We dig even deeper into the world of venture capital, exploring how the landscape is changing, whether to invest directly in companies or through funds and even starting your own fund. This week co-hosts Ben Fraser and Bob Fraser talked with Joel Palathinkal, founder and director of Sutton Capital – an educational community connecting fund managers, with investors and portfolio companies. From his unique vantage point of running this community, Joel shares his knowledge about what it takes to run a successful fund, strategies for investing in venture capital, and how building a community is at the center of it all.
Dr. Joel Palathinkal is an active investor and entrepreneur affiliated with a global network of Single Family Offices, High Net Worth Investors, Endowments, and Venture Capitalists. He’s the CEO of Sutton Capital and an LP / Mentor to both emerging and institutional investment managers. Sutton Capital invests in opportunities focused on Fintech, Real Estate, B2B SaaS, Deep Tech, Space Exploration, Impact Investing, Cleantech, & Climate Change. Early in Joel’s career, he ran technology product innovation in Fintech, Artificial Intelligence, & for the Dept. of Defense. He completed his Ph.D. in Modeling & Simulation while he was building flight simulators for the NAVY & DOD.
Joel was referred by fellow venture capital investor Ron Shigeta! Check out his episode here: https://aspenfunds.us/podcast/investing-in-biotech-from-scientist-to-venture-capital-investor-feat-ron-shigeta/
Connect with Joel on LinkedIn –https://www.linkedin.com/in/joelpalathinkal/
Learn more about Sutton Capital – https://suttoncapital.co/
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How to Vet Venture Capital Funds feat. Joel Palathinkal
Hello, Future Billionaires. Welcome back to another exciting episode today, we interviewed Joel Palathinkal and Joel is the founder of Sutton Capital. He has been in venture capital for many years and he comes on the podcast and shares his unique approach to building a community and an ecosystem of VC portfolio companies, VC ecosystem.
So sticking the fork and venture capital by the community by community. And he explains how he’s done all that and has, fund managers how limited partners, and portfolio companies all in his community and really finding the best opportunities within that and his unique approach to that. So hope you enjoy this show.
And the insights that Joel shares. And if you are enjoying this show, we do ask and thank you to all those that have subscribed and have shared a review. We appreciate that on any platform that you listened to this on. So we can share this with more and more people and get more people invested in the wonderful world of private alternative investments. Thanks for listening.
Welcome back to the invest like a billionaire podcast. I am your co-host Ben Frazier joined by fellow co-host, Bob Frazier. And today we are joined by Joel Palathinkal Joel is a venture capitalist and entrepreneur, and he has built a pretty incredible community. In a global network of, single family offices, high net worth investors, and really focusing on the venture capital kind of ecosystem.
And so he runs an accelerator for funds, helping funds race capital and build Traction. And then he also coaches and has launched a new LP accelerator, which we’ll get into all this later, but teaches investors, how to invest, how to build portfolios, how vet companies, and to do due diligence.
And so prior to this, we’re here all about his background, but he actually has a Ph.D. in modeling and simulation and was building flight simulators for the Navy and department of defense, which is super cool. And. Jumped into the whole world of venture. So Joel, really excited to have you on here.
Thank you so much for joining. Yeah. Thank you. Really appreciate it. I’m excited to be here. One small correction is that I’m not a broker-dealer, so don’t help funds or startups raise money. But I just built an educational community to connect people. So that’s been really great, just building relationships across both sides.
Yeah, that’s. That’s awesome. Thanks for the clarification. I think one of the things we loved about wanted to bring you on the show is we’ve talked about this before, where we have a lot of interest from our listeners in this world of venture capital private equity, but it feels largely inaccessible to the average retail individual investor and. And we wanted to bring some experts that have been in this space business ecosystem actually referred to us by Ron UETA, who we had on the show who was a biotech venture capitalist. And we really wanted just to hear from you and you’re back on your scene, a lot of these funds go through your education program, go through your accelerator.
And, a lot of accelerators focus on the portfolio companies themselves, which are, teaching a company, how to scale and you actually focus on funds. So teaching funds that are going to invest in these portfolio companies, how to scale. From our standpoint, As investors and educating individual investors would love to hear from you on what are you seeing.
How do you identify these companies, that are gonna be the ones that are gonna be more successful than others? And, before we get on that, though, I’d love to hear your background and that’s how you even got into the space. Yeah. I initially grew up studying technology and I wasn’t really that knowledgeable on private equity and venture capital.
I really. Followed, my family and, friends of mine, family, friends mine that were either going into the medical industry or working in technology and just pursued a career in technology and thought I would do an MBA cuz I had friends that were, changing careers and getting into investment banking.
and I thought about doing an MBA and I just did not, fully go through the process of applying to B school and just through happenstance. One of the career opportunities that I had blended itself to a graduate program, a Ph.D. program. And I ended up, working for the department of defense.
Also worked in the media space for some time. And when I was working for the D O D they had, a big industry. Flight simulation. When you think about the Navy and now, I don’t know if any of you guys saw the new top gun movie. But a lot of those Aircraft, a lot of them need.
