E222: Why 90% of Managers Fail Before Fund 3
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this conversation, Conrad Chang of Ensemble VC shares insights from his unique journey from GP at Bain Capital Ventures and Norwest to LP at UTIMCO's $81.5 billion endowment, and back to founding Ensemble. Chang reveals that being a great investor is necessary but not sufficient for building a durable venture fund, emphasizing that fund management requires thinking about portfolio construction, partnership building, and long-term durability beyond just individual investments. (01:00)
- Core themes: The evolution from tactical investing to strategic fund building, the critical importance of trust-based LP relationships, and how data-driven approaches can create sustainable competitive advantages in venture capital.
Speakers
Conrad Chang
Conrad Chang is the managing partner and co-founder of Ensemble VC, bringing a rare dual perspective as both an institutional limited partner and two-time venture capitalist. At UTIMCO, he oversaw a $4 billion venture portfolio within the university's $81.5 billion endowment, managing investments across diverse asset classes and regions. Previously, he invested in multiple unicorns at Norwest Venture Partners and Bain Capital Ventures, earning recognition as a top fund investor before making the unusual transition to the allocator side.
Key Takeaways
Fund Management Requires More Than Investment Skill
Being a great investor is necessary but not sufficient for building a successful venture fund. (01:21) While individual investments may last five to seven years, building a fund requires thinking about twelve-year cycles and beyond. This involves portfolio construction, partnership development, and creating sustainable competitive advantages rather than just focusing on the next deal. Fund managers must believe that while the world may not need another venture firm, it needs their specific venture fund with a differentiated approach.
Durability Trumps Short-Term Activity
The most successful VCs prioritize long-term durability over short-term deal flow. (04:47) Chang cites data showing that 80-90% of VC profits from 1980 onward were made in just three years (1997-2000), highlighting why survival and strategic patience matter more than constant activity. During the 2021-2022 market frenzy, Ensemble went twelve months without making a single deal, demonstrating the discipline required to avoid overvalued markets while positioning for long-term success.
Team Quality Over Individual Founders
The most important investment signal is team composition and how founders build their organizations. (12:53) Rather than focusing solely on individual founder credentials, successful investors evaluate the entire village required to create outcomes. Key indicators include who founders choose as their first hires, whether team members have worked together previously, and how they sequence talent acquisition between engineering and go-to-market functions. This extends beyond just the founding team to understanding the company's talent magnetism.
Trust Is the Foundation of Successful LP Relationships
Trust, not just returns, is the single most important factor in successful LP-GP partnerships. (16:08) This trust begins with the partnership itself and extends to how GPs communicate with LPs, hire team members, and make decisions when partners aren't in the room. LPs are entrusting funds that will eventually support scholarships and institutional missions, making transparency and consistent communication essential for long-term relationships that extend beyond individual fund cycles.
Data-Driven Sourcing Creates Sustainable Advantage
Traditional venture sourcing resembles a random walk with poor conversion rates - meeting 1,000 companies to make 1-2 investments. (58:55) Successful modern funds use data and software to fundamentally restructure this funnel, focusing 70% of efforts on outbound sourcing based on predictive signals. This involves building proprietary infrastructure rather than relying on third-party tools, allowing for contextualized evaluation of teams based on industry, stage, and company type rather than generic scoring models.
Statistics & Facts
- 80-90% of venture capital profits from 1980 onward were generated in just three years (1997-2000), demonstrating the importance of durability in venture investing. (05:29)
- UTIMCO manages an $81.5 billion endowment, making it one of the largest endowments in the world, requiring different operational approaches than smaller endowments. (00:17)
- Ensemble VC's Fund One achieved a 12x return with 5-6 out of 12 investments becoming valued over $1 billion, including companies like Casper, Udemy, and Zerodha (Robinhood of India). (55:18)
