Really the home equipment players that you alluded to. You know this whole wave of boutique fitness studios and consumer facing fitness brands outside of gyms really really emerged in the 2010s. Got it. And Zumba was ahead of its time in that you alluded to something else I think which is that this business at least at the time often had companies overlooked by investors because they said, these are very fad like businesses, they come and go.
And Zumba, so in those trainings the instructor started saying hey I need choreography, I need marketing materials, I want apparel so that I look professional. And eventually Zumba said okay we're going to charge a fee. They created what's called the Zumba instructor network known as ZYN.
And if you become a ZYN member, it was $30 a month at the time, you get a curated set of music and choreography and all of the other marketing content and legal resources and everything else that you'd need to kind of run your Zumba business. Yeah. And so, you know, subscription obviously very attractive. Welcome to The Investor, a podcast where I, Joel Palofinkle, your host, dives deep into the minds of the world's most influential institutional investors.
In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. To have this conversation, My story starts and remains in Miami.
So born and raised here, went to school in Atlanta at Emory, and was on a traditional finance track, and fortunately crossed paths with the founder and CEO of Zumba, whose name is Alberto Peralm and he's one of three co founders of that business, which is an incredible company, bootstrapped for most of its life, and has become and remains the largest branded fitness program in the world with a very unique licensing model that is extremely capital efficient.
And so had the opportunity to join Zumba out of undergrad in a business development role reporting directly to Alberto, one of the founders. And that was an amazing experience. I often compare it to getting paid to get an MBA. It was an amazing experience to work directly for someone running 200 person 9 figure business that they had built from the ground up.
And so that was an incredible opportunity that led to an opportunity to spin a division out and create a new company focused on early childhood education called Zoombini in partnership with Zumba. So we spun that program out of Zumba to create a separate entity and raised some third party capital for that business and also entered into a media partnership to ensure top of funnel awareness.
So we partnered with a TV network that offers programming for young children and created a follow along version of our classes for families with babies and toddlers to enjoy and embedded messaging throughout that program, encouraging the viewer to visit our site to find classes. And so that was kind of the top of the flywheel that allowed us to scale that business to several thousand instructors. Zumbini still exists today, and I remain on the board of that company.
And during my time at Zumba and Zumbini, again having reported to Alberto who's this extremely active and engaging founder, I started getting into venture by reaching out cold to startups that were on our radar and leveraging Zumba name and Zumba angle to at least try to get taken seriously enough to get on a call with these entrepreneurs. And fortunately was able to put some SPVs together early, and this is you know late twenty fifteen early twenty sixteen when all this is happening.
And was able to add some value to these companies, not taking board seats, but somewhat cliche today, we had really tangible examples of making some impactful introductions through the networks of the folks that came into those SPVs. And so we had a couple of early wins that returned a lot of capital including Home Chef which is a meal kit delivery business that sold to Kroger and an ad tech business called Halo Cars that is now known as Lyft Media that we sold to Lyft.
So a little bit of right place, time, but kind of stumbled on this investment thesis where we said let's be industry agnostic. Let's look for consumer and SMB focused businesses that have meaningful sets of data that we can use at the seed or series A stage, which is just kind of coincidentally where we found ourselves to kind of objectively as objectively as possible validate PMF and focus on the fundamentals that having grown up professionally at Zumba were just par for the course.
That's a business that has tremendous unit economics. They're dollar positive day zero after acquisition, and they have high level of retention. Just kind of thinking about those principles as we looked at these companies, having the early success kind of just led to organic growth on both the supply side being opportunities to meet founders. As you know, Joel, a lot of times successful founders have the best deal flow.
So we were very fortunate to meet these founders while they were in building mode. And then once they had some notoriety from their exits, they continue all the founders that we worked with continue to be good friends and colleagues, and that led to a lot of opportunities to invest in new companies. And on the demand side obviously when you have investors who have made good returns early and have cash back in their pockets, we had demand from those individuals to keep doing deals.
And about a year ago after doing several more investments and continuing to find some success, four of our largest investors who had been the most engaged, all of whom are successful operators including Alberta from Zumba and some other folks that have built very successful businesses from the ground up, came to me with the opportunity to put together our own fund.
We felt like we had proven that we could consistently win allocations add value and just kind of doing that consistently fortunately leads to good referrals. We said, you know what, this is a good time to do this. And obviously that conversation started in 2021 and preaching fundamentals over vertical was definitely not what we were seeing out there.