Pilots to train. So that was the industry that I was in, just building, testing those simulators. And then there was a local university program that had a program in modeling and simulation, and some of the classes also had financial modeling and I started just building more of an interest in finance, cuz I had such a deep tech background and what was the.
When I went to New York, I met a couple of buddies that were working in private equity and VC. Some of them went through the traditional route of going to a top B school or just through their networks. They got placed at a top firm. And then that’s where I really grew an interest in looking at my superpowers.
And a lot of us, probably some people in your audience, have different superpowers and different skill sets. They come from different walks of life and, they may not just have the. Community, or just the general knowledge of that exposure to that opportunity or industry. So that was the same thing with me.
But I slowly built more of a community, more relationships around private equity in VC, and then, finally pivoted into VC after being in New York for some time. And then I started Sutton capital ventures. Sutton capital ventures is a generalist private firm. We invest in the early stage, and late stage.
And the industries that we focus on is mostly just B2B SAS, consumer tech. And then we also look at deep tech in the impact, and then we’ve also done a few small LP investments in funds because the benefit of that is just getting access to some type of industry that you may not be an expert in.
So alongside those activities built some. Communities, which is now branded as just Sutton capital and its communities. One of the first communities is educating people in general on how to switch careers or how to learn about private equity and venture capital. What’s the difference between private equity venture capital?
Where does? Late-stage venture intersects with private equity, sometimes it’s a blurry line, oftentimes when you’re looking at private equity as a career there’s much more financial modeling versus venture capital where you’re really understanding the founder, understanding the problem, really understanding the market size.
So just built skill sets through really building a media common media platform in a large community. Ron SiGe. It is a very similar case. I met him through another warm contact and through, people like Ron and through other VCs, you kind of share notes and share theses on different sectors.
And that helps to de-risk investment opportunities by getting those insights from other people. And that program that I launched, it’s just a VC, private equity, community. I saw a lot of people. Magically switching their careers, whether they worked in technology or they’re a medical doctor, a lot of them were switching careers from, that industry to now a career in private equity and venture capital.
So that, that was just really interesting to see. And I think just the future of education, we’re starting to see education become unbundled. So recently Google has now released a suite of courses. Where you can get a certificate and learn like critical skills, like project management, product design, and a lot of those subjects and certificates that you can earn from Google actually translate to a specific job.
And I think that’s where. Education is evolving. I think we’re moving to a skill based economy. So if you wanna learn how to build a website, you don’t have to go to engineer. You don’t have to study computer science for four years. You can take an eight week bootcamp. That bootcamp will help you get a job.
And same thing, so I, I started seeing these people break into BC. And then they finally achieved their goal. They’re like, look, wow. I got a job in BC and PE I think I can do this myself. How do I learn how to start a fund? So I don’t think there’s a specific major in, fund creation.
You can’t go to college and study fund admin and fund creation. There just isn’t that. Curriculum, because to know that curriculum, you have to be in the industry, right? You have to be talking to fund admins, you have to be talking to other, VCs. And I think that’s really where the innovation can start.
So I launched another program about a year ago. We’ve graduated hundreds of funds in one year. We bring in about 50 funds, every cohort. And every fund that is in there has, some type of track record they’ve established themselves. And there’s no fundraising activities. It’s really just mentorship.
And community and content and education. So just let me, lemme stop you for six. Sure. When you say you bring in funds and you bring in a cohort of funds, these are family offices who wanna learn about private equity and venture capital investing. Is that right? So there’s two types of there’s GPS.
We general partners at venture funds, private equity funds hedge funds. And when I say bring in, they apply to the accelerator. Very similar to when you think about Ron getta, he ran indie bio, right? So there’s thousands of startups that applied to indie bio. And then there’s a few startups that got selected.
So same thing, like we have funds, these are venture funds. Most of the funds are anywhere from 15 million. Probably, up to half a billion in AUM and they’re just applying to the program for the educational content and community. And our reputation is based on picking really high quality, interesting funds.
Some of the smaller funds that get chosen are okay, so you help family offices pick venture capital funds. Is that right? We don’t help anybody. Funds or investments, we just built a community. So we have funds that apply to our platform. And then I have a community of single family offices, LPs institutions, and endowments that just wanna be involved with that community, right?
Cuz they wanna meet other LPs so they can talk about how to be a better LP. They also wanna meet interesting funds. Their reason may be different reasons, right? Some family offices don’t wanna invest in funds. But they want, you’re building a community of passive investors in venture capital investors who wanna be a part of a community get deal flow.
Find out who’s doing what get peer up with others that are interested in passive venture capital investing. Correct. Yeah. So the, know, gotcha. When you think about the people, whenever you build a community, I think you need to think about what everybody gets out of it. So when you think about GPS, general partners at funds, they it’s, it is a long and lonely road trying to raise a fund.
And and build a thesis around it and, close a fund. It’s very valuable, I believe to not be alone and be part of a community of like-minded individuals that are on that same journey, especially during COVID. At any time it’s just difficult to raise a fund, so it’s always more fun if you’re not alone.
