The Wealthy Parent Playbook: Using VC to Educate Our Kids

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  Speaker 1:

  Wealthy Parents Playbook. We’re going to talk a little bit today about the benefits of venture investing as a family activity, and this extends far beyond the financial dimension. A lot of our investors have found some real benefits, and Alumni Ventures—especially with our syndication program, where we share information and data room and deal analysis—is a great vector for this to be a very practical solution. So I’m looking forward to today’s webinar.

  Before we get going, we’re speaking today about Alumni Ventures and our views of the associated landscape. This is for educational purposes only. It’s not an offer to buy or sell any securities, which are made pursuant to formal legal documents. And off we go.

  This is what we’re going to cover today. First of all, there’s significant wealth transfer that has been created by the boomers that’s going to be transferred to the next generation over the next 20 years. VC is a fantastic classroom. Just some lessons both from venture investing that applies to life and then beyond investing itself, and then some tips and tricks for how you can actually go about doing this in a big way or an incremental way.

  Just a couple minutes on me and Alumni Ventures. I’ve been in the business since 1986, started Alumni Ventures to bring a smart, simple venture portfolio and deal access to retail investors. We’re listed as one of the most active venture capital firms in the world and have built really a pretty good reputation among the retail investor class and our portfolio companies. We’ve raised just about $1.5 billion. We make investing very accessible to accredited investors with low minimums, and we have a hundred employees plus—about half in the back office and half in the venture hubs. We’re co-investor only, so we work with among the top venture capital firms on the planet. We’re, I think, thought of very well as a really strong co-investor. I encourage people to check out our portfolio companies. At the end of the day, this is the measure of a venture firm—the companies you invest in and how they do. So our Apex 50 is a condensed version of it, so pretty easy to access and read that report. We’ll be sending this deck along as a resource, encouraging you to share it with family and friends. Hopefully, you’ll strongly consider investing more as a family.

  Again, most of you are familiar with these names. These are the kinds of firms we co-invest with. Over half of our investments are with the top 100 venture capital firms as the lead. And there’s also up-and-coming, vertically oriented firms that we like to invest in certain niches as well.

  So let’s hop right into it. First point is most people are familiar with the incredible wealth creation that the boomers have developed. That value will be moving on to the next generation—Gen X and millennials. That is just starting to happen and will take place really over the next 20 years as the boomers pass on their wealth to the next generation. I think a lot of parents want to be sure that the next generation is good stewards of that resource and does good with it, and I think it’s a really tricky but important job to find vectors to educate the next generation. But a lot of money’s flowing that way, folks.

  So just a few points, and we’re going to make this pretty direct.

  When you look at a venture deal, it is about the tip of the spear of investing. So a lot of investments are analyzed in hindsight. This is a real-time, realistic fundamentals-of-investing brought to life. So all the things—from financial to team to market opportunity to business models—that’s capitalism, and looking at a venture deal brings that into really strong relief.

  I think one of the key takeaways is this is something that a lot of people find very interesting and want to get involved with. So it’s one thing for those of us that are parents—and again, I’ll just speak personally, I have three adult kids—getting your kids to engage in things that they’re not interested in is like pushing on a string. But when you talk about investing and technology and valuing their opinion and analysis and vote, it is a great opportunity to engage and have meaningful conversations about money, about risk, about values.

  We live in a world that requires critical thinking. It is very short-term oriented. Venture capital thinking really, again, exercises the muscles of analysis, debate, patience. We’re also talking about where the world is heading. Technology innovation is upstream to the world and things that will impact careers and family decisions and politics and life. And understanding what’s happening, what’s a fad, what’s going to change the world—that curiosity, that entrepreneurial thinking—is really important to developing a mind for the next 30, 50 years.

  I also think about the venture mindset—and I write about this extensively—build skills that extend way beyond just investing when it comes to relationships, career development, any kind of decision making. I think there are really important venture capital lessons that can apply, and I’ll talk a little bit about some of those today.

  But VC is an excellent classroom. So I’m going to just talk about six of the very important things that I think matter that can be communicated through looking at a venture deal as a family.

  Number one: Venture capital is a power law business. It’s about your wins, not your losses. That is an important life lesson. We live in a society that frankly doesn’t encourage a lot of risk and failure among young people. The ability to learn grit and resilience—again, venture capitalists are judged by their wins, not by their losses. It is a power law business, and I think that applies to life. Your good decisions are so much more important than the setbacks. So I think this is a great training tool to understand asymmetric risk. I think it’s a great area to be talking about compounding—the power law wins paying for losses. And again, I think there are lessons in education and throughout life that this is a really important life lesson.

