Slipstream Investors' Alex Edelson on why fund-of-funds discipline means skipping 2021 vintages entirely

Speaker 2: Alex, how are doing?

Speaker 7: Thank you guys for having me. Glad to

Speaker 2: be here. You for hopping on.

Speaker 1: Where are you calling in from?

Speaker 7: I am just outside of Washington DC.

Speaker 1: Oh, fun. Nice.

Speaker 2: Beautiful backdrop. Well, since this is your first time on the show, we'd love for you to kick us off with an introduction on yourself and Slipstream a little bit, and then I'm sure we'll have a ton of questions to dig into.

Speaker 7: Yeah. Yeah. So a little about Slipstream first, I'll give you my background. So Slipstream is three things. One, we're venture fund to funds. We invest in pre seed and seed funds, mostly emerging managers. Mhmm. Median fund size is around 30. Average fund size around 50. And most of these funds are on their first three vintages. They don't have to be, but that's what that's what our typical investment profile looks like. We're on our second fund. We invest in about 10 to 15 funds in every fund

Speaker 6: of ours. Mhmm.

Speaker 7: We also work with some of our LPs to help build out their venture portfolios. Like often when we invest, our LPs join us in these funds, invest alongside us.

Speaker 2: Yeah.

Speaker 7: And the third thing we do is we can use a portion of our capital to co invest and our LPs like to co invest. Before this, like, in relevant part, I was at QED. So QED is a successful fintech focused venture firm founded by Nigel Morris, one of the two Capital One co founders, and I joined during fund five. Funds one through four were small, very successful funds. And the fifth fund, I started as his chief of staff, it's larger, has outside capital. I became the COO, I reluctantly became the general counsel, I was a lawyer before that, And recovering when I joined QED trying not to be a lawyer anymore, but that didn't work. And then we raised a much larger fund six, and I decided to leave before fund seven. Slipstream, I started Slipstream in '21, so we're we just turned five.

Speaker 2: Congratulations.

Speaker 1: Started it during the solo GP boom. Walk us through that whole that whole experience. Maybe I don't know how

Speaker 2: much Yeah. Was that like a new pitch? Because the trend pieces started after it was already sort of happening, but it felt like sort of accidental and maybe the brand got bolted on after the fact.

Speaker 7: Yeah. What's so interesting about that time was, well, there were two two competing things happening. One, it was probably a good time for me to raise our fund. Mhmm. It was not a great time. It wasn't like a healthy time for the strategy. There's so many funds with so much capital coming into the ecosystem. Valuations are really high. Probably not the most disciplined investing going on Mhmm. During that period. And so we may look back on that period as not a great vintage

Speaker 1: Yeah.

Speaker 7: Which I can talk about how we manage that. But from a fundraising perspective, there were some positives. But, like, yeah, when I started this, people were telling me things like, oh, you know, this is sort of like a ten to fifteen year old concept. Nobody wants to do this. No one wants to pay a second layer of fees. And when the market sort of you know, the market cycles through, like, boom or like hotter and and colder periods. And and in the hotter periods, sometimes folks think like, oh, I can do this myself. Like, let me I'm seeing good stuff. It all feels up into the right. You know, maybe I'll just be a direct investor and then then that doesn't maybe go as they hope and then maybe I should invest in funds and then like that doesn't go well. Was like, maybe I should invest in a fund of funds and there's sort of a cycle to this through through Yeah. Market fluctuations.

Speaker 2: I I wanna know about that specifically like the the the the purpose like like the the like what LPs are most excited about it? Is it is it getting toeholds in the future great scale up huge venture capital firms or is it actually like returns at the early stage that they think that they can find? Are there other pieces of like value add and and reasons to invest, across a broad set of early stage managers?

