How Data Can Help Emerging Managers Get Institutional-Ready: A Venture Unlocked Podcast Q&A
Aumni Co-founder and President, Kelsey Chase, recently sat down with Samir Kaji, host of Venture Unlocked podcast, dubbed the playbook for starting, operating, and scaling a successful venture capital firm. In the Q&A that follows, the two discussed what led to the creation of Aumni, the new age of expectations for emerging managers, and how data can be used to drive investing and fund management. Other themes covered included the rise of secondary markets and the role of automation in GP and LP relationships.
Q: What problem were you seeking to solve when you founded Aumni?
A: Aumni’s mission was in large part inspired by our personal experiences as corporate attorneys. I started my career at Wilson Sonsini and also worked at several other firms, including DLA Piper. My co-founder, Tony Lewis, is also a former corporate lawyer. As deal attorneys, we both focused on a variety of private transactions, including venture capital and private company representation, as well as M&A and private equity. A major part of our roles involved working with investors, and in our position, we identified a huge opportunity for our ecosystem that starts and ends with data.
In a typical venture deal, you’ll have a couple hundred pages of heavily negotiated legal agreements. Effectively, once the deal closes, all of the parties and stakeholders end up doing nothing to leverage that data. We saw real potential in creating an audit grade source of data stemming from the underlying legal agreements that sit behind venture capital investments.
From that core pain point that we were addressing, we built and scaled out an amazing company and platform. We work with well over a 100 firms right now and we’re having a blast doing it.
Q: What did your team find when you looked at all of the information that is ingrained in deal documents? What was the main problem that wasn't reflected in how GPs and LPs were viewing their own positions?
A: We analyze thousands of data points in a typical closing set. Additionally, we quality assure, run validations, and constantly study the data underlying these transactions. One of the surprising findings that we’ve uncovered is that these documents can have discrepancies that make reporting inaccurate or incomplete. We identify these issues, help resolve them, and enable firms to take advantage of reliable, structured data.
There's a core question that you could ask venture investors: How do you confirm what you own -- the capital, the investment that you wired, the securities you hold, the deal that you closed, etc.? Aumni empowers firms to harness the power of their data in a way to easily answer that question at its core.
Q: We're seeing LPs expect institutional-grade operations, even from small firms. Tell us a little bit about what you're hearing and seeing emerging managers do to operationalize and differentiate in a way that today's LPs expect.
A: The private markets are going through a tremendous evolution right now. Part of the growth and excitement centers around venture capital and the increasing allocations that institutional LPs are making to the segment. Despite this growth, the venture industry is lacking a powerful way to track, understand and leverage data. One way firms can stand out is to let data be their differentiator.
Aumni is providing an institutional-grade data platform that allows firms to speak to existing and prospective LPs in a truly informed manner. It's a tool that gives users, especially emerging managers, the ability to differentiate their operational posture and professionalism to major institutions. In parallel, the LP community is increasingly seeking more disclosure, transparency, and seamless ways to share information between managers and LPs. The Aumni platform can be very useful in addressing pain points and facilitating more free flowing information.
Q: What's your perspective on how data and automation will affect a fund’s technology stack and automation?
A:When you're raising a fund, LPs may have a sophisticated stack of tools that allow them to report and track data across their entire portfolio. However, the visibility and access that emerging firms are able to provide to LPs has been limited. We’re hearing that LPs want more transparency. They want to have access to an ecosystem where information flows more freely. Our vision is bringing data strategy and data infrastructure to private markets.
Q: Secondary markets are continuing to rise in both number and efficiency, particularly direct secondaries. Would this drive even more volume through that part of the market?
A: As private markets are maturing and evolving, our data substantiates the reality that secondary markets are present and active. Even at the earliest preferred financing rounds, founders and early-stage investors can seek and obtain liquidity. Many sophisticated LPs will continue to ask questions around a firm’s secondary strategy.
In fact, the legacy paradigm of venture is defined by a long-term investor-founder relationship, investment period and time to liquidity. However, while a typical investment cycle of ten or more years is still common, liquidity is coming earlier. In the past, it was far less common for founders or investors to have any liquidity options and, moreover, it was a common understanding that early-stage investing or founding meant you were going to be stuck with highly illiquid securities for a long time. This has definitely changed and it’s only going to continue to evolve in that direction. As former deal attorneys, Tony and I are especially intrigued by these new, innovative approaches to private markets.
Q: How do you think the global market will change in how data is used more publicly to create markets and enhance secondary markets?
A: The amount of administration and operational preparedness that goes into raising capital, deploying capital, and reporting on the use/management of capital, can be a shock to managers who are kicking off a fund and getting up to speed quickly. Our approach frees up the talent of emerging funds to do what they're really good at: picking great companies and raising capital and subsequent funds.
Emerging firms are also expected to maintain the operational expertise and sophistication that’s on par with much larger firms, which have significantly greater resources. An LP looking at ways to allocate capital in the venture ecosystem wants to see the operational excellence of a billion dollar fund. There will be a more standardized way that companies like Aumni can bring value into the private capital landscape. Firms will be able to present a compelling story to an LP by means of leveraging technology and automation in a way that allows them to compete at a higher level. Simultaneously, larger firms will begin to leverage data in more advanced and powerful ways than they do now.