I'm excited to be here today with Michael Carney. Michael is at Evoke Advisors where he advises high net worth individuals and nonprofits on their investment activity.
He also manages Evoke’s $100M fund investing into other funds. And of course, Michael was a partner at Upfront for a number of years prior. Michael. Good to see you.
So this is still a reasonably new role for you and I'd love to just start, maybe give us the overview of the Evoke.
Yeah, like you said, I was at Upfront ventures and spend a lot of time in the startup ecosystem and kind of in that capacity became very good friends with a gentleman in town named Andrew Palmer, who is a wealth advisor who works with a lot of startup founders and entrepreneurs.
And in late 2019, He and a few partners decided to start a new firm to kind of re-imagine the way wealth management might look for the next 20 years, you know, throwing out some of the sacred cows and the, the way things have been done for the last prior 20 years.
And he always likes to say, it's a kind of a phrase I borrowed from him. The future is going to look very different than the past.
So evoke was, You know, whiteboard it out, like, a start-up,
And so I joined to help the team and the firm have a strong foothold in the startup ecosystem and, think about investing in private markets had venture deals, had venture funds and so forth.
So your role is super interesting and relevant, but are there certain things like when you throw out the sacred cows, like, are there certain tenants of how evoke functions really differently than the, , prior setup?
Sure. And it's probably worth touching on two dimensions. One would be how you create a, an investment portfolio and that's maybe a little bit kind of in the weeds, but we can touch on that high level. And I would say. You know, the very, basics of that are for the last, , 40 or so years people innocent what's thought of as a 60, 40 portfolio, 60% of your money and growth assets.
Usually public stocks, 40% in conservative assets, like fixed income. And that works when interest rates allowed you to, get an attractive yield on the safe stuff on the bonds. And when the stock market wasn't as highly overvalued as it is today. And. That's no longer the case. And so that portfolio doesn't really work or it doesn't really deliver the returns that most clients are looking for.
But moreover although people think that as being a diversified way to invest, you can have lots of different stocks and bonds. Really. It usually correlates to one in kind of down markets in 87, 2001, 2008. And so there's a. more sophisticated way to think about kind of creating diversified portfolios that we have borrowed from a lot of what Bridgewater does around risk parody.
but maybe the more important thing, and the reason why I'm excited to have kind of made this change and joined the team at evoke is really.
Building a firm to service entrepreneurs and to think and understand the unique challenges and, demands of entrepreneurs in terms of managing concentrated stock positions, thinking about when and how to take liquidity from a, private business, how to go through an M and a process, how to manage a angel investment career, post liquidity, all those kinds of things.
We get pretty involved in that. A lot of other wealth management firms don't have the capacity or experience to get them all.
Can we dig in on a few of those? So I think they're very relevant. So you know, let's say that we're talking about liquidity events and I'm maybe series B series C. Founder. Are there certain things that you start to put in place or talk to founders about early?
absolutely. Uh, We have uh, bit of advice or wisdom we like to get to our clients, which is wealth is made through concentration and wealth is kept through diversification.
And so, if I were to give you a hundred million dollars tomorrow and to say, you know, how would you create an investment portfolio? What are the odds? You'd put 99% of that in a single.
investment Probably very low.
So to the extent you've created real value and it makes sense for the business and for the cap table and governance and all those things to take chips off the table, we strongly encourage founders to take chips off the table.
We work with our founders our clients to think about how and when to take liquidity. And that can mean, you know, selling stock to existing shareholders, to venture investors. It can mean working with, you know, dedicated funds.
, there's a fairly large ecosystem funds that specialize in doing secondaries. There's folks that will lend against. Private stock positions. There's a lot of mechanisms of getting liquidity, especially kind of given market cycles and, you know, where we are in the, . Venture valuation cycle. You never know what the next three to five years are gonna look like. so a lot of your clients are in the tech world. And you said that one of the other things is like setting up a smart angel portfolio.
Yeah. I mean, it's, it's very different on a client by client basis. And some clients are, eager to, put money, to work in the startup ecosystem and, I'll call it, be an active participant. Some are saying, you know, I'd rather give money to venture funds and let them invest on my behalf.
And then evoke also has a dedicated fund where it takes LP positions. So I think what you referred to is we have kind of a vintage year fund. So we're putting about a hundred million dollars into early stage. Funds, you know, think about it like a fund to funds. So we probably put 400 to $500 million to work in 2021. So in, first half of 2022, we'll put a hundred million dollars to work.
And what are you looking for? In funds?
