How Coolwater Capital Accelerates New Fund Managers | Winter Mead • 5

00:00:00 and this is especially true like if you think of it as a journey it's like great you rocked it fun one great you rocked it fun two and now everyone thinks they're going to be like a $500 million solo GP we would love to grab a hot take from you hot takes wow I don't know if I'm I'm one for hot takes but welcome back to VC unfiltered super excited to have not a VC on the on the show but someone that accelerates VC so he does what Pegasus does but for VCS we've got winter me uh coming on to the show today he runs cool water Capital uh

00:00:35 they are the accelerator for emerging fun managers and honestly I couldn't be more excited to to talk to someone uh about the ecosystem and about some of the challenges that emerging VC managers end up having so winter welcome to the show thanks for having me you have a very interesting model right you're you're not uh taking money and putting into startups necessarily you're very much a kind of a power connector in between uh L is an emerging fund so I would love to find out more about cool water and kind of the work that you guys

00:01:05 are doing cool water is a concept that was kind of born out of my time as a institutional limited partner uh also called an LP um where those are the investors that are putting Capital allocating Capital into Venture funds real estate funds private Equity Funds hedge funds right the the money behind the money so to speak um so when I was you know working as a an LP I was kind of noticing that a lot of the dollars most of the dollars you know the vast super majority of the dollars were going into larger funds

00:01:42 right more established funds so you start a fund people call that like a fun one right like it's your first time investing a pool of capital with a specific strategy um and then you know you have fun two and fun three and fun four and eventually like you're kind of grown up and it's rinse and repeat repeatability that's what Li a lot of limited partners are looking for is that repeatability factor and that proven success in your strategy your investment strategy um so I noticed like okay when these funds were growing up fund One

00:02:13 Fund two fund three there was a gap right um of institutional support there weren't institutional LPS there weren't institutions or platforms supporting that part of the market um and that's different like if you think of the startup ecosystem um you know the startup EOS system has accelerators they have Studios now they have incubators right there's a there's an ecosystem there supporting early stage startups but there wasn't an ecosystem or even a platform right uh you know we pioneered the model there wasn't even a platform

00:02:46 supporting early stage funds right and so there were kind of these ad hoc examples over time within the private Equity world within the hedge fund world there's a little bit in kind of the the VC world but it's usually driven by like one person who had been massively successful as a founder of their own firm and then they W they weren't building like a new platform they were really just like writing a check as a high- net worth individual into these funds and then like kind of giving them a little bit of advice here and there

00:03:14 and so what coolat has done right and attempted to do kind of back back then was build a platform right build an accelerator for funds build kind of a systematic program to offer systematic support to these funds when they needed it the most right and similar to how if you think about the Venture Capital world you have these seed stage managers like what are they doing they are helping startups at their first round of capital right like when you actually need it and like when you're pre-ipo you

00:03:44 need help but you need different help right like you might hire a CFO or something like an Institutional CFO that has taken a company from private markets to public markets right like you need a different type of help so it's never like you never need any help along that Journey but in the beginning it's much harder right because you have to like carve out your Niche and you have to build your whole operations and you have to set up your whole financial you know back back office and you have to you know figure

00:04:08 out what's the capital Network who's going to invest into me like what's the narrative I'm telling what's the current state of the fundraising Market there's all these things you're you know ping together and so you're the CEO you're the cioo you're the COO you're the CFO you're the CMO like you're everything in one as like you're launching the firm and then there's like an OMG moment right and you're like who do I go to to help right do I go to this person who's you know massively wealthy and wrote me

00:04:35 a million dollar check and wants to talk to me once a year or do I try to find a platform where all they do is like support me day in and day out and that's kind of what cool water is it's it's you know the vision is to be the platform where any great investor anywhere in the world knows where to turn to they turn to cool water we attributed to similar to the kind of an accelerator model right where you're actually coming through cohort style most likely and that you're taking them through a very

