E180: How J.P. Morgan Asset Management Picks Winners in VC & Private Equity

Episode Summary

Executive Summary: Patrick explains JPMorgan’s venture and private equity allocation philosophy: be a stable, value-add LP; back differentiated managers; and use a barbell approach spanning tier-one firms and smaller emerging funds. He argues early-stage venture remains attractive, AI is reshaping capital needs, and private equity continues to offer strong small/mid-market opportunities driven by operational value creation and people.

Main Topics: How an LP can add value to GPs in venture (Priority: 5/5): Patrick argues LPs can be additive through long-term commitment, institutional experience, and meaningful introductions to other LPs, founders, and industry leaders—not just capital. Early-stage venture focus and market dynamics (Priority: 5/5): JPMorgan concentrates on seed and Series A because innovation is less valuation-sensitive, early-stage funds can offer steadier entry points, and long-term venture outcomes depend on access and persistence rather than trading cycles. Barbell strategy across venture managers (Priority: 5/5): The team backs both tier-one multi-stage firms and smaller emerging/smaller managers, balancing established access and track records with potentially more attractive economics and differentiated sourcing. AI’s impact on venture capital structure (Priority: 4/5): Patrick highlights AI as a generational technology that is making startups more capital efficient and potentially reducing the need for later-stage financing, with implications for growth funds and the capital stack. How JPMorgan selects emerging venture managers (Priority: 5/5): Investment conviction comes from differentiation: deep technical expertise, differentiated network, or differentiated strategy, plus evidence that founders will choose them in hot deals. Private equity as a value-creation business (Priority: 5/5): JPMorgan’s private equity platform focuses on small-to-mid-market companies, where less competition, lower multiples, and operational improvement create returns, often via sector specialists and operator partnerships. People and mentorship as performance drivers (Priority: 4/5): Across both venture and private equity, Patrick emphasizes that people—great managers, operators, and mentors—drive outcomes more than generic advice or financial engineering.

Key Arguments: LPs can win access and strengthen GP relationships by being stable, long-term partners who add real value beyond capital. Venture should not be traded like a cyclical asset class; the best returns often come from early-stage exposure through multiple market environments. Large venture funds still matter because they have pattern recognition, resources, and access to top companies, but smaller funds can generate superior ownership economics. As funds grow larger, they become more reliant on higher hit rates and broader portfolio performance rather than a single outlier winner. AI may compress the need for multiple financing rounds, potentially changing the economics of later-stage venture and growth investing. Emerging managers should be judged on differentiated networks, technical expertise, or strategies that founders actively seek out. In private equity, the small/mid-market remains attractive because most U.S. private companies sit there and competition is lower. Value creation in PE comes from operational improvement with sector experts and proven operators, not primarily from financial engineering. People are the main source of performance in both venture and private equity; the best managers win through talent and execution. A good mentor requires initiative, relationship-building, and showing value before asking for help.

Data Points: Venture experience at JPMorgan team: 40+ years - JPMorgan team’s investing history in venture capital Boards served on across platform: Over 215 boards - Illustrates institutional experience and LPAC involvement Top 30 funds share of venture ecosystem fundraising in 2024: Roughly 75% - Shows concentration of capital in top venture funds Unicorn count at end of last year: 1,230 - Context for venture scale and fund reliance on winners Decacorn count at end of last year: 48 - Used to show rarity of $10B+ outcomes AI share of venture dollars in Q1: 71% - Highlights how concentrated recent venture funding is in AI U.S. venture funds count: Over 3,000 - Used to emphasize the crowded emerging manager landscape PE deployment pace: About $3 billion a year - JPMorgan private equity deployment across primaries, co-investments, and secondaries U.S. private companies with $10M-$100M revenue: 90% - Supports focus on small-to-mid-market private equity Typical deal multiples: 9x to 13x - Current purchase price range in the small/mid-market U.S. private markets dry powder: Over $1 trillion - Explains increased competition and liquidity in private equity Distribution activity through June 1: Up about 23% YoY - Evidence of meaningful liquidity on the platform Top quartile venture persistence study: 52% - University of Chicago finding cited to discuss persistence of top venture funds Seed-to-Series A graduation rate: 2x better than industry average - A cited emerging manager backed for differentiated early-stage sourcing Companies with follow-on financing from a well-known multi-stage VC: 75 companies - Evidence supporting one backed manager’s quality and access Residency program ownership entry point: Sub-$5 million market cap - Example of a differentiated venture strategy AI company example valuation: $10 billion - Midjourney cited as an example of capital-efficient growth

Pivotal Quotes: "How can I do this from the role of an LP that is different from others?" — Patrick: Describing his motivation to add value to venture capital GPs beyond supplying capital "Innovation does not care about valuation." — Patrick: Explaining why early-stage venture can remain compelling even when entry valuations rise "People drive performance." — Patrick: Summing up his view on what ultimately matters most across venture and private equity

Implications: For investors, success increasingly depends on access, differentiation, and operational skill—not just capital. AI may reshape venture funding patterns, while PE remains attractive in the small/mid-market through people-led value creation.