Cendana Capital

Our new fund: Fifteen years ago, we developed the thesis that seed stage venture would become de facto early stage venture, and launched Cendana Capital to partner with these next-gen VC firms.?Though our ideas turned out prescient, raising the first fund was quite difficult, and we were told No by almost every prospective LP we pitched. The most common reasons included the illiquid duration of venture (memories of the 2008 GFC were still fresh), being a first-time fund manager, the stacked fees from a fund of funds model, and also the belief that “Seed VC” was a fad. It was painful to be rejected by almost everyone, but we did have a few believers in the institutional LP world, including UTIMCO and Cambridge Associates, and we are forever grateful. From the beginning, we were collaborative with LPs and GPs because we were on a mission and we were in it together — we would show the LP world what very early stage venture was about. Now, we have what we’ll call LGF: LP/GP Fit.?We think this LGF was accelerated in the past few years with the escalation of the platform VC firms who were raising larger and larger families of funds. Institutional LPs with established venture portfolios began to realize that their roster of these multistage firms meant they didn’t have quite the exposure to early-stage venture as they had originally envisioned. As a pure play in very early stage venture, our strategy became complementary to these institutional LPs with established venture portfolios. Today, we are announcing our new fund, Cendana 6. It was our fastest fundraise ever, and had interest well above our $400M hard cap. We added a handful of new institutional LPs–including for the first time, 2 public pension funds.?We are particularly keen that a number of our LPs are mission driven–they are the financial engines for a number of world-class educational and not-for-profit organizations, and of course, public pension funds that provide the retirement benefits to their members. We are grateful for the trust and support of our LPs! Armed with the pattern recognition built over the past 15 years, and the willingness to be both creative and open to refining our approach, we are super excited about the opportunities over the next few years.?Chaos is a ladder–for most people, chaos leads to confusion, inaction and ultimately failure.?If we remain clear-eyed about our mission, execute accordingly and become true partners along the way to our LPs and to our GPs, we are confident that we can lead the way. https://lnkd.in/gpz-gd98

With artificial general intelligence for fund raising, you could have a Cendana Capital AI that interacts with an AI from thousands of prospective LPs, figures out if it’s a fit, generates a super detailed investment memo, negotiates the LPA, completes sub docs, and determines optimal allocations. Our fund raising could be done in a few minutes. Same for prospective portfolio funds pitching Cendana. Through the investment period, the Cendana AI meets automatically with any prospective portfolio fund, and negotiates the LPA, makes the appropriate investment for the targeted Cendana portfolio construction. Tax and audit are done in a minute and automatically. Fund administration and banking too. People are not involved in these scenarios ?? ??

We are very excited to continue our ???? partnership with Sean Doolan and Emre Karatas at Virtue We initially invested in their first fund, which demonstrated their ability in early-stage digital health investing. Impressed by their hard work and performance, we were happy to anchor their new fund??

AI in Space ?? "Loft Orbital will also announce plans on Tuesday to include and grow customer-provided artificial intelligence capabilities on board. That means their satellites can monitor events, like natural disasters or war developments, and send data to Earth in real time, the company said." https://lnkd.in/dasD4Bg5

LPs and GPs, it’s often said that fund size determines strategy and that’s very true for portfolio construction. But, another element on fund size is what the total value of exits need to be. A simple rule is what I’ll call the Rule of 30. This assumes that a fund owns 10% of a portfolio company on exit. Multiply fund size by 30 and that’s the total exit value the fund needs to get a 3x gross multiple. Example: a $500M fund means it needs $15B of exit value. 10% ownership at exit is $1.5B which is the 3x gross multiple. $15B of exit value in 1 fund means 15 unicorn exits or a decacorn exit and 5 unicorn exits. Assuming a portfolio of 35 companies, that’s quite a hit rate ?? Btw a 3x gross multiple for a $500M fund is about a 2.6x net multiple ($1.5B less $200M of carry / $500M). Aside from deciding if that $500M fund can generate $15B of exit value, an LP will consider that 2.6x for venture vs what they can get in small buyout with a shorter timeline for distributions and perhaps lower risk.

In venture, power law is important, but when building a portfolio, an LP needs to also move their normal distribution curve to the right to generate real alpha--and that is accomplished by manager selection. Carta recently issued its report on VC performance since 2017. Given the number of clients they have, we believe it's a good source of data and we at Cendana Capital reviewed it carefully. We compared our Cendana 3 metrics (vintages 2017-2020) to Carta's 2017 cohort, which is the most fully baked amongst their 2017-2021 data set. Some observations jumped out, particularly in the context of moving that normal distribution curve. Our 4th quartile TVPI is 1.6x vs. 1.16x in the Carta 2017 data. Moreover, our 4th quartile is nearly the same level as the Carta median of 1.78x. Given the comprehensive amount of data Carta compiled, we think this is a clear manifestation of how manager selection can move the normal distribution curve to the right. Reports of venture's demise have been greatly exaggerated--manager selection is critical to generating alpha ?? ??

Nice to see PitchBook recognize Cendana Capital as a Top Decile fund of funds ??

One metric that LPs should consider is the specific impact a single company can have on their own portfolio. One way to assess this is the look-through ownership percentage. Two contrasting examples: Assume a $45M portfolio fund where the LP makes a $15M commitment (33% of the fund), and that fund is getting 9% initial ownership--that's a 3% look-through ownership for the LP. Contrast that with a $45M portfolio fund where the LP makes a $4.5M commitment (10% of the fund), and that fund is getting 1% initial ownership ($200K checks at $20M post)--that's 0.1% look-through ownership for the LP. For this LP, the first approach has 30x greater look-through ownership than the second approach--each positive exit will have a more meaningful impact to the LP's return. This is one of the reasons that from the beginning, we at Cendana Capital have been focused on high conviction investing into portfolio funds that punch above their weight relative to their fund size.

Had a great time on the Venture Unlocked podcast with Samir Kaji??We discussed what we at Cendana Capital look for in new fund managers, portfolio construction, the evolution of Seed VC over the past 10+ years and avenues toward liquidity (secondaries ftw!) https://lnkd.in/geX6Di5P

Visibility into the supply chain is critical and Craft.co led by Ilya Levtov leverages AI to provide that 360 degree view. Clearly, the US DoD agrees — congrats on new contract ?????? https://lnkd.in/gbdXbzxb