00:05:01 structured program so what does for an emerging manager what does that program actually look like there's an application process so um in the early days you know I was talking to one of the original LPs investors into y combinator um and their their feedback was okay what what's your mechanism to kind of like talk to everyone in the market right because again from my perspective there's you know certain tier one VC firms and their their job is to go out and like you know let's say there's 40 of

00:05:34 the same type of company right I'd say consensus view is that there's only be one maybe two or three of those companies that are going to like aggregate over time most of the value in that category right and so what are you trying to do as a VC like you know your job as a VC is to go out and try to you know meet with all 40 of those Concepts right at any point in time and to try to pick you know bet on the horse that's going to win the race right right but you kind of want to meet with all 40 first and so the feedback originally was

00:06:03 like you know create an application process create kind of a a mechanism that allows you to meet with as many great investors you know to start and so we believe we built you know uh a lot of that some of that um you know we see over 1,500 teams in the US per year right I don't feel that's good enough um for my standards but it's a lot of managers right like when I was working institutionally like we would see less than 500 so it's you know multiples of that it's not an order of magnitude greater than

00:06:34 that but you know those are qualified teams those are good teams um kind of applying to you know say like hey I'm going to start a fund this year in in the US right so and you know if you look at the data there's only um you know probably last year there's probably only like 500 or so firms that actually launched you know maybe maybe a few less um so we're seeing a lot of teams like at that kind of I don't know I'd say the top of funnel is bigger but in that qualified set of people that have a chance to kind of launch a fund and then

00:07:04 there's even like the people who actually launch their fund right um so that's the first piece is like hey come out you know come out of the woodwork you know talk to Cool Water we love to kind of like see your application and then you know there's a process to kind of like you know work through interview references like you know we kind of explain kind of our philosophy and kind of what we're doing and again we're just looking to intersect right uh with best of the best during that interview process during the application process

00:07:30 process we talk with literally hundreds of people um of of like like you know the qualified top of funnel the qualified and then the qualified to actually get an interview so we're talking to hundreds of people really trying to understand like what's going on in the market right are there new themes emerging you know um like what's the quality of this team what's their background if they're kind of a newer team like what's the composition what's our bet on like the fact that again like they're going to be successful raise a

00:07:55 fund get into business and start deploying capital in startups um so that's a big part of the process um is like that application interview process um and again like We Gather a lot of data a lot of perspective you know um we build relationships with a lot of kind of newer managers and you know it's a tough process because we're trying to make a bet on you know at that point in time you know 20 or 30 managers to come to this program um but that's a multi-month you know interview process uh sometimes we talk to as many like a

00:08:26 single person like I'll talk to as many as 40 people in a single day so 15 to 30 minute calls back to back like it's it's the it's insane kind of doing that um and if anyone's everever done like 15 straight hours of calls like right like it's a little bit like taxing but I we don't want to lower the bar like we want to talk to everyone that we think has the potential to support Founders and that sounds a little out there but like that's what we're trying to do right um and until there's an AI that can do that

00:08:56 better for us like we have to put kind of you know man and woman power against that um so that's the like application interview process and then you you know um we have kind of the fortunate group that you know we're excited to work with and they're excited to work with us and then you know you come through a multi-month training program so we bring uh as many kind of qualified people teachers that we believe can offer great perspective to emerging managers so there's more investors than there are

00:09:29 great teachers in my point of view and so what I'm looking to do is find some of the greatest teachers in the world that just haven't realized that they're the greatest teachers yet and maybe they've invested in like a 100 funds and I'm talking to them and I'm like wow your perspective is incredible like I wish every emergy manager like had your perspective or knew your perspective please like come into cool water and like you know help teach for us right especially if it's like you know strategic or helpful to the teacher so