My goal for fund managers is to build a safe community where fund managers can help each other be a support system for each other, but what do they really need? They need to meet people that invest in funds. So I’ve also used, so it’s both sides of the community you want. You want the guys who are running the venture capital funds and the guys that wanna invest in in venture capital funds, some funds, some, I would categor.
It as two personas, right? One is a GP, a general partner outta fund. Who’s raising a fund, an LP is an allocator that invests in funds. Yeah, I understand many of them have to do this for their job, so if you are an endowment fund, for your job, you get judged on the funds that you bring in and.
And for me, I’m just trying to build a community and what I get out of it is I get to just build a really crazy network. Sure. Because of the fund accelerator, that’s why I’m on this podcast. So Ron was in my fund accelerator. He was in the community. So I think when you build a community, there’s a lot of intrinsic compounding returns and the community is the fund accelerator.
That’s one of them. So I have three, three communities. The first one is the private equity VC education community. That was the first one that started the fund. Accelerator is a new community, which is a community for LPs and GPS. Gotcha. And that’s a cohort based program where every quarter I bring in about 50 funds.
Again, those funds apply to my program. I have a community of LPs that give me feedback on which funds they think are interesting. And we picked the top. And then, there’s LPs these people, what they get out of it is they wanna meet other LPs. If you are a single family office, you mainly focused on real estate.
It might be interesting to meet another family that has done some venture, and meeting another family. The benefit is you’re not getting pitched because you are just a peer with another family. So let’s back up for a minute. Our investors are mostly, most people, we have this, what we call the investment continuum, and most people start in the public markets.
And as a passive investor, you maybe then start doing some private, real estate. Maybe you start doing some private equity and venture capital is a little more out there. And then you have the people on the coast like you, that probably the only thing you’ve ever invested in is venture capital, right?
Yeah. And, but it feels a little bit like gambling, right? , it’s like, you to pick a portfolio company and yeah. Money. It’s kinda wildcatting, so how do so how do you pick the right manager and as a skeptic, right. And a guy who’s actually my background I’ve I raised 44 million in venture capital with a previous In the company and I’m a computer scientist, so I understand the whole all that space, but it’s really hit and miss and very risky investment.
So sure. Where does venture capital fit in a portfolio? Let me just ask that. Where did, where does it fit? Shouldn’t be a hundred percent, right? Although, yeah. I think people in the space that probably is where they’re at, but Hey how does it fit? And how do you de-risk it? So I think taking a step back.
Different people are gonna have different goals, right? So if you are a pension fund, you’re managing millions of people’s retirement money, and, ensuring that they’ll have money when they retire. So you’re not gonna go in. You’re not gonna go all in on venture. And what they have at the institutional level is portfolio construction, right?
So they have mandates and they. Processes around that in terms of what actual percentage goes to venture, what else goes to stocks? BU bonds and commodity. So at a professional level there’s portfolio construction, that’s created as an angel or like a high net worth individual. Someone who works at Amazon or someone who works at IBM.
These people make around 200, 300 K a year, or whatever, maybe more right. These tech operator. Medical doctors, lawyers, high net worth individuals, accredited investors. Again, what are your goals? Are you and what is your tolerance for risk, right? Because you could, it, it does sound like gambling, right?
It’s high risk. But there’s frameworks that you can put in place for venture and, again, I’m not a financial advisor. So I wouldn’t be the right person to prescribe that, but I think, you want to think about your goals and your tolerance for risk. I would say venture in general is just to your point, just a very risky asset class.
So how de-risking. So there’s a few things that I’ve done in my process, right? I look at the market size. I look at the team, I look at the traction normally when I invest in start. Yeah, this is for portfolio company, or these are for PC manager companies. These are I’ll talk about both.
I’d say for portfolio companies. Again, everybody has a different strategy, right? Some people do precede where they’re all in on just the founder. There’s no traction, there’s no revenue. I like to see some revenue. Yeah. So I like to see some revenue. So just let’s have a, an in intro moment here, right?
Yeah. We love to bring our investors along and, and kinda get rid of the vernacular. Yeah. So there venture capital investing falls into kind of a spectrum based on the size of the company and the maturity of the company. So preceded, I haven’t even heard that word. Sure. Is basically a guy with an idea, right?
, he’s waving his arms, seed is really more of a concept. Then, I’m not sure what categories you would say, but then there’s really growth stage where concept pre it just needs capital. And then it’s late stage, which is really very mature teams, very mature strategies, and on more of a pre IPO then there’s me, which is really pre I P O and bridge kind of funding.
So it’s and they’re various sizes. So a hundred thousand dollars might buy. Two or three or four or 5% of a company at an earlier stage, it buys you, away from the CEO at the later stage. . Yeah. Is that accurate or gimme your perspective on that.
Yeah, that is, yeah, that’s correct. I I would say precede a lot of times people who invest in preceded are, spectacular people, some of them might have had a business in the past. So if Travis Callen. From Uber is look, I’m launching. I crushed it with Uber. I crushed it with with cloud kitchens.