And fortunately it feels like the market on both sides of the table has kind of started to align a lot more with the way that we like to think about investing. And so we're about to have our first close of our first fund. It's called Connexa Capital, it's the name of the firm And we'll remain based in Miami, but we'll be geographically agnostic within North America.
And again, the focus being fundamentals over vertical, looking for B2C businesses that offer statistically significant set of data that we can use to underwrite the unit economics and validate PMF, and looking to invest in seed or series A. I'm excited to go deeper on the idea of starting a fund, I also want to double click a little more on just the origin story of Zumba. So you touched on it, it really intrigued me in terms of like how big it really was.
I heard of Zumba growing up and I think my wife or mom have probably taken a few of those classes in the past. But can you just tell me a little bit about the origin story? Because it was bootstrapped as well, right? We're venture investors. So we typically invest in companies probably that have raised some money and most of these companies, they're exchanging shares in exchange for capital.
When you're bootstrapping, you're building, you're probably going to be moving much slower, but you're scaling and building on your own. You're probably reinvesting into the company instead of taking outside capital. So can you just share a little bit whatever you're allowed to share in terms of the origin story of how Zumba got started and how they were able to kind of scale and bootstrap and exponentially grow without having to take too much outside capital. Sure, yeah.
To be honest, those are kind of some of my favorite businesses. I'll name a couple that I've named in the past with some of these guys, but I'll bring up some other examples of businesses that have also done the same, but I want to know how like Zuma did that. Yeah, and I'm a huge fan of that company as well. So not my story, but I joined the company in 2014. The company was founded in around 2000 shortly after the bubble burst.
And started here where I grew up in North Part Of Miami, and it was very organic or at least that's how the story sounds. One of the other founders, so there's three Colombian founders all named Alberto, and one of them who's known as Beto is the dancer that created the actual program, which at time was called Roomba size, and they had to find a word that wasn't an actual word in Spanish. Roomba is a word in Spanish, so they ended up going through the alphabet and landing on Zumba.
But started with this individual Beto Perez, who started teaching these dance fitness classes here in Miami, and you'd have lines out the door, it was the hottest class to get into, couldn't get in, and just kind of went viral that way. And Alberto Perlman, the individual I mentioned who's now my partner at Kinexa and was my boss at Zumba, had always been an entrepreneur. He had incubated a few companies, some of which were internet companies that some fare better than others in the .com.
He was looking for a new opportunity and his mom tells him, you have to meet this fitness instructor. I'm going to this class, it's packed, everyone's loving it. And Alberto goes watching the class and he gets inspired by the fact that he sees all these people doing cardio smiling. And just kind of had this light bulb moment where he said, you know what, if I can take something that people know they have to do but dislike doing and I can make it enjoyable, maybe there's something here.
So he, the other Alberto, his last name was Aglion and Beto got together and they started an infomercial business. So they said, we're going to record fitness content, we're going to sell it on VHS and DVD at the time. And they were blown away with the efficiency of that channel because generate this revenue on air, you're paying a commission to the channel that's hosting you.
You're kind of in the money day one and then you're able to just recycle some of the profits from those video sales into more media. And so they were intrigued by the infomercial model and they were originally planning on launching all kinds of other infomercial friendly products. I mean, can think back to proactive skincare being another dominant, you know, 3AM infomercial. And so- The Bowflex, what were the others? Bowflex? That's right. What was he? Thighmaster? That another one?
Yeah. There was some Chuck Norris product at the time. I don't remember which one that was. But yeah, exactly. Like heyday of infomercial. And it was again, very organic. People started, you know, lives were impacted by this program. People are losing weight. They had never been able to stick to fitness regimen. Now they're loving this class. It does so much more for people than the physical impact. There's really a lot of magic that happens in that program.
And people started calling the number saying, hey, I lost all this weight. I wanna share this program with my community. I wanna teach these classes. And so the founders looked at each other and said, okay, I guess we'll offer a training. So they start hosting these training seminars that get sold out. People start showing up to the trainings with tattoos of the logo. I mean it was just total fanfare around this brand.
This was to allow other people to be entrepreneurs and start their own studios as like Correct. I mean my understanding is at the time it was somewhat reactive, right? I mean they were just kind of saying, you know what, people want the training, let's do an event. And I think from a business perspective they were saying, we'll make money on these events and we'll do as many as we can.
And then people became instructors and they started saying, well, I don't really know how to come up with a full class worth of choreography. So can you send me licensed music and choreography? Sorry, I think Joel, see you frozen. I'm just going to wait to see if At that time because they had I'm sorry. I recently watched the documentary on Richard Simmons, and I guess in the last few years, it's probably been five, six years, he kind of disappeared.
