Episode 23: Joanna Arras of Baird Capital
on How To Succeed in the Current Venture Market

Episode Transcript

Shiv: Alright Joanna, welcome to the show. How's it going?

Joanna: It's good. Thanks for having me.

Shiv: Yeah, excited to have you on. We have a bit of a unique background story. Your husband helped us sell the last company where I was at. So we've been connected in a very different way than most of our guests in the past.

Joanna: Yeah, it's a much smaller world than I think we all like to admit at times. But yeah, it's fun to have this connection.

Shiv: Yeah, exactly. And you're obviously up to some really cool things at Baird as well. So why don't we start with that and give the audience a background of your role and your mandate and we'll take it from there.

Joanna: Absolutely. So I am a partner on Baird Capital's venture fund strategy.

Baird Capital is the direct private investment arm of Robert W. Baird & Co., which is a Milwaukee, Wisconsin-based mid-market investment bank. Shiv, how you connected with my husband through the investment banking division and really a private wealth management firm with a pretty global presence. So Baird Capital is a direct private investment arm. We have two fund families. We have a global private equity fund that invests in traditional lower-middle-market buyout opportunities. And then where I’m a partner on our US venture fund strategy, we're really focused on what we call the mid-stage venture market. So it's companies that are still growing rapidly, likely still burning cash, kind of in the five to fifteen million dollar revenue zone and you know, hopefully on a rocket ship to future growth. And so we come in and lead what typically looks like a series B-ish type investment. That's where we get involved.

And I should mention that we are all focused on tech, so B2B SaaS and tech-enabled services.

Shiv: Does that create a bit of a conflict of interest? And obviously, strategically, it makes a ton of sense. But Baird being such a big investment banking firm that helps companies exit and transact with other private equity firms to have its own private equity and VC arm. How do you separate church and state there a little bit?

Joanna: Mm-hmm. Yeah, it - So I'll first say, I think it's a little bit of our secret sauce, actually, to have this broader connection to, and we have a seven, eight-person full-time investment team on the venture fund, all located in Chicago. And we get to leverage everything that our parent company offers. You know, that's an over 5000 employee base, global firm that has public equity coverage of hundreds of companies, has investment banking coverage of, you know, of all of the universes where we would invest and we get to tap into all of not just that industry knowledge but also those corporate and executive relationships, the companies themselves. We do that - we do that in a really real way. It helps us punch above our weight. Right? As, again, a mid-stage venture fund based in Chicago, to have access to all of that is really incredible for not just us and our diligence efforts but also for our portfolio companies, as they tap into those too. Now, sure, there can be some pretty natural conflicts of interest where, you know, I don't think you're going to see a whole bunch of Baird Capital portfolio companies being brought to market by Baird Investment Banking. If they ever are, it is because there was a very natural obvious fit. But we don't just send our companies to them. And in the same way, we don't, on the venture side, just sell all of our companies to our private equity fund. So there actually is a little bit more of a natural divide than one might think on the outside, but it's a question we get asked frequently, for sure. And I'm sure there are some investment bankers that hesitate to call me with a deal flow, you know, things like, I don't wanna sell Joanna this company just for her to flip it into a Baird client or a Baird IB client. But no, it gets managed much more naturally. And also I should say that Baird Investment Banking is a lot further upstream than we are on the venture side. They've really grown. It's a tremendous business and we're probably peanuts compared to a lot of their big clients.

Shiv: Yeah. Yeah, I think one of the big challenges that investment firms face is deal flow is just so hard to find and you kind of have to manufacture your own. So I think the synergies there between the different business units definitely lends you to have a lot more deal flow than other VC firms or PE firms. What - that part, that part makes total sense. So talk a little bit more about your funding and what is the criteria you're looking for? What types of companies are you looking to invest in?

Joanna: Sure, sure. And I'll say just quickly on that last point, I love the connection that you brought up in the beginning. So you had hopefully a very positive experience with Baird Investment Banking. And when we first met, it was like, ‘oh, I know Baird’. And you might not have had another reason or occasion to have heard about the venture arm. So that brand glow helps.

