#82 - Data-driven LP investing with Jake Kupperman (Principal @ Level VC)

What's up? Welcome to the Confluence DC podcast. This podcast is meant to give you a personal glimpse into the next era of investors and operators. All right, this week we had on Jake Kupferman from Level Ventures.

Level's based in New York. They're a leading data-driven investment manager focused on technology innovation. We're huge fans event. I think that everybody should check them out.

One of the most interesting fund of funds in the game right now. In this talk, we cover the human aspects of venture capital, becoming more data-driven, LP value creation of venture funds, and non-obvious differences between working in venture and working at a fund of funds. Get the new fix and fall tariff from British Gas, where prices can only slide down. If energy prices climb up, no worries, you'll be fixed for two years.

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co.uk slash verify for more. All right, Jake, appreciate you joining, man. And first things first, we typically like to start these calls just by learning a little bit more about you and your background.

That said, who's Jake Kupperman? What is Level Ventures? How'd you get to where you are today? Yeah, absolutely.

So I appreciate you having me on again, Clay. I would say I really love building early stage companies, working in small teams. And so that's really what I focused my entire career on. I grew up in New Orleans, actually started my first business in college, raised a very small amount of capital and failed, but became addicted to that experience.

So after graduating, I actually moved to Australia to help launch an e-commerce company there backed by Rocket Internet. If you're familiar with them, called The Iconic. It was essentially a clone of Zappos, if you will. And so joined the team there pre-launch.

It was a short but wild ride. I learned a lot about operations and logistics and also work ethic. They have a certain sort of culture there. It's interesting.

After leaving Rocket, moved back to New Orleans again, where I grew up, and was one of the first employees at a company called Levelset, which is in the construction tech space. Amazing company. Actually exited a Procore for about $500 million a little over a year ago and really learned a lot about, I would say, B2B, go-to-market motion, really building long-lasting and excellent company culture. And sad, but felt it was time to leave Levelset, went to business school, and then ended up switching to the investing side.

So I joined a firm here in New York, where I'm based now, called Rebel Partner, Classic Seed Stage, Enterprise Tech, an investing firm, got my feet wet on the investing side. And while I was there, had the opportunity to meet Albert Azut, who's our founder at Level, fearless leader here, and really was really blown away and excited by the vision that he had for Level, which he was really just launching at the time. And so very grateful that he eventually, after some conversations, invited me to join.

And so that's where we are today. Yeah, let's talk a little bit more about Level. I have a good amount of knowledge on you guys, but give everybody else the elevator pitch. on you all, how you look to differentiate and what types of funds you're looking to back?

Sure. So Level Ventures, we're pretty new. We launched just under two years ago, essentially building what we like to think of as a next generation fund of funds. And so I'll tell you what that means.

So there's really three pillars to the platform. The first is a modern fund of funds like Vehicle. We back early stage managers globally, really focused on, I would say, pre-seed and seed from a stage perspective. We're also not entirely generalists, so we take a thematic approach.

And I would say that the areas we're focused on today are enterprise tech and enterprise automation, deep tech, which is really things such as physical industries, manufacturing, aerospace, et cetera, and defense. And then the last being really life sciences. And for us, that means the intersection of computer science and biology. Second pillar is we have a balance sheet with any backing managers who co-invest, right, where we will look to invest additional capital into the companies within their portfolio as they scale.

And then the third piece, which really ties everything together and really drives a lot of our own decision making, is a technology that we've actually built internally. And what we do there is we inject a lot of data, venture capital transaction data, social data, public market data, other forms of data. And we use that to reconstruct the networks that managers are embedded within. So you could think of it as us constructing a very large knowledge graph that represents the venture capital ecosystem where each investor is a node on that graph.

And really that allows us to explore and analyze and understand the relationships, the strengths of relationships investors within their network, how those relationships evolve over time, how they may evolve over certain topical areas. And then we actually run algorithms on the ground to score investors. And we believe, or at least I should say our back test show, historically speaking, that those scores are actually quite predictive of future performance. Obviously, we'll see how that plays out moving forward.

But that's something that we use to find managers, diligence. It's really an active part of our entire process, helps drive strategy. And that's something that is really led by the remainder of the team, I would say. So Albert and myself are on the investing side.

And then we have two excellent data scientists, Leon Shalorn and David Quang, who are really the foundation of everything we do. And then also four data engineers giving this really complex data problem that we're working with. Where we are in our life cycle, we're investing out of our fund one. That's a $100 million vehicle.

We've partnered with, I would say, 17 managers to date with a couple more sort of an active legal and closing. And we're really excited about the progress we've made. Obviously a lot of work left to do but just super grateful and humbled to be where we are today and to have had the opportunity to partner with those managers and the companies we invested in as well and to be just a very small part of their journey Love it Going all script a little bit here that not going to be a curveball question So the reason that we were so interested in you guys is just because the unique approach that you're taking to fund-to-funds investing compared to a lot of other fund-to-funds that we're looking at.

