00:58:54 · John Coogan, Hunter Somerville
[00:58:54] S0: you go. [00:58:55] S3: And I was a partner at Greenspring Associates, which Stepstone acquired about five and a half years ago. And now I'm one of the co heads of the Venture and Growth Equity Group under Stepstone. Stepstone is a publicly traded company. It has different asset class teams across real estate, PE, and venture. I only do venture and growth equity within the organization. Mhmm. And our group does fund, direct, and secondary investing, so we mix all three together, which is a pretty unique Yeah. Position to be in. We back who we think are some of the most interesting early stage GPs out there that invest its seed in Series A, and then we come in and invest in companies at BCD rounds, either through primary or secondary purchases after the fact. We leverage the ecosystem and the relationships to then identify the companies we want to build concentration in. [00:59:47] S0: What is the Venn diagram of look through exposure via your fund investments and your primary and secondary your growth equity and your secondaries business? Because I imagine that there's already some sort of relationship. The company has been scouted. There's a growing relationship and then you're ready to do a direct or a secondary transaction. Is that usually how it plays out?
00:59:47 · John Coogan, Hunter Somerville
[00:59:47] S0: What is the Venn diagram of look through exposure via your fund investments and your primary and secondary your growth equity and your secondaries business? Because I imagine that there's already some sort of relationship. The company has been scouted. There's a growing relationship and then you're ready to do a direct or a secondary transaction. Is that usually how it plays out? [01:00:12] S3: You've completely nailed it. That's exactly right. We work with over 300 venture and growth managers, which probably feels like a lot. But it's great from an ecosystem standpoint because when we're looking at a company, we have three, four, five different managers Mhmm. Already as part of that syndicate that are sitting around the board table that are actively working with the founders and gives us tremendous insight on those businesses that we would like to do more with and invest directly into. [01:00:38] S0: Yeah. [01:00:38] S3: If you segment our business, it's about fiftyfifty between direct and fund investing. And secondary is a little more complicated because that includes both fund and direct secondaries that we do where we provide liquidity to people within the cap table of a business or we provide liquidity to endowments, foundations, pension funds, whoever else may want to sell LP interests that they hold in funds. [01:01:03] S0: Got it. Yeah.
01:01:03 · John Coogan, Jordi Hays
[01:01:03] S0: Got it. Yeah. [01:01:04] S1: Please. I'm very interested how new managers are, on the fund side are are pitching you today. Like, they're coming in. It feels like we are in some cases, feels like we're a decade into this cycle. Right? A lot of the big liquidity events of this last year have start have been from companies that started before anyone was brought, like people broadly were were thinking and debating and and investing in AI. A lot of people have been rewarded for backing, you know, I'm thinking of, you know, chip companies like Cerebras Yeah. That, you know, backing those companies in the 20 tens. You've been you've been doing well. But what are the new managers that are maybe coming off of building companies or operating? What what's their pitch to you around like the next five to ten years? Because you're you're betting on at the early stage, you're betting that there's gonna be a bunch of big new companies created.
01:02:00 · Hunter Somerville
[01:02:00] S3: I would say just first and foremost, it's a harder fundraising environment for new managers that are getting off of the ground. The LP capital continues to concentrate more heavily around the multibillion dollar brands that are increasingly adding strategies or other parts of their platform. Getting LP attention, I think, is tougher. If you layer that on top of the fact that a lot of seed rounds are being bypassed and going straight to larger A rounds or just larger seed rounds in general, it's harder for emerging managers to even play in a lot of those situations because most emerging managers are focused on seed or small a and are operating out of fund sizes of thirty to three hundred million. So they're not exactly going to be leading a seed round in a $100,000,000 kind of financing overall. So they need to prove their right to exist, I'd say, even more than they ever have historically. You could argue maybe that's a little bit different in hard tech and deep tech where I do think there's a bifurcation in terms of viability and where you can be an active participant, get good ownership in business like that, and then you get blessed later by the multibillion dollar brands. But in AI specific focused companies, I think seed is harder. You really need to find a way to stand out. You need to prove your ability to source or build relationships with founders very early. And certainly, if you're an operator and you come from a company where there's a diaspora of talent and proven founders and a culture that fosters that, you can make the case you're creating a new mafia that you're better suited to back than someone else that already exists. On top of that, AI founders are generally younger. GPs also increasingly have an advantage if they're younger and can relate better with that founder cohort. I think there's an argument to be made in that regard as well.
01:03:50 · Jordi Hays, John Coogan
[01:03:50] S1: Yeah. It felt like, rewind, five years and every [01:03:57] S0: it [01:03:57] S1: felt like half the people I knew were raising for at least like a a micro solo GP fund and it and it didn't it seemed like, you know, it seemed like if you wanted to raise 5 to 10,000,000, it was like very easy, you know. You did have to like do the rounds and maybe it took six months whereas but you were gonna be able to pull the money together if you were competent and you had any kind of track record. And it and the interesting dynamic is like back then, there wasn't this crazy new technology cycle. Like the the craziness in the market was a function of interest rates. And so the companies that were growing incredibly quickly were a company that was like a lending business and like they just had a bit of an arbitrage. Right? Whereas today, you have it's interesting because it seems way harder for new managers to get off the ground and even pull together, you know, the $50,000,000 fund. And yet, it actually feels like a much better time to be investing because of the the sort of like turmoil of the technology markets right now creating opportunities for new entrants.
01:05:05 · Hunter Somerville
[01:05:05] S3: Yeah. I totally agree. And I I would say it's still not that hard to raise a 5 to $10,000,000 fund. If you have any kind of network, you can cobble that together with friends and family or people that you've worked with or new minted millionaires that are out there in the ecosystem. But if you really are going to cross the chasm to being more of like a $50,000,000 plus seed fund, you do need to bring in institutional capital from endowments, pensions, fund to funds, or that kind of ilk, and getting their attention is much harder. And some high net worth capital can be rather fickle where they will come in at less obvious times and not be as consistent with continuing to re op into those managers or consistent with doing new managers. I think the opportunity set couldn't be more exciting across all of the categories that I just mentioned, deep tech, hard tech, AI, whatever it may be. But I do think it's harder to get attention from the bigger allocators that allow you to do more proactively. And I think if you're a 5,000,000 to $10,000,000 fund, you're getting really de minimis ownership and you're going to have no ability to follow on and no ability to concentrate behind your winners and just a more problematic portfolio construction math to navigate.