00:09:59 we get you know know 40 to 80 people come in and actually like teach this you know curriculum that we've built um and you know you're getting different perspectives like if it's just me up there at the front of the room you know teaching all you know couple dozen modules that's less interesting and I actually don't think you're smarter than if you bring in like you know 50 people to offer 50 different perspectives right you have like one perspective which is my perspective or you know do you want

00:10:27 49 other perspectives and you get delivered the same content so that's kind of how we've structured it so it's this very intensive training program and then yeah we've kind of built kind of the endcap like right like everyone wants something to work uh look forward to like if you're training on a you know sports team and there's never any games right kind of what's the point so I guess the game for us is like the demo day or the summit and so at the end of you know every kind of training program

00:10:54 we kind of you know have an endcap and cap it off with a with like a demo day Summit um where we get you know at this point in time hundreds of people together LPS GPS experts anyone that wants to like you know support uh emerging managers and kind of putting their money where their mouth is like those are the people we want at that event um and we've kind of scaled that up over the last two years that started as a 15ers event um and we're doing one in New York next week that'll be over 400 people so um it's like it's it's

00:11:25 scaled quite significantly in the last two years and again the idea there is you know you know organizing and consolidating uh an ecosystem that supports emergy managers no that's super exciting honestly it sounds um almost exactly like an accelerator in in general kind of same methodology but changing the uh the the focus so it's super interesting and I 100% feel your pain on having the the 15 hours of back toback calls we're going through diligence for the actual accelerator for the par Co so uh yeah 100% feel that the

00:12:01 idea is not to feel any pain uh yeah God even even if you even if every single call went perfectly I mean it's it's such a long day because keeping that Focus for that long because you have to be so dialed in when you're talking to these companies that if you're not that you're it you get a short time with them and if you're not asking the right questions then it's yeah yeah yeah yeah somehow somehow we only have 24-hour days it' be nice if there are 40 hours you get a few more breaks in between calls oh i' I'd kill for another

00:12:35 eight hours every single day so I guess moving uh kind of through to that so what are some of the mistakes that the emerging managers make either in the interview process or when they're actually going out to talk to some of the funds like what are what are I don't know the top three to five I'd say that are out there the first on the the interview process it's it's tough I think the maybe the bigger picture question is like what mistakes do emerging VCS or emerging GPS make when they're talking to LPS um maybe it's

00:13:08 similar I'll try to answer both those questions as the same question because I guess you can consider me an LP right an Institutional LP um the one of the biggest mistakes is just like not having crispness in the narrative um this one might be a little bit different because if you're talking to me like I would say cool water is more forgiving than your typical institutional LPA so right like we're almost kind of like again like taking it from here right great investor great potential and we're helping you get over here which is like

00:13:41 buttoned up narrative the full package right like ready to kind of like talk to institutional LPS and kind of raise your fund right it's like we're helping you build that fun product we're helping you kind of dial in that narrative you know we're even helping you kind of build from scratch your back office um and so uh it it's a a little bit different like what I'm looking for in the interview process is more potential and like uh an understanding like okay how do all the different pieces fit together and right

00:14:10 it is that pattern recognition of okay I've seen this pattern before in the private Equity world in the Venture world or you know some other asset class where you know this type of strategy has worked and has led to you know value creation right um and then you're kind of trying to understand you know a layer deeper which is like okay I've seen kind of that pattern like is this the person to do it right the jockey versus the horse like great I've seen the horse right kind of win before but you know is

00:14:37 this the right jockey for that horse and so you're kind of looking at at both of those things and then like the market maybe is the track and you're kind of saying like Okay great I've seen the jockey and the horse but you know are they climbing up like is this a horse that has to do the same thing as a mountain goat or is this like an actual racetrack right where it's like you know that that is kind of like a like a big Market opportunity where they're going to like shine and thrive and so like

