"So for the opportunity fund, we're going to double down. We've done 115 companies in total and we want to invest in roughly 10% of them. We're going to deploy $10 million each at the Series B stage with a 25% reserve ratio. So 150 divided by that equals about 50, then 150 plus 50 equals $200 million. That's how they are calculating their portfolio construction." - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast


"Construction is different because we're saying this is how we deploy your money, not how we spend your money. We built a large portfolio and created strong top-line numbers. Our companies always have a follow-on round, which is faster than the average seed fund, and the best Series A funds lead out, proving the signaling piece is correct. Now is the time to double down. We have seen many VC funds in the past, but what's interesting is the same power law curve internally. Within our portfolio, 60 to 75% of the value comes from one company, and because of that, we want an opportunity fund to continue investing in this number one company." - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast


"Normally your pro rata will happen in year two to year four because your best companies one year afterwards will already raise a new round. It may stretch up to year five if the right investments are made around that time frame, while the rest of the years are silent as you wait for them to grow further. Most capital, about 50%, will probably be called within the first two years because you need to deploy early and then follow on with investments. A fund will usually do a maximum of three capital calls: the first at year zero to get started, the second around year 1.5 to fund some pro rata investments and the last set of initial investments, and the third as the final call for the remaining quantum." - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast

Jeremy Au broke down how venture capital funds design LP decks, allocate capital, and differentiate themselves in competitive markets. The discussion covered portfolio construction math, capital call strategy, the role of opportunity funds, and how funds highlight unique value-adds like founder wellness programs.

02:12 Capital Calls and Timing Funds usually deploy half their capital in the first two years, with follow-ons between years two to five, balancing liquidity with legal cost efficiency.

04:15 Marking Winners and Power Laws Most of a fund’s value, about 60 to 75 percent, often comes from one breakout company, driving the case for raising opportunity funds to double down.

07:27 Signaling with Follow-On Investors A strong follow-on rate signals quality to LPs. “If your companies are all Ds and shit, then nobody’s gonna come in.”

(00:51) Jeremy Au: I'm gonna continue the LP deck review So obviously they show the investment team. And then they say Hey, we have some interns. So they talk about how, we have a great founder (01:00) experience, we treat them like family.

(01:01) Our thesis is that we invest in companies that show these three things, compounding modes, which includes proprietary data, network effects, and economies of scale. So these are the type of companies that we invest in, right? So raising two new funds, and then they show that kind of their fund performance.

(01:15) So again, they show like how much money they raise, how much of it was they called, which is they use. Then was the multiple investment capitals, that was the returns was the TVPI and that was the gross IRR, right? So the rate of return. And so what they're saying is we have two funds. So this is a little bit closer to a multi-stage fund basically, but basically we're saying is we'll do a seed investment, right?

(01:36) Then we will do prorata. Is the portfolio construction a seed fund that does about a seed or series A fund? About 50% of the capital will do the initial check, and then 50% of their fund size will go to do the prorata for a smaller number of those portfolio companies.

(01:50) So for example, I'll give you an example was if you have 20 companies, a normalcy company will do let's say you're doing 20 investments, you may choose to do, I'm just, I'm doing a $200 million fund. A (02:00) hundred million dollars goes into 20 companies at $5 million each, and then a hundred million.

(02:05) So half of that fund goes to five companies at $20 million each. So we make 20 investments here that We make five follow on investments, the top 25% of the 20 that we think are winners. So this example of a seed fund that we have, or a series A fund as well. That would also apply for generalist index funds, like 40 startups, but the allocation of capital is about,

(02:26) just make it 50 50 on those two things. Now, obviously this company basically saying we have an opportunity fund, so we wanna do the round after that. So we're raising a separate vehicle to invest in the best companies that can do a series B. So they did a C then we pro rata for Series A, there's one vehicle, and then this opportunity fund will do follow on for that.

(02:45) It's a little bit technical. But I would say is your initial check normally is deployed across two years in general for most VCs.

(02:53) Two year time period, the first two years. And then normally your pro rata will happen in year two to year four. I would (03:00) say because your best companies one year afterwards will already raise a new round. So normally your pro ratta will normally come in year two, and then it may stretch up to year five, I would say, around that timeframe for you to find, because you make the right investments around the timeframe, year four, year five.

(03:14) And then the rest of the year is like silent because you're waiting for them to grow up further.

(03:17) Most capital, 50% of capital will probably be called by within the first two years. Yeah, because you need to, in the classic strategy that we talked about, you deploy in the first two years and then your follow on investments.

(03:30) So normally the fund will try to do maximum on average three capital calls. One the first capital call for year zero to get started, and the probably capital call roughly around year 1.5, roughly. I'm just ballparking here to fund some pro rata investments and the last set of initial investments and they'll probably do one last capital call for the last remaining quantum.

(03:50) And so sometimes the problem is that you do too many capital calls. You rack up a lot of legal fees. 'cause every time you do a capital call, the lawyers are in, the accountants are in, you pay everybody and everyone's very happy.

(03:59) Yeah. (04:00) So you don't want to have too few capital calls because if you're sitting on too much money, then your internal rate return drops because you, denominator of cash that you have in your company starts. Once you draw the cash, then you need to deploy that. Otherwise it's wasted because it could have been sitting in stock market or gold or something.

