E55: Eric Sippel - Lessons from Investing in 45 Venture Capital Funds

Episode Summary

Executive Summary: Eric, a long-time LP and former lawyer/COO turned family office investor, explains his framework for backing emerging venture managers: he seeks inefficient markets, experienced GPs, strong sourcing/selection/stewardship, and concentrated portfolios with meaningful ownership. He stresses coachability, deep founder diligence, value-add over passive “rocket ship” investing, and disciplined follow-on decisions by company tier.

Main Topics: How Eric built his LP platform (Priority: 5/5): Eric traces his career from Wall Street lawyer to hedge fund COO to family office investor, noting that most of his current effort is in venture and emerging managers. GP selection framework (Priority: 5/5): He uses a four-part lens: inefficient market, GP operating/founding experience plus investing experience, the three S’s (sourcing, selection, stewardship), and portfolio construction. Value-add, coaching, and relationship building (Priority: 5/5): Eric emphasizes helping managers and founders over time, believing that strong relationships improve sourcing, win rates, diligence quality, and long-term performance. Follow-on investing and portfolio tiering (Priority: 5/5): He divides portfolio companies into four tiers and argues capital and time should be concentrated in tier one and two companies, avoiding tier four entirely. Diligence, data rooms, and references (Priority: 4/5): He prefers long dating periods, off-list references, rich data rooms, and evidence that a GP truly understands the companies and ecosystem. Returns, IRR vs TVPI, and tax-aware compounding (Priority: 4/5): Eric prefers multiple expansion and long-term compounding over maximizing IRR, especially given tax considerations and QSBS. Ecosystem mindset and non-zero-sum behavior (Priority: 4/5): He frames his approach as helping the ecosystem, both professionally and through his role with Goodwill, and believes reciprocity follows from doing good work.

Key Arguments: Emerging managers should only be backed if they already have a strong network; without it, they likely do not belong in the space. A GP needs both operating/founding experience and investing experience; angel track records alone are not enough. The three S’s—sourcing, selection, stewardship—are the core craft of venture and the best predictor of manager quality. Coachability and interpersonal fit matter because “jerks” and closed-minded GPs are unlikely to sustain top performance. Spending substantial time with founders before investing reduces bad decisions and improves trust, diligence, and relationship quality. Value-add is not optional; it de-risks companies, strengthens founder relationships, improves sourcing, and increases deal access. Follow-on capital should be reserved primarily for tier one and tier two companies, while tier four should never be funded. Concentrated portfolios make it easier to add real value and produce stronger outcomes than scattered, broad portfolios. LP relationships are more reciprocal when the LP is genuinely helpful; good introductions and ecosystem service create better flow over time. Long-term compounding and after-tax wealth creation matter more to Eric than optimizing headline IRR in venture. Data rooms should substantiate the deck and reveal how the GP thinks, not just provide polished marketing materials.

Data Points: Years in alternatives: More than 30 years - Eric describes his investing history in alternative assets. Years since starting as a lawyer: 38 years ago - He says he began as a Wall Street lawyer 38 years prior. Time spent in venture: About 85% of his time - He says most of his time is dedicated to venture managers. Number of venture managers backed: About 45 - He says he has invested capital in roughly 45 venture managers. Core check size: $50,000 - His standard core investment size for emerging managers. Pilot check size: $100,000 - His larger exploratory investment size. Minimum relationship period with founders: 4 weeks minimum - His preferred minimum time to date a founder before investing. Preferred founder relationship duration: More than 1 year - He likes when GPs have known founders for a long time before investing. GP relationship before commit: 6 months - He cites coaching some of his favorite GPs for six months before investing. Tier one companies: About 5% - His rough breakdown of portfolio company tiers. Tier two companies: Another 25% - His rough breakdown of portfolio company tiers. Negative GP reciprocity rate: 10% to 15% - He estimates some GPs do not reciprocate after he helps them. Neutral GP relationships: Another 10% to 15% - He describes a middle bucket of decent but not deeply reciprocal relationships. Strong/positive GP relationships: 60% to 65% - He estimates the majority of GP relationships are strong and positive. Negative LP relationship rate: 0% - He says he is indifferent if LPs do not reciprocate and does not view those as negative. Neutral LP relationships: 80% to 85% - He characterizes most LP relationships in this middle category. Positive LP relationships: 10% to 15% - He estimates a smaller set of especially strong LP relationships. Top-decile fund measurement: TVPI - He says he measures his venture managers by TVPI rather than IRR. Target compounding threshold: Over 20% per annum - He says he wants to hold investments as long as they compound above this rate. Fund return target: 3x net to LPs / 4x gross MoIC - He explains why tier two companies are needed to reach his target net returns. Single-fund loss rate in venture: 0 sub-1.0x funds - He says he has not lost money on a single venture fund. Goodwill mission scale: More than 1,000 people employed and trained - He mentions his role as chair of the San Francisco Bay Area Goodwill.

Pivotal Quotes: "I am looking for a space that is relatively inefficient, where there's a mismatch of capital and opportunity." — Eric: Explaining the first part of his framework for backing emerging managers. "The founder-GP relationship is a long-term marriage." — Eric: Describing why he prefers extended diligence before making an investment. "What keeps me up at night are the errors of commission." — Eric: Discussing what LP mistakes bother him most and why passing on famous funds does not trouble him as much.

Implications: For LPs and GPs, the episode argues for relationship-driven venture investing: coachable managers, deep diligence, concentrated portfolios, and active value-add are more durable than speed or brand-name hype. Long-term ecosystem behavior can improve both returns and access.