But, okay, so businesses that we're looking for in our fund - right now we're investing out of our sixth venture fund. We've just publicly announced the close in December of 2023, so I'm able to share some details about that. It's a $218 million fund, again, focused on tech and tech-enabled services. We're looking to build a portfolio of probably about 15-ish companies there, and the profile of each of those companies is going to be in that mid-stage to growth. So, think about at least 2 million plus in recurring or reoccurring revenue. Probably 15, 20 employees plus, higher growth, has some type of cash need. They're usually cash burning, although in these markets, we're taking a little bit more flexible approach and also looking at growth equity companies as well.

But yeah, so they're high growth, they're likely on a journey, you know, to go from 10 million of ARR to 100 million of ARR and are looking for a capital partner who can lead and then, you know, co-lead later rounds with, our average initial check size is about $10 million. We can invest up to $20 million in a company over time. And then we invest - you know, I've hit on this tech and services angle a little bit, but just to put a finer point on that, we've been investing in tech and services for over 20 years now and our core subsectors where we focus have really been consistent and are really nicely aligned with our parent companies' kind of core coverage and focus areas. And so we're looking for companies in HR tech, in FinTech, in sales and marketing solutions, in enterprise IT, in data and analytics, in cloud services, in supply chain logistics. I can name - people can probably go on our website and see what our core areas are, but that's what we're looking for first and foremost.

Shiv: And you mentioned earlier that the types of companies that you're looking for are still burning cash. Has that changed or is it just the nature of series A, series B, series C type of investing where inevitably companies at that stage need to burn capital to grow?

Joanna: Yeah, I think - so where we sit today, in early 2024, it's changed a little bit in that folks - I think that the definition of capital efficient growth kind of moves with the market, right? Like a couple years ago, capital efficient growth could have been a company growing 100% year over year, and burning, you know, $1 for every dollar of ARR they added.

That's probably not viewed as capital-efficient in today's market. Growing efficiently is really hard. It's really hard in any market. We tend to invest in companies that are burning cash mostly because that's who is attracted to us or who is coming into our pipeline or in our funnel.

Sometimes we're investing in companies that have been bootstrapped and this is their first time considering taking institutional funding. More often, it's companies that have raised a little bit of institutional funding because going down that venture-backed path is super different and is a decision in itself. So it's, you know - it's a lot of alignment in terms of like, hey, what kind of growth are we trying to pursue? What type of outcome are we trying to pursue in what time frame? And if you can line up on those things and it looks like a VC-backed opportunity, those are the companies that we're going to match best with. For the companies that are cash flow positive, you know, they have a little bit of a wider, you know, set of investors that they can go after. They can - they're going to be more appealing to growth equity investors, depending on their stage and scale, they're going to be appealing to private equity as well, traditional private equity. And so, if it makes sense for us, again, as a $10 million-ish investor, who is focused on higher growth companies, wherever that kind of fits in terms of cash flow, we'll take a look at it.

Two, three years ago, I would have said, oh, we're all cash-burning businesses. And now today, I mean, the market has moved.

Shiv: Yeah, and with the way the market is moving, even after you're making the investment, are you trying to make them more efficient or are you focusing on getting to higher revenue numbers so that they're growing faster so that you can kind of raise the next round?

Joanna: Both. All! Like, I mean, growth, growth really has been, you know, not just an indicator of success for venture investments, but also for companies, you know, who are looking for their own outcomes and are who are hopefully really aligned with the outcomes that the investors are looking for to. I mean, yeah, growth is hard to come by right now. Growth, I think, has a lot of different definitions. You can always go organic versus inorganic. I think that inorganic growth is popping up in more conversations, which itself then lends yourself to different investors, different types of reserves that those investors need. Yeah, I'm probably not answering your question….

Shiv: No, it's okay. And just to dig in a little bit deeper on that. So, you know, totally get how important growth is, it's just, growth costs something, right? If you look at your customer acquisition costs, and then you have your gross margins and you're - you play it all down on the on your payback period and your net margins and all of that, certain growth is more expensive than other growth. So sometimes growing at 25 or 30% can be healthy and you're - even if you're not fully cash flow positive or you are a little cash flow positive, that's almost better than growing at 50 or 70% but burning capital and kind of have to make that decision. It's a bit of a dance depending on the type of business that you're looking at. So I guess what I'm just trying to understand is the companies that you're looking at, are you leaning more heavily on growth now with the way markets have changed still? Because that was the theme up until the last - like let's say 2021, or are you just like betting more on companies that have that path to profitability and it seems more sustainable, even if the growth is a little bit slower?