Speaker 7: Yeah. It's such a good question. So there's not one answer, and I can come back to the question about, like, kinda what was I seeing in terms of in, emerging manager land in 2021 because they're, like there were some funny stories about people who you're just sitting there kinda, I don't know why this person has a fund, but, like, here they are. It's, a $5,000,000 fund book, but I'll come back to that. So, yeah, like, on your question, like, there's not one answer because some folks are yeah. They're out to, like, find firms, like venture firms. We want the next institution. We want the next Sequoia. We wanna see it first, and and then we'll be in a great position to deploy a lot of capital with these folks over many funds of theirs. And that I see that. That makes sense. Mhmm. That's not really our strategy. Mhmm. But some of the funds incidentally will become I mean, hopefully will become that if that's what they want. Yeah. Some of them though, that's not the dream. And that's not the dream for the LPs, and that's not the dream for the GPs. Like, for some of them, it's just like, wanna get great returns from these funds. I believe that the best performing funds are these small funds on their first few vintages. They have very unique portfolio construction that we can talk about talk about that if you want. And and there are folks who just want returns. And then, like, these funds as they grow potentially towards, like, becoming more of, like, an institutional, like, long enduring platform, maybe outgrow those LPs. So, like, for me, we'll invest in some of these funds when they're small, and then it's almost like we were, like, releasing them into the wild. Like, we can introduce them to our p our our LPs and other LPs, but, like, they outgrow us.

Speaker 2: Yeah.

Speaker 1: Oh, interesting. So you'll so somebody will will come to you and and it's sort of this sad moment where they're like, Alex, like, I'm ready for the $500,000,000 fund and then you guys, you know, hug and say goodbye.

Speaker 7: Is that is that it? Because it

Speaker 1: feels like I mean I mean I mean imagine a lot of the I'm curious like how some of these early conversations go because I'm sure a lot of GPs will say like, yeah, just wanna have like, you know, small funds, focus on returns, and just do, you know, a $50,000,000 fund every every couple years forever. And then given that, you know, half of our friends are are, you know, GPs, It feels like every single one of those, the second they really are in a position to raise the, like, the the the the 9 figure fund, almost all of them go for it. And it's really like a very small group of people that just stick with these smaller funds. And so how do those conversations go early? Like, are you are you able to like pull out the honest truth with a lot of them, which is that they do wanna scale up massively? Or is it is it sometimes a bit of a surprise?

Speaker 7: Yeah. It's it's a great question. It's never a surprise. No. Like, mission is to get a sense for where they want this to go. The answer is like, that sometimes they don't know. Like, they're just getting started. They're on a fund one or a fund two. It's small. They wanna see how the market evolves. They wanna see how their sourcing evolves. Maybe they they can get there really early. They think they can get more ownership or for one reason or another, they think they can get more ownership. They can scale up without getting adversely selected and that even though they'll raise a larger fund in their future funds and they'll target higher ownership that, like, they shouldn't they shouldn't generate worse performance than those small early funds. Like, they're they a lot of people just wanna see how it goes. Now certainly, like, in the back of their mind, they might have aspirations of building something large. And my hope is that, like, in the process of getting to know them, they'll be open with me and like feel like it's safe to share that with me. And and my commitment to them is that like I need to be open with them. So like often the conversations early on, if people are thinking about, you know, a fund or two down the line raising funds that would be outside our strike zone, like it's on me to say like, hey, I'm probably not gonna be with you at that point. Yeah. You also gonna be outside our

Speaker 2: strike zone.

Speaker 1: If they go if they go from, you know, a $25,000,000, $30,000,000 fund and then they have the opportunity to raise 200 plus, it probably means that the first fund is performing or the first one or two funds are performing quite well, which is good for you. So I think it is

Speaker 7: Yeah. Well, what's interesting about this is like yeah. Like it's interesting about this, like, we have, I mean, there's so many ways this conversation go, but one thing on my mind is like, yes, people typically wanna get bigger, but I think their mission should be get good returns on the first few funds. If you get good returns on the first few funds, you get to be in venture for a long time. Yeah. And if you don't get good returns on the first few funds, you it'll be hard to raise future funds. And so, like, the long term greedy move, like, a long term greedy game is to get returns as many funds in a row as you can before you start scaling.

