Big Money Continued: Q&A with Joshua Hunegs, Corporate Senior V.P. of H.W. Kaufman Group
In a recent installment of our successful Big Money webinar series, we were honored to glean valuable insights on the current venture capital landscape from Joshua Hunegs, Corporate Senior Vice President of H.W. Kaufman Group. In the Q&A below, he shares his thoughts on institutional readiness, proprietary deal flow, the value of relationships, and the rapid pace of investment deals today.
Q: What are your thoughts on institutional readiness as it relates to deals and managers developing new and existing relationships?
A: We invest in many smaller funds -- $50 million to $100 million funds, for example. Many of the founders have come out of prestigious firms. We pay particular attention to the ones that have a clear objective and conviction behind their thesis and what they're investing in. We ensure there's a distinct focus on where the fund plans to invest. Is the structure one founder or two founders? Is there a specific contact responsible for investor relations and reporting? Or are those responsibilities outsourced? How the firm presents information to the investment community also matters. Depending on the fund size and the stage, the firm’s presentation deck may look very professional, perhaps in line with what you would expect from any large investment bank. We've also seen decks that would have benefited from more work before they went to market. Lastly, when it comes to setting a path to becoming an institutional firm, we verify that smaller fund sizes have a significant commitment from the LP in the fund they're starting.
Q: We’d love to hear your thoughts on proprietary deal flow. How do you evaluate and conduct due diligence for the volume of deals and relationships that you have?
A: Proprietary deal flow continues to be a topic of discussion as there are many opportunities, both on the fund side and the direct investment side. We don't have the resources or the deep expertise in all areas. For example, insurance is a sector we have covered, but the medical field is not. Our tack has been to develop resources and contacts that provide consulting for us on specific opportunities, especially for larger investments. It’s like betting on the jockey: we are trusting the fund manager or the family office to bring us the opportunity, based on their conviction and track record. In the case of direct investments, their significant dollars are invested in the opportunity. For our firm, when sourcing and executing deals, it's about believing in our partner.
Q: Can you share with us any red flags or lessons learned that you've seen in your career, especially as it pertains to new business relationships?
A: When it comes to strategy and core principles, the focus is key. Firms should not try to do too much at once. It’s important to stay committed to what they excel at and to stay on course with their original vision. If they start a venture fund, and then, a year later, try to bring out a growth fund, it can put the firm at risk. Perhaps their companies have done well, and now that they're at the growth stage, it feels like an opportune time to be a successful growth investor. I would suggest, however, at least having a few venture funds before switching gears to a growth fund or other type of fund. Commit to establishing a track record and making purposeful and data-driven decisions before the next endeavor.
Q: We’ve seen a continued pipeline of deal flow despite any outside influences that might have caused a slowdown in the volume of deals. Can you share with us any tips on how emerging firms can stay focused?
A: The speed at which capital is deployed is amazingly quick. In addition to concentrating efforts on the venture, and not drifting to growth or finance, what is equally vital is deploying capital judiciously. Rapid pace gives investors pause. Saying you're going to invest over a three or four-year period, and then coming back a year and a half later with a plan for fund two, may backfire. Make sure that your investors feel that their funds are being invested wisely and thoughtfully, and not just put out there so you can get to the next fund.