Joanna: Yeah, I see what you're getting at. It is - man, this is gonna be such a crappy answer to say it depends, but like, it is very dependent on the market in which they are competing. And what I'm usually looking for is like, the growth that a certain company has needs to outpace their market in general, that needs to outpace their market CAGR, because like, we're investing in companies - I'm not going to say their subscale, that sounds bad, right? But like, are hopefully at an inflection point where they're really going to start to scale. And if they are, you know, a $5 million revenue company and just growing at market rates, it's probably not a great fit for a VC investment. You know, they should keep going at those market rates. They should push to cashflow profitability as soon as they can. And that will open up way more opportunities for them down the road than taking a $20 million equity raise and signing up for the growth and all the other KPIs and everything else that a VC investor would sign up for. Then when it comes to capital efficiency, my general rules or the way that I approach it is usually an equity raise for a cash burning business should fund about 24 months of operations.

And the market's going to change in those 24 months. So maybe you have - you know, if you have high growth, you then have the opportunity to raise additional capital and go after it, you know, in a more accelerated fashion. If the market pulls back like what we saw over 2023, then you need to kind of flex down, right, on your spend. And, you know, maybe stretch those 24 months out to, you know, another six months or another 12 months beyond that.

So like, again, I hate to be like, oh, it depends. I think what's more important is for a company management team and for the board - whoever's making the decisions, setting the long-term financial plan and strategic plan to know what levers they have, to know what options they have if the market - if the rug is pulled out from under you, can you get to cash flow break even or do you have to raise another equity round? Is your back going to be against the wall or do you have enough levers to pull that you can become more capital efficient, ride through a lower period of growth? And then, you know, then kind of reassess when you start seeing some optimism in the market. That's kind of where I think a lot of the market is right now. So it's like knowing what those levers are and knowing then when to pull them in both directions, when to, you know, start hiring or start investing in growth in a more accelerated way or when to pull back. That's probably more what I look for is some flexibility and like - I don't know, an approach, and teams that are able to read those signals and respond accordingly. Than necessarily, like, hey, this has to be cash flow positive.

Shiv: Yeah, this has to be the case, right? I think you said something really profound there is that the growth of the company needs to outpace the compounded annual growth rate of the market that it's operating in. And I think when markets were really frothy and growing, it just looked like every business was getting crazy valuations, even though they were on pace with whatever the category they were in was growing at. So I think, I think that's - that's a really interesting insight in terms of looking for whether or not a business is creating alpha beyond that, that CAGR for a particular market. So how do you go about analyzing that or figuring out if any business - if it's a vertical SaaS, if it's in healthcare, you mentioned a bunch of FinTech data analytics platforms. Like how do you go about figuring out if a business is actually outpacing market growth?

Joanna: Yeah, we are - we are in the weeds. Us as investors at Baird Capital, we - most of us have investment banking or financial services DNA. None of us are afraid of an Excel model. So like we're all in the Excel financial models and playing around there. So we get to know that kind of financial forecasting and historical and future pretty intimately. In terms of market rates, right? It's like you gotta do a whole bunch of third-party or independent research to verify what the team that you're backing is telling you. And I should say like the team that you're backing ideally knows their market better than anyone, right? They know how their competition is moving, they know the growth rates. It's not just, you know, like a TAM slide or a SAM slide. It's beyond that, right? It's like how their win rates are moving, where their competitors are vulnerable, where there are opportunities. So they're going to have a sense and then us as investors, it's our job to kind of verify, gut check, and have our own view of where the market is. And that's gonna be - you know, there are plenty of third-party industry research, you know, that's out there. We do a lot of industry reference calls. And so we tend to take like both a macro and a micro view of market growth. The micro view is by, you know, speaking to someone at a target client, you know, who's unaffiliated - who probably doesn't know what company we're talking about, but like, how do they make budgetary decisions? Is there a team that is going to use this type of product? Is that team growing? Is it contracting? How do they set budget? All of that, and that helps us, again, calibrate. But listen, if an overall market is growing 20% and I'm looking at a company that's growing 10%, they're not gaining share. I know. So they're either losing share to others or they’re up-and-comers. There's some type of competitive landscape dynamic that is at play here. Or then this is probably where the later-stage investors are better. And me as a venture investor, they're going to see, oh, well, we can drive this type of operational efficiency and so we can still get this type of investment return on a slower growth company. But I'm more, again, on the earlier side, I'm more growthy side.

