I want to start with a bit of background for listeners. Endowments and foundations have funded venture firms over the bulk of the past 50 years since their inception. Can you walk us through that evolution and bring us to the present day?

It's funny, because if you look at the early origins of venture, it actually started with asset managers. Sequoia Capital famously spun out of Capital Group, which is to this day one of the most prevalent asset managers in the world. They manage something like $2.5 trillion. But as venture capital grew as an asset class, the types of LPs that started to fit into the space were predominantly permanent capital vehicles. Think about these as long-term investors that don't mind a decade or two-decade-plus hold period to generate meaningful returns. So this was predominantly endowments and foundations: universities, and Yale, where David Swensen famously pioneered investing in private equity and venture as an asset class. Then it started to scale into other high-net-worth individuals and family offices.

But then this interesting thing happened over the last couple of years. Because the asset class did so well on paper, permanent capital vehicles had more than their allotted exposure to private and illiquid assets. So they've pulled back on funding venture and private equity as asset classes until there's more liquidity or the marks are updated to reflect the current market.

That's introducing a new LP into the mix that I think we're going to talk about today. You're seeing endowments and foundations fade in relative importance to the asset class, and you're seeing the rise of other funders of the asset class, one of them being wealth managers, often called registered investment advisors or RIAs. Those are groups that you and the Vise team spend a lot of time working with. How did this come about? Why are RIAs all of a sudden interested in venture capital?

It starts with the RIA industry and all the growth that's happened over the last couple of years. Post the financial crisis, a lot of advisors left big institutions, so think about your big wire houses or banks, and went independent. They said, "We've had enough. We don't like the way it works with these big Wall Street firms. We're going to break away and go independent." So a number of these RIAs spun out, and as they did, they predominantly focused on high-net-worth and mass affluent clients and really started to grow. Then, with all of the wealth that was created, independent advisors started to service more and more high-net-worth clients.

But the challenge was that the industry was predominantly built on distribution of mutual funds and actively managed public strategies. As a lot of those strategies didn't perform and the market carried itself, advisors needed to look for more ways to differentiate themselves. They wanted to continue to win clients and be able to show the client, "I'm going to provide a unique, differentiated value add." And over the last decade or so, private assets, specifically venture capital and private equity, have just outperformed everything else, at least on paper. High-net-worth clients wanted to access those asset classes, so venture investors, for the first time, started to go to the private wealth channel as a means to raise more and more capital.

The other interesting thing that started to happen is that private wealth took something like $80 trillion to $90 trillion of total retail wealth they're managing. But the interesting thing was that sub-$3 trillion, or less than 3%, was actually managed in alternative private assets. So you see more and more clients that want exposure to private assets, and the space hadn't been well penetrated by alternatives managers: private equity funds, private credit funds, and now finally venture funds. So it's a huge blue ocean opportunity to raise capital where that capital historically hasn't been allocated to private assets.

Why has it taken so long? You could make the case that venture capital is perhaps the youngest of these private asset classes. PE had its boom in the '80s and '90s, hedge funds in the '90s and 2000s, and venture a bit later. But why are folks just now waking up to venture as an opportunity set to invest in?

I think there are a few reasons. One of the reasons they historically weren't was the lack of liquidity, and the thing that's starting to change there is secondaries on venture funds. You're seeing this more and more: funds where the companies haven't gone public and there haven't been distributions, but people are now trading secondary interests in those funds. So liquidity among different investors is making the asset class accessible, and that's part of the reason it wasn't accessible before.

The other reason is if you look back at the index. If you invest in the S&P 500, a lot of the index returns were carried by what we call the Mag 7: NVIDIA, Tesla, Apple, and the growth those companies have had and the impact technology has had over the last couple of decades. They were a small part of the index looking back 10 or 20 years, and now they're a meaningful part of it. And the interesting thing is, if you're a high-net-worth client and you want full exposure to the market, a lot of the great companies, think about the SpaceXs and the Stripes, companies that should have gone public and should have been part of the index, are not part of the index. They are still private, and they are increasing in valuation in the private markets, and none of these high-net-worth investors are getting exposure to them. So they need to turn to the private markets to make up for what they should have received in index returns, if that makes sense.

That last one is a particularly salient and fascinating point. Companies are staying private longer and longer. Historically, you could have accessed those returns in the public markets. Today, you cannot, and if you're a retail or high-net-worth investor, you can't access that kind of growth unless you're investing in private markets, specifically venture capital. From your point of view, how much is the interest in venture bottom-up versus top-down? Is it the RIAs and wealth managers saying, "We need a source of differentiation to pitch clients on why they should be a client of our firm"? Or is it the individual saying, "There are all these cool companies out there, the SpaceXs and the Stripes, and I want to be a part of that"? Or is it a combination of both?