The same thing everybody's looking for I think , is, you know, consistent returns, dedicated kind of thoughtful team, unique access to deal flow. Yeah, I mean, maybe I'll just jump in there and ask some more about being an LP now after being a GP for a number of years and you know what you've learned, what you see differently now that you're on the LP side of things.
it's been quite fascinating, honestly. I mean, obviously I spent eight years at upfront ventures and so I had. Front row seat to how that one firm operated. but it's, definitely different to, I guess, get under the hood and get really kind of deep and granular with dozens and dozens of managers it's still similar to investing in startups. It's still a people business, and you're still betting on teams of people
I do believe, and I think this is something upfront did well and impressed upon me. I think venture is a team sport
and as much as you know, there are often, single GP. Within a large team or even by themselves. So you can have tremendous performance. I think the best firms tend to operate consistently and predictably well as a team.
And how did investment decisions get made it upfront?
Yeah. So certainly won't speak for upfront. And I think mark would uh, would appreciate that, but he speaks pretty publicly about us. So I'm happy to talk about it. Upfront is certainly a, a conviction driven model where um, The firm wants the partners to kind of put their neck on the line a little bit and stand for a deal, you know, deals don't get done when people think they're somewhat interesting, you know, deals get done.
When people think they're the best deal they've seen and the best deal they're going to see this year. And they're willing to do the work and pound their fist on the table.
And now that you're an LP, do you see massively different models or anything that's really like stood out for you?
know what I saw the other day that I thought it was really fascinating was web three focus fund. It's a new fund first-time manager who came up with a tokenized carry system where they can essentially create an incentive structure for. Call it the community, but you know, think about it like venture partners, but , many, many venture partners around this, GP to see not only source deals, but help underwrite, prospective deals, and then help support portfolio companies.
There's been flavors of that done in a more traditional kind of, you know, cash carry or, you know, GP participation way. But I think it's using the token economics and using the, crypto plumbing, I'll say to filter.
That's really interesting. I'm a big believer in community generally and bringing, you know, as many.
Smart minds and resources to bear as possible. So I thought it was a really interesting approach.
And how do you see early stage funds competing with lifecycle funds and how do you think funds can remain differentiated? Yeah. I mean, I think we're in a moment in time or a transition where things are going to shake out and I, I don't know that 20 22 23 will look the same. The last two or three years did where kind of everybody was putting as much money to work as quickly as possible. And maybe straying from what their core competency was.
And certainly there'll be folks that'll be you know, full lifecycle or multi-stage investors. But I think my impression is that funds are generally returning to their knitting and trying to be, you know, more. Stage or, valuation focused
But in terms of the differentiation, a lot of that I think comes back to referencing with, founders and with other co-investors, you know, this firm claims to add a ton of value in, sourcing talent or industrial capital or BD or, you know, whatever their kind of offering is like, how real is that?
How helpful or were they You know, who on your cap table is the most engaged. Like those kinds of things are pretty revealing and you can get a lot more insight , than you'll get directly from a GP in terms of what that actually looks like in practice.
And so we try to do that as much as possible.
Totally. I mean, I feel like you and I both could probably describe the LA ecosystem who's who and what role they play pretty accurately. Any thing else, just saying sort of what evoke is doing, like any other advice that you're giving your clients, that those of us who aren't yet your clients, but aspire to be your client. Um, Any other advice you're giving to your clients that we can kind of learn from.
Sure. And I'll preface this with the classic. I'm not a lawyer or an accountant, . So there's certainly nuance to any of these techniques One of the things we spent a lot of time with, with founders who are pre-liquidity thinking through is estate and tax planning.
And like I said, I spent a decade in venture and, you know, talking with founders and sitting on boards and very rarely if ever did any of this come up. And so I think that there's a, knowledge gap or an awareness gap in terms of, you know, how important this can be. And frankly, how much leverage there can be.
Doing this planning early, meaning the further before you have a liquidity event, the more effective the planning could be. And so that's things like, creating trust, creating you know, out of state trust often or generations giving trust and kind of gifting shares in your company to those trusts for the benefit of your kids or your next generation doing philanthropic planning by gifting shares, which, you know, in both cases you can give, share.
What a mouse to effectively a four 90 evaluation. So if your shares have this preferred equity price, the same way you issue options in your company to employees, you can often gift equity at those discounts. And so the. Hardest conversations are when someone comes to us says, Hey, I just got a term sheet or an LOI just to sell my company or to do this big secondary. And it closed in four weeks. Like, what can I do? And the answer is probably nothing. Like you're kind of, you're kind of too late or certainly the answer, maybe more nuances, not nearly as much as you put it done six or 12 months.