I’m gonna change education. Yeah. So you’re, he didn’t have the website talking that case. You’re saying whatever he does got a good chance of working. And so I’m gonna throw some money at it. Yeah. So you’re investing in people and the benefit of doing Pree, obviously, I’ll give you an example, right?
If you invested, there’s a chart that I saw. A while back that listed the early investors this might give you some perspective, the early investors of Uber, right? So it was Jason Khan was one of the investors and I think he got like $25,000 from Sequoia capital. And they gave him like $25,000 worth of shares.
And they had a graph that showed how much that turned into. So $25,000. Early. If you waited 10 years, that would’ve been 125 million. So I think that’s 5,000 X, right? So yes, it’s risky. It could be gambling. Uber could have failed, but also there’s a different perspective, which is like, What if it doesn’t fail, so if you think in a positive light, it’s look, I have some capital that I’m going to put into growth opportunities and I’m gonna bet I am gonna bet. I’m gonna bet on my ability to invest. I’m gonna bet on this person, the moonshot believe in this person. Yeah. So it’s take taking a portion of your capital Putting on red 19. Yeah. And I think that’s a spirit of the American dream. That’s a spirit of entrepreneurship, it’s risky to start a business and you’re betting on yourself. So yeah, I wouldn’t say like it’s gambling, but I would say you are, you’re believing in something and you’re backing something cuz you have conviction.
Okay. And don’t have to it doesn’t it make more sense? For, I guess my advice to an investor would be if a space, if you’re an expert in food technology, Yeah. Do angel investing. Yeah. Or seed or precede in food technology, because their space, their risks, you understand that, or if you’re a computer scientist or what, so if you know something then go in.
Yeah. And if you don’t do not go in. Yeah. As at that level. . And then if you don’t know, if you’re not an expert in in the area, then you really want to invest in a fund and because you get diversification, right? Yeah, I was the first venture capital in, in my business, in the late nineties was a guy was a founder of seven Rosen, one of the top VC funds of the early tech era.
and they had a hundred X returns or a hundred percent returns, sorry. Yeah. In their, to their LPs over the course of decades. And their model was one in one in 18 deals. They only cared about the one deal that went a hundred X. And if you went, they went five X or 10 X, they didn’t care. Yeah. So it’s really, if you’re doing that, you have to have a portfolio.
There has to be a lot, you’re placing a lot of bets yeah. On the table, for the one that’s gonna hit. So doesn’t it make sense to do. To do, to do pick a fund or a couple funds if you’re gonna do this or unless you really are an expert and the exact company you’re investing.
I look, again, I think it depends on your goals. So I think the benefit of going direct obviously is you’re not, it’s not a diversified product, so it’s a direct deal. Like you’re directly in Uber, Uber has outsized returns. But the risk is the risk, right? Going into a fund is a risk adjusted opportunity. And you can also learn, so if you are, so I’ll give you, I’ll talk about my example. I have deep tech experience and I have FinTech experience and I worked in FinTech, New York for some time. So to your point, Bob, like. When I started investing, I did focus on deep tech and FinTech cause those are the areas I knew.
But I started becoming really curious about food tech, so I’ve done some, companies and food and the way that I. Build knowledge around that was, I talked to Ron, so I think if you want to expand your portfolio to new sectors, I think the way to do it is go down the rabbit hole, read a bunch of blogs, listen to a bunch of podcasts, and it’s not that difficult eventually on your own to study and become an expert, but then you could also expedite.
From having experts that have invested in that industry to, to share deals with, because they know the industry, they’re vetting them for you. And then there’s also angel groups, right? You can go to angel groups as a community of people that are sharing their concerns about the risks and the groups and they’re investing together.
So they’re taking a risk. And they’re betting on this company together and they’re doing the deal, they’ve done all the diligence together. So I think all of those things helped to de-risk, but yes, funds, the interesting thing about funds is you can quickly learn a type of industry very quickly and you, and it’s also risk adjusted.
There’s also some types of LPs. I would say endowments that cannot invest in funds. because it’s too risky. So they have to invest in fund to funds, which is an index of an index . So that’s, so again, so it depends on your goals and also what you’re trying to achieve. If you’re trying to tr achieve outsize returns and a 5,000 index return, probably, a fund on top of a fund is not gonna help you achieve that.
And then, also do you want to get exposure to real. And, do you want to have monthly recurring revenue from like rental properties? So again, I can’t, I think you want to think about holistically what’s important to you and what your goals are financially and then and then build a strategy around that personally.
How would you, how would, should someone go about picking a fund manager? Let’s say they, I’m saying, I want to, I don’t know anything about the space. I want, I wanna play, I want in the VC world. Yeah. I wanna learn I don’t wanna risk, I don’t want something super risky. I just wanna play.
