Daniel McCarthy

Lexington Books managed to release my book Disagreeing despite the Data before the election. It argues the belief segregation underway in the US may be irreversible. Today's battles over climate change, disease mitigation, and election results run deep -- they're cognitive, not just strategic. Here's the gist of it. 20th-century revolutions in the philosophy of mind, meaning, and matter uncover three surprising requirements for widespread factual agreement. Critical thinking and community building have the potential to reverse two of them -- the growing refusal to test assumptions and individual isolation. Factual agreement between groups is impossible without the third one, though -- shared projects or other meaningful interaction. And a large part of American society has insulated itself from the rest. Without shared projects, communities gradually lose the ability to tell whether they agree or not regardless of the words they use. Belief segregation with similar roots has led several developing countries to the brink of failure. We'd better watch out. The attached flyer gives a discount code that makes the book -- priced in this initial run for academic libraries -- a little more affordable. Please feel free to forward it and, if you're connected to any libraries or book stores, pass it on!

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One of the things we see quite often at Grit Capital Partners, is a newly minted CEO. We see a big difference in the transition to CEO based upon the historical lane the CEO is coming from. There are different new muscles if you are coming from Product, Engineering, Finance, etc. In this article, we go deep on the CRO to CEO transition, which includes some thoughts from Rosie O'Meara, a particularly fine example of someone who has made the transition quite well. What were your biggest transition moments? https://lnkd.in/eEB-K2ZU

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100% agree with Phil Burns - there are so many opportunities for PE to help their investments add value - innovation, operational efficiency, service expansion, partnerships, front-line execution, GTM to name a few. [now for the shameless plug] Good quality CDD, with lots of primary research and data analysis, helps investors zero in on these growth opportunities which drive PE returns and benefits the whole economy

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#ObsessivelyEnthusiasticInvestor #UnreasonablyEnthusiasticInvestor #IrrationallyEnthusiasticInvestor at REFASHIOND Ventures: The Industrial Transformation Fund. We look for the people we believe are doing the best work in Industrial Transformation & Supply Chain Technology; Attempting the impossible. Then we go all-in on them. With obsessive, unreasonable, and irrational enthusiasm. We back them with evangelical zeal. Join us. #IndustrialTransformation #SupplyChain #Innovation #Technology #Startups #VentureCapital #DemandTheImpossible #UnreasonableEnthusiasm #ObsessiveEnthusiasm #IrrationalEnthusiasm

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LP Tip #20 out of #50: To re-up or not to re-up A re-up refers to an LP making an additional investment in a fund where they previously invested. Before we dive in I want to share that there are reasons an LP may not to re-up which are not in your control. Here is a short list: ➡️ The LP may have evolved their strategy and needs to scale back the #️⃣ of funds they invested in.   ➡️ The LP was never set up to re-up in the first place. ➡️ The LP could be an individual that found themselves in a cash crunch and overly exposed to venture.  I'm assuming that when you got your investment that the LP explicitly told you they do re-ups. Please do not assume they do. My expectation is also that the LP dug in to properly underwrite the fund. 🏴 Re-ups are not automatic. An LP will have to re-underwrite each fund. The speed of the re-up also depends on how much work was done in the initial investment, who led the investment, level of confidence there existed when that investment was done, and current pipeline of funds. There are 4 flags that may cause an LP to walk away. 1️⃣ Partner Breakups/Changes and Team Turnover:  The biggest risk in Partnerships are whether the Partners will stay together. One LP gave me a framework on how to think through this issue that has stuck with me. Partnership is like a marriage. If one feels there is potential for a breakup, does one believe it will be an amicable breakup? Or, does one believe the spouses will never talk again? If it is an amicable split that is manageable. The Partners can find a way to support the fund. Then the question becomes whether the LP wants to back the Partner/s that remain.  If there is high team turnover. The LP will want to investigate because team stability is used as a proxy for firm sustainability and ability to scale. 2️⃣ Fund Does not Execute on what they Sold the LP:  The LP “bought” something specific and typically it is because they were missing this strategy or wanted exposure to a strategy for the portfolio they were constructing. An institutional LP will invest and write a detailed investment memo flagging all the things you said you were going to do and then go back and compare when you come back to ask for money. If for example you pitched a generalist seed stage fund and you show up asking for money sharing that you invested in deeptech at A that will cause alarm. The same can be said for the number of companies you promised to invest in or check sizes you wrote. If there are big differences LPs will want to know why. 3️⃣ Bad Actions  The fund manager/s does something that is unethical. This is a no go for an LP.  What if the situation is not clearcut? This is different for everyone and requires discussions b/w GP and LP, but most LPs don't want headline risk. 4️⃣ Continuous Underperformance  If it's early days an LP will look at some key indicators to see how you are progressing over time.