And so to the extent that founders have actually created real value, meaning, you know, multi, tens of millions, of dollars of personal value in a company, , there's a lot of, pre-planning to be done that can move the needle significantly in terms of after tax proceeds, you get to keep , as a family.
Is that like, what did Peter deal do? Like, can we all do that too?
So currently there's a flavor of what Peter teal did that everyone can do, although there's been, I'll call it scrutiny at the congressional level. So basically he invested in several startups in his Roth IRA.
So if you have the opportunity to invest at the pre-seed stage in Facebook and PayPal in your Roth IRA, that would be a great opportunity.
And certainly you should take advantage of it. Um, There's limits the amount of dollars you can put into a Roth every year. And so typically you're starting with a modest sum of capital to invest, but if you can have a 10,000 X quickly, it becomes a large sum of capital and he essentially did a. My understanding and I could have some of the details where my understanding is as a founder, normally you have to put in, you know, nominal equity to buy your founder shares.
And he did that out of Israel. So that's like, you know, single digit thousands of dollars in PayPal in Israel, but then obviously that had a tremendous outcome and he leveraged that outcome to then invest in Facebook and several other early stage startups with that, pool of capital.
well, but a lot of the audience here has the opportunity
has these really low 4, 9, 8
And how this is totally philosophical. How do you avoid screwing up your kids? If you're setting up trusts for your children?
That's like the billion dollar question and we spend, , I appreciate you asking that we spend as much time talking with clients about I'll call it the EEQ side of, wealth as the, you know, the IQ of the financial side. And that is, , healthy marriages , raising good kids, being a good citizen, thinking about legacy, all those things.
And. Again, like everything there's a nuance to it. A lot of it depends on your kids and, , , having a perspective of who they are and what they need in terms of guardrails and incentives and motivation. obviously our clients, we have several hundred clients who have gone through similar journeys, but there's, centuries and decades of evidence about, you know, how much is too much and too early.
And. like I've seen all kinds of creative things that we have a client, for example, that has a matching program out of a trust where the kids only get access dollar for dollar to match their.
So, if they want to be an artist, they won't be quite as struggling on artists that they want to be a high earner. There's an incentive structure for that. there's all kinds of different, clever approaches,
Yeah. Um, My brother wanted to be an artist and my mother said, well, if do you want to be a starving artist? I'm going to let you start.
That's, that's more stick than carrot.
Yeah, it was,
I went to business school. Um, So anything else on like the, you listed a bunch of things like M and a anything else where you're just giving good advice that we could just get for free right now?
So here's one, and this is more of a, kind of a mind bender, but I think so interesting. Think about the very best day to sell your company
is inherently the very worst day to then turn around and reinvest the cash. So you want to sell your company at the very top of the market when you're getting the very best multiples and the very best price, but now you're sitting on cash and you need to reinvest it, which means you're investing into a, frothy overvalued market kind of definitionally.
So a lot of our advice often is, kind of slow down. Don't be in a hurry, There's both emotional transition, but also again, kind of what I spoke to earlier about market cycle transition that, you know, you certainly don't have to be in a hurry.
And what we see a lot of times is. clients who coming into the car coming into first time,you know, significant wealth kind of go into a, manic period for one or two years where they're, adjusting to all this, but they're making all these kind of um, impulsive cash burning a hole in my pocket decisions.
And then usually there's a. pause and a reflection or retrenchment. Often there then two, three years later selling houses and selling boats pausing angel investing because it got out of hand and all that kind of stuff, but it's not usually to financial ruin, but it's usually to. complexity of lifestyle detriment.
I want to simplify, I don't want to have all this stuff to manage and think about, I want to enjoy kind of slower, quieter, you know, fruits of my labor lifestyle. So I would say going slow the minute you come into wealth is probably good advice.
Interesting. What about just the rule that you're in now? I feel like there's a lot more heads up macro environment stuff where you just need to be aware of what's going on with interest rates in China and Ukraine and other things.
What have you been learning in this capacity?
Yeah, it's fascinating. I mean, candidly, didn't spend a ton of time thinking about macro economics and public markets. , as an early stage venture investor And I think, you know, for founders by and large, that's still good advice. In terms of investing , we like to be fairly I'd say patient or, or, you know, we're not daytrading uh, portfolio is really we're kind of trying to come up with allocation that we think makes sense in, most, if not all market environments and we'll, tweak around the edges.