And what I took away from that is that he was in the heyday too. He had infomercials, he's making a lot of money, he made people happy, but I think he recently kind of started, obviously he's getting older and he had like some knee problems and he didn't want to be seen. If you think about like Michael Jordan, all these pros, they kind of retire in their prime, right? So he didn't want to be seen kind of as someone who's not that vibrant, you know, super fired up person.
So he kind of just went into hiding. But I remember like Richard Simmons being kind of a really big personality. So like just so we get the timing right, you know, who are the other players kind of starting to evolve when we were doing like fitness infomercials? Was it the consumer It was really the home equipment players that you alluded to. You know, this whole wave of boutique fitness studios and consumer facing fitness brands outside of gyms really emerged in the 2010s. Got it.
And Zumba was ahead of its time in that you alluded to something else I think which is that this business at least at the time often had companies overlooked by investors because they said well these are very fad like businesses they come and go. And Zumba, in those trainings the instructor started saying hey, I need choreography, I need marketing materials, I want apparel so that I look professional. And eventually Zumba said, okay, we're going to charge a monthly fee.
They created what's called the Zumba instructor network known as ZYN. And if you become a ZYN member, it was $30 a month at the time, you get a curated set of music and choreography and all of the other marketing content and legal resources and everything else that you'd need to kind of run your Zumba business.
Yeah. And so, you know, subscription obviously very attractive, and then another moat that Zumba created inadvertently, I think, and obviously they've since tripled down on this and done an amazing job is, at the time music sales were still how artists made money. So licensing popular music was fairly inexpensive, especially considering how uncommon of a use case it was to license it for instructor content for a licensed fitness program.
As Zumba reached this critical mass, which was really driven by the financial crisis in 'eight, 'nine, so many people lost their jobs, people started turning to one of the pioneers in my opinion of the gig economy being Zumba to say, you know what, let me do this side hustle. I love to dance or I love working out. It makes me happy and I'll make money. I lost my job. And they kind of hit this escape velocity where they got really big and the flywheel just keeps turning at that point.
Right around let's say early 2010s, music licensing got a lot more complicated because music sales became an insignificant part of an artist's revenue streams and licensing their likeness and their music became how they made money. So Zumba remains in an advantageous position in that they have the scale to justify the costs of licensing. They have the in house production capabilities to create original music, and they also have a marketing machine that labels find attractive, right?
So you think about the fact that you've got 15,000,000 students taking Zumba classes around the world on a weekly basis. If you're an artist looking to promote a single, what better platform than creating a partnership with Zumba to make your song one of the songs that they feature on their instructor choreography content.
So the business has evolved and I think the lesson for those listening to take away is obviously that, It's certainly not a unique one, but if you evolve, you're probably not going to survive and your business will likely be a fad. I think what's so admirable about Zumba is that the founders built this business, got it to a huge place and continue to go to the office every day and innovate.
And then just to round up the story, they sold a minority of the business to institutional investors, but remain in the driver's seat, all the original founders. And in my opinion, change the fitness industry in a meaningful way. Obviously with the emergence of the creator economy and all the tools at independent creators disposal, that's an area that we at Connects are watching for fitness.
Think, and you've seen a lot of success cases where using their reach and the consumer becoming more and more inclined to pay for raw content where it's an individual in their living room. COVID certainly didn't hurt that situation. It's very interesting to see these creators now building amazing direct to consumer content subscription businesses. Yeah, we want to go one end of the spectrum, we got OnlyFans.
People are creating unique content that they're monetizing, that they own all the rights to. There's software and there's tax tools to help people manage that as a business. And then you got people that are fitness influencers that have kind of built, I mean, see the culture shifting and just kind of the medium shifting, right? Because another person that I think about that kind of had a cult like following, don't if you ever followed Bikram, right?
I don't know if you saw his documentary, but he had like a cult like following and you know he had a very interesting franchise model too, where like you could be licensed as a BICRUM instructor, but he had such rock solid agreements I think where if somebody wanted to start their own Bikram studio, he would get royalties or some type of equity in those businesses.
And I don't know if Zumba had something like that too, but that's brilliant because then you're almost like McDonald's, you can monetize off maybe the real estate, monetize off of that content. But now it's kind of digitized. Now we're moving from the VHS and the DVDs to completely online live streaming.