Shiv: Yeah, you're looking for that growth so that they can actually capture that opportunity. Yeah. And you mentioned this other thing, which I want to just touch on it, you said that at least 24 months of operating capital that you can then go look forward to another raise. I guess, the risk there is, with the way markets are, and just founders in general, you raise and then you try to hit a certain target you often miss, especially as market dynamics change, and then raising capital kind of becomes harder. And so, in the startup ecosystem, or at least for founders, and it's just they get caught in this situation where they have a good company maybe, but they're not able to hit the targets in place. And now they're burning capital at a rate where when it comes time to raise, maybe somebody's not willing to, or they're not able to raise the amount that they need, right? So how do you view that and trying to encourage them to either extend their runway or build that self-sustaining model where you don't necessarily need to always just look forward to the next raise.

Joanna: Yeah, so that sucks. It sucks for everyone around the table, right? If like you start to get the sense for, oh, cash is running low. We think we're going to be at a, you know, a low or no cash point, you know, X months in the future and, okay, we're forced to go find a new capital source - I shouldn't say new, we are forced to take capital. And that can come in different forms, right? That might be an inside round. So if you have a strong aligned syndicate that both still believes in the team, the product, the opportunity, and they have investment reserves available - that's what you saw a lot of in 2023. I think a lot of existing syndicates keeping those companies out of the need to raise external capital. So then another source is external capital, which is what I think you're talking about, where you do have to go, and at that time, you know, you're dependent on the market, you're dependent on market valuations, you're dependent on market terms. So if you were in a position, say in 2023 - and this, you know, in as a general statement, if you were in a position where you were going to market, the multiples that were available to you were way lower than they were two years prior.

And so if you would raise a round two years prior at a very high multiple, that meant this is exactly why people had flat and down rounds, or they chose not to price and they raised inside capital. Or then, you know, you can explore a different type of financing source. And that would either be you know, debt, something that looks like that, which I'd actually argue a lot of highly structured equity functions is debt and looks like that. Or it's some type of - you're selling the company or you're trying to find a home for the business. But that's exactly why I think investors and company teams need to be all over their burn rate, their cash flow needs, because you are, I mean… You are tied to the markets. And it is exactly why a lot of companies did not raise a lot of money in 2023, because they were afraid of the markets and didn't want to take what the market was willing to give them in terms of valuation.

Shiv: Do you see that happen a lot? And the reason I ask is, I mean, I'm a founder, I'm really passionate about founders. And I sometimes worry when I look at - and I'm not, obviously - Baird has a great reputation, so I'm more just trying to ask a general market question here - is that founders, I feel like they get put in this position to when they raise capital to become something that maybe the business may not be capable of becoming.

But the business in itself, if you were to just look at the fundamentals or the market that they're serving, or the product that they have is probably a good idea and a good platform to build something. But if you put a revenue projection of 100 million on something that can only become 15 million, now you're just being pressured to be something that you're not. And then as a result, because of just the financial engineering behind it, like good companies can die, good founders can lose their businesses and all that. So, I guess my question is, do you see that happen a lot in terms of the companies you're encountering? How much of that is at play here with the market dynamics currently in place?

Joanna: Yeah, I think that capital raising strategy, which includes timing and navigating capital markets - Man, I'm going to say something that I don't even know is true. I'd say it might be the number two indicator of success for a venture investment. I always say it because I do not want to move a team off of the number one spot, right? Like the team, its ability to execute, the management team, that is really, like if we look across our couple decades of experience, and I bet most investors say like, that you cannot compensate for the lack of a good team - you can't. And there are great teams that can outsmart or outwit, you know, and like time certain things in certain ways. So team is number one. 