And there’s thousands of these fund managers. I was looking the other day on angel list, which is of a community, an angel investment community got, and it’s, you can say, Hey, you can raise your hand as a fund manager and say, I’m a fund manager and start these little micro funds.
and there’s thousands of these guys and there’s, I don’t know how many thousands of aim of investment funds right. Of, of venture funds. So , it’s navigating that. It’s it’s you know, where do you stick the fork in? How what’s the best way, to learn about this and to find a manager that you can do well, So I wouldn’t say there’s some golden, rule.
But, what I think has been successful on both sides, as an LP could be an emerging LP. That’s a term that I’ve been hearing thrown around. We’ve had these it professionals, doctors, lawyers that are making a couple hundred grand a year.
They probably can budget maybe investing 50 K a year or a hundred K a year. They’ve traditionally done startups. Now. There’s a whole movement of these angel LPs, where, to your point, maybe what you’re alluding to is they back these smaller funds and some of these funds have smaller minimums, right?
Traditionally funds usually have a bigger minimum to get in. You have to do a 250 check, 250 K check or a hundred K check. To get in as a minimum, but now there’s these tech operators that are launching funds on the side. I just went to dinner with someone last night. I know two people that have worked at Google and they’ve launched funds on the side and so there’s a whole movement now of people who.
Have good jobs. They, but that’s not very comforting. It’s cool in one sense. And it’s ridiculous at another. Yeah. I’m an engineer. Let me start a VC fund. Yeah. as an investor come on. I’m not gonna put my money in these guys.
Where do you, how do you place capital. There’s been some funds that have done really well and the thing is they still need money to pay for their expenses. And to be honest, the only, when you have a fund, you’re not generating monthly recurring revenue, especially if you haven’t raised too much capital, so you need to keep the lights on, so you gotta do what you gotta do, and everybody has to start somewhere. So what a lot of people do, there’s two frameworks, right? You can be an LP and you can work as a doctor or a lawyer and, just take the money from your salary.
And keep doing that for the rest of your life. And hopefully you hit a home run. But then there’s another school of thought. That’s look, you know what, let me build my own firm. I think my goal, again, going back to goals, I’m a doctor I’m doing well, but the moment that I stop going to the hospital, I’m not gonna get that paycheck anymore.
So how can I. How can I generate some type of wealth? And I think, some people are looking at building a syndicate, building a firm and their goal, for some of the people, their goal is to eventually be a fund manager. And that was what happened to me.
I was an engineer, I got tired of going work every day. And I was like, look, I really wanna, I really intrigued by the opportunity of private equity in BC. So there’s doctors that are like, look, my goal is actually to be. Private equity investor in healthcare, and also invest in healthcare, but I don’t know how to get there.
I have this job I’m trapped. I got a mortgage. I got kids. So how do I get there? So some path ways could be, let me do some small syndicates on angel list. Let me find an interesting startup. And, you know what? I talked to this startup, the startup likes me, cuz I’m a doctor. I have this medical background to your point, it’s an industry that I understand. And and I can add value to the founder and I know a bunch of other doctors, they can probably part ways with 10 K checks, you talk to five or six or 10 doctors. And that turns into kind of a hundred K check. And maybe that’s how you build your track record.
You got your first syndicate deal and that’s good proof to show. You can get people on board to invest in you, even though you have a, even though you have a a full time job. And I have a perfect example. I can reference if you guys want a YouTube video. One of my friends who’s at an institution.
He backed two doctors that work at a hospital, they on the side, built a hedge fund strategy on different types of drug discovery. And this institutional LP backed those two doctors because they have a unique alpha, because they have the industry expertise they know about those drugs. So again, there’s always a way.
Achieve your goals. You just gotta figure out the creative way to do that. And sometimes that’s not the conventional thing’s It’s actually most of our world is very into the real estate investing. And you read rich dad, poor dad, and then you go, yeah, you buy a rental house, and then then you maybe buy another rental house. And then you need you, maybe you brought, you get into a multifamily and at some point you need more capitals, then you actually learn how to syndicate. , that’s a very similar path, right? Yeah. On the VC side. So let’s leverage my expertise exactly.
As food tech or biotech or doctor or whatever. I’m really good at. Yeah. And get into that space and look at building a building, a viable little investment fund. Yeah. So that’s really cool for people. Really want to get down and dirty, roll up their sleeves. And you do those syndicates and whether it’s real estate, look, you could do the same because I’m a fund accelerator, right?
So I have real estate funds. I have hedge funds. It doesn’t matter. As long as you have a fund. You’re welcome on Mike. Me, because it’s all the same thing. You gotta build a track record. So you can do a bunch of properties that you’ve invested in. You can showcase the track record and say, look, I’ve invested in like 20 properties.
They’re all making, two grand a month in, in in revenue and I’m profitable and it’s appreciated as well. So that’s my personal track record. And now I’ve done like three syndicate deals and. Those deals they’re up by this much. Here’s the track, so you want to create some reporting on your track record, how you’re doing, because those are the data points that are going to indicate that you are a backable person to eventually launch a fund, right?
Yeah. And it’s the same thing for venture as well. A lot of people, their doctors, their tech operators, They do a couple small deals on angel list. Now they show that, Hey, you know what, like these deals have done well this is my technical track record, right? It’s a hundred percent about track record as a guy who’s raised hundreds of millions in my day.
