Unique: Cendana Capital closes on $470M extra to again seed-stage fund managers


Michael Kim of Cendana Capital is usually a primary name for rising seed-stage fund managers. Cendana has invested in lots of VC groups which have gone on to get pleasure from nice success – like Forerunner Ventures, K9 Ventures, and IA Ventures. Because of its personal backers, Cendana retains replenishing its provide of investing capital, too.

Certainly, Kim tells us that 13-year-old Cendana simply closed on $470 million throughout a number of new funds that deliver the agency’s complete belongings beneath administration to roughly $2 billion. The most important pool, $340 million, can be funneled into U.S.-based buyers. One other $67 million will move to managers exterior the USA. Cendana additionally has $30 million in capital commitments to speculate immediately in startups and $30 million from the College of Texas, whose positions will replicate that greater, $340 million fund.

We talked with Kim earlier at the moment concerning the present market, the place exits are few and much between. We additionally talked about seed-stage managers who occur additionally to run corporations and are, in some instances, at the moment preoccupied with ensuring these corporations survive this topsy-turvy market. Kim referred to as us from his house within the Bay Space forward of a visit subsequent week to Singapore, the place many institutional buyers are anticipated to assemble for a summit hosted by the Milken Institute, in addition to a Components 1 race.

You lengthy invested in seed funds that have been no bigger than $100 million in dimension; what’s the technique on your latest flagship fund?

It’s all the time been a line within the sand with us, and seed-stage enterprise has modified previously 10 years. After I began, most seed funds have been as much as $50 million in dimension, and seed rounds have been $1.5 million; now the median seed spherical in our portfolio is $4 million. So we’ve tailored with the market, although I feel over the following few years that seed funds will cut back in dimension as a result of it’s rather a lot tougher to return 5 instances $150 million than $50 million.

I’m shocked you’re not seeing that taking place already.

We’re to some extent. Considered one of our fund managers in Prague had carried out extraordinarily nicely investing out of a $125 million fund; they have been the seed investor in UiPath. However they made the disciplined choice to cut back their subsequent fund, which is the place we entered, and it’s a $75 million fund. I feel you’re going to begin seeing a bit bit extra of that over the following few years.

What sort of returns are you producing money on money, minus charges?

In our first fund – so essentially the most totally baked – our internet return to our buyers is 4.2x. And we’ve distributed again 2.2x of their capital as distributions. If we take a look at our second fund, it’s marked someplace within the mid threes, and it’s nearly approaching 100% and distributed. Enterprise is an extended sport. It does take time for corporations to grow to be considerably useful, I’d say seven to eight years, if not longer. So I really feel good that our formulation works, and we’ve been very constant about sustaining that method.

There’s been a dearth of exits during the last couple of years. Have you ever offered off a few of your positions within the secondary marketplace for some liquidity, both stakes in sure funds or direct investments?

No, we’ve not and for higher or worse, none of our LPs have supplied to promote their positions in Cendana, so I really feel considerably joyful about that. However I feel secondaries are an important ingredient of enterprise and that we’re going to see much more exercise there. There may be truly this inexperienced area referring to the addressable market versus the precise funds there. So I feel you’ll truly see extra secondary exercise and extra secondary companies being began truly over the following couple years.

I don’t doubt that. As for you, why haven’t you offered something? Is it since you suppose costs haven’t settled?

We put money into our fund managers. We anticipate it to be a multi-decade relationship. In fact, issues don’t all the time play out and we don’t re-up with a few of our core managers. However we haven’t put up on the market our positions as a result of we in the end suppose that we’re having a bet on the fund supervisor, after which they make the choice whether or not to promote a place or not. A part of our success has been that our fund managers have been proactive when it comes to promoting off a part of their positions in corporations; we’ve had plenty of our fund managers put 10% to twenty% of a place up on the market. To be sincere, it was a bit simpler in 2021, the place everyone wished to get into these unicorns and have been trying to supply shares any approach they may.

I noticed an announcement for a debut fund that you simply backed in Could, based by serial entrepreneur Mark Ghermezian, who’s concurrently operating his latest firm now. How do part-time VCs stack up in opposition to full-time VCs?

Mark is wonderful; he was the cofounder and preliminary CEO of an organization referred to as Blaze that’s now a couple of $4 billion market cap firm. He’s very well-known amongst the founder neighborhood, and on the seed stage, founders introducing different founders is basically one of the best supply of deal move for our fund managers.

Founders with aspect funds was one thing troublesome for institutional LPs to get their arms round at first.. However we took the chance of attempting to again a few of them [and have no regrets].

Institutional buyers like Cendana have extra leverage than they’ve had in years, with cash in shorter provide. Have you ever requested for higher phrases out of your enterprise managers than may need been potential in 2020, for instance?

Within the massive image, we’re not asking for any extra phrases or particular phrases. We’ve by no means requested for a reduce of the administration firm, for instance, or a particular decreased carried curiosity. We’ve by no means carried out that. And in our minds, for fund managers who provide that, it’s truly a damaging sign.


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