For people that don't have a lot of background knowledge, can you talk about what the traditional process has been for traditional fund-to-funds of finding these emerging managers getting access, getting allocation, and then compare that to the process you just walked through of how you guys are doing that same process at level? Yeah, I guess I can speak to what I believe other fund-to-funds are doing. And through a few conversations, obviously, we collaborate a lot with other fund-to-funds and really hold them in how respect a lot of them.

I think they also have good processes. I think maybe one area where we differentiate is really our use of data. A lot of other fund-to-funds are probably relying on brands to a certain extent and the network and the relationships that they've built, which is excellent. And I think over time, as we become more known in market, that's something that we'll also leverage or really have already started to leverage.

But we really use data and advanced, I would say, data analysis techniques to inform all parts of our lifecycle. So whether that's our strategy, our portfolio construction, the areas we want to look at investing into, sourcing firms, each step of our diligence process. So thinking about their own portfolio construction, their own networks, the companies that they've backed. Basically, I would say that sort of data layer that permeates throughout all of our processes is probably what I would think differentiates us the most.

And then in terms of value add, which I'm happy to touch on as well, is really that we not only use that data for ourselves, but we arm the firms that we back with that data as well. We think that the data that we and the analysis that we have is actually quite useful to them and their businesses. And so we try to integrate with their workflows. And so what we do today is we, and we've started to roll this out fairly recently, is we build these discrete custom data applications for the firms that we back that can be used for a variety of use cases.

And we allow them to utilize that for their own businesses. And I think that's something else that we do that is probably a little unique, although certainly other fund-to-funds utilize data in a certain way. I just don't know if they utilize it to the extent that we do in terms of providing it for managers to use in their day-to-day business. Yeah, totally agree.

It's interesting. To follow up to that, now that everybody has a little bit more background on the data that you use. So one of the theses that you have as part of LEVEL is that human aspects of venture capital are becoming more data-driven. So specifically for these GPs that now have to make a lot more decisions based on intuition, like betting on a person, a lot of those used to be just done based on intuition and gut feeling.

A lot of those are becoming gut or data-driven decisions today. Can you elaborate a little bit more on what you mean by that? And then also provide some examples for listeners just to give them a little bit more context on that. Sure.

So I think maybe what's enabling all of this is there's really more and more private data coming online, whether it's through data providers or other means. And so I think that in combination with maybe more advanced techniques for analyzing that data is what has unlocked some of these newer capabilities for managers. And so really, the data can pretty much impact all aspects of a manager's funnel, right? It could be sourcing on a simpler side.

It could be even just leveraging LinkedIn to track founders and be alerted when new companies are starting. On a more maybe advanced side, it could be using models to predict when people maybe leaving their company to start something new, right? What are maybe specific attributes there? Or it could be buying what are the best talent communities.

So you hear this notion of founder mafias, let's say, there may be a way to actually buy that. So you can help managers understand where they should be networking, where they should be developing relationships. On the decision-making side, it could be just benchmarking, and that could be metrics of a company or certain qualities within a founder that leads to success. We also think that there's potential for maybe a sort of a company scoring model as well, which is something that we're working on.

Winning, obviously it's providing data back to their founders that could be useful. So again, that probably falls into the benchmarking bucket. And then also providing value added, again, providing data back to their founders, but even using some of the same techniques that I discussed earlier around sourcing people to invest in, it could also be sourcing opportunities, but applying that to sound. I really think there's some firms, I would say a small minority of firms that are using data to its fullest extent today.

I think we'll, or we've already started to see that as permeated a little bit further. And I think that will just continue to occur, especially as tools become more and more of prevalence for people to be able to utilize them. But then of course, at the end of the day, it is still a human business. It's still a largely human element.

You still need to resonate with people on a human level, build a long relationship. So you want to make sure you're building a relationship for the long run. And so I don't feel like there's entirely data driven, but I think it's more of a human plus computer component can really help people shine. Yeah, becomes data informed rather than people just shooting from the hip.

Yeah, I like this person, I like this fund. We should invest based on what we have. Like all the private data we're pulling in, that's where we should put our money. Which I think is how the strategy wins.

We're seeing the funds we're looking at that are most impressive, the ones that we're spending a lot of our time looking at and doing diligence on. Like they all have their own internal data sets that inform their decision making more so than just all informal decisions. So I think you guys are obviously thinking about it the right way. So we've talked to a lot of funds.