00:15:00 you're kind of looking for pieces to kind of add up together okay the thesis makes sense right the strategy feels like the right team that's going to execute on that strategy and it feels executable right the track record right it's been like I can't like you know over like when I'm having that conversation like people are coming in with sometimes like 20 years of experience and track record so like they are coming in with just a ton of insight and a ton of Acumen right I just got off a call with um you know GP at a

00:15:32 corporate they're talking about spinning out in a few years and they already have kind of you know 10 to 15 years of experience like working in financial markets working in capital markets helping sell businesses helping build businesses now working for a corporate right I couldn't I couldn't invent that for that person they're coming in with a great story great experience yes I'm helping them shape kind of the thesis and the strategy and how to put the pieces together and what should organizational development look like and

00:15:56 what should again like your back office look like how should you build kind of the Cadence of meetings and like what what is that everything that goes into building kind of an Institutional firm and institutional strategy again we help you kind of with the potential over here but like you're responsible for the potential coming in like I I can't make you um the person you are when you come in but we can like help you build your firm and kind of dial in that narrative and help you get over here to like

00:16:21 institutional like you know um positioning for for fundraising and so um yeah I think a lot of people make that mistake I don't think they practice enough like you know I don't think they're um if I'm simplifying it sometimes I don't think they're thoughtful enough on developing the thesis right like an easy question to ask is like what actually makes money like why are investors giving you money right they're giving you money so you make multiples of their money so like what are you trying like you're trying

00:16:50 to create something that's repeatable right a thesis that's insightful a strategy that's repeatable you're trying to create something that's repeatable that will make multiples of money right so the thoughtfulness that goes into that I think sometimes is you know wanting um like there you leave LPS like wanting for more um I think you go in uh I think a lot of GPS go into the meeting um and you know I run into the same issue myself but like talking too much versus like asking questions right two years one mouth for a reason type of

00:17:25 approach so I mean that's the again boil everything down to Simplicity like two years one mouth like going to the meeting you're listening you're asking questions you're genuinely curious of about like okay where do I fit as a product right um you know you're like hey like I replace roofs right um like you know I'm going to replace your roof like I I sell the best shingles I'm going to replace like it's going to be the greatest like roof replacement ever and like the other person seeing across is like I don't even own a house right

00:17:54 like you know it's like I don't even you know this isn't even a relevant product for for me right you go in like first question hey like cool like you know do you do you own a house like yeah I own a house oh great like when do you last replace your roof uh like 30 years ago oh great I have a roof replacement business right two years one mouth like if you some people go in hot and you're just like cool that's completely irrelevant to me like thanks for caring about me and so I think that's that's

00:18:19 like a big mistake as well um when you're like going out and like talking to someone that might be like General Life advice more so than like uh GP GP to LP specific advice and then I think another one and uh yeah I think this is a maybe too vast of a generalization but I don't think the this is more on like the fun product I don't think the materials are fully buttoned up enough and so again like separating out someone like me like my whole purpose is to help you go from a to c and I'm B helping you

00:18:52 figure out B right so it's like a smooth transition some people want you at c a lot of say like institutions and larger check writers just want to see C and so like if you're coming in at a you're trying to skip over something and and they don't see like The Logical flow or they don't see like the the pieces as they line up right like you're missing pieces of your data room like you're missing you know big picture of things that you should be talking about in your pitch deck like if you're not talking

00:19:19 about the right items right like if you're not speaking their language it's almost like you know you go to a country that doesn't speak English and all of a sudden like you know it's like you're trying to talk to someone it's like there there's a there is a language barrier there like but in this case it's like the lp language right and so I think that's another big kind of Gap where you're going like a lot of people go in thinking it's like oh you know I read this opportunity about um uh raising you know startup capital

00:19:49 from VCS like you know they've been writing about that for 20 years right um there's like all these great bloggers you know I know a lot of them like they they're like the pioneer of talking about and making the startup World more transparent but then all of a sudden it's like okay great I know how to raise money I've raised it even before as an operator or a Founder right like I was talking to someone this morning as well a different person you know they've raised you know I think over half a billion dollars um and so uh so from