We've got TikTokers now that have massive followings that can now kind of like you said, underwrite new production, new content creation, and possibly even like back or incubate new artists as well and take equity into those artists revenue also.
But you still need tools to be able to help facilitate that an easy way too, like obviously just kind of managing your revenue, kind of handling obviously tax efficiencies, know, building the frameworks to kind of serve up your content in like maybe a better like look and feel. I don't know like what your thoughts are in terms of like the picks and the shovels or like the tools where there's opportunities for startups to kind of support the creator economy. Yeah, I do.
I think it's interesting because even through this process and you've been privy to it obviously since we went through the fund accelerator. Yeah. When articulating our thesis, I mean really we are B2C investors, but the reason we're B2C is less because we like the consumer dynamic.
It's really more of the channel benefits where there's limited customer concentration, it's a short sales cycle, there's significant data at seed to be able to some extent objectively validate the concept and economics or maybe at A is more appropriate to say.
But there's this whole segment that we refer to, and I don't think we're the first to call it this prosumer, where there are these, in most cases, side hustle influencers who have a nine to five, but then they're a content creator or fitness influencer or what have you on the side.
To your point Joel, picks and shovels that have evolved there, think possess the stickiness B2B software business, but they also benefit from the dynamics that we really like in a B2C model where you've got thousands of small customers as opposed to these large contracts. Obviously, as enterprise businesses mature, they become extremely attractive and that's evidenced in public multiples even today because there are big sticky contracts with opportunities to land and expand.
But anyway, I totally agree and we're actively looking at the picks and shovels within creator economy. I think what's interesting about creators and why we're so bullish on them long term is, and going back to Zumba for a moment is now with iOS 14, right.
I think anyone investing in consumer businesses is conscious of the fact that customer acquisition is difficult, expensive, ever And having organic traffic driven by free content that you can later monetize is a tremendous advantage that is hard to recreate. And Zumba really pioneered in my opinion, I'm obviously biased, but I think that Zumba did an amazing job of of potentially inadvertently pioneering that model where they started with content at the time they were selling it.
But even just think about the infomercial ad, even if the viewer didn't purchase the DVD set, they've got this profitable or breakeven top of funnel awareness driver that they can then monetize and they don't have to make these significant investments in traditional direct response channels that continue to become less effective. So there's a whole movement of just creating tons and tons of massive organic content.
There's like three people that come to mind, So obviously Grant Cardone, Mark Pineda. So Grant Cardone, I just discovered him through TikTok. Mark Pineda is like a pretty well known real estate investor. Obviously Grant Cardone everybody knows about, but they don't massive monthly recurring revenue from rent, from rental properties. They make massive monthly recurring revenue from selling courses on sales or selling courses on how to flip real estate.
And it's crazy because on my feed, I saw Grant Cardone actually become a guest on Mark Beneta's TikTok episode and Grant asked him, hey how much are you making daily from your funnel? You know how much he's making daily? So Mark Pineda, if you look him up, he's kind of pretty well known now. He makes $50,000 a day in revenue.
Wow. So then that content and what I wish I had that episode that I can hyperlink in here, It was like literally a fifteen minute vignette, but the reason why he's built so much of a following and have so many people buying his content is because he pretty much spends around $40,000 a month producing high quality videos that are educational, that are valuable to help people build their wealth. Think about real estate, think about investing their assets.
It's all free and he spends around $40,000 a month recording it all in like two or three days, very high quality. And then what he does is he has these editors chop it up into like millions of little pieces. And then when does Matt, and then we do his natural podcast, like the one that I saw, like that was probably a long form podcast that they just trimmed that vignette.
And you know it's just over time, When you start seeing those same people on every channel, you go on Instagram, you go on YouTube shorts, you see them everywhere, you just kind of build that trust. And I think I saw that with those two people and then Alex Hermosy is like just kind of another guy that I know he's kind of, he sold, he was doing the fitness kind of training stuff and then now he started acquisitions.com which is essentially a PE firm.
So what I'm seeing is content creators eventually get into private equity. So that's what Kim Kardashian did. So a lot of these people, they built a formula to build a machine through content and they can use that content and that audience to now create products so they can sell to generate more revenue.
And then once they've mastered that, they can see new emerging brands, they already know the formula and they either buy out that brand and add that to their portfolio or they just have some either, you know, if you do private equity, you're taking in a debt position and you have some and you pretty much are getting revenue rights or some type of ownership or stake in the company, whether it's debt or equity. But that's kind of what I've been seeing.
