Michael Kim Cendana Capital This is often the first call for early stage fund managers. Cendana has invested in several highly successful venture capital teams – such as Forerunner Ventures, K9 Ventures, and IA Ventures. Thanks to its backers, Cendana continues to replenish its supply of venture capital as well.
In fact, Kim tells us EXCLUSIVELY that 13-year-old Sendana just closed $470 million across several new funds that brings the company’s total assets under management to nearly $2 billion. The largest amount, $340 million, will be directed to US-based investors. Another $67 million will flow to principals outside the United States. Cendana also has $30 million in capital commitments to invest directly in startups and $30 million from The University of Texas, whose positions will mirror this larger $340 million fund.
We spoke with Kim earlier today about the current market, where exits are few and far between, and where the seed-stage managers who also run companies are, in many cases, busy making sure these companies navigate this upside-down market. . He called us from his home in the Bay Area ahead of next week’s trip to Singapore, where many of the world’s dignitaries are expected to gather for a meeting. summit Hosted by the Milken Institute, as well as prof Formula 1 racing.
I have invested for a long time in investment funds of no more than $100 million; What is your newest major fund strategy?
It’s always been a line in the sand for us, and the seed stage has changed in the last 10 years. When I started, most seed funds were up to $50 million, and seed rounds were $1.5 million; Now the average seed round in our portfolio is $4 million. So, we’ve adapted to the market, although I think over the next few years, the size of the seed funds will shrink because it’s very difficult to bring back five times the $150 million from the $50 million.
I’m surprised you don’t actually see that happening.
We are somewhat. one of the Fund managers In Prague he did very well investing from a $125m fund; They were the primary investor in UiPath. But they made a disciplined decision to downsize their next fund, which is the one we entered, a $75 million fund. I think you’ll start to see more of that over the next few years.
What kind of returns are you making in cash, minus fees?
In our first fund – which is the most complete – our net return to our investors was 4.2x. And we distributed 2.2x of their capital as dividends. If we look at our second box, it’s marked somewhere in the middle of the threes, and it’s close to almost 100% and is distributed. Adventure is a long game. It takes time for companies to become very valuable, I would say seven to eight years, if not longer. So, I feel comfortable that our formula is working, and we’ve been very consistent about maintaining that approach.
There has been a death in the vents for the past two years. Have you sold some of your positions in the secondary market in exchange for some liquidity, whether stakes in certain funds or direct investments?
No, we haven’t, and for better or worse, none of our LPs have offered to sell their Cendana positions, so I’m fairly happy about that. But I think ancillary is a very important component of the project and that we’ll see more activity there. There’s already this green space of addressable market versus actual money out there. So I think you’ll actually see more secondary activity and more secondary companies actually getting established over the next couple of years.
I don’t doubt it. As for you, why didn’t you sell anything? Is it because you think prices have not stabilized?
We invest in our fund managers. We expect it to be a multi-contract relationship. Of course, things don’t always go well and we don’t communicate with some of our key managers. But we did not put our positions up for sale because in the end we believe we are betting on the fund manager, and then… they Deciding whether to sell the position or not. Part of our success is because our fund managers have been proactive about selling a portion of their positions in companies; We have had a number of our fund managers offer between 10% and 20% of their position for sale. To be honest, it was a little easier in 2021, as everyone wanted to get into these startups and was looking to get shares any way they could.
I saw that advertisement For a seed fund I backed in May, it was founded by serial entrepreneur Mark Ghermezian, who also runs his newest company now. How can a part-time venture capitalist compete with a full-time venture capitalist?
Mark is amazing. He was the co-founder and initial CEO of a company called Blaze which now has a market cap of about $4 billion. It is very popular among the founder community, and at the seed stage, founders introducing other founders are the best source of deal flow for our fund managers.
It was difficult for institutional partners with side funding to get their arms together at first. But we took the risk of trying to support some of them. [and have no regrets].
Institutional investors like Cendana have more leverage than they have in years, with money in short supply. Have you asked your project managers for better terms than would have been possible in 2020, for example?
In the big picture, we are not asking for more conditions or special conditions. We never asked for a share from the management company, for example, or a special discounted interest. We never did that. And in our mind, for fund managers offering that, it’s actually a negative signal.