And yeah. And it’s a hundred percent about track record. It’s like you gave the example of a Travis, Kek and. And guy has a big exit. It doesn’t matter what he does. Next people are gonna throw money at him. Why? Yeah, because he has a track record and that’s an extreme example of it.
So this good, this person that worked at a tech company, I’ll give you a perfect example. I won’t say the name or the person, but doesn’t work at a big tech company. On the side launched a, on the side, what he did is he built a community. So I think community is super important because those are the people and you guys are doing this now.
But this person had a tech job full time cuz he had to pay the bills. But he knew that he wanted to be. A fund manager. So he is trying to figure out a path. So what he did was he built a large community and started doing happy hours, right? Investor, happy hours, built a community, built trust, added value to the community.
And then he started a syndicate. And all those people were part of the community they’re sharing notes. And they started backing his syndicate deals over time. He had several deals that were done. Many of those deals were doing well. And you wanna include those people because they’re smart people, right?
You’re LPs a lot of them that are part of your community. They’re smart, sophisticated people. They may even help you not make mistakes as well. Maybe you found a really amazing deal. That’s like in the insurance tech space and you really love it. You love the founder, but there’s a person that works in the insurance industry and they’re like, look, this is never gonna work.
I know the industry. And like that might have saved you from like making a huge mistake. So that’s where the community comes in. You do that. You do 20. All those deals. Some of them failed, some of them did well. But when you look at it from a portfolio strategy, there’s a certain percentage IRR that you can culminate together, right?
That is your track record. Now you have a story. I’m this person, I built this community. I’ve done all this. I think I can raise a 10 and that person went on and raised. They already oversubscribed their first fund. They’re already on their second fund. Oh, okay. So let’s say I don’t wanna roll up my sleeves.
I wanna be passive. I just wanna be in the game. , who’s successful out there as an LP. Picking funds how, yeah. Really, you you haven’t answered my question of the, yeah. Of the tens 20,000 of little funds. What’s a winning strategy to pick one. Is it? It seems like it’s probably purely relational based at this point.
Mm-hmm .. It’s I know this guy there for wanna put money, but that’s is that a good strategy? Doesn’t seem like it would be, I yeah, who’s being successful as a limited out out there. That’s not just lucky, right? Yeah. And it’s not picking a portfolio company, but picking a fund manager.
Yeah. I would say, like not to mention any names, but I would say the, there’s a lot of fun to funds that. Have picked, winning managers, qualitative and quantitative thing that things that you wanna look for. So I think on the qualitative side, the most important thing is the deal flow.
You want to judge a fund by the quality of the deals they have. Now, when they say quality, what’s the, how well has that startup done? Have they raised a lot of money since they invested? Is there a large markup in the valuation? What’s the, there’s qualitative things that you can look for in the character of the person when they say they’re gonna do something, did they actually do it?
There’s a red flag that I picked up on this morning. There was actually an LP that was evaluating a fund and the fund actually name drop somebody. And when he talked to that person’s I never heard of that one before. So I think sometimes just intellectual intelligence, emotional intelligence, some of those qualities of just being someone that you can trust.
Those are really the moving needles for investing on the qualitative side. What is their strategy? Is there strategy aligned to what you are trying to get exposure to? There’s a fund that’s focused on quantum computing. That’s a really cool, sexy industry, but is that part of your goal as a, as an LPR, are you trying to really get exposure?
To quantum computers. So I think you want to think about for the smaller funds. Some things that I think are really interesting are these funds that again, have built these massive communities because those massive communities are really people that are backing that fund manager. And and that’s just, I think it’s just a really big indicator.
On that fund manager, building something that resonates with with with the community and having a unique strategy on the quantitative side, there’s a bunch of quantitative factors, right? So what is the cash on cash return? What is the IRR? So there’s not to go deep into the rabbit hole of that, but there’s performance.
Metrics that different types of LPs look for, so I think the winning funds are the ones that combine both. And I think. Winning could be different for me. And someone else, when I say this is a winning fund, somebody else may say I don’t. And that actually happened this morning.
I was talking to, was like, look, I love this fun. And I thought they were a winner. And then somebody else, their perception of winning is different. So I think it depends on. What you what made, what winning means for you? Is it just performance? Is it access to some of the hottest deals?
That, to your point, there’s so many funds out there, right? And there’s so many great funds. Some of the biggest feedback I give to funds is look, you’re a, you’re another web three fund. There’s a five other web three funds that that. Just interacting with, I’m going to a web three summit tomorrow.
What is it specifically that you’re doing? And I think it really comes down to content, community deal flow, and then performance trumps. All right. So are you able to return capital to your LPs? And I just, I guess wanna put a little bit of a cautionary note out there too, for our investors, I was actually part of an angel group.
Yeah. And it was a democracy, right? It was it was primarily doctors and lawyers who were very. Yeah. And they fell in love with different food tech deals and technology deals. And literally not a single one had any experience in food tech. Yeah. And I was the only, only technologist they voted down two of the deals, the technology deals I liked, they actually went out and did well and they voted for.