I don't if you've been seeing kind of the similar path, but just when I heard that Kim Kardashian launch a private equity fund, that's totally in alignment and it totally makes sense with like what all the other people are doing. Yeah, I mean that trend I don't see slowing down, especially as an early stage B2C investor. A lot of players that we're super excited about and we see them on a cap table, we're considering an investment include those like you just described.
I mean you think about Mantis, which is the Chainsmokers Fund. There's Palm Tree Crew in Miami that was started by Ty Go and his business manager. You've got Animal Capital, you've got Ashton Kutcher's firm, Sound, right. I mean you've got the list goes on and I don't see it slowing down. And it's a tremendous advantage, right, for the right companies. Get into thinking about how to make your firm stand out to win an allocation in a competitive deal. That's definitely a tremendous value add.
We're also seeing companies now, seeing a couple of players that have been rolling up CPGs and pairing a celebrity ambassador with them after the fact. I'll skip naming names out of respect for those businesses, but I think that playbook will persist. And for what it's worth, I think the Kim Kardashian fund is probably going to be a huge success with an ex Carlyle partner and her sustained reach and influence is pretty unmatched.
So exciting evolution in both venture and PE and curious to see how that evolves as this market continues to, let's call it sober up a little bit. Yeah, I think most of these allocators come from a business mentality. So I think that I was actually talking to a family office earlier this morning and that's where I think, and maybe you can talk a little bit about like what family offices should think about when they're kind of thinking about venture.
But I think an advantage that single family offices have is they're normally a business family. So an interesting nugget that I took away is, people are going to usually start investing into sectors where they made their money. So if your family is a construction manufacturing business, you're probably going to be looking at prop tech and maybe real estate tech.
If you come from the fitness space and you scaled communities and built large education businesses, you're probably going to look at ed tech and probably community focused consumer tech businesses and content creation. So I think that's kind of a good way to start if you're like an allocator deploying capital, but then I think also the thing to keep in mind is how do you expand further into other sectors?
You can partner with other family offices that maybe had a different background, or you can partner with funds that may have access that you may normally not have access to that kind of could be interesting to just get exposure to. But I don't know what your thoughts are in terms of like how family offices can kind of think about deploying their capital and then also allocators too. But I think families are a little more specific because they don't have essentially like a time horizon.
They have generational mandates that they probably refresh through the family every couple of years or probably multiple times in one year, and they need to think about a portfolio allocation strategy, right? So, and you probably have a lot of insights kind of just meeting a lot of allocators, but maybe you can just talk about that as far as like some insights or things that you learn from allocators. Yeah, I mean, think with family offices, it's interesting.
Think to any emerging manager, at least in my experience, which you know may not be a universal truth, but family offices seem very inclined to invest in funds that offer co investment opportunities. My view is family offices see particularly early stage, I think if you start getting into later stage or growth equity that might be assessed through a different lens.
But with early stage given the risk profile and the long lockup, What I think family offices get excited about again based on my experience is the opportunity to come in at a reduced fee rate in a co investment opportunity and have this kind of curated set of companies where hopefully there's a few breakout portfolio companies where they can triple and quadruple down.
And I've seen it firsthand where you'll have individuals whose check size in a fund pales in comparison to their check size on one later stage co invest that they originally got exposure to as an investor in the fund. From an allocation standpoint, the point that we try to highlight is I guess two in this market. One, corrections or recessions typically result in great vintages in BC historically.
Obviously as capital is more expensive and there are less funds getting raised and even funds that are already established or maybe being a little bit more selective or diligent in their processes, I think the leverage is coming back in favor of the investor. I don't think it'll ever be as easy as it once was to get into a great company because this asset class has and will likely continue to mature and startup culture is so embedded in society today.
But I do think a market like this is one that one should be inclined to take advantage of in this asset class. The other is unlike a lot of other popular alternative investment strategies such as traditional PE or traditional real estate, there is almost no correlation between large cap equities and early stage VC.
Between the insulation that we have as seed and series A stage investors from the IPO market where today's lack of IPO opportunities is fairly inconsequential to us when writing checks today. Plus the fact that LBO's are not a particularly common exit path for these startups. So the debt environment will be less impactful and again just lack of correlation but ability to create meaningful alpha from an allocator perspective makes venture an important piece of a diversified portfolio.
I think the sixtyforty is long gone and finding space for alternatives across the board is critical. And so I don't know that venture will ever make sense to be the dominant position in a mature institutional portfolio, but there certainly should be exposure and those have been points that we've highlighted in those conversations that have seemed to resonate. Yeah, mean one of the things to highlight too is inflation is up by eight percent.