Number two, I mean, capital raising strategy can make or break a company. And like, I… It's easy for me to say, as someone who's based in Chicago and someone who only writes $10 million checks, it's easy for me to kind of take a negative stance on businesses or companies that are in kind of my stage or scale range, but who then raise $100 million series B. So it's really easy for me to be like, well, they're crazy and it's not gonna work. Like that's, that is actually only going to work, right, if then you time the capital markets correctly. Like, if you have a capital raising strategy, which then can greatly influence your capital efficiency and your like - and your burn, right? Cause if you have a hundred million in the bank, you're probably not gonna sit on it. Like it's probably gonna burn a hole in your pocket in some ways. And then you like - then when it comes time to raise that next round, if you haven't grown into that valuation, if - whatever, like if you're in a market like you are today, that is not favoring, you know, a $10 million company that raised a hundred million, it can break or kill a company, it absolutely can. 

So I don't know. I always - but again, it's easy for me to say that, right? Cause look at where I invest. And so I am partnering with teams who have a very similar mindset, who want to put the amount of capital on the balance sheet that they need to navigate the next step in their evolution. They don't need the amount of capital today that they need to get them all the way to an exit. Some, yes, maybe, right, if they're at a later stage. But like, they're going to phase it in, right? Hey, we still need to turn over a few cards, we still have a little bit to learn, we still need to build the team in this way, we still need to build the product in this way, and we think we need, you know, this amount of capital to get us to those next milestones. And once we get to those milestones, we can raise the next chunk of capital or maybe have the flexible opportunity to go cashflow positive, whatever it is. So again, I meander on all of these responses, I know. But yet capital raising strategy, I think it's actually something that is so undervalued by early stage CEOs and I think it ends up being a massive impact to the outcome for everyone.

Shiv: Yeah, I think - and I think what you're saying is that, as a founder, it's really important to be self-aware enough to know what is your business and what's the right amount to raise or what type of partner you want or what the right structure should look like. And picking the right thing is really important because if you pick the wrong thing, you've kind of put yourself in a really bad position and it's kind of, kind of hard to come back from that. Once you've picked that and you've raised a certain amount, you can't really turn back the clock.

Joanna: You can - yes. You can turn back the clock if everyone in the boardroom is aligned, meaning that like if everyone is willing to turn it back with you. That might be a recap, that might be a down round, you know, like it might be a management change, something like that, but usually when that happens, it - that journey itself creates a lot of disalignment or misalignment, and so it's really, really hard to do.

But like, I like what you said, because it's not just like, oh, what check are you taking? I mean, the partner that you're signing up with for whatever this next phase is, is, I mean, just as important, more important, whatever, you know, than, hey, how many dollars am I going to raise? You know, I think that CEOs and management teams also need to look at, like, how does this partner interact with them? How do they - you know, what is, what are their goals? What's their long-term strategy for the company for what, when are they going to be pushing for an exit? What are they underwriting to all of that? Because that -  and that also can make all of these points create alignment or misalignment at the board. And misalignment at the board - 

Shiv: What are their expectations really? Like what do they want? Where do they want you to be in two years, three years, five years?

Joanna: Because misalignment at the board, I mean, it just hamstrings decision-making in a way of like, you know, something that maybe should have taken you one board meeting cycle to decide has now taken three to four. And that's a year, right? That is a year in the company's journey. A year that you're, you know, maybe missing out on things, leaving things on the table, whatever, sacrificing. And so yeah, I think as much as you can test for alignment on the front end, the better. And like, I mean, we do it too, right? If a company - like I said, this is an insane example, I know, a five million dollar company trying to raise a hundred million dollar round - but they come to ask, like, we are a clear no. Not just because we can only write a $10 million check or a $15 million check, but like, for all those other reasons. Like, we, like, you know kind of where you're going to end up in a couple years and you're going to be on completely different pages.

Shiv: Right, right. Yeah. And do you find that founders completely understand this? I'll give you an example. We've had a couple of guests on the show and one of the things that they've what they've done is - one is Krista Morgan of StageFund and another one is Lauren Bonner from MBM Capital and their entire business model is buying out distressed venture assets that are missing their projections. And we're almost seeing tons of these firms pop up because the venture model is that, we're going to invest in companies. And if we invest in 15 of them, maybe two will become rock stars and five might not work out at all. And then we have a middle of the pack. And so those five at the bottom end up becoming distressed candidates for, for funds like this.