Speaker 1: Mhmm.

Speaker 7: And so, yeah. But like one thing you said that that came to mind there is like, I was actually worried when starting Slipstream that like, this could get boring. Like, what if we do a good job and we get into great funds and we just start re upping in those funds Oh because they're so great.

Speaker 2: Yeah. There's no

Speaker 7: this a boring job?

Speaker 2: Yeah.

Speaker 7: Like, why am I what am I doing? I'll never find new folks. I won't need to meet new names. I'll just, re upping these great funds, and I guess that's good for returns, so why should I not do that? And what I'm realizing over the last five years is, no, there's, a natural evolution to this, and, we stick with people for two or three funds in a perfect world. And then, like, they might outgrow us and we get to add new names. Like, there's always there are always new funds for us to meet and and for us to invest in. We're always adding new names, and that does keep it fun for me. So there's, like, almost, like a natural part of what you're saying that actually creates some energy and joy for me personally. Because I guess these people outgrow me like we can help them raise hopefully more from LPs we introduce them to than they're losing from us not re upping.

Speaker 2: Yeah.

Speaker 7: And then like we can continue to meet new managers and add folks to our portfolio.

Speaker 1: So on your side, how how do you think about how do you think about timing? Like, on one hand, like, I feel like it's, like, the manager's job to make sure that they don't, you know, deploy their entire funds, let's say, during a 2021, like we were talking about earlier, where, valuations are super high, you're paying a 100 x revenue, and then even if the companies do well, you don't really make money, which has happened a lot. How do how do you think about deploying, like, through cycles as a fund of fund to make sure that that your LPs do as well as possible?

Speaker 7: Yeah. It's a great question. So I there's sort of two layers to this. Like, one, there's, like, the GP layer. There are folks we're working with whose funds we're investing investing in, and we're collaborating with them as a partner. Like, hopefully, we're talking all the time and we're talking about this. And and and then there's like the the slipstream fund to funds level, and that is like where it's our mission to build diversity and like, diversification into our portfolio construction. So we get plenty of vintage diversification and time diversification. Like, in a typical fund of ours, we have two to three years of vintage diversification. We have five to six years of time diversification in terms of investments initial investments made. And then, you know, we obviously have diversification across sectors and some across geographies. And so if we're investing in 10 to 15 funds and we're getting, you know, four to 600 companies in each portfolio of ours, like, we have a decent amount of time diversification, but it's more interesting to me like like, we kind of just have that programmatically built in. And so I don't want I don't wanna try to time the market from our perspective. It's hard for me to say like, oh, this is a great time. We should put more into this. Don't know. I wanna smooth our coverage out over a period of years in a consistent way. There is one exception to that though, which is that when we started this, like I said, like, wasn't a very healthy time. I I thought it was not a very healthy time for deploying capital through our strategy. And so I did there was a period of time when I we went five quarters without making an investment. And Wow. That was, like, pretty uncomfortable. Like, I was getting calls I had a call from one of our LPs, I'll never forget, like, asking, like, are you doing anything? It's like, man, I think we're doing the right thing. Like, I think this we're all gonna be really happy in a few years, but but no. I'm not supplying a lot of capital right now. And so I have to be careful with that.

Speaker 2: Oh, yeah. Go ahead. So that dynamic of, like, pressing the brakes, stepping off the gas, it happens at every layer of the stack. There are startups that recognize the end of zerp and they cut back, stretch to thirty six months between raises. There are funds like Founders Fund, you know, Thiel has this saying about how we've told everyone for a year just go to the beach because we don't want to make any investments. It's happening at the fund of funds layer. I'm sure it's happening at the LP layer. Like, how much is it most pronounced at your layer, you think? Like, are there any GPs who can actually raise a fund at the top and resist buying the top and then deploy at the bottom? Because that feels like the mythical best possible outcome, but it doesn't happen that often.

Speaker 7: It's so hard to do. So, like, the overwhelming majority of folks don't have that level of discipline

Speaker 2: Yeah.