And so if you're just investing in pension funds and stocks and bonds and commodities, you're not really having a vehicle that's going to give you some type of outsized returns to mitigate that, like to your point. It's really almost the underlying constituents sometimes if you have some direct access that can outperform or bring that real cash on cash returns. Because funds performance in general, it's still risk adjusted.
So it's not like you're going at a high risk level when you're investing in a fund because ideally the whole structure of a fund and the benefits of a fund is kind of managing that risk. And then obviously you want to double down on the winners, right? So there's a huge winner that's already generating traction and they already have their second or third round of funding lined up and it's a huge multiple, you kind of get to see that firsthand on the inside.
And again, like one of those deals could number one return the fund and then also return liquidity back to the LPs if there's an exit or also just taking advantage of some of the secondaries. Going into liquidity, I guess tell me what you think could happen with that.
Like do you see a lot of investors with the market trying to get access to some secondaries to kind of, you know, make good on liquidity and get some capital back or do you think these are still gonna be more of a long hold where they're just gonna hold their capital into the funds and ride through the down markets and also just invest in the down markets?
Or do you think you're gonna see more allocators and maybe there's some insets that you're trying to seek some liquidity from the secondaries? Yeah, I don't have any specific data point in mind here, but anecdotally, doesn't seem like there's as much blood in the streets as one would expect because, and I think this is the confusion everybody's having around this.
I guess what we'll call a recession that we're currently inentering is there's kind of all these conflicting narratives where I think a lot of investors have staying power and so to sell in this market is something that is probably not the best way to maximize returns. Now obviously fund managers who have to adhere to timelines or want to recognize DPI may be incentivized to take chips off the table.
But I do think it's a tough environment because I think everybody's kind of waiting around for the bargains to show up. Yeah, mean you are going to lose out if you do cash out now because you're not going to get the highest price possible anyways, right? So you might as well just hold. So you're kind of getting a messed up deal if you do.
So unless you're really You think about the emergence of structured equity and I mean there was a great pitch book piece on it recently where you're starting to see some pretty significant downside protection for late stage investors which is helping startups avoid down rounds. So sure, we'll value you at the same X number that you were at six months ago, but we need a 2X liquidation preference as an example.
And so then I think it begs the question of, okay, you're gonna be a secondary investor, you're pay an $800,000,000 valuation and have the liquidation preference that the Series A shareholder had that sold to you. So you're only getting liquidation prep based on the original issue price of those shares, not the secondary price that you paid. Or you can pay a higher valuation and bet on the company's ultimately succeeding but have 2X downside protection.
I don't know if such an obvious risk to take to be a secondary buyer. Sure. So it'll be interesting. I mean my hope as a manager in this asset class is that the secondary market continues to evolve and the retail investor continues to contribute to liquidity in this space because that's probably in my opinion the biggest downside to the asset class certainly when going out as a manager.
And one point that I'll circle back to the family office concept with is that a lot of family offices and even individual high net worth investors, particularly those with operating and or investing experience will often say, you know what, I want to pick my own deals. And they might be great at picking their own deals.
You think about fund allocation, fact that you're building in diversification and a follow on strategy to kind of mitigate the downside on the underperformers and double and triple down on the top performers kind of just leaning into the power law that exists in venture. I often try and it's a difficult thing to explain because you don't want to tell someone that they're wrong.
But in my opinion as an LP, you're much better off being in a fund because that work is being done for you and you're not subject to a misalignment of interest that I do think exists with SPVs. So that'll be kind of separate tangent, but that'll be an interesting evolution to see so much capital poured into venture through SPVs.
When you think about SPVs as a manager, we dealt with this on our end where as a manager, if you can pay your bills, If you don't need the consistent inflow of management fees, SPVs are a much better arrangement because you can go one for 20 on 20 deals and go to zero on 19. Now you probably won't have much of a reputation if you do that. Let's just say that it all come, all the truth comes out at the same time. Yeah. And you have 120x and then the rest of the deals go to zero. Guess what?
You're getting your carry on the SPV Yeah. Because you don't have to return the other 19. Mhmm. So as an LP, I would much rather be in a fund where I know that the only way that this manager is gonna make money is if they first return the entirety of what I contributed across all deals. Yeah. So anyway, kind of a tangent to the liquidity discussion. No, I think look, that's look, to get liquidity, a lot of times people do sell their pro rata rights and that's usually used with an SPV.