  Time arbitrage. We live in a world that is frankly about getting rich quick. It is about quarterly earnings. It is about now, now. Attention spans are encouraged to get shorter. However, if one can think about things for longer time horizons—what I call time arbitrage—whether that be in your career, personal goals, education, developing a family—thinking about medium and long term is a really important muscle to exercise and develop.

  Venture capital really forces us to talk about investments that take years before you even know if it was a good or bad investment. So just watching that development from a company over time, I think, is a really important lesson about the value of time, patience, compounding, grit, perseverance. The great companies—whether it be Apple or Amazon—lived through kind of near-death experiences. Most of us in our careers have had ups and downs and setbacks. And again, I think all of us want to communicate to the next generations the importance of grit, patience, compounding—getting really good at something that takes a long, long time and is hard.

  The importance of people. Venture capitalists really bet on teams. So when you look at a deal as a family, you spend a lot of time on: What do you like about this person? What do you think about their background? What signals are you getting that they’re going to have the grit, have the know-how, and are uniquely positioned to be successful in this?

  Again, really broad applications to life. People. Decision making is one of the most important skills that a young person can make and develop. So I think this is a great opportunity to, in a non-direct way, teach those lessons. And so that’s a little bit of the art of this—instilling these without a lecture, but through examples, discussions, debates. People over everything.

  Lesson four from venture capital is about curiosity and learning and having a prepared mind. Great venture capitalists connect dots, read, study, learn, are curious. Again, a great lesson for life. The connections that people make professionally, where you can assign assignments and learn things that apply to something else down the road, is just invaluable.

  And so anything that we can do to encourage curiosity and learning and open-mindedness and jumping on new things, trying new things, and having a prepared mind is incredibly valuable to pass on to our kids.

  The importance of networks. Greatness is achieved in the agency of others. Alumni Ventures is a network-powered VC firm. We’ve built our very successful business with a simple idea—that we can do better together than any of us can do on our own in this asset class. And getting people—especially post-COVID—out of their apartments and into the world, meeting people, networking, learning, having parties, attending networking events, going to real-life places—those things pay off. The importance of developing your friend network, your social network, your professional network, your hobby network.

  And this is, again, brought to life through venture capital work. Most of our deals are sourced from our community. Our due diligence—people you can ask, people you can check with. People are always interested in sharing their points of view and opinion. Learning to take that input and put it through your own filter. Using tools to help you network. All of these are super important lessons that can be brought to life through venture capital.

  Learning to say no, right? This is a skill that, again, is right at the center of venture capital, where you look at a hundred deals to do one. So the ability to be biased toward what can go wrong—but also what can go right. Learning that not every exciting deal on the surface is worth doing. This, again, applies to relationships. This applies to career development. This applies to other types of investing.

  So again, I like, as our family does, having a budget—determining how many deals we want to do together per year as a family. Is this one of the punch cards we’re going to click to do this? So these kinds of selective decision making things, again, are an important part of development—of judgment, decision making, budgeting. A really great lesson about learning to say no.

  And that’s just a few of the things. I would also say that as one kid grows, opportunities to have discussions, meetings, developing mentorship, and sponsorship in a way that people all feel that they’re listened to—participate with—here.

  These are lifelong skills. I learn from my kids every day. It also builds a lot of confidence, a lot of independence, a lot of critical thinking and maturity. And we live in, frankly, an entrepreneurial, innovation, tech-driven world. And so exposure to this subject area I just think is a really important Venn diagram between what you want as a parent, what the kids are interested in, and what is good for society. So really important extra benefits.

  So here are some things we wrote down as a team where we’ve seen other families do this successfully. They gamify it. We live in a world where it’s like—there are rules for how we’re going to do it. Who votes? How many deals are we going to look at? What’s our budget? How are we going to decide?

  These things are really covered here in number one. And number two, obviously sharing information, reports. I think a combination of independent work and some family discussion is the optimal way to do it. It doesn’t have to be complicated and long. But—hey, the team, the family’s looking at a deal. We’re going to vote. Here are the materials. I want to hop on a Zoom call Saturday afternoon. Who can make it? And if not, send in your proxy.

  As a leader, I think that it’s really important—whoever’s leading the charge here—to ask a lot of questions, encourage participation, empower people, require responsibility, and take ownership of things. I think documentation is good. Again, I’m kind of a nerd, but we have kind of a family record keeper.