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Is Now the Best Time to Raise a Private Equity Fund? According to industry leaders, it just might be. "I’m much more optimistic at this point in the cycle in 2024 than I was in 2023 and 2022," says Andy Lund, global co-head of Houlihan Lokey's Private Funds Group. Despite expectations of a slowdown, the first half of 2024 has been unexpectedly successful for PE managers raising capital. U.S.-based funds closed on $155 billion by the end of June, slightly ahead of the first half of 2023 (PitchBook Q2 2024 US PE Breakdown). Alex Russ, head of North America for Evercore's Private Funds Group, sees this as an ideal moment for GPs with open funds. "We saw fewer new fundraise launches in 2024 than in 2022 and 2023, leading to a slight easing, which we expect to continue into the second half of this year," he notes. However, challenges remain. LP capital is still largely locked until M&A and exit activities resume. Evercore anticipates flat PE fundraising figures for 2024 compared to 2023. Moreover, other asset classes are vying for already limited institutional capital, with private credit showing particularly strong growth. In this context, Maria Konnikova’s "The Biggest Bluff" offers an insightful analogy. Inspired by "Theory of Games and Economic Behavior" by John von Neumann and Oskar Morgenstern, the book explores von Neumann's belief that poker epitomizes the delicate balance between skill and chance that governs life. Doing well at poker isn’t just about playing well; it’s about playing well relative to everyone else. And even with the best strategies, luck plays a critical role. As Nobel-winning economist Daniel Kahneman notes, "The successful funds in any given year are mostly lucky; they have a good roll of the dice. There is general agreement among researchers that nearly all stock pickers, whether they know it or not—and few of them do—are playing a game of chance." The last two years were like drawing a bad hand in poker for those raising funds. The book also emphasizes the importance of thinking like a Strategist—something I’ve honed throughout my career. Each move requires reassessment based on new information. You need a plan that evolves with feedback and supports long-term, good decision-making. If you’ve lost your chips, was it due to an unlucky situation—or because your strategy was flawed? A recurring mantra of Poker Hall of Famer Erik Seidel is "less certainty, more inquiry." If that becomes your guiding principle, not only will you actively listen, but you will also adapt and grow. For GPs, strengthening relationships with existing LPs is more crucial than ever. Now is the time to leverage your learnings and craft compelling narratives that showcase your commitment to value creation and strategic growth. By highlighting your firm's ability to navigate complex market dynamics, you can strengthen LP alignment and foster the partnerships needed for long-term success.