Speaker 7: Or patience. It's so hard. And especially because, like if we just step back, there's this thing that people say like in venture and it's like like, oh, should we play the game on the field? Mhmm. Or should we not? And like what are our LPs paying us for? Well, they're paying us to get exposure to venture during some period of time.

Speaker 3: Yep. And

Speaker 7: like if that period of time happens to be a hot time in the market, then I should just, play the game on the field, and I guess, like, that's my job. And I kind of resist that a bit. Like, my feeling on this is, no. Your job is to get, like, venture scale returns or do your best to get venture scale returns. And if that requires, like, all like, changing your strategy or slowing down or doing something differently in light of what's going on in the market, like, that I think is the right move. Like, when we're five, ten years down the line and LPs are pushing you on like, hey, what'd you do when the market was hot? You can say, well, oh, just played the game on the field like everyone else and it's like that's why my returns are bad too. Or you could say like, no, like, we were really careful. We were really patient. We set the bar very high. We tweaked our strategy. We like, that kind of stuff really resonated when folks were reflecting on their 2021 and '22 vintages. But there were just so few GPs who were able to say that. There are a handful. I could I can't count that many of them, unfortunately. But I think the LP world was, like, very impressed by folks

Speaker 2: Mhmm.

Speaker 7: Who took 2021 and 2022, who who managed that in, like, a very disciplined way.

Speaker 1: How do how do you handle, like, co invest opportunities right now specifically because everything is getting marked up. Mhmm. If at least it feels that way. You have the the fifth five through tenth best company in a category still getting marked up. Mhmm. Oftentimes for good reason just because a lot of stuff is Business is growing in a meaningful way. But Yeah. Oftentimes, like, it it's the same kind of opportunity where you I'm sure you're getting co invest opportunities where it seems like, you know, super talent dense team, but you're being asked to invest at, you know, some really, really, really insane revenue multiple for a company that is, you know, a couple years old. And I guess, like, what's the your job is to be evaluating like managers and so you have to put some trust in them that they're that they're bringing a great opportunity for you. But you're also giving the opportunity to your LPs and saying like, hey, I think this is a good opportunity.

Speaker 7: It's such a good question and and really top of mind because, like, we get more co investment opportunities in these hot markets, obviously. We have a ton now. We saw a ton in 2022. And for me, the answer has like a few components. One, I have to like think pretty carefully about like, what are the GPs blind spots and biases who's like bringing me these? This is one of their most promising companies. Right? But, like, their their view of that company is is a bit limited. Like, once they invested in that company, they're probably not looking at all the competitors at that stage. They're not leading this next round in most cases. Sometimes we do have managers who are, like, preempting around, that's unusual and cool and and and a little higher higher conviction I think for them and us. But often it's like, man, the GPs know this company really well, but they also have biases and blinds blind spots and so that's that's hard for me. These folks that we're investing in are also like relatively early in their investing career. Just they just have, like, fewer reps. And so, yeah, I have to factor that into, like, into account when I'm making decisions about this. And then, like, I think about my time at QED, and, like, I thought I'll speak for myself, like, not QED. I thought, like, a lot of our LPs would they would do more co investing than maybe they did. And and realized, like, the bar needs to be very high for a GP to show LPs of co investment because at the time that GP raises their next fund, the LPs are not gonna know a lot about how the last fund is performing, but they might know how a co investment is trending. And like that's gonna impact whether they kind of like trust or doubt the GP. And so, like, my hope is that GPs are like, hey, I bet my I bet my LP's commitment to my next fund on this co investment, that they're gonna be glad they did it if I'm showing it to them. Like, that's the that's the bar I hope people Mhmm. Are using or something like that. It's almost like sometimes I joke and I'm like, look, would you like fly to DC and like tell me I'm crazy if I don't make this co investment? Like is that the level of conviction here or is this like a really good company that's taking off and you wanna share the opportunity with LPs and it's a good opportunity for them and it's a good opportunity for you but maybe not that level of conviction for you. Like, I'm really trying to figure out what their level of conviction is. The last thing I'll say is like, I need to think about like what I'm uniquely positioned to do. Like, if I'm if I'm seeing all these co investments, like, am I the best person to evaluate all these co investments? And if I'm if I think I am in a good position to evaluate a co investment, then the question is like, well, am I gonna do just one or am I gonna build like a small portfolio? And then if I build a small portfolio, I have to ask like, is my small portfolio likely to like outperform the next fund we might invest in or should I just use these slots for another fund? Yeah. And so like in reality, the way this has worked for me is like, haven't made any co investments out of our funds.

