): The speaker reflects on timing mistakes, global mandate complexity, and the challenge of balancing entrepreneurship with family life over a decade-long venture journey.

Key Arguments: Family offices should use a three-pillar venture allocation: fund-of-funds, funds, and direct, rather than relying on only one route. New entrants often start via fund-of-funds and later move into funds and direct, while direct-first investors frequently “burn their hands” due to poor diversification and pacing. Venture requires a power-law mindset; applying private equity expectations leads to bad intuition about returns, concentration, and loss rates. Family offices often under-allocate to venture because they lack the sophistication and operational scale of institutional endowments. A fund-of-funds can be more efficient than building an in-house venture team unless the family office is deploying very large capital and can support a mature internal platform. Concentrated portfolios are necessary both in fund investing and in Blue Future Partners’ own strategy, with meaningful ownership stakes in underlying companies. Brand, credibility, and long-term trust matter more than early scale; in venture, reputation is built through outcomes and relationships over time. LP value is created not just through capital allocation but through education, network access, and market intelligence sharing. Tourist LPs are unattractive because they enter during hot markets and leave during downturns, creating friction and reducing long-term value. A global mandate can be too diffuse for investors to digest; more regional specialization may be more effective for fundraising and positioning.

Data Points: Three-pillar allocation: Fund-of-funds, funds, direct - Recommended structure for family offices investing in venture Private allocation target: One-third - Suggested top-down private markets allocation starting point Venture share within some family office private equity buckets: 60% venture - Example of a family comfortable with a venture-heavy private allocation Typical family office venture allocation in Europe: 1% to 3% - Speaker says many family offices currently allocate this range U.S. endowment venture allocation: 10% to 20% - Referenced as a benchmark for institutional investors Yale venture allocation: Mid-20s% - Used as an example of a highly venture-allocated endowment Internal team cost threshold: $25M to $50M per year - Estimated capital needed to build a strong in-house venture team Fund-of-funds fee comparison: 1% on $25M = $250,000 - Illustrates why a fund-of-funds can be more economical than hiring staff Portfolio size for a vintage: 15 to 20 lines - Size of Blue Future Partners’ concentrated portfolios per fund vintage Capital concentration: 80% around 10 to 12 names - How the fund concentrates exposure within a vintage Ownership target in underlying companies: 10%+ - Preferred ownership level when investing in fund managers’ portfolios Ownership range in some cases: 15% to 20% - Higher ownership levels cited for some managers Fund-of-funds vintage diversification: About 7 years - Exposure window achieved through manager deployment periods LP/GP activity split: 50% GP / 50% LP - How the speaker spends time gathering information and building network LP academy cohort size: 50 LPs - Participant count in the education format LP academy duration: 2 days - Length of the educational program for LPs GP accelerator cohort size: Up to 20 GPs - Capacity per cohort in the accelerator program GP accelerator duration: 10 weeks - Length of the GP support program Investment deployment period: 2.5 to 6 years - Range of deployment periods for underlying funds Preferred investor horizon: 20 years - Suggested time horizon for venture investors Fund size reference: Fund one was effectively a “fund zero” by size - Speaker’s characterization of the initial fund

Pivotal Quotes: "If you don't have a brand and you don't have a digital presence, you will not succeed in venture capital." — Manager in New York (as recalled by the guest): Catalyst for founding Blue Future Partners’ brand-first strategy "You'll have part of your money in funder funds, you'll have some in funds and you'll have some direct." — David: The guest’s core recommendation for family office venture allocation "Venture capital is power law-driven, one or two outcomes driven." — David: Explains why venture should not be managed like private equity

Implications: Family offices should approach venture as a long-duration, highly concentrated discipline and build exposure gradually with education, diversification, and trusted partners. For managers, brand, specialization, and relationship capital are critical to attracting durable LP support.