So with the shake up of, well, would say shake up, but like with the all that's happening now with people freaking out about ashore shutting down and kind of the migration process. Because that was the hottest craze the last few years. Look, I mean a lot of the emerging managers and people that are on Fund two in my program, they started out doing SPVs to build that track record.
I know somebody that had a syndicate and a newsletter, that person had a full time job somewhere, weekends, and then that was their fund one. But they did that off the back of the track record of those SPVs. So with these things happening, what I'm worried about is kind of a ripple effect, right?
Like if you're an SPV admin or provider, you're helping people facilitate these things, but if there's so much volume and you're not able to deliver on that volume, what do you think is going to happen in the future? Mean, do you fear that same thing is going happen with these other people that are trying to migrate and take that on for new business? Guess, what are your just general sentiments on just kind of the SPV and like how it needs to evolve, I guess? I think it's a great tool.
I mean, built our track record with SPVs and it's been great. And you know we write checks into all of our own deals. Yeah. And I think that they'll continue again. Mean it's a co investment vehicle. It's great and a lot of times there's really really talented entrepreneurs out there that don't have the time to go out and run a fund.
It's certainly a burden administratively, but you know I have some friends that are active entrepreneurs who just get tremendous deal flow through their network and provide that exposure to others through SPVs. I don't think that will go away.
I think what will go away is probably just the volume I think of retail demand for exposure to venture where I think a lot of retail investors unfortunately may realize that there's some bit of adverse selection if it's so easy to get into certain companies.
And I think even as an institutional investor, if you're not one of five or 10 name brand firms that we all know and admire, I think one always has to look in the mirror and say, okay, well let me just make sure that I'm getting this opportunity because I clicked with the founder and or have been able to demonstrate an ability to add disproportionate value.
Because otherwise, there's probably a whole bunch of smart people that said no. And it's interesting how through the kind of SPV world, let's call it, you see a lot of the same logos across the same style of investors. And we'll see how that ultimately turns out. But I just think more generally, I think it's just economies are cyclical and it's been a great run and things are going to temper down. I personally don't have too much of a gloom and doom view on it.
I think with InVenture specifically, I look at the talent pool and you just see the quality of founders and the quality of team members joining startups at all stages where anecdotally at least and again limited data validated, but at least from my point of view you're seeing students graduate who would normally pursue a traditional investment banking or consulting opportunity. Nothing wrong with those, but those certainly were the gold standard when I was graduating.
Mhmm. And now you're seeing a lot of students leave those opportunities after a year or pass on them altogether to go join a startup. And so I do think kind of macro, I don't think venture is slowing down. Yeah. But some of the noise will go away, is probably a net positive for all involved. Yeah, and I see people starting SPVs earlier. I wouldn't be surprised if you see high school kids launching an SPV and kind of building their own community and syndicate.
And then there's like an 18 year old fund manager that just built it again, have a huge content, you have a huge community that's built off of your content and your mission, and then all those people want to invest in use of it, so that you can fulfill your mission at scale.
So I think that's kind of a, so I think as we see people sell products, I think we're already seeing this, Twitter, many of these people that are raising publicly, they use Twitter and that's how they close their, so they got to their first and maybe second close on Twitter because they're allowed to through classification that they have. And I think, look, my opinion on just the fund admin best practices, I just think the bar will go higher in terms of like managing the SPVs.
I think you need to have more of a personal touch, and I think there's going to be a lot of platforms to try to automate it. But there's weird dynamics when know, when you're liquidating the proceeds and distributing capital to all the LPs, it's not like a cookie cutter. It's not always like a cookie cutter system or a platform or repeatable thing. You might still need a human.
So I think the fund admins, I think in the future that are hopefully migrating, they're probably going to have to hire staff to justify the cost. And that might eat into their margins, but I think that will make it more sustainable and like maintain the trust and the quality of the managers, I would say. So I think that would probably be the functional change as far as just facilitating SPVs. Yeah, I mean, were pretty old school. We did it all manually.
We used our own attorneys and opened a bank account for each entity, created the LLC. We had pretty small cap tables. We were typically 10 to 15 investors per SPV. So fairly meaningful checks from each investor. But again, I think long term it's not going to go away. I think more generally as an investor, we are still extremely bullish on this democratization of access to alternatives. Right.
And there's under certain you're seeing some companies now that are kind of serving this segment kind of between the ultra high net worth individual or family office and the retail investor where there's even at a fairly high threshold where accredited investors have meaningful capital to deploy.