Speaker 2: Yeah.

Speaker 7: And we're like five years

Speaker 5: into

Speaker 7: this. And we've had some great ones. Now we bring them to our LPs and we either don't recommend them or we say basically, I could see if this would be a fit for you and I'm happy to help you run it down, but like I want you to feel like you can get to conviction on your own with the information that I'm sharing with you. And like I would encourage you to build a portfolio of these and not just do one. Mhmm. And then we put SPVs together for them. So like, I guess that's a very long way of saying like, we're pretty careful and we haven't done any out of the fund because it's hard to do this from my seat. Now if you get it right, amazing. Like, you're in great co investments, that's great. And they certainly could help people fundraise. Like, in my position, in a hot market, co investing could help me fundraise because we're likely to get some quick markups from that. I just worry that, like, Yeah. Yeah, maybe that isn't the right path to getting like long term returns.

Speaker 2: So that seems pretty focused. Do you think that the overall fund strategies are becoming less focused or less blurry? Is there like a broad trend here? Because you see venture capitalists who are known for software investing in everything from semiconductors to data center constructors to hard tech, defense tech, biotech. And then also you have blurriness on the strategy side. You're doing a billion dollar seed round. Maybe you're playing in public markets. Maybe you're a hedge fund that's also doing private investments. It feels like we've been at a blurry the blurriest it's ever been in terms of defining what a fund even is these days. But is that what you're seeing, or is there still, like, a healthy batch of super focused tech VC managers?

Speaker 7: It's funny. I think there's been, like this has fluctuated over time. Like, some there there have been times in the market where people are, I don't think there's any place for a generalist fund. You'll never be the sector focused fund. We can only invest in sector focused funds. If you're not a sector focused fund, you'll lose to all the sector focused funds. You know? And then and then you're it feels like we're in a period right now where it's like, no. If you have access to, like, the great talent at the earliest stages, you can find them, like, at or before inception. Like, that's a that's a really compelling way to win in this market, and and those are typically generous funds. And so, like, I don't think there's one answer here, but, I am seeing oh, the longer you're in this, the longer you see people's strategies evolve from like, hey, we focus on certain sectors. Like, if we just like look at their web pages from like a couple years ago, it's like, oh, you used to be a crypto fund. And like now, you're like an AI fund. And and then like maybe you're becoming like a hardware fund.

Speaker 2: Yeah.

Speaker 7: And I think, like, yes, you see a lot of that. You see and and and from my position, like, obviously, like, we're all scout 20 investors gonna be skeptical. And and and my job, I think, is just to, figure out who's unique uniquely positioned to, execute on whatever strategy they have and, like, generate significant outperformance. And, like, ideally, like, be generate top that's not returns. And so, yes, I am seeing from a sector focus, I do see drift over time. And, but it but it's case by case when I'm making an investment decision. Like, I kind of assume they are what they are today, and I, like, push on what they used to be and why they evolved.

Speaker 2: And Yeah.

Speaker 7: And you can kinda I figure out

Speaker 1: mean, some

Speaker 2: of best funds, like, they they did evolve. They were investing in semiconductor companies and then Internet technology companies and those were related but very different structurally. So as long as you navigate the transaction the translation, it can be good.

Speaker 1: How much do you care about being in one of the next like truly legendary funds? I'm thinking like an f f, you know, was it it was FF1. Right?

Speaker 2: FF2.

Speaker 1: 2 is a 300 x.

Speaker 2: Yeah.