If you segment the market between mass affluent, high net worth, and ultra-high net worth, I would say ultra-high-net-worth clients are looking to invest in the best companies. For a long time, their advisors said no to it, and now they're opening up to the idea. Getting an ultra-high-net-worth client into the private markets, into a myriad of different strategies, is the status quo now.

For the high net worth, it's actually becoming a point of differentiation. Most high-net-worth clients wouldn't have thought of venture as a portion of the portfolio. But now, when they're picking their advisor, they're thinking, "What products, what alpha does this advisor give me access to that the other advisors wouldn't have?" As a point of differentiation, advisors are relying more and more on private markets investments to help carry that story. So I think that's a key aspect of it.

The other aspect is that there are now platforms that give advisors access to these funds. CAIS, iCapital, some of the work we're doing at Vise, and Allocate, specifically with venture, are now finally helping advisors with the diligence process: accessing the managers, doing some of the sub-doc automation and the workflows, and doing education that brings an understanding of what's going on in this asset class to the advisors and their clients.

If you're an RIA off the beaten path somewhere that has historically never done venture, how do you even think about breaking down those barriers and cracking into what's historically been a more closed-off asset class?

If you're a large firm and a big platform, think about private equity-backed enterprise RIAs, you likely have upwards of $30 billion in assets. These firms typically have an alternatives team, and that team builds relationships with different managers and runs a manager due diligence process. They try to understand: if I'm picking a set of managers I want to let my clients into, who are the best managers? The ones with a differentiated story, that will deliver returns that are interesting and exciting to my clients, and that fit into an overall alternatives strategy.

Typically, these managers aren't who you would think of. They're not the mega-funds, the Sequoias and the Andreessens, the funds everyone else would consider the top-tier venture managers. They're actually looking for more boutique managers, funds that can deliver outsized returns. They might be slightly smaller funds, and they come back to that differentiated story, something the mainstream might not be thinking about. So that's typically what the large RIAs do. They build those relationships on their own, and once they have them, they partner with a technology platform that can help orchestrate those relationships: all the back office, the capital calls, the reporting, tools like Addepar, Arch, and others.

Then you've got the smaller advisors. These are firms that probably don't have the pull or the expertise to build relationships with all of these different venture or private equity investors. They will rely on a platform like iCapital or Opto, typically custom funds platforms that do the diligence. They find the managers for them and crowdsource those relationships across a myriad of different RIAs. Those platforms make it really easy for the smaller firms to get into pretty high-class, great managers.

Where do we head from here? Do you think the trend only strengthens, and over the next decade more and more retail investors will have access to venture through wealth manager channels? And is that a good or a bad thing for an industry that for the past 40 or 50 years has largely relied on what some might call institutional investors?

It's actually a great question, and it's hard to answer, but my best guess is that we have the betafication. Private markets, where there was alpha, look more like beta. You're going to get more market-like returns across the entire asset class just as a byproduct of how much capital is going into it. And then I would say the total retailization of the asset class. By and large, retail will have access to private markets in a way that has never been seen before, and I think the average retail investor portfolio tomorrow will look like the high-net-worth portfolio does today, which I think will be really interesting.

As for what it's going to do to venture specifically, I don't know if it's going to be a good thing. The only reason why is that if you look at venture broadly, and I think this is already starting to happen, there's a lot of capital chasing a lot of different companies. Before, there was a little bit of capital only chasing the best companies. When you have a lot of capital chasing a lot of companies, a lot of companies get funded that probably shouldn't get funded. Then there's the size of these funds, which is a broader question in the industry even without retail coming in, and retail is only going to amplify the problem. Who knows if these mega-funds are actually going to be able to return, if there aren't that many companies with massive outcomes compared to the entry prices they're getting in at, the number of companies there are, and the size of the exits. So we'll see, but it's going to be interesting.

We could probably talk about this one for an hour. But I agree with you. I think the success of venture capital as an asset class over the course of the past 10 to 15 years has attracted both a level of dollars flowing in and a level of institutionalization of the asset class in a way that, to your point, I think there are certainly pros, but also a lot of real question marks. One of them being, what happens? Are there even enough companies that are high quality that should be funded? Do they deserve to be funded? And we'll see what happens. Samir, thanks so much for joining.

Thank you so much for having me.