Joanna: Absolutely, and I'm sure that those funds have no shortage of pipeline right now, their capital model is probably full in this market. Yeah, I mean, it's from - to kind of lift the veil a little bit from an investor mindset, right? I mean, there are so many reasons to partner with companies that I don't mean to boil this down completely to like, oh, we're just trying to make money. But like, we're just trying to make money. That is - that is my day job. That is my job. That is what I do on behalf of my LPs. That is why they've selected us as a GP is that, you know, they have faith and trust and belief that we are going to make money for them. And so when you get to a point where a company is at a crossroads or they've gone - or whatever, kind of what you're describing, we as investors make decisions based on like, now what are new - if we were to underwrite, re-underwrite the investment today, what are we going for? And

sure, we're underwriting all of our initial investments to 5 to 10x returns. Not all of them are going to get there. Some of them are going to be far above. Some of them are going to be in that bucket. But we have to start weighing time-value of money, which is real. We weigh portfolio management, which is real, we look at portfolio allocation. And like, if you're looking at - this would be a wonderful situation, but let's say you're looking at a portfolio that's all a hundred million plus companies that you're all waiting for the IPO markets to open up. Like, I mean, that's not a great spot to be in from an investor, right? You're probably gonna need to drive some distributions. You can't, like - we have to manage our own portfolio and our own exits. And so that group of companies that you're talking about, that can be a really attractive way to recap a company and an investment. And I mean, I said company first -

Shiv: Yeah, yeah, yeah.

Joanna: - the investment, we're like, you know, what if we hang on to this from an investment perspective for another two years - are we really going to be driving, you know, another turn on the return? Are we really going to be able to drive another 50 million in proceeds? And if that answer is no, then you start the strategic discussion of like, okay, well then what do we do now?

Shiv: We should write it down or get it off the books and get it to a different operator, almost.

Joanna: And get it to an operator that is more aligned with that next phase for the company. There's a lot of the high growth venture, that mindset - like I said before, I'm not focused on extreme operational efficiency. Like there's a whole category of investors out there that do that and that's their day job. So like then, yeah, so that company, that target will have moved on to a different phase in their evolution and may need a different partner to guide them.

Shiv: And so that's a great point to bring up. So in the category that you're in, is it almost better or more efficient to focus on the companies that in a way are - are already more optimized or already have a path to growth or already kind of hitting certain - hitting their stride, whether it's on product market fit or go to market efficiency. And it's just about finding scale and needing capital for that. Versus like you guys coming in there bringing operational best practices and changing sales efficiency and bringing a new CMO or whatever. Like it's - that's a whole other type of work stream, if you will.

Joanna: Yeah, and this is - I think that this actually gets to a really interesting point of differentiation between that I'll say venture and private equity, but your ownership matters is what I'm going to say. Because like for me as a venture investor, we - let's just throw out we usually own 10 to 20 percent, you know, of our companies. My colleagues on our private equity fund, they usually own 50 percent plus. And so if we just use straight math, right, of like - think about a dollar of enterprise value creation or 100 million dollars of enterprise value creation that you can drive. Me as an investor, I'm only getting on average 15 million of that. My colleagues, if they can drive 100 million, they get 50 million of that. So like the way that you as an investor allocate your time, I hate to say it, but it does kind of follow that path. Now it doesn't follow it precisely and exactly, but this is why private equity investors are more hands-on. It's not just because they have majority share. They can drive returns really differently.

Shiv: Yeah, they can drive return for their LPs, but just by focusing on a handful of investments versus 20 of them.

Joanna: Absolutely, and that's why they tend to have portfolio operations teams and you know can go and spend a week on-site with a lot of their portfolio companies, stuff like that. Venture is different, right? Like I can spend the same amount of time and I don't get the same return.

