Monique Woodard, Fund of Funds Panel & The Pro-Rata Yacht! | E2018

Episode Summary

Executive Summary: This episode features two Liquidity Summit talks: a fund-of-funds panel on why emerging managers and small venture funds can outperform, and a solo-GP talk by Monique Woodard on raising a first institutional fund. Together, they argue that venture returns are highly skewed, access to early winners matters, fund size and portfolio construction are decisive, and fundraising succeeds when GPs build real institutional habits and choose the right LP persona.

Main Topics: Why emerging managers matter in venture (Priority: 5/5): Panelists argue that small, sub-$60M emerging-manager funds are one of venture’s most overlooked opportunities, with better alignment and better returns than larger funds. Access to early winners and the value of follow-on capital (Priority: 5/5): A central thesis is that most unicorns had an angel/syndicate lead or emerging manager at inception, but many small managers lacked reserves or bandwidth to follow on, leaving large value untapped. Venture returns are highly dispersed (Priority: 5/5): The speakers contrast venture with public equities and emphasize that in venture the gap between great and poor investors is enormous, so self-assessment bias is costly. How LPs evaluate fund size, alignment, and manager quality (Priority: 4/5): StepStone’s perspective shows why smaller funds can offer stronger GP-LP alignment, but also why LPs must be selective because manager quality is increasingly crowded and harder to differentiate. Fundraising strategy for first-time funds (Priority: 5/5): Monique Woodard explains that raising fund one is really raising the next two or three funds, and that institutional-adjacent LPs, patience, and speed to first close are critical. Institutionalization and discipline after launch (Priority: 4/5): Woodard stresses that GPs must do what they said they would do, build reporting/audit discipline early, and establish a clear investment persona to move up the institutional stack.

Key Arguments: Most investors believe they are above average, but in venture that bias is dangerous because outcomes are far more dispersed than in public markets. Emerging managers are attractive because they often get into the best companies earliest and have historically outperformed, especially at the small-fund end. A major source of missed value is that small managers often cannot reserve or lack bandwidth to follow on into winners, even when they identify them correctly. LPs should focus on alignment: smaller funds can require higher performance to succeed, which forces stronger execution and cleaner economics per partner. The venture market has become more crowded, making sourcing stories and backgrounds less differentiating than they once were; selection discipline matters more. Fund one is not just about closing one vehicle; the GP is also signaling credibility for fund two and fund three, so early institutional habits matter. Raising a first fund is easier when you identify the right LP persona—such as fund-of-funds or corporate LPs—and build around that audience instead of chasing everyone. GPs need to build operational muscle early: audits, reporting, and consistent strategy execution are what make a firm investable over time.

Data Points: U.S. drivers who think they are above average: 73% - Ben Troy uses AAA survey data to illustrate human overconfidence. Men who think they are above average drivers: 8 in 10 - Used as a parallel to investor self-perception. VC firms reviewed annually by Next Legacy: 200+ - Benchmarks how many firms the panelist evaluates each year. VC firms backed over 25 years: 100+ - Shows breadth of fund-of-funds experience. Unicorns with an emerging manager or syndicate lead on the earliest cap table: 92% - Michael Downing cites this as evidence that early access matters. Small emerging managers that invested beyond seed in those unicorns: <5% - Illustrates why follow-on capital is often missing. Potential untapped value from those missed follow-ons: $150B+ - Estimated cumulative unharvested value across unicorns over 15 years. Capital split at MDSV Capital: 25% / 75% - 25% backs small emerging managers; 75% funds opportunity follow-ons. Average check size via opportunity fund SPVs: $2M - Capital extension program lets small managers invest like larger funds. Direct deals done under this strategy: 6 since Q4 last year - MDSV describes early deployment of the extension strategy. Funds invested in by MDSV: 9 currently; 25 by Q2 next year - Shows scale of the program. Venture share of private capital allocations for institutions: 14% to 25% - StepStone slide showing venture’s growing share since 2008. Increase in venture AUM: ~10x - Highlights rapid asset growth in the category. Increase in number of managers: almost 4x - Shows crowding and proliferation of funds. Funds raised in the U.S. since 2018: 2,991 - StepStone data on the supply of venture funds. Unique manager count since 2018: ~1,650 - Indicates many managers have multiple funds. Percent of managers from Ivy+/top-tier schools: 60% - Part of StepStone’s GP background analysis. Percent of managers who are former founders: 55% - Shows common founder-to-GP pathway. Percent with large tech company background: ~17% - Another frequent GP profile. Percent classically trained in finance: ~15% - Shows diversity of entry paths into venture. Managers fitting one or more major background buckets: ~90% - Illustrates why differentiation is getting harder. Per-partner economics in a $1.5B fund: $67.5M per partner - StepStone example of larger-fund economics. Net multiple needed at a $1.5B fund: 2x - Required to reach the per-partner target in the large-fund example. Net multiple needed at a $400M fund: 3.6x - Mid-size fund example. Net multiple needed at a $150M fund: 5.6x - Smaller-fund example showing stronger LP-GP alignment. Cake Ventures debut fund size: $17M - Monique Woodard’s first institutional-adjacent fund. Cake Ventures first close: $5M - Initial close that launched the fund. Time from first close to final close: 20 months - Illustrates the long fundraising process. Share of Cake LP base that is institutional or institutional-adjacent: 49% - Shows the fund’s relatively institutional LP mix. Share of Cake LP base that is individual investors: 9% - Lower than many first-time funds.

Pivotal Quotes: "Most investors assume that they are better than average." — Ben Troy: Opening analogy connecting driver overconfidence to venture investor self-perception. "I think the alignment for LPs with GPs at the smaller funds is unmistakable." — Seiyun Kang: Explaining why smaller funds can be more attractive to LPs despite requiring higher performance. "You’re not just raising fund one, you’re actually raising the next two or three funds." — Monique Woodard: Core fundraising lesson about long-term LP relationship building.

Implications: For investors, the message is to seek smaller, high-quality managers and demand real DPI discipline. For GPs, success depends on sharp positioning, early institutional habits, and enough conviction to fully commit to the fund-building path.