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🧱BRICS+ ACCELERATE 'THE UNIT' CHALLENGER TO KING 💵 🅰️ ARCADIA ECONOMICS (C. Marcus) interviews Eagle Forge (EF) Matt Riley about "BRICS-buck" aka "THE UNIT", long awaited (+ overdue!) challenger. 🇷🇺 🇨🇳SEEK TO REVALUE GOLD, create a parallel SWIFT-like system. "UNIT" a payments settlement ccy with a 40% gold backing. Not 100% (many BRICS members lack required Au reserves.) 6️⃣ 0️⃣ % REMAINDER TO BE backed by a pairing of strongest world trade fiats within the group. Smaller nations (e.g. Ethiopia) do fear being "drowned" by the majors, simply giving up one problematic system for another. 🌀STRATEGY TAKING SHAPE; anchored by resources (30-40% world oil supply), sheer number of BRICS humans (1.4 billion); three pillars: 1) DECOUPLE USD-PRICED Au and Ag from the new parallel system 2) RENDER "WESTERN" FIATS irrelevant by imposing "DIPLOMATIC, INFO, MILITARY and ECONOMIC" ("DIME") power-playbook 3) LEAVE ROOM FOR credit expansion, hence < 100% Au backing 🌎 POLITICS DRIVES FX vals, the "will" to transform the system. 🇮🇳🇨🇳🇷🇺 , front-running is the "everyone for themselves" factor; could scupper a unified "UNIT" front. Requires herculean geopolitical coordination to pull it off. 🇺🇸 COULD PRE-EMPT and revalue Au reserves first. Then, weaponize their "Strategic BTC Reserve". Matt thinks the latter is mere pandering (hodler votes). 📣 BOTTOM LINE, BRICS lack asymmetric warfare (comms force) to shift the narrative. Comms majors are all G7-based (FT, X, Reuters, NewsCorp etc) ‼️INTERESTINGLY, MATT RAISES the prospect of big bullion dealers being bought out by one or more BRICS/ proxies. Miles Franklin cited as one option. Informative Miles Franklin review from LinkedIn here: https://lnkd.in/gw5pKdsN #ArcadiaEconomics #BRICS+ #MattRiley #EFBullion #USD #TheUnit #monetary #commodities #gold #silver #MilesFranklin

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Don't call it a comeback - growth equity deals on the rise again per PitchBook. From the attached article: "According to PitchBook’s latest US PE Breakdown, PE growth investments were on the rise in the first half of 2024, accounting for about 23% of all PE deals and surpassing leveraged buyouts, which made up 19%. That reverses a long-time trend. Growth investments in the first half of 2024 are already exceeding those from the whole of 2023, when they accounted for 20% of all PE deals." The heightened cost of capital is obviously driving a lot of this dynamic. However... it is interesting to note that PE funds are seemingly more willing to take minority stakes - a dynamic that is historically more from the VC playbook. The hard truth is that, even in a challenging funding and valuation environment, growth stage companies - both PE-backed and VC-backed - still offer large institutional investors a compelling return profile. A growth-potential profile not often available in the public markets. This dynamic alone will push PE and VC private market investment through and beyond the current challenges... Endeavor Colorado Zeb King Tegan Stanbach Kathryn Dickson #privateequity #venturecapital #entrepreneurship #innovation #founders #startups #investing https://lnkd.in/gKZKwXct

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We see this very often in deals, the request of a staple, but I personally think there are ways to navigate this, with everything being above board , both for the selling LP, buyer and the GP. We have had situations where the GP preferred buyer who could also do a staple, actually price the fund better... because they want to strengthen that relationship, and ultimately of course have had situations where the GP preferred buyer is the bad actor in the equation, leveraging their preferred position to down play price for the seller... it's all part of the negotiation process. #secondaries #setterstrong