That doesn't mean that I sit here and allocate my time on a dollar-for-dollar basis every day. That's totally unrealistic. And I'll also say the - I don't know, fortunate unfortunate truth, whatever you want to call it - is the companies that are in a more troubling spot, they tend to require more attention. So like, yeah, I'd love to say, I can spend all my time on winners and I, you know, I walk out of my office skipping every day - like, they don't need it. They don't need all of, you know, whatever value add that I can or could bring them in that moment. They're doing a lot of it on their own. It's the situations that again, you know, are sideways to down that tend to require more attention, more resources, more strategic thinking, and more time.

Shiv: Mm-hmm. No, that's a really great insight. One question I wanted to ask you is, along with same threads, is in the market right now with the way things have turned, I've seen a lot of VC firms shut down. And one really big firm that's quite famous is OpenView that pioneered the PLG motion and kind of published a ton of thought leadership content around that people follow everywhere. So what's happening in those kinds of instances? Is it just that the assets that they have under management, just the book value is significantly higher than the actual value or something else going on with companies like that?

Joanna: So I can't comment on OpenView specifically. I don't know. I think it's great folks there. They've had such a great reputation. It's like a gut punch to our industry anytime a fantastic investor or group or fund, platform, whatever does not continue investing. Not to get too in the weeds, but like… I'll use the analogy of like TV shows. TV shows should not go on into perpetuity. Like, you know, there shouldn't be - sorry, there shouldn't be a Sex and the City remake. They should, they should - you know, they should have a natural end point. The same thing can be true for funds. And you know, like fund math, I don't know how much you want to get into this, but like, we as investors are really compensated based on carried interest and carried interest pays out in the future, like way in the future. And - but it vests usually over a faster time period. So I say all this, like our whole industry, venture capital and private equity is kind of designed to allow people who've been in funds for a while to stay in funds and to like stay on their platforms for a long time.

I think it's a very natural thing in our industry. That's why you see a lot of new upstart funds because younger, newer, more junior partners, if they're sitting on a fund platform where they have some senior partners and they wanna do their own thing, they wanna create their own thing, they wanna be paid in a full partner way, stuff like that. It's super natural. That's why you always have emerging managers. That's why you're always gonna have these spin-outs. And so like… I mean, listen, we're on fund six on the venture side. I don't - Oh, gosh, my boss is going to kill me. But like, I don't think we should get to a fund 10, a fund 20. Like, you know, there aren't a lot of shops that have, you know, that are in business for decades and decades and decades, because it's very, very natural for folks to want to move on, to start something new, to have the opportunity to become, you know, their own senior partner somewhere else. It's just the way that economics work. So like, I can say, it's sad, right? When really well-regarded, really successful funds no longer invest, but like we're all people and we're all humans and we all make our own decisions in our lives and like a lot of times that's just what it comes down to.

Shiv: And I think, just to add a caveat, a fund getting to fund 20 means that you just need a large enough firm that builds that continuity and has more investors coming through and there’s more capital being deployed and more of that carried interest into the future that other people are getting a stake in and all of that. So I think it’s an operational thing as well, so if markets turn in the future you kind of need that resiliency to ride that out and have the willingness to continue with the funds that you've already invested in.

Joanna: Yep.

Shiv: Yeah, I think that's great. So awesome talk. I think it's a good place to stop, Joanna, but before we do, if there are founders listening and they wanna learn more about Baird and potentially looking at you guys as investors for them, what's the best way to reach you and learn more about you?

Joanna: Our website is bairdcapital.com. You can easily find me on LinkedIn, Joanna Arras. And I don't know, should I hesitate to give out my email? Is that a bad idea or is that a good idea? But no, my email is just [email protected]. Always willing to connect even if it's not - one of the things I love the most about the venture industry is you never know what's going to come out of conversations. Right? Like I didn't know when I met you at the Bull City event that we'd be here now. Like it's just - it's really fun. So I'm always open to connections and, you know, whether or not we end up partnering from an investment perspective.

Shiv: Totally. Awesome. And we'll be sure to include all that in the show notes. And with that said, thanks for coming on and sharing all these insights. It was a different kind of conversation. We're talking about the market dynamics and the VC model. Just to help founders. I think the conversation was super insightful for - So thanks for sharing that.

Joanna: Good. Thanks, Shiv.

Shiv: Thanks, Joanna.