When in 2010 former VC Michael Kim decided to raise a fund he would invest in a series of micro VC managers, the investors he turned to didn’t get it. Why pay Kim and his business, Cendana Capital, management fees in addition to the management fees that the CR managers themselves charge?
Fast forward to today, and Kim has apparently proven to his supporters that it is worth the extra cost. Three years after raising $ 260 million on a handful of vehicles he has invested in emerging venture capital firms, Kim now reveals a new $ 278 million capital commitment, including $ 218 million for his fourth flagship fund and $ 60 million that Cendana specifically manages for the endowment of the University of Texas.
We spoke with Kim last week about how he plans to invest the money, which is slightly different from how he has invested in the past. Rather than sticking only to the US-based bootstrap managers who raise vehicles $ 100 million or less, he will divide Cendana into three areas of intervention. One of them will remain responsible for the start-up phase. A narrower area of interest – but growing, he said – concerns pre-seed managers who manage $ 50 million or less and fund more or less ideas.
A third area of growing interest concerns international managers. In fact, Kim says Cendana has previously supported small venture capital firms in Australia (Blackbird Ventures), China (Cherubic Ventures, which is a cross-border investor who also focuses on the United States), Israel (Entree Capital ) and in India (Saama Capital), among others.
In total, Cendana now manages approximately $ 1.2 billion. In exchange, investors are charged 1% of each fund managed by Cendana as management fees and 10% of its profits, above the management fees of 2.5% and 20% of the “interest carried” received by its fund managers.
“To be extremely clear about this and transparent,” said Kim, “these are cumulative fees that add to the charts of the fund managers. Cendana LPs therefore pay 3.5% and 30%. And you might think it sounds pretty blatant. But a number of our LPs are not staffed to go into this market or are too large, like the University of Texas, to make smaller checks in these seed funds. And we offer them a pretty interesting value proposition. “
According to Kim, other larger fund managers, “Many of these well-known funds of funds pool assets. They do not charge deferred interest. They are there for management fees. They have brilliant offices all over the world, they have hundreds of people working there, they raise more than a billion dollars in funds, and they put 30 to 50 names in each, so sort of they become index funds.[But[Idon’tthinkthattherisksarereallyanassetclassContrarytoa[Aim[Idon’tthinkventureisreallyanassetclassUnlikean[Mais[jenepensepasquelerisquesoitvraimentuneclassed’actifsContrairementàun[But[Idon’tthinkventureisreallyanassetclassUnlikeanETF focused on the S&P 500, venture capital is where a handful of fund managers capture most of the alpha. Our differentiation is that we take, we create very concentrated portfolios. “
Specifically, Cendana typically holds positions in up to 12 funds, and bets a million dollars on another handful of more nascent managers that she will fund more if they prove their theses.
Some of the managers she has supported have gone beyond Cendana in terms of assets. It caps its investments in funds of $ 100 million or less. But over time, he argued: 11.2 Capital, Accelerator Ventures, Angular Ventures, Bowery Capital, Collaborative Fund, Forerunner Ventures, Founder Collective, Freestyle Capital, IA Ventures, L2 Ventures, Lerer Hippeau, MHS Capital, Montage Ventures, Moxxie Ventures, Neo, NextView Ventures, Silicon Valley Data Capital, Spider Capital, Susa Ventures, Uncork VC (when it was still SoftTech VC), Wave Capital and XYZ Ventures.
As for its pre-seed fund managers, these are Better Tomorrow Ventures, Bolt VC, Engineering Capital, K9 Ventures, Mucker Capital, Notation Capital, PivotNorth Capital, Rhapsody Venture Partners, Root Ventures and Wonder Ventures.
As for returns, Kim says Cendana’s very first fund, a $ 28.5 million vehicle, is “marked north of 3x” and “it’s net of everything.” Kim also notes that Cendana has 38 so-called unicorns in its larger portfolio, and more than 160 companies that are valued at more than $ 100 million.