A bunch of technology deals that, that didn’t go anywhere. And they had a hundred percent with track record, 100% voting. And this is really smart people. Making really stupid investments. Yeah. And because you’re smart because you’re a great doctor doesn’t mean you should invest in quantum computing.
Yeah. That means you, it doesn’t mean, shit about bottom computing. And you should probably stay away. And yeah, so I think there’s a little bit of, we need to be careful about hubris and as an agree and stick with something, and I think you always ha I think for me, I always, at the end of the day I invest, because I think it’s something that I believe in, however, it’s always good to get additional data points.
Yeah. So you. Positive negative data points. People hate the deal. People love the deal. There’s been times where like everybody hated the deal and I still invested and I had con so I think at the end of the day, when you invest, and this is just, and this is, again, talk to your financial advisor, this is not financial advice, but I’m just gonna share what works for me.
I just kind use my instincts and and use data. And just try to do the best I can on my own. And I guess my advice would be don’t trust your instincts. Is more than experts, right? If you don’t know the space, if you’re not an expert in quantum computing, you should probably talk to a guy who is an expert in quantum computing.
And I think that’s a good opportunity because your gut is not gonna, is not gonna help you but I think that’s an opportunity to invest as a BS factor. There’s exactly a good salesman. I, I saw more technology deals sold to non-technology people and they just, they get wowed by the brilliance of somebody.
And it’s just fluff. It’s hamburger helper. Yeah. There’s nothing underneath it. There needs to be, some caution too, yeah. And I think the, and that’s where it, opens up opportunity to possibly. Invest into if you’re interested more general exposure looking at fund managers that have a strategy on quantum or cyber if you really, if you don’t know the space just surrounding yourself with experts, right? Recommend anything in food tech, like talk to Ron, like exactly he has, he knows those people. He knows the community. He understands. What does not what the red flags are, right? Because he is just seen so many.
And I think to build that skill. None of us were born like a private equity investor. We learned at some point, I wasn’t like born and I’m like, Hey, I’m an engineer, right? Like you, you learn something at some point, so everything, you can learn, anything I believe in this life, you just gotta find maybe the right people that can train you or just find the right resources.
And, anybody could be a quantum expert. They just probably gotta spend a certain amount of hours studying it and, going to the right platforms to do. I like your community approach, I think it’s a way to get , to learn something and get with people who, and make yourself smart, make yourself knowledgeable about the space and find out what other people are doing. And I, sounds like a really good idea, and I like your idea of helping people start funds too, yeah. And everyone, every fund that’s out there started that way with a guy that said, Hey, let me become an investor.
And yeah. And I think it’s really just surrounding yourself with smarter people. And smart is objective, right? There’s book smart, there’s people that are really smart in terms of building relationships. I think unpacking smart could just be another whole podcast. But I think look, there’s a lot of people that. Have been super book smart. They’ve built really amazing careers, when it comes to managing money and building wealth maybe that department hasn’t been because, and it’s because there hasn’t been the education there. So yeah, financial skill is a must.
And if you’re looking at portfolio companies and the question is this is the bigger, deeper question, Bob. Like, why didn’t we learn this stuff in high? True. True. Wouldn’t, you wanna know what budgeting is. And I, and that’s a bigger, deeper question, but yeah.
Is that something that like, should be added to education in the early days? I, to be honest, I really learned financial management, just from reading a lot of books, it was a book, I think it was like the millionaire next door. That was a really good book. Yeah.
It had a lot of stories of couples thoughtfully saving money, they, they advise you to buy a car that’s three years old. So there’s just a lot of cool content out there. But, I feel like, unfortunately it’s It’s usually self-study or now with or fortunately, cuz the truth is for $15, the price of a book, right?
Yeah. Whoever will tell you their deepest secrets and their most glorious successes and worst failures and how to avoid them. Yeah. I do think that’s actually a key, is to be an avid reader and, I’ve raised lots of money and it never went to school to learn how to raise it.
There’s no course to take, learn how to raise money. So good point. I think we can improve on that. Yeah. I think look raising money. This is another maybe controversial thing, but. I think one of the most important skills is sales.
So totally with sales, you can get a job offer, you can raise money, you can, probably find a spouse, probably find a date. And I think you’re really helping, and you’re also I think that, and then just solving problems. So if there’s a problem one problem is, Hey, we’re facing 8% inflation.
How do you mitigate inflation? Maybe it’s not always just investing in the fan companies, are there other opportunities that can provide growth and outsize returns to augment inflation? So I think, commute and then I think a new thing, which the gen Zs are figuring.
Is communicating that in 15 seconds. We’re doing long form content here. Sometimes a gen Z is what’s most engaging. You’re seeing now people watching Netflix, but they’re actually on their phone scrolling TikTok, and they’re not even watching Netflix. So I think, another big thing.
