Cendana's Michael Kim on VC Portfolio Construction, How Seed Funds Compete vs Multistage

Cendana's Data-Driven Approach

• 📊 Cendana acts as a lead investor in 80% of its portfolio funds, providing active support and collecting extensive data.
• 💡 They use Salesforce to track company performance, revenue growth, and transaction data, enabling detailed quartile analysis by geo or sector.
• 🤖 Experimenting with AI solutions and data lakes to connect unstructured data (Slack, email) with structured data (Salesforce) for natural language queries and automated data ingestion.

Venture Capital Returns & Strategy

• 📈 Historically driven by IPOs and large acquisitions, secondaries have been the main driver of early-stage venture returns in the last five years.
• 🔑 Ownership relative to fund size is critical; a $45M fund with 7% ownership of a $3.2B exit can yield a 5x fund return from a single deal.
• ⚠️ Fund managers are advised not to sell their entire position in successful companies, as seen with Chime and ServiceTitan, to avoid missing out on significant future gains.

Characteristics of Top Fund Managers

• 🎯 The best VCs demonstrate amazing access to phenomenal founders, built through strong networks, operating experience, and relationships with downstream capital.
• 🧠 They act as "magnets" for founders, like Dita Vonlanthen (Stripe, KUR) and Immad Akund (Mercury), and show significant hustle (e.g., Casey Caruso competing in hackathons).
• ✅ Solo GPs can be effective by avoiding political decision-making, but must mitigate risks like falling in love with companies by having strong advisory groups.

Portfolio Construction & The 60x Rule

• 💰 A key thesis is that small funds outperform and seed funds become early-stage venture due to multi-stage firms moving upstream.
• 📊 For seed funds, target 10% ownership of fund size (e.g., $80M fund aims for 8% initial ownership), and 20% for pre-seed funds.
• 💡 Michael's "60x rule" suggests a fund needs 60 times its size in exit value (assuming 5% exit ownership) to achieve a 3x gross return.

Navigating the Current Venture Landscape

• 🚀 Technology innovation cannot be timed; investing consistently through cycles (like the GFC leading to Uber, Airbnb) is crucial.
• ⚔️ Seed funds compete with multi-stage firms by offering hands-on support and demonstrating commitment, rather than just being a "call option."
• 🧩 The "messy middle" of SAS companies ($10-30M ARR) with slowed growth presents a challenge and potential opportunity for new acquisition or holding company strategies.