Jordan Stein from Cresset Partners on VC dynamics, evaluating emerging managers, & more! | E1901

Episode Summary

Executive Summary: The episode explores how Crescent Partners sources venture capital exposure for ultra-high-net-worth families and other investors, why top venture funds remain accessible mainly to elite LPs, and how portfolio construction, co-investments, and manager selection work in private markets. Jason and Jordan Stein also debate market cycles, venture tourism, emerging managers, power-law returns, and how democratization of VC might evolve.

Main Topics: Why LPs allocate to venture capital (Priority: 5/5): Jordan explains that venture has historically driven outsized returns for family offices and institutions, but access is limited to top managers, making manager selection crucial. Crescent Partners’ platform and growth (Priority: 5/5): Jordan describes Crescent’s dual business model—wealth advisory plus institutional private investing—and how the firm grew quickly enough to become relevant to elite VC firms. Venture market cycles and manager fundraising (Priority: 4/5): The conversation covers the 2021 boom, the 2022-2023 reset, and why top venture firms remained oversubscribed while weaker/newer funds struggled. Co-investments and portfolio construction (Priority: 4/5): Jordan explains why co-invest programs exist: fee reduction, faster DPI, and access to high-conviction opportunities sourced through the broader GP ecosystem. Emerging manager diligence (Priority: 5/5): The speakers detail how Crescent evaluates newer funds through track records, references, founder feedback, network quality, and ability to win deals. Power law, concentration, and doubling down (Priority: 5/5): They discuss how venture returns are driven by a few winners, why top managers concentrate in standout names, and how later-stage support can amplify outcomes. Democratization and accredited investor access (Priority: 4/5): Jason argues for broader access to VC through education or testing, while Jordan agrees the current regulatory regime makes VC harder to access than speculative assets.

Key Arguments: Top venture managers still attract capital even in down markets because LPs fear losing access and being crowded out later. Family offices and sophisticated institutions are allocating meaningful capital to private markets because that has historically been necessary to preserve and grow multigenerational wealth. Crescent waited to launch venture investing until it had enough scale and credibility to access elite managers. Co-investments are valuable because they can reduce fees, improve DPI timing, and allow LPs to lean into the strongest opportunities. Emerging managers are best judged by network, trust, founder references, and evidence they can both source and win deals. The power law dominates venture returns, so portfolio construction must balance stable top-tier funds with higher-upside emerging managers. Market timing is difficult, but entering during a reset can improve vintages for LPs who maintain steady allocations. Democratizing VC access would require investor education and/or a better accreditation framework, not just a looser standard. Private-market information asymmetry is a feature, not a bug; LPs can gain an edge by leveraging manager ecosystems and references. Governance and customer validation are early red flags: lack of board engagement or customer contact signals weak venture discipline.

Data Points: Cresset AUM: North of $40 billion - Jordan says Crescent has grown to more than $40B in assets under management. Early AUM growth: $3B to $6B to $12B to $25B - Jordan describes Crescent’s rapid organic and acquisition-driven growth path. Venture access threshold: Around $20 billion AUM - Jordan says Crescent became interesting to top GPs after crossing roughly this scale. Clients served by wealth advisory arm: A few thousand clients - Jordan says Crescent Asset Management serves a few thousand UHNW and HNW clients. Advisors: About 130 - Jordan notes the number of advisors on Crescent’s wealth management side. Client/external mix: 65% clients / 35% external - Jordan describes how much of Crescent Partners’ capital comes from existing clients versus outside investors. Fund deployment: About 30% deployed - Jordan says their venture fund is roughly 30% invested. Co-invest allocation: 10% to 20% of fund - Jordan says co-investments represent this share of the overall fund strategy. Large venture allocations: 30% to 60% - Jordan cites large private-market allocations typical of the most successful multigenerational family offices and elite institutions. Total venture applications: 45,000 applications - Jason says his firm receives this many inbound applications. Selectivity: 20 investments - Jason says they accept roughly 20 from that applicant pool. Seed-stage comparison: 100 companies; 2 drive 95% of returns - Jason describes venture power-law returns in his own portfolio framework. Takeoff examples: 10x, 20x, 50x fund outcomes - Used to illustrate the scale of returns needed for large funds versus small funds. Valuation reset examples: Stripe and Instacart haircut - Jason references valuation markdowns as a key LP concern after the 2021 boom. Deal-round heuristic: 10-to-1 - Jason says likely winners appear about ten times more often than “definitive winners” in his framework.

Pivotal Quotes: "If you're not investing with the best venture managers, our view is it's probably not worth doing." — Jordan Stein: Jordan explains Crescent’s emphasis on accessing top-quartile and top-decile VC managers. "When others are fearful, be greedy. And when others are greedy, be fearful." — Jordan Stein: Jordan uses Buffett’s quote to explain why entering after the 2021 peak but before the 2024 rebound improved vintages. "The chance of winning the lottery ... and compare it to like low, like bottom quartile venture, and it's not as good." — Jason Calacanis: Jason argues that even low-quality venture exposure can outperform lottery-style gambling, supporting broader access to VC.

Implications: The episode suggests elite venture remains robust but highly gated, with access increasingly dependent on reputation, scale, and relationships. LPs should prioritize manager quality, diversification, and disciplined timing; broader VC access may require investor education and regulatory reform.