00:20:18 that perspective it's like they're really good at fundraising but their first fund was $20 million right and so like they're they've been super successful over you know a decade as an operator over two decades as an operator raising T but then like their first fund is only you know $20 million and so it's kind of a different process with different expectations and I think appreciating it is the advice like that these are kind of different processes and figuring out okay what are the differences and

00:20:48 nuances between these two processes because again fundraising and fundraising like it's the same word but it's a different process right um and so I think that's uh like some big kind of misunderstandings or you know some gaps that if you you're coming out hot as a passionate GP with like an amazing track record and strategy like you can sometimes yeah miss the force for the trees or not appreciate some of the nuances uh when you're kind of going to markets to speak when you're talking about institutional because in the way

00:21:18 that I've generally understood it from this side is that up until you've raised probably about 30 over one to three funds they're not getting into institutional so is the place that cool water sits kind of the best is that maybe either you haven't raised a fund or maybe you're on your first and you've raised five or 10 and you're like hey I need to standardize and professionalize this a little bit more to to kind of take it to that next level so that we have maybe a data room for the institutions or like where where

00:21:52 specifically in that kind of life cycle do you sit best from from your side I'd say there's kind of maybe multiple stages so if you're in the audience here and you're thinking about well how does this apply to me there's that first stage right I think people on uh Sand Hill Road or maybe it's Reno now um they call it like the zero to one phase right that is like the thesis strategy track record like pulling it together what is my initial fund product right um that is an iterative process uh like I said it

00:22:28 is is um it it isn't going to happen like kind of overnight like you're not going to pull out of a back pocket you're going to be have like working towards this goal for you know sometimes years um but I think it's hard if you're the protagonist to really understand it objectively and so I think that's one kind of value proposition that we can offer and like you can come into our program with the intention of building a fund right like we try to set that intention up front in the interview process but with the intention of going

00:22:59 from 0 to one so that's that's one kind of intersection where we'd be very valuable the other intersection would be you know again use some just like Santa Road terminology but like the 1 to 10 the 1 to 10 is like you've raised fun one or fun two and and like you know you're good but you know you could be better you have the personality to kind of like uh you know swallow your pride and say like hey I I'm willing to go through a training program to get better um and you you've almost acknowledged

00:23:31 that maybe you've run out of like friends and family round top of funnel yourself and you're like okay I right like I've gotten as good as I'm going to get at sword fighting and now I need to like you know go to a professional sword fighting Camp to keep become even better right it's like i' I've just like I've used all of my tricks of the trade and now it's like how do how do you level up like how do you get better and so I think that it feels like we're the institutional training camp for the best

00:23:58 man managers in the US and more and more so like in the world right like we just announced like we're expanding to Japan and we're you know launching that program over the next six months um and so like we're very good helping institutionalize your firm and again like like I mentioned what was the Gap the Gap was like fun one fun two fun three and so From coolwaters perspective it's like okay what are we offering to emerging managers to the ecosystem so that we can help address again these different stages that's to 1 or that 1

00:24:29 to 10 I think within that 1 to 10 as well um and this is sometimes true for the 0 to one but more in that 1 to 10 what you need to do is institutionalize back office as well and so we've actually built an ocfo service right this was a parallel training program where like I mentioned in the beginning right like your CEO your CIO do you need to be CFO you don't right um you do need a CFO type uh person or support system to help you especially if you're going to take on institutional Capital right the

00:25:06 standards will change the expectations will change like your processes will have to change right um if you take on institutional Capital versus like again High net worth or just people that are kind of your friends and family around and so again like this is another kind of value proposition that we offer to emerging managers which is you know we believe you need need this type of service or support the kind of back office ocfo CFO support if you're going to make that leap from right like emerging manager to institutional