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This FT article has a fancy graphic illustrating the layers of debt in private equity, but -- despite my prior post warning about the risks of debt layering in PE -- this article is inaccurate scaremongering. Here’s the key line: “Much of this lending is ultimately underpinned by the financial health of a fund’s portfolio companies. Yet every transaction ends up adding more leverage to heavily indebted businesses, which can make them more vulnerable in a downturn.” This statement is fundamentally incorrect. From the leverage used by General Partners or Limited Partners on their overall private equity portfolios to the use of subscription lines, secondary fund leverage, and leverage by funds purchasing GP stakes—none of these add leverage to the individual businesses or increase their susceptibility to economic downturns. The only mechanism that does add leverage to a business is a dividend recapitalization. However, the alternative is typically the PE firm selling the business to realize its investment, where the acquirer, especially if it’s another PE firm, would likely employ the same amount of leverage. Net Asset Value (NAV) loans may represent leverage on leverage from an LP’s perspective, but they do not increase the portfolio company’s debt or its bankruptcy risk during a downturn. Instead, they merely increase the possibility that the GP might need to sell sooner than desired to repay fund-level debt. Therefore, the only factor impacting a portfolio company’s failure probability is dividend recapitalization. The bank’s expertise is to assess the risk of its debt investment in the company. Whether a GP sells a stake in their management company, an LP sells a stake to a secondary fund, or the fund uses a subscription loan (a short-term loan backed by LP capital commitments to optimize investment IRR by delaying capital calls) to purchase the company—none of these scenarios affect the portfolio company’s ability to weather a downturn. “There should not be a pocket of the market that touches on so much of the economy in such a sizeable way, where we can say, ‘oh there’s leverage,’ and then very few of us can explain what that leverage means and why it might—or might not—be risky,” said Victoria Ivashina, a professor at Harvard Business School specializing in private capital. I can only assume Professor Victoria Ivashina was either unaware of the article’s specifics or, as a private markets expert, she is 'one of a few' (?) who could have alleviated the author’s concerns about this ‘web of debt.’ Moreover, where is the causality here? There is no indication (other than the title of the article) that PE firms are coercing banks into making these loans. The title could just as easily have been “How Banks Have Mired PE Shops in Potentially Depression-Inducing Debt.” Both parties willingly engage in these transactions, and as new debt products emerge, banks are as proactive in marketing them to PE firms as the firms are in seeking them out.

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An incredible deep dive from Nathan M. into the cultural and structural issues that are plaguing Boeing and how they got to where they are today. This article should be turned into a business school case study it's that good. And many of these issues aren't unique to Boeing. The focus on financial engineering over actual engineering is an issue at play in many scaled aerospace and defense companies. A definite must-read! https://lnkd.in/gkdpF2tM

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I used to think LPs only invested in emerging VC / PE firms for better returns. That’s true…sort of They obviously first and foremost want high returns, but in building our firm and studying the industry I’ve learned that LP motivations are more nuanced than that To understand why an LP really might invest in us, I start with the assumption that they could invest that $ in Blackstone (or a similar large PE firm with top quartile track record) What could we offer that is incremental, and how should we position ourselves in that way? 1. Smaller funds can be higher upside — LPs may be looking for higher risk / higher return opportunities, so we have to emphasize the path to outlier returns. This means discussing not only their expected value but also the distribution of outcomes, and how that might differ from the rest of their portfolio 2. Harder to partner with successful firms later — LPs are often looking to build long-term partnerships with firms that will be around for many fund cycles, and that is about more than just returns. It’s important to emphasize not just the strategy of this fund but also the vision of the firm we’re building 3. Co-invest opportunities — Some LPs don’t care about co-invest, others only invest in funds for co-invest. When speaking with the latter, we emphasize that we have a disciplined and repeatable process to generate and share co-invest opportunities (easy to say, harder to execute) 4. Learning and thought partnership — We have LPs that invested in us because they have conviction in or personal passion for health & wellness and want to learn more about the ecosystem. For these folks we might talk through investment opportunities they see that are in our industry, or invite them to industry events. We also spend a ton of time writing quarterly letters to help them track the industry and learn from our companies It takes years to know where our returns will ultimately shake out, and we’ll have no reason or permission to exist if they aren’t good In the meantime it’s crucial to recognize and deliver on these other needs of our LPs, to provide the experience that they signed up for

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Great Sponsor-led secondary case study written in collaboration between my partner, Mike Blume and Derek Minno of Point Capital. Derek, a veteran in the VC/PE world, has been chronicling (on SecondaryLink) the GP-led VC and now PE sector. The case study provides a detailed perspective into a sponsor-led secondary and Tail End Capital Partners' approach to these investments. The case study documents Tail End's first investment, made in August, 2021 and also Tail End's first full exit in early 2024. Tail End has actually returned 97% of capital across our first three (of eight) investments proving out the velocity of capital in the Sponsor-led secondary market. Shout out to Sebastien Burdel for the introduction to Namakor Holdings the GP in Gelpac (the investment)! And, of course, thanks to Namakor for being great partners in this transaction! Article Link: https://lnkd.in/dUftFXdz Point Capital: https://lnkd.in/dAx_j8wP #sponsorledsecondary #gpledsecondary #secondary #secondarymarket #secondaries #independentsponsor #cv #continuationvehicle #liquidity #pe #privateequity #lmm #lowermiddlemarket #gp #generalpartner

