Allocate

The Allocate team hosted our flagship GP/LP community dinner this past week, and here are some highlights from the conversations: **Navigating Private Equity and Venture Capital Private Equity and Venture Capital operate with distinctly different approaches. As one GP succinctly highlighted, Private Equity emphasizes mitigating downside risks, identifying companies that can succeed in 99 scenarios while failing in only one. In contrast, early stage Venture Capital focuses on maximizing upside potential and driving power law outcomes, targeting companies with a singular, transformative path that is capable of delivering returns sufficient to return an entire fund. **Lessons from 2020–2021 & Approach to AI *Valuation Discipline: The era of exuberance from 2020–2021 has left many with a renewed focus on disciplined valuations. That being said, stretched valuations are starting to emerge in parts of AI. *AI Opportunities: While certain parts of AI are experiencing stretched valuations, there are new companies and applications that are just getting started, from operational efficiency to advances in robotics and drug discovery. *Sustainable Metrics Over Vanity Metrics: There’s increased alignment on prioritizing sustainable growth metrics rather than short-term vanity metrics. This also helps with exit valuations and liquidity. **Exit Environment and Liquidity in 2025 *Improved Exit Climate: There are expectations around a more favorable exit environment in 2025–2026, with IPOs and M&A activity rebounding. *Sector Opportunities: While some sectors may face liquidity challenges, B2B software remains a standout, benefiting from enduring demand and strong exit potential. *Private Equity’s Expanding Role: Beyond IPOs and strategic sales, Private Equity firms are increasingly becoming a vital source of liquidity for Venture Capital-backed companies. *Exit Optimization: Achieving successful exits will require a sharp focus on scalability, profitability, and strategic differentiation. We appreciate your insights and participation Avidan Ross Connor Diamond Daniel Karp Jessica Cash (she/her) Jim Andelman Luci F. Ann Kim! The Allocate team, Austen McGregor Ace Clarke-Fisher, CIMA® Camila Orozco Gil Peter Epstein

We’re heads down in building mode thus continue to grow our team! Check out all the various positions at Allocate’s Career Page!

𝗜𝗻 𝗩𝗖, 𝘁𝗵𝗲 𝗮𝗱𝗮𝗴𝗲 𝗶𝘀, "𝗬𝗼𝘂𝗿 𝗳𝘂𝗻𝗱 𝘀𝗶𝘇𝗲 𝗶𝘀 𝘆𝗼𝘂𝗿 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗺𝗼𝗱𝗲𝗹." Mike Maples, Jr. was the first person I heard this adage from. This is true, and LPs should avoid comparing small funds versus mega-platforms, as their unique business models will translate into drastically different risk/return profiles. Think of the VC landscape as a barbell. On one side, smaller funds have a small share of AUM but are significant by number, and Mega-platforms, on the other hand, are small by number but have a large overall share of AUM. 𝗙𝗼𝗿 𝘀𝗺𝗮𝗹𝗹 𝗳𝘂𝗻𝗱𝘀 (<$𝟮𝟱𝟬𝗠𝗠), 𝘁𝗵𝗲 𝘁𝘆𝗽𝗶𝗰𝗮𝗹 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗺𝗼𝗱𝗲𝗹 𝗶𝘀: - Generally have only seed/series A exposure - Equal or majority of the fund exposure is in the initial check (50% or higher) - Generally need to be very early and/or non-consensus to outperform (Follow-on rates of seed to A are ~30%, so the ones that make it need to be big). - 25-35 companies, of which <10% will offer potential fund returning status. This leads to higher performance volatility, but an increased top-end return as even 3-5% exit ownership in a single $5B company can return the entire sub-$250MM fund. 𝗙𝗼𝗿 𝗹𝗮𝗿𝗴𝗲 𝗽𝗹𝗮𝘁𝗳𝗼𝗿𝗺𝘀, 𝘁𝗵𝗲 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗺𝗼𝗱𝗲𝗹 𝗶𝘀: - Business plan is now seed to late growth, often across several product lines. - Seed is an optionality strategy, focusing mainly on driving pole position when/if the A is reached (also why many large funds invest in seed funds). - Large generalists can operate a consensus model by focusing on companies/founders with high visibility in becoming/creating category-defining companies and themes/sectors with obvious tailwinds. - While entry valuations are not entirely irrelevant, ownership and the potential quantum of capital that can be deployed in a single company are critical considerations. A $1.25B early-stage VC fund will have to own 12-20%+ at exit, and the top companies in the portfolio often will have $50MM-$100MM+ invested in them over multiple rounds (cost dollar averaging up per round). Very few firms can be competitive here, as brand and reputation are absolute prerequisites to operating. From my perspective, only 10-15 firms exist that can be competitive with this strategy. - Because of this model, top-end returns are somewhat capped and usually returns are within a fairly tight band (Unless the fund has extreme amounts of luck or misfortune), but the trade-off is reduced risk/volatility and often (but not always), a shorter time to liquidity. Both can be part of an LP's portfolio, depending on the risk/return profile and time availability (finding the right small firms and getting into the top large firms is hard).