We already covered this a little bit a second ago, but we've talked to a lot of funds, a lot of LPs. Everybody we talked to claims to add value after the check. I think we both know that isn't necessarily true most of the time. How do you guys think about value creation aside from providing capital to your portfolio funds Yeah so I think a large piece of it is what we already discussed around providing some of this data and analysis back to the firms to help them with all parts of their funnel and just businesses and their workflows.

So I'm not going to repeat that, but maybe a couple other things that come to mind, and this may not be as specific to level, but maybe just fund-to-funds in general, is the fact that we have a very wide overview across the venture ecosystem, right? We speak to hundreds and hundreds of funds each year. We understand, right, what's best practices, maybe benchmarks that fund-to-funds being siloed and their businesses don't necessarily understand or want to have visibility into.

We can help them with funds. So I think those are things we can help with. And then maybe just the last piece, other than the first two, is a lot of these emerging managers are not just investors, but really they are entrepreneurs on their own. Looking at managers that are at firms that are 30, 40 years old, a lot of these people are taking risks to go out and build a firm and really have a passion for what they're doing.

And so we're also in a smaller bucket. We're in the early stages of building our own firm. We're hungry. And I think that that resonates.

I don't know if that provides maybe a tangible value add, but I do think, again, this is a people business and we really see ourselves not as traditional capital allocators, but more as entrepreneurs where the sort of LP layer of the system just happened to be our opportunity. And so I think just being in that same kin spirit with a lot of these emerging managers is also something that probably helps. Yeah, it totally makes sense. let's see switching gears a little bit here so you touched on this in your intro but before working at level you worked at a traditional venture capital fund at rebel so having that experience of sitting at both of those tables what are some non-obvious differences between working in these two types of environment whether it's daily workflow how you're spending your time just like some other things that maybe people that are considering one or the other should be aware of that they're not necessarily talking about right now?

Yep. So I'm not sure if these are non-obvious, but I'll go into some of the differences. So I think a fund of funds definitely provides a broader view of the market. It feels more macro oriented.

And I don't mean macro in a traditional sense of thinking about geopolitical, interest rates, et cetera, but just having a much higher level view of the ecosystem versus being more specific to maybe your 20 or 30 portfolio company as a traditional VC, or even I've experienced at the startup level as well, being all in on one particular sort of mission. So I think that's one difference. That's probably pretty obvious. Another is, I think what I've found, at least between my two experiences, is that fund-to-funds, there's not as much of a sourcing problem, I would say.

So when I was in direct venture, it was much more running around looking for that next deal. And I don't know if that's the right way to do it. So maybe I wasn't doing it the right way, but that's how I was doing it, always networking, making sure that you're staying top of mind, you're seeing deals, et cetera. I think fund of funds is probably a universe that is smaller and it's easier to wrap your arms around all of the funds that are out there, or at least get to very good coverage in an easier way, let's say.

And so I don't think that the sourcing problem as much is there, but I do think maybe there's still a picking problem, which of course you also experience. And of course you still need to win allocation and prove your worth to be able to get that allocation. So in those areas, I don't think there's much difference. Maybe one of the other things just from a day-to-day perspective is right now I'm spending most of my time speaking with managers rather than founders.

And that's actually probably what I miss the most, I would say, about being on the venture side. Managers, obviously great and all super talented, smarter than I am. But founders, they're really the ones that leave you feeling like super energized, inspired, right? We still do invest in companies, so I still do call to founders.

And it's just, I always come away with some of those sort of, I really want to do more of this calls. And I would say as part of our strategy, again, we do invest in both funds and companies. We really partner with our funds to invest in companies that come out of their portfolios. So throughout our life cycle to date, we've really focused on building up that foundation of funds first.

And now I'm happy to say that we have a great foundation in place and we'll continue to invest there. We have plenty of drive titles to continue backing funds, but we're now shifting some more focus onto directs as well. So I'm excited to get back into that and lean more in there as well. Yeah.

I'm not really familiar with the typical progression of somebody that works at fund-to-funds, but is it pretty common for like an analyst associate principal level person at a fund-to-funds? Is it almost a requirement for them to have venture fund experience before joining a fund-to-funds? I don't think so. I think, look, I think it's a pretty small industry.

I think it varies just like in venture directly, right? Sort of backgrounds that vary and people will take different paths. But no, definitely not. A lot of people come from more traditional sort of financial backgrounds.

I'm sure other people come from venture backgrounds. I've met a lot of other entrepreneurial fund-to-funds that are starting up, let's say, that even come from sort of founder backgrounds. So I think it's a mix of paths. Makes sense.

Yeah, I was just curious. Let's see. All right. So that answers core questions.

You ready to move to quick fire? Yeah, sure. Cool. So we just got three questions here meant to be answered in two sentences or less.