00:25:41 manager and so again it's another way to kind of engage and so again I think of it in terms of like what is the thing that an emerging manager needs before they're institutional and we try to address that right and so we we're not just like a one trick one thing like that's offered but it's like okay if you're here this is what we recommend if you're here you know we have multiple options like this is what we can recommend and the whole time what we're just trying to do is play that complimentary role to you as the

00:26:10 emerging manager right because we've helped hundreds of managers right because we've invested into hundreds of managers like because we can we believe we've seen kind of what the core problems are and then have tried to like you know level that up and say like okay if there's a systematic scalable process that needs to be built that's most impactful to the a ecosystem what does that need to be and again like what's what's the product there that cool water's creating to offer to support the Innovation ecosystem or to support

00:26:37 emerging managers so that's how we've thought about it I don't know if that fully answers the question it's but it's not like you come in at a specific point in time and that's the perfect point of time because you start to raise funds at any day of the year right like there's some people are 5 years out some people are 20 years out right like and so we're trying to say like okay there's a journey you go on if you are going to build an asset management firm what is that Journey let's first understand that

00:27:03 journey and the different stages of that journey and then like where does cool water sit strategically Visa those different parts of the journey and then like let's build a product that's complimentary to you you're the great investor right you're the firm Builder the buck stops with you you're the decision maker but we want to play that supporting complimentary role as best as possible and so that's that's how I view my role and how I view cool water's role and kind of the the um the position uh

00:27:31 we're trying to fill in the ecosystem we would love to grab a hot take from you just something about uh something that's either controversial or uh uh unpopular opinion that maybe you kind of hold true to to to you about maybe the ecosystem about Emer managers in general or uh something in general what would be uh would be great hot takes wow um I don't know if I'm I'm one for hot takes but there's maybe a few things that ecosystem uh that are kind of going on one is um the proliferation of funds

00:28:06 like over the last five years will lead to you know a lot of consolidation and we're kind of already already seen that um so I think like I don't know how much of a hot take it is but I think like there needs to be a willingness to partner as a solo GP or as a small team and this is especially true like if you think of it as a journey it's like great great you rocked it fund one great you rocked it fund two and now everyone thinks they're going to be like a $500 million solo GP but it's like if you look at it right it's like

00:28:37 the same reason where you know everyone's like oh but there's three funds in the history of venture that never scaled up their fund size and you're like and there's 15,000 other funds that did when they were successful right it's like maybe that right it's like oh but like there's three funds in the history of like you know the universe that like didn't increase their fund size when they were successful so it's like great if you're going to increase your fund size then like the market data would tell you that you

00:29:02 probably have to increase your team size and like think of that like so part hot take part like what's the advice like the advice is like okay start maybe like co-investing with those people if the expectation is in five years you're probably going to have to partner in your n plus 2 n plus3 fund with a team start making this co-investment start sitting on the boards together start working together right like so that's the consolidation piece another hot take might be like you know we had a AI own

00:29:28 only fund uh in our last cohort right and it was kind of funny like you know listening to the LPS that kind of came in and like you know the AI only fund would kind of talk about their strategy and there was like again it was such push back right it was kind of like you might like or dislike crypto but you can't argue that there's you know not a market there and so it's kind of almost like the same kind of uh visceral response to like an AI decision-making engine like making like being better than a v see and every time you kind of

00:29:59 feel that like visceral response sometimes as an investor you're like wait a minute I think there's something here you know so um again it's not necessarily a hot take but it feels like there's certain strategies in the ecosystem that are becoming more prominent where again there's you know polarization going on and when there's polarization there's probably like a chance to kind of make a lot of money um anyway I know we're kind of way over time now but kind of give you a couple of uh a hot takes and there there's more

00:30:27 if uh I'm ever back on the the program no 100% and you're absolutely anytime you want to come back uh the door is always open it was a great uh great time to be able to have a conversation with you and genuinely appreciate it so looking forward to it thanks again thanks Lucas