Cendana Capital, led by Michael Kim, has established itself as a go-to investment firm for emerging seed-stage fund managers. Over the years, Cendana has successfully invested in VC teams like Forerunner Ventures, K9 Ventures, and IA Ventures. Now, the firm has announced that it has closed on $470 million across multiple new funds, bringing its total assets under management to approximately $2 billion.
Key Takeaway
Cendana Capital has closed on $470 million across several new funds, bringing its total assets under management to approximately $2 billion. The firm is committed to supporting seed-stage fund managers and believes in adapting to the changing market landscape. Cendana Capital has achieved consistent returns and anticipates increased activity in the secondary market. They continue to back founders with side funds and maintain their principles in their relationships with venture managers.
Investment Breakdown
The largest portion of the funds, $340 million, will be allocated to U.S.-based investors. An additional $67 million will be directed towards managers outside of the United States. Cendana also has $30 million in capital commitments to directly invest in startups, as well as $30 million from the University of Texas, which will be reflected in the larger $340 million fund.
In a conversation with Kim, he shared insights into the current market landscape, highlighting the challenges of few exits and the focus of seed-stage managers on navigating the volatile market. Kim also expressed his anticipation for a summit in Singapore and a Formula 1 race.
Adapting to a Changing Landscape
Kim acknowledged the evolution of seed-stage venture capital over the past decade. He stated that seed funds have grown in size, with the median seed round in their portfolio now averaging $4 million, compared to the previous average of $1.5 million. Kim predicts that seed funds will scale back in size in the coming years, as it becomes increasingly challenging to generate high returns with larger funds.
Generating Consistent Returns
Cendana Capital has a track record of successful investments, with their first fund showing a net return to investors of 4.2x and distributing 2.2x of their capital as distributions. The second fund is marked in the mid-threes and is approaching 100% distribution. Kim emphasized that venture capital is a long game, and it takes time for companies to reach substantial value.
Secondary Market Potential
In response to the lack of exits in recent years, Kim mentioned the potential for more secondary market activity in the venture capital space. He believes that this green space presents an opportunity for increased secondary activity and the emergence of new secondary firms in the coming years.
Commitment to Fund Managers
Cendana Capital remains committed to its fund managers, viewing the relationship as a long-term investment. While fund managers have the discretion to sell positions, Cendana Capital has not sold any of its positions, affirming its belief in the fund managers’ decision-making abilities. Kim also highlighted the proactive approach taken by some fund managers in selling a portion of their positions, particularly during a time when there was high demand for unicorn shares in 2021.
Supporting Part-Time VCs
Cendana Capital backed a debut fund founded by serial entrepreneur Mark Ghermezian, who is concurrently running his newest company. Kim praised Ghermezian’s accomplishments and emphasized that founders introducing other founders are a valuable source of deal flow for their fund managers. Cendana Capital supports founders with side funds, acknowledging the initial skepticism from institutional LPs but expressing their confidence in backing such entrepreneurs.
Remain Steadfast in an Ever-Changing Market
In conclusion, Cendana Capital has maintained its principles and has not requested any additional or special terms from its venture managers. Kim emphasized that they have never asked for a cut of the management company or a reduced carried interest, and they consider such requests as negative signals.
