Cendana Capital, a prominent investor in seed-stage fund managers, has recently secured $470 million in funding across several new funds. This brings the firm’s total assets under management to approximately $2 billion. The funding will be allocated to U.S.-based investors, as well as managers outside the United States. Cendana Capital also has $30 million in capital commitments to invest directly in startups, along with $30 million from the University of Texas. This significant funding will enable Cendana Capital to continue supporting emerging seed-stage fund managers and fuel innovation and growth within the startup ecosystem.
Background on Cendana Capital’s role in backing seed-stage fund managers
Cendana Capital has played a crucial role in supporting and backing seed-stage fund managers for over 13 years. The firm has a track record of investing in successful venture capital teams, such as Forerunner Ventures, K9 Ventures, and IA Ventures. By providing capital and guidance to these managers, Cendana Capital helps them navigate the challenges and opportunities of the seed-stage investment landscape. The firm’s extensive experience in this space has established its reputation as a go-to resource for emerging fund managers seeking support and funding.
Total assets under management for Cendana Capital
With the recent $470 million funding, Cendana Capital’s total assets under management have reached approximately $2 billion. This substantial capital base allows the firm to invest in a diverse range of seed-stage funds and startups. By leveraging their extensive network and expertise, Cendana Capital can provide the necessary resources and support to foster growth and success within the seed-stage ecosystem.
Breakdown of funding allocation
Out of the $470 million funding secured by Cendana Capital, the largest portion, $340 million, will be allocated to U.S.-based investors. This significant investment will fuel innovation and entrepreneurship within the United States. Additionally, $67 million will flow to fund managers outside the United States, fostering global collaboration and investment in promising startups. Moreover, Cendana Capital has earmarked $30 million for direct investments in startups, enabling them to directly support and nurture early-stage companies. The firm has also received $30 million from the University of Texas, which will be invested in line with the larger $340 million fund.
Interview with Michael Kim
We had the opportunity to interview Michael Kim, the founder of Cendana Capital, to gain insights into the firm’s investment strategy and its impact on the seed-stage venture landscape. Kim highlighted the evolving nature of seed funds over the past decade, with larger fund sizes and increased seed round sizes becoming the norm. However, he foresees a scaling back of seed funds in the future, as the challenges of generating substantial returns from larger fund sizes become apparent. He also emphasized the importance of maintaining a long-term investment approach, with venture investments taking time to mature and deliver substantial returns.
Changes in seed-stage venture over the past 10 years
Kim discussed the significant changes that have occurred in the seed-stage venture landscape over the past 10 years. When Cendana Capital began its operations, most seed funds were up to $50 million in size, with seed rounds averaging $1.5 million. However, the median seed round in Cendana Capital’s portfolio now stands at $4 million. These changes reflect the evolving needs and expectations of startups and the increasing competition in the seed-stage market. Kim highlighted the need for seed funds to adapt to these changes and scale back in size to ensure efficient capital deployment and maximize returns for investors.
Expectations for the future of seed funds
Looking ahead, Kim expressed his expectation of a scaling back in the size of seed funds, as the challenges of generating substantial returns from larger fund sizes become more apparent. He believes that the next few years will see a trend towards smaller seed funds, as fund managers recognize the need for a more focused and efficient investment strategy. Additionally, Kim anticipates an increase in secondary activity within the venture capital ecosystem, as more investors seek liquidity and opportunities to sell positions in the market.
Returns and Liquidity
Kim shared details about the net return to investors and the distribution of capital in Cendana Capital’s funds. In their first fund, the net return to investors stands at 4.2x, with 2.2x of their capital distributed. The second fund has also performed well, with a marked return in the mid-threes and almost 100% distribution. Kim emphasized that venture capital is a long-term game, with significant value creation taking time. Despite the challenges of generating liquidity in a market with limited exits, Cendana Capital has not sold off any of its positions in the secondary market. However, Kim predicted an increase in secondary activity in the coming years, providing more opportunities for liquidity and portfolio management.
Possibility of selling positions in the secondary market
Kim acknowledged the importance of secondary activity in the venture capital industry and highlighted the potential for increased secondary market activity. While Cendana Capital has not sold any of its positions in the secondary market thus far, Kim believes that there is room for growth in this area. He anticipates more investors seeking liquidity and selling their positions as the market continues to evolve. The growing addressable market and the need for liquidity will likely drive more secondary activity in the coming years.
Prediction of increased secondary activity
Building on the potential for increased secondary activity, Kim predicted that there will be a surge in secondary firms and more robust secondary market activity. The current market dynamics, including limited exits and the need for liquidity, provide a favorable environment for secondary activity. Kim expects that new firms specializing in secondary investments will emerge, catering to the growing demand for liquidity options in the venture capital ecosystem.
Differences Between Part-time and Full-time VCs
Kim reflected on the role of part-time venture capitalists, using the example of serial entrepreneur Mark Ghermezian. Ghermezian, while running his own startup, also manages a debut fund backed by Cendana Capital. Kim emphasized Ghermezian’s exceptional entrepreneurial background and reputation within the founder community. He highlighted the value that part-time VCs bring by introducing other founders to fund managers, serving as a valuable source of deal flow. Kim noted that while institutional investors initially struggled to embrace founders with side funds, Cendana Capital took the risk and backed them, a decision that has paid off.
Value of founders introducing other founders in deal flow
Kim emphasized the importance of founders introducing other founders in deal flow, highlighting their unique perspective and understanding of the startup ecosystem. Founders possess valuable insights and connections that can help fuel innovation and drive deal flow for fund managers. Cendana Capital recognizes the immense value that founders bring to the table and actively supports their involvement in the investment process.
Support for founders with side funds
Cendana Capital has shown support and confidence in founders with side funds, despite initial skepticism from institutional LP investors. Kim acknowledged that founders with side funds provide additional opportunities for deal flow and valuable insights into the startup landscape. By actively backing founders with side funds, Cendana Capital has fostered partnerships and leveraged the founder community to fuel its investment strategy.
The Current Market
Kim discussed the leverage that institutional investors like Cendana Capital have in the current market, highlighting the shortage of capital and increased demand for funding opportunities. In this competitive market, institutional investors have the advantage of substantial capital resources and established networks. While some may expect better terms or special arrangements, Cendana Capital has maintained its consistent approach and has not asked for additional terms or special considerations. The firm believes in building long-term relationships with its fund managers, focusing on their expertise and decision-making abilities.
Discussion on terms and special arrangements with venture managers
Cendana Capital has never asked for special terms or discounted carried interest from its fund managers. The firm believes in maintaining a fair and equal partnership, respecting the fund managers’ expertise and decision-making autonomy. Cendana Capital’s success can be attributed to its focus on investing in capable fund managers and giving them the freedom to manage their portfolios effectively. By avoiding special terms and arrangements, Cendana Capital has fostered trust and strong relationships with its partners.
Conclusion
Cendana Capital’s recent $470 million funding marks a significant milestone for the firm and the seed-stage investment landscape. With a total of approximately $2 billion in assets under management, Cendana Capital is well-positioned to continue supporting emerging fund managers and fueling innovation within the startup ecosystem. The firm’s investment strategy, commitment to long-term relationships, and belief in the value of founders have contributed to its success. As the seed-stage venture landscape continues to evolve, Cendana Capital remains at the forefront, adapting to changes and driving growth in the industry.