(04:17) So I think this is a good example where they show like these are best breakout stars, if that makes sense. Robin Hood is number one, Flexport is number two. Obviously policy engineers, I've heard that. The rest I haven't. We did this initial investment and this state when we first came in, this is how much we put in at that, $3 million for example. But now the current value is $50 million, for example. Current value of the round that was official, but the secondary price is, can be higher than the current round.

(04:42) 'cause the current round could have been done last year or two years ago. They believe that secondary value is higher than the last proven valuation.

(04:50) But if you look at Southeast Asia today, more secondary prices value is lower then the last round. So most VCs in Southeast Asia would not show this come secondary price. And of course here (05:00) what they do is they say, Hey look at these great investors that follow on from us that demonstrate signal, stripe did our investment, blah, blah, blah, bullpen, et cetera. And so this'll be a classic portfolio construction piece. So again, we're doing a total of a hundred million dollar fund size. We're doing 40 investments out. The total initial investments the average check size will be about $1.25 million.

(05:21) And then we will have a reserve ratio of one to one for Prorata. So you do the math together, 40 times 1.25 equals to 50 mil. So that's half off 100. Then 50 mil is for the initial check. So a reserve ratio of one to one means that you have $50 million reserved to invest in the certain percent, a smaller percentage of these 40 companies.

(05:40) Portfolio construction is different 'cause we're saying this is how we deploy your money not talking about how we spend your money.

(05:44) So we built large portfolio we've created so much, the kind of top line numbers. Our companies have always a follow on round, which is so much faster than the average C fund. And again, the best series A funds lead out, goes back to signaling piece.

(05:57) They're proving that I'm correct. So now the time to double down. so (06:00) to argue about opportunity fund, we're saying we have so many VC funds in the past anyway but I think it was quite interesting, the same power law curve internally. So within our portfolio, we look at the value of all these companies.

(06:10) Actually, 60 to 75% of the value comes from one company. And then the rest so they're saying like, Hey, we have a power law and because of that we want have opportunity to find, to continue investing this number one company.

(06:20) So this is same thing, so then they do the same math here, but it's a little bit different, So they explain the lp, right? So for opportunity fund, we've done 115 companies in total, and we wanna invest in roughly, let's say 10% because they're still deploying this year, right?

(06:33) So roughly deploying about 10% of them, we're gonna deploy $10 million each at a series B stage. And then 25% reserve ratio. So we're reserving 25%. So one 50 divided by that equals about 50. And then, so 150 plus 50 equals to $200 million. so that's Yeah. How they're calculating their portfolio construction. So for those who are doing seed funds or earlier stage funds, you need to prove over time that smart people followed you, right?

(06:59) Yeah. (07:00) Because if you are, if you have home run, more people will come in, right? Whereas if your companies are all duds and shit, then nobody's gonna come in, right? So most VC funds will eventually show that, hey, we have a good follow on investor rate. That will be a common market practice once the seed funds have done several rounds of history.

(07:16) But all been saying like, we have generated top desire returns because experience we are highly differentiated and, so I guess tier is like, wow, every fund is highly differentiated. Now we invest along the best VC funds, we have repeatable process. Yeah so they're same macro environment, which not everyone's doing, things are changing.

(07:31) Again, 60% of returns come, a top 6% of deals by what they're saying is only the firms who can repeatedly get in access to those top 6% of deals can win. So we had to be differentiated. We are service first. And that's what I say is top tier returns to service. And they say, okay, what's defining service like founder health, right?

(07:49) Founders are mentally stressed their mental health conditions. And so founders are two times more likely to suffer from depression, 10 times more likely to suffer from bipolar. So this is the stress so you already kind know what (08:00) they're saying their value add is, so they're saying like, Hey, we have built something that founders want, which is an Atlas program that com provides comprehensive wellness and leadership program.

(08:07) So the choose aspect because of this support system and this support system provides executive coaching, peer groups, therapy, sleep support, nutritionist, culture building. And therefore that helps us get, and this is how they differentiate. Then our results speak for themselves.

(08:21) Again, best VC funds invest in our companies afterwards. This our, strong portfolio they can see out here. And then I think there's more closely ex example to your case study slide. So they pulled out two examples. So they say, Hey, LM Care has feminine hygiene care. They had a good exit, Lambda School, which is the income share agreements for coding engineering.

(08:41) So they try to explain why it's a good deal. Again, they do another two slides of case studies. I think here they do a better job. I think to some extent explain explaining who you are, but why you're so good at designing that. And now of course they're saying like, these are sectors that we focus on. And then for them they're saying like, Hey, we do we have no (09:00) compromise, right?

(09:00) We do triple impact. And then we do top returns as well. We believe both of them happen. And then they do portfolio construction. So this is another way to show it, right? We do 20 investments, right? And we're doing $250,000 in the initial investment and our target valuation around there is about 15 to 25 mil.

(09:17) So we own about one to 2% and then we're gonna deploy this in the first two to three years. And then the top 20% of our 20 companies, in other words, 20 divided by five is four. And the top four companies that are portfolio companies will do follow on investments. And that's it.