Even accredited investors are fairly limited, And you think about the minimum to commit to a ten year illiquid venture vehicle if you even get the opportunity as a let's say middle of the road accredited investor. We're long on it. We're looking at a few businesses in the alt democratization space let's call it. Obviously you saw left lane lead Masterworks round last year, have a tremendous amount of respect for that business.
And we think those guys pioneered a space that is far from done evolving. So I think the same will persist within DC. Yeah, no, I agree. I think people are going to find pathways. Think there are a lot of the startups and innovators that were handling fund admin, there's opportunity for them to step up and solve a problem if you need to kind of handle fund admin much more seamlessly. So I think there's opportunities there as well.
Cool. Well, I guess if anybody has any questions, maybe they can shout it out. And I guess, Jonathan, I know you got to run, but maybe you could just share maybe a piece of wisdom that you learned from a mentor. I know you had some great mentors at Zumba and like your founder community, but is there anything maybe from a mentor or a relative that always sticks with you that you want to share with us as maybe like a life lesson? Sure, yeah.
And I don't know how original this is, but I got great advice from one of my partners, which was that especially, I think this is particularly relevant to managers in venture, which is that, you know, there's a lot of variability in the outcomes. And it's important to remain humble and transparent and honest and ethical with your partners, both the founders that you have the chance to work with and the investors that trust you with their capital. Because something will go wrong at some point.
Hopefully it doesn't, but it's likely that it will. And if something goes wrong that is out of your control, but you did everything you said you were gonna do and you were honest and upfront and your interests were aligned, I think that you have a much higher probability of maintaining your reputation, which in my opinion is definitely your most valuable asset. So I guess punchline is golden rule. Treat others how you want to be treated. Be honest, be ethical, be transparent.
And I think you'll get enough bites at the apple to hit a few home runs and make a career out of this. Yeah, I totally forgot about I have a question on SPV if we have two minutes. Sure. Yeah, please. Yeah, thanks so much for sharing your experience. It seems like building the SPV is a good way to build a track record. Could you please share a little bit more about how you are able to source the deals for SPV and also have connection with the investors who invest into those SPV?
Give a little bit color to help us understand how can we build up those. Yeah, sure.
For us, started and candidly continues to be driven a lot by outbound, particularly if you're not a lead investor, So think about an SPV, if you're going to do a $150,000 SPV, if you go to a company that's early enough and they're raising a $3,000,000 seed round or perhaps they're raising an extension and it's $2,000,000 through a safe note, you may be in an advantage position in that a lot of the larger funds that would typically beat you out
of that opportunity just because they may be able to add more value or at least the founder will perceive them to be able to do so compared to the SPV. It's just too small of an opportunity for some of those firms. You think about a billion dollar fund, they're probably not spending much time on half a million dollar opportunities, for example. So I think coming in early is certainly one way to ensure that you can see quality deals as of emerging SPV manager.
That's certainly what our experience was. And I think not being shy about reaching out directly. First investment we did, I called customer service of a company that we admired. And I insisted that I had to speak to the CEO. And I did leverage the Zumba name to get taken seriously enough.
And fortunately, that opened the door and we built a relationship and we were a significant check, but an insignificant check compared to the institutions that were vying for the board seat and the lead position. And so we were able to secure that opportunity. But yeah, I think going out directly to founders on LinkedIn is an underrated tactic. In a perfect world being able to articulate one idea that comes to mind as to how you can add value.
So you're approaching a sneaker brand, and you have a friend who could be an LP in the SPV who has a manufacturing facility that could help them bring their costs down, whatever. Just to at least open the door to show the entrepreneur that, hey you're not just spamming them, you actually know about their business and thought about how you could add value already. And at least in our experience, we often try to add some value to companies before they're ready to take money from anybody.
So if we are interested in the company, lot of times what we'll do is we'll try to connect with either an existing investor or an entrepreneur, And we'll kind of take the risk I guess if you wanna think of it that way of saying you know what let's put some cards on the table. Let's help this company now. If they ultimately decide not to include us in their fundraise later, then that's the risk that we're willing to tolerate.
But let us at least show them that hey, if we're in business together, we're going to go out there and we're going to do work to support this company's growth. So anyway, long winded answer, but hopefully helpful. That's super helpful. Thank you so much. Yeah, my pleasure. Thank you so much, Jonathan. Really appreciate you squeezing us in. Know you're Of course, thank you. So have a good rest of the week and hopefully we catch up soon.