That’s gonna be super important is contaminating a message in like less than a couple minutes, a couple seconds. And like that combined with sales, if you go to a family office event or some type of capital allocator event, and you’re trying to connect with somebody, you’re not gonna have time to do a long form message or pitch, you, you really need to kinda. Help them understand, who you are and what you’re doing in a couple seconds. So I think that’s definitely like when it comes to content and communication short and sweet is sometimes more. But again, all of these are just my opinions. I could be wrong.
So well, Joel, thank you so much. This has been very enlightening and very cool how you’ve built this community, both for fund managers, LPs, and I just education around it all. What’s the best way you run a podcast as well? I think it’s called future one. Yeah. You talk about a lot of these topics in more depth and you have guests on and then yeah.
Yeah, you can go to Sutton, capital.co and you can go to free resources and then free resources. There’s a dropdown to just see videos. And I do a web show. Every every week, usually have, one to two invest. This has been a fun experience. I actually haven’t been interviewed in a while.
I’ve been busy interviewing other people. So it’s an honor to to be here and share my story and appreciate you guys. Spending time with me. Yeah. And if someone’s interested in joining your community, what would the approach be there? Yeah, they can, they can join our website.
They can contact us on our website. There’s a slack channel that we have as well. So all of that is under free resources. Yeah, I a lot of our content is available for free on the internet, I’m Joel Finkel, you, they can, follow me or connect with me on LinkedIn, on Twitter at Joel P.
So whenever I find something interesting, I always post it on social. So yeah, the community and the content’s there, so hopefully it’s valuable to some people. Awesome. Joel, thank you so much for coming on and we’ll have you back on talking 2.0 here, later on. So appreciate you coming.
Yeah, absolutely. Take care guys. Thanks a lot. Thanks, bye.
All right. That was really fun. Bringing on Joel to talk about the kind of community he’s built in this exciting space of venture capital. So definitely, really cool. What he’s done in kind of the whole approach. He’s taken with kind of building community. And not only just on, the portfolio company side that he’s looking for investments, but also helping fund managers and also helping limited partner investors, being able to work together and learn and, gain know, insights from each other.
I think it’s a really cool approach to stay. I thought that was interesting. The idea of kind of building your own VC fund, I mean as a way to do it well, it’s it. It’s cool. I even seeing a lot of the trends and the shifting we’ve seen in the real estate side of things from, getting easier and easier to rate race capital and, for the barriers to entry, continue to decrease is more people get educated and.
Even doing it as a full time job. I, in a mastermind with, a lot of capital razor, they’re very cool opportunity, but maybe a cautionary tale as well. Should everybody start their own venture capital fund? No I love my risk. My risk meter is just pegging the needle, but. But there’s gonna be some wins outta that too.
Yeah. It’s, it’s the good with the bad, it’s the democratization of the industry a little bit, but with that comes, not only bad actors, but just inexperienced actors that yeah. Your point have hubris, or maybe you don’t have the experience to even know what they don’t know and can get into trouble.
But, it’s exciting from a macro standpoint, because I do think this is a space that. You and I are personally very interested in it, but it does feel like there’s this, great divide of how do you bridge the gap of actually finding how do you make it not gambling? That’s what I’m looking for.
Cause it is. It’s oh, it’s all you always tell the story about the guy who. Who invested in Uber and made the, thousand extra 5,000. Okay, great. But for every guy that did that there are a million guys who did the opposite and lost everything. And, so how do you do that?
And, that’s, I’m still on the hunt for that. What’s the strategy, to play this space? I do think it’s so staying in an area where you are an expert and an angel investor is a winning strategy. If you have the bandwidth to be an angel investor, yeah. I think you made the point too like there’s the spectrum and as you wanna, de-risk. The way you de-risk is by investing in funds or fund to funds that are diversifying into a bigger portfolio. And the more expertise you have in a particular area, maybe the less of that you do. And the more direct you go to the actual companies themselves, and, the more you pick and choose along the way.
But no, I think that’s it, I liked what you said to me. It’s a little bit of a cop-out answer of, just what are your personal goals, right? Which he’s he’s right. It is someone at my stage of investing who can withstand a lot more risk as someone who’s, later on, this doesn’t one of, a lot of capital. But generally in my mind, venture capital dollars that, are allocated personally are ones that I’m okay with. Losing, and so there you go. And I’m curious, I’m just looking at you while we’re doing this interview as you’re the banker, you literally were a commercial banker who underwrote hundreds of deals and, and you’re disengaging that whole part of your brain to do any of this investing right here. Not even disengaging. It’s just, that you have to. It’s a different risk-reward profile and banking. You have, you can’t have any downsides.
So you can’t take really any risk, but in this, if you’re using dollars that you’re okay losing, then Hey, this could be a 5,000 extra return and that’s okay. But I’m not gonna bank my life savings or my entire future on that. Perfect. So I think it’s yeah. Ben, these listeners that wanna play, what do they do?
How do they jump on? Yes. Obviously, you can reach out to Joel and his kind of cool community there. And most importantly, if you’ve not subscribed to this podcast, to get the best education around alternative investments, you need to subscribe to invest like a billionaire on any platform you listen to, and please share it with all your friends and family.
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