  Obviously, you want to develop this at the appropriate level for where your kids are at. The difference between a 13-year-old and a 23-year-old and a 33-year-old is pretty significant. But I think the earlier, the better. You start talking about this, I think there’s—when things work out—I think those things are always important to celebrate and discuss. And when things don’t work out, you have a discussion about whether we learn anything, but without assigning blame or mistakes or those kinds of things. Again, this is venture capital. We do this as venture capital partners.

  It is, as I mentioned, about your wins, not your losses. But again, always trying to learn and get better and do things. So again, I think this is a really fun, interesting tool to do something that frankly isn’t taught enough—about being an investor.

  Again, even if you have multiple kids, you’ll often find one, maybe two kids are interested and others are not. But you want to bring ’em all along and have ’em all participate from their own perspective. I think a family that invests together stays together. So really important.

  Again, I’ll just emphasize this again one more time—this is more than just about money. It’s about values, wisdom, and critical thinking. I think it’s very important when we’re talking about the tens of trillions of dollars that’s going to be passed on to this generation. It’s an important part of legacy to be sure that we’re developing future leaders and that we’re raising thoughtful, analytical, capable adults.

  And this can be something that can happen over time. It is not a light switch. So we’re all learning every day. I’ve been at this business a long time and I still learn lessons every day. But it’s a really fun and interesting way, and there’s so much great material now. And what we’ve seen with other families is they start out a little bit, and it can really light a fire under some people to learn, listen to podcasts, read articles—and sometimes even change the trajectory of their own interests and career.

  So this is just a little bit of a wrap-up now about Alumni Ventures and how you could potentially work with us on bringing your family into this.

  Again, just really briefly, we work with a variety of different personas—from the newbies to people who are really interested in alpha. We have people that are in the pay-it-forward camp, all the way through to the channeling of Warren Buffett and are looking at this as just a pure analytical asset allocation play. So we want to listen, we want to help, we want to help you craft your program for your family.

  I’ll bring, in particular, the AV syndicate—where you look at an individual deal. We share our deal room and it’s kind of opt-in. So even if you’re never going to invest in a syndicate, I would use it as an opportunity for education with your family.

  So again, Alumni Ventures—we’d love to be your venture partner. Again, a lot of people want to kind of hit the ATM machine and learn on their own. Private QR code to view some of our materials. Other people just prefer to talk or attend a webinar. We encourage you to schedule a call. We’re good listeners. We’re not pushy salespeople at all. And if you’re an existing investor and just want to kind of get a refresher on some of our funds, your individual portfolio, and how it’s doing—putting together your plan—again, we have people that are really good at it and encourage you to reach out to a contact person at us.

  So with that, I think we have time for a few questions from the audience today.

  Yeah, the first question is really regarding: how early do you get started with kids?

  I think middle school is where we started with our kids—starting to talk about money and investing and assigning responsibility—and then just keep building on that over time. Right now, we have basically a family meeting every quarter. We look at deals as a family probably on a monthly basis. Everybody has an equal vote. Right now, we’re actually five people as a family. So it’s simple majority rule.

  We have a budget. We have good, healthy discussions. People find their niche. I think it’s fun, it’s interesting, but I think you want to just kind of—and your kids are all different—so you’re going to want to meet them where they are. But nudging in this direction, I think, is something you just don’t want to ignore. But looking at specific deals is a great way to start that dialogue.

  How do you deal with your mistakes and losses without discouraging them?

  So one thing about it is just being open and explaining from the get-go: what do we think the chances of success of this thing are from the get-go? So you do kind of a pre-mortem. You’re monitoring as it goes along. And for the winners, you’re humble. And for the losers, you’re teaching the lesson that you’re probably not as smart as you think you are in the good days—and not as dumb as you feel when things don’t go well.

  So again, a great opportunity to teach about grit and perseverance and moving on from failure.

  How can AI help? That’s a great question.

  What a fantastic tool to explain terminology, or to bring up good questions or good points. It is remarkable now, and it is a really important reality that this next generation is going to have—which is the ability to have an expert in something as kind of your silent partner. Reviewing deals, reviewing documents, preparing questions, preparing agendas, doing risk assessment, teaching you terminology that you might not be familiar with.

  The beauty of AI is you can say, “Hey, explain this to me at a middle school level,” or, “Explain this at a high school or college level.” “What are some approaches that we should think about when we look at this?” So yes, I think it is a key point. I wish I’d have made it, frankly. Thank you for the question, which—absolutely—AI needs to be your partner in this process. So great question.

  So again, thanks everybody for joining today. I think this is something I hope you guys think about. Consider hopping on the phone with us. AV syndications are kind of a great way to bring this to life. We make them available every week or two. And so thanks for your time today. I appreciate it.