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As the IPO window remains shut and other paths to liquidity (buyout and M&A) remain compressed, the Cerebras Systems S-1 filing is a cautious welcome sign for the venture capital asset class. As the first "pure play" generative AI company to go public since ChatGPT's release, this marks what could the beginning of a new technology IPO wave. The company is making the bold attempt to take NVIDIA head on: ✅ Cerebras has developed a novel wafer-scale AI chip that is 57x larger than a GPU with 7,000x the on-chip memory  📈 Revenue grew a an incredible 1,122% YoY to $70M in latest quarter 💰 Blue-chip technology investors including Benchmark, Coatue, and Altimeter But the S-1 filing also reveals some notable challenges and risks: 🚩 83% of revenue came from a single customer in 2023 🗳️ Possible CFIUS scrutiny over their relationship with an Emirati company 🧑‍💼 CEO named in prior SEC enforcement action in early 2000s We will continue to keep an eye out for more details in the coming months around IPO pricing and the company’s regulatory squabbles, but in the meantime, please enjoy the full essay below.

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I'm looking forward to discussing the future of investing in artificial intelligence with Kleida Martiro, Ashish Kakran, and Len Jacoby at the Kellogg PE & VC Conference this Wednesday. AI is likely the most important new technology to come along in decades, and I'm excited to explore its implications for our economy, society, and the investment landscape. #ai #investing #innovation #disruption

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I recently saw this metric from Carta’s 1Q24 VC Fund Report, which is very concerning. DPI... is nowhere to be found in earlier vintages that probably should start showing DPI. Funding early-stage projects is great, but ultimately, these venture dollars need to exit their investments and pay back their limited partners. That’s where the metric Distributed to Paid-In Capital (DPI) comes in. While managing a fund, we get interim measures during the life of the fund (e.g. IRR, MOIC), but ultimately, “you can’t eat IRR.” If you want to build a lasting venture capital organization, you need to start showing DPI for your fund. Keep in mind that this is traditional VC data from Carta, and is not strictly crypto venture. Crypto venture tends to get liquidity earlier (tokens) and things tend to go parabolic sooner (faster, more unicorns) - but I’d wager that the data here is somewhat similar for Crypto VCs… Not as much DPI as there should be from these earlier vintages. Read the full article, as well as a recap of all the crypto fundraising rounds for August, here: https://lnkd.in/g3eVJ-iF

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🚨Big Idea Alert: Lina Khan- FTC Chair and antitrust warrior- was named one of the ten most #innovative people of the decade by Fast Company. This may be a contrarian take bc my day job is finding and funding tech #startups that can scale to dominate a market segment, ie become the target of FTC antitrust activity. But I actually identify strongly with her perspectives and see multiple points of alignment with our own world view that drives the Aperture® Venture Capital fund thesis: 💡 In a truly competitive ecosystem price(or other financial stats) are not the only thing that matters. Ms. Khan is focused on defending the availability of consumer and small business choice in the marketplace. Like all fund managers, we are laser focused on alpha. But were also optimizing for diversity- of race, gender, geography, and cap table. 💡Khan believes it’s important to defend the interests of the little guy whenever (s)he is being mistreated by a dominant corporation. In horizontal tech areas like #AI, we look for startups building solutions that make corporations more reliable and trustworthy in the eyes of all stakeholders esp. customers. 💡Khan prioritizes enforcement activity that has the greatest impact on people’s daily lives. We invest in companies like Alaffia Health , Goodfynd , Azimuth and GreenLyne because of the positive impact on people’s health costs, household savings and access to wealth building opportunities.

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