We're pretty bad at actually hitting that. I don't know if I'll be able to stick to that, but yeah, we'll try. First one in the last year, what new belief behavior habit has most improved your life? So I would say maybe the most obvious thing is I got married recently.

So I got married in October. And so obviously a lot of the sort of positive habits that my wife has rubbed off on me I think the one thing worth noting she grew up as an internationally competitive ice skater And so there a lot of things I taken from that perspective which I didn at all have in terms of being maybe it being more active or super disciplined or goal or whatnot. I don't know if that's a specific example. Maybe one, maybe just a quicker example is just honestly like going for a walk every day to start your day rather than waking up and going straight to my computer.

And I can sound simple, but I can honestly say, I think that's had a big impact on like my energy levels and sleep habits. So again, more than two sentences, but yeah. What's your biggest piece of marriage advice? I'm only about four or five months in.

I don't know if you should really ask me. I think I'll wait because I don't know if I feel qualified just to get that advice, to be honest. Fair enough. What's something you believe that other people don't?

That's always a tough question. I would say one thing I believe is that I think luck plays a more sort of magnified role in most people's lives and life than most people realize. And I would say not only the classical thinking of what family were you born into, what country and so on, which is obviously important, but also even from, if we're going back, like an evolutionary standpoint as well. A book that I really like is called Darwin's Dangerous Idea by Daniel Dennett.

And one of the ideas among many is sort of the role of luck in terms of like how we came to be where we are today, right? Evolution wasn't necessarily like a process for creating people. It was just a process that happened to create people. And if you reroute the tape and play it again, obviously something we can't do.

but it could have played out very differently. And I think it's interesting to think about luck that way. And then maybe something else is even in business investing. I don't want people to think that when I say luck is important, a skill doesn't matter, and that everything's a lottery ticket.

I think actually quite the opposite as a spectrum. And one of my former professors that had been impacted on me, Michael Milderson, has actually written about this extensively. He calls it a paradox of skill. Essentially, when everyone, like in investing, becomes so skilled, it shrinks the standard deviation of skill, and there is the band.

and so that actually again magnifies the importance that luck plays. I don't think that's an original idea of mine by any means. It's something I think about and something I think is underappreciated. Probably because people, maybe it makes them uncomfortable.

It makes them feel lack of control or our brains like to think in terms of causality and I don't think that fits the narrative. So yeah, maybe that's my quick answer or not so quick answer. Yeah, no, luck plays a huge part, especially in the worlds that we live in. Yeah, I couldn't agree more.

I think like best you can do is just be as prepared as possible when you get your lucky break. At least that's how I think about it. Last one we got is if you had one ask for our listeners, what would it be? Yeah.

So again, I'm not going to stick in two sentences. I grew up, I said earlier, I grew up in New Orleans. I think one event that had a big impact on my worldview was Hurricane Katrina. I was in high school during that experience.

And I felt, sorry, I spent that time in a hospital with my family because obviously it's unsafe to be in your home. And really one distinct memory I have was after the levees broke and water was rushing into the city, within the hospital, there was a crisis because all this equipment, important equipment, patients were on the first floor and there was sort of these major concerns of flooding. And so just one distinct memory I have is sort of this crisis was happening, this major town and everyone joined together, surgeons, janitors, families of patients, people in the community off the street came together and formed a bond to move all these patients and equipment to a higher ground.

And so what I would ask of listeners is this is a couple of things you can learn from that. One is if you're going through a challenge, don't underestimate your ability to adapt and persevere. And then maybe given one, don't be afraid to take some sort of measured risks, especially in your career. And then maybe the third is I think at the end of the day, it's all about people.

And so make sure you find your community. And I think maybe that sort of ties nicely back to what you guys have built at Confluence. And so I really appreciate what you guys are doing there. And so, yeah, maybe I'll leave it at that.

Love it. I love it. And I appreciate that. It's last question we got is what's the best way for people to get in touch with you?

Yeah. You can find me on Twitter at JB, B as in boy Kupperman, K-U-P as in Peter, E-R-M-A-N. Or you can find our website levelvc.com.

You can also shoot me an email, Jake at levelvc.com. And happy to meet new great people. Cool, man.

We'll keep, keep shooting over the cool people we can find your way. See what we can do. Cool. Thanks, man.

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com. huge thanks again to jake for coming on this week hope that each of you were able to pick up something valuable from this talk if you're looking to get in touch with jake we've linked his social info in the description below and then if you're also trying to get in touch with level their website is levelvc.com for next steps if each of you have not submitted your info to become a member yet you can do that through our website at www.confluence.

vc and also if you want to become a subscriber to the newsletter we offer a ton of free resources in there each and every week meant to help you become better at your individual roles you can subscribe there at www.confluence.substack.com.

Hope that helps. Hope to hear from y'all soon.