Excited to welcome new team members at Allocate!

The Allocate team participated in the annual All Raise VC Summit 2024 this week. Key Takeaways below: 🔹Market Dynamics & Economic Insights - Inflation outpaced expectations, yet markets remain resilient, with the S&P 500 near all-time highs. - Tech dominance continues: The "MAG 7" (Amazon, Nvidia, Microsoft, Google, etc.) are up 83% from recent lows, driven by significant R&D and CapEx investments in AI. - Growth strategies have shifted to focus on profitability, as the "rule of 40" gains prominence. 🔹IPOs, M&A, and Unicorns - The IPO market remains cautious, with only 8 tech IPOs this year—the lowest in 30 years. Companies need strong revenue, stable growth, and profitability to go public. - M&A is increasingly focused on strategic mid-size deals, with private equity playing a larger role. - Of 1,400 unicorns, only 160 have maintained their valuations since 2022, with AI leading the way in new funding rounds. 🔹Future Outlook Expected 10-20 high-quality tech IPOs in 2024, alongside a growing focus on secondary sales and private-to-private transactions to address liquidity challenges. Samir Kaji, Hana Yang, Camila Orozco Gil, Nic Millikan, CFA, CAIA, Josh Garcia, Nassar Omar

As investors search for diversification and alpha, private markets have been an area where HNW investors are increasingly turning to (particularly in areas such as private equity, private credit, real estate, and venture capital). Today, private market AUM is over $13T and expected to double by the end of the decade. However...It's not easy. The private markets are nuanced, illiquid, opaque, and highly fragmented. Investing successfully requires relationships, access, and most of all, knowledge. When I started investing in private markets 15 years ago (today, I'm an investor in over 70 funds and 30 direct companies), I didn't fully appreciate the complexity of asset class portfolio construction, cash flow planning, and the evolving nuances of each asset class. But investors should have better transparency and access to information to succeed - success requires being rewarded for the illiquidity and risk (if not, sticking to publics/bonds is likely still the best formula) That's why I'm thrilled to introduce Allocate Institute—a new educational platform dedicated to empowering investors and advisors with the insights needed to succeed in private markets. With a blend of online and offline learning, the Institute covers everything from foundational concepts to advanced strategies across private asset classes. To join, just sign up in the link in the comment to be on the mailing list and get notified of courses and events. Thanks to Hana Yang for leading this effort. #privatemarkets #education #limitedpartners

We are excited to announce our official launch of Allocate Institute, a new educational platform dedicated to empowering private market participants. The opaque and evolving nature of private market investing requires that investors have a deep understanding of the ecosystem.     Since founding Allocate in 2021, we've worked to address the inefficiencies in private markets, particularly the access gap between the wealth channel—family offices, high-net-worth individuals, and wealth advisors—and fund managers. Allocate Institute will focus on providing an ongoing online and offline curriculum of our unique insights, data-driven research, and the ability to hear from key experts across the private market landscape. Our goal is for Allocate Institute to serve as the go-to destination for family offices, RIAs, and wealth advisors looking to deepen their understanding of sub-asset classes, private portfolio strategies, and market evaluation techniques. Additionally, we are expanding the reach of our popular Allocate Innovation Field Trips, offering more dates, formats, and asset class exposure to enrich learning experiences through direct engagement with founders and fund managers. Explore Allocate Institute at the link provided below!

We conclude our Fall Allocate Innovation Field Trip and here are a few of our favorite quotes from the past 2 days: "The hargest part of the job is to see the future through the eyes of the entrepreneur, ignoring your beliefs." "Deep Tech, hard tech engineers are drawn to solving problems that drive technology an impact forward." "Being a founder today means having extreme paranoia about staying relevant in an AI-driven world." "Robotics today is exciting because we're aiming to build a universal robotics model, similar to LLMs." Thank you again to our sponsor-partners Andersen and Citizens! Amplify Partners, Better Tomorrow Ventures, Define Ventures, DCVC, Khosla Ventures, Lightspeed, Menlo Ventures, Pear VC, Scale Venture Partners, Scribble Ventures, Uncork Capital, Vista Equity Partners

Allocate HQ kicks off its 11th installment of our flagship Allocate Innovation Field Trip program in Silicon Valley with a spectacular lineup of #venturecapital and private #innovation fund managers! Thank you for your support and collaboration Amplify Partners, Better Tomorrow Ventures, Define Ventures, Pear VC, DCVC, Lightspeed, Khosla Ventures, Vista Equity Partners, Scale Venture Partners, Scribble Ventures, Menlo Ventures! Samir Kaji, Hana Yang, Austen McGregor, Nic Millikan, CFA, CAIA, Fahad Shoukat, Nassar Omar, Camila Orozco Gil

The Allocate team looks forward to participating in and supporting the upcoming All Raise Summit!