Speaker 1: But or like a lower case, like is that something that you tell your LPs like

Speaker 2: Swinging for the fences.

Speaker 1: Non swinging.

Speaker 2: Well Kind of.

Speaker 7: Mean But

Speaker 1: I but I think by having by backing the next great class of managers Yeah. You are you're you should, in theory, over the course of like ten, twenty years, you should get in one of those

Speaker 2: Swinging for the best.

Speaker 1: You should get in one of those legendary funds. Yeah.

Speaker 7: It's so interesting. Like, certainly, doing that will help you. But the question is always like, by the time you know you were in one of those, and then let me get back to like how important is it for me to be in one of those. By the time you know you were in one of those, that was probably a long time ago, right?

Speaker 8: Yeah. Amazing fun.

Speaker 1: That's that's twenty years. That's what I'm saying. I'm saying twenty years from now. Yeah.

Speaker 7: And so, like, if I like, if we're saying that about, like, Slipstream in twenty years, oh, look at this. He was in one of the best funds of, you know, the last twenty years or something. Isn't he so great? Like, the question will be like, well, was great then, but like, is he still that great now?

Speaker 2: That's true.

Speaker 1: I don't know.

Speaker 7: And so, like, that's the problem with all of venture investing. And like, sometimes people talk about like, oh, emerging man investing in emerging man is so hard because they have limited track records. It's not that much to evaluate. I totally agree. Like, it's hard, but I think it's hard to evaluate in funds fund like, funds that have established track records too because unless they're, like, the major platforms that are, like, pretty stable. There are other things changing with those, like fund size and portfolio construction. It's very hard. Like, you're basing your decisions on on returns that are, like, based on a different time, a different fund size, maybe a different team. Like, you're always trying to figure out is this team uniquely positioned today, but, like, to generate great returns. But to come back off of that rift and, like, to to get back to, like, the stride to to get back to, like, the importance of getting into one of those funds, it's something I think about all the time. Like, especially when I was just starting out, one of the questions I would sort of post to myself is, like, does it matter to me to be in the best performing funds we meet in a given year, or is our job just to make sure that, like, every investment we make is a good investment? Like, the best investments, like, the 300 x investments, like, sure. I would love to be in those. Of course, I would love to be in those. But, like, often those are, like, pretty weird funds. Like, it could be some, like, $2,000,000 fund that you, like, is totally not clear at the time. Yeah. And it's very difficult to underwrite, and they get in a couple of good good companies, and, it's a ridiculous outcome. Like, sure, it is my job to invest in funds that have limited track records and to try to figure out who has increased odds of like significantly outperforming. And so I hope that I am able to get into the best funds of the vintages when I'm investing. But the reality is like if we're investing in good funds, like we can generate great returns without those. I certainly would love to be in those though. Yeah. I don't think like slipstream success is defined by being in Totally.

Speaker 1: Those. Totally. Yeah. Yeah. It's more of like a personal thing like, you know, after these Yeah. Twenty years, I feel like you're gonna be I think I think there's a good I think there's a good shot. Oh, I This is a

Speaker 7: No, man. I don't know. I don't know. We actually Yeah. We just had our our first fund. Well, that will be We're about to have our first fund at over 20 x. So that's like a big

Speaker 1: There you go.

Speaker 7: Big mark for us.

Speaker 1: We're hitting the gong for that. Hey. There you go. Was a super fun conversation. Let's let's make it a usual thing. It's a great pulse check on the market. I'm glad I'm glad Samit connected us. Yeah. So much.

Speaker 7: Oh, thank you guys. Thanks for having me on. I'd love to.

Speaker 2: Thanks so much. Cheers, Alex. We'll talk to you soon. Goodbye. Me tell you about Codex. Codex is a powerful workspace for getting work done with AI agents. Whether you're writing code, analyzing data, creating content, or automating business workflows, Codex helps you move projects forward from start to finish. Our next guest is already in the waiting room. We have Nico Simko from Claire. He's the cofounder and CEO.