When, things changed significantly, you know, pandemics happen or wars happened, One of the things we spent a lot of time on which, you know, will be probably pretty familiar to most listeners to this podcast is we spent a lot of time investing in private markets.
We did. One of the more attractive areas to both get access to,, better than, public market returns, but also to be somewhat more insulated from um, things like mark-to-market and, and, kind of narrow short-term thinking
I tend to have, like, I feel like I didn't have like FOMO a little bit from still being sort of a 60, 40 sort of person.
And I feel like everyone now.
But you're not though. Cause you have your, GP carry bucket. That's your, That's
your, that's the other.
I have plenty of private market exposure. But I do feel like everyone is doing much more creative. Like they're investing in fractional farmland, ownership and art, and If it's not 60 40, like how much alternatives?
How do I think about
has it to give you a recipe for That's kind of universal. It certainly depends on, things like, you know, how much capital you have, how much liquidity you have, meaning are you still working in getting income from your job? Are you living off the portfolio? and again, there's certainly not a recommendation. It's not right for everybody. We have clients that are 40 or 50% illiquid and private markets, but those?
are clients with, you know, substantial assets you know the portfolio you'd never see 20 years ago with somebody that was 50% in alternative investments, or at least very uncommon, that's more common today, or at least, you know, 30 plus percent alternatives. there's so many cliches in this world that I had been hearing for the first time, but there's like, The number one rule of, managing ultra high net worth is the wealth is don't go backwards. Like you kind of already won the race. You're on the other side of the finish line, you're drinking your Gatorade.
Like, don't go run the race again.
I like that.
And when you're evaluating VC funds, are you asking about portfolio construction or what are some of the really good questions you're asking?
I mean, I kinda kick out about that kind of stuff, at least in the venture world, which is where my, experience isYeah.
I think portfolio construction is, just intellectually interesting. And, , I'm not someone who believes there's one universal answer, you know, you need 15% ownership and you should have, you know, this many companies in the portfolio, but ultimately what I think I like to see as a founder of a firm, a GP of a firm that um, , Is thoughtful and well-reasoned, and, intellectually honest with themselves about why they're constructing the portfolio the way they are.
And as at least done me, The math, I guess you'll say to understand what that means and they're optimizing for,
I mean, it's changed like for us, like how much we reserve in this crazy up market ended up being different than sort of what we thought we were going to do, because we didn't have the ability to take our reserve or, you know, our probiotic got so small. Percentage-wise.
I mean, I, certainly appreciate people who we sat on a strategy in 2019 and, largely stuck with it. You know, whether it's pacing or check size or, or evaluation,discipline now, I think you have to, in some ways, respond to the market. And so, like, I use this cliche, but like, Executing a 2014 strategy in 2021.
Wasn't going to be very effective in terms of winning good deals. You were kind of adverse, selecting yourselves into the deals that would take your terms.
Yeah. Anything else big on evoke in what you're doing or do I get to go backwards and ask you about, you know, Michael Carney in high school?
Yeah, let's go.
Like, what was your family like? Where are you from?
I grew up on the east coast, outside of Philadelphia and the kind of outer suburbs of Philadelphia. Very lucky had a great childhood. My parents still are happily married. one brother three years younger than me. I was very fortunate to kind of grow up in a house where my parents were very encouraging and, you know, allowed me to kind of explore my interest.
Academically and athletically and everything, but. Work very prescriptive. you know, go on my misadventures and make my mistakes and kind of learn along the way, which, you know, I've tried to reflect in my parenting of my kids.
Now. I think that that was healthy way to grow up. Do you get a chance for yourself to think that your 13 year old self or whatever would be proud of where you are?
I mean, yeah, there was a moment in time in 13 is an interesting age because we all go through those kind of rebellious teenage years. And, somewhere around that age, I don't know exactly how old my mom.
Was fond of telling her girlfriends that I was walking a fine line between Harvard and prison. So given that from a 13 year old perspective, I think I've done. Okay.
I like that personality type. I'm the same way.
That's really strong. Okay. So you were that kind of kid. So what's next on the journey.
So I went to UC Santa Barbara, which is a paradise on earth when I graduated college after taking kind of a gap year living and working in, Seoul, you know, a fun adventure.
I came back and I jumped into real estate. I was at a real estate, private equity firm based in Beverly Hills that was doing raw land development in 2005 through eight. And so that was a great run until the real estate world came to a screeching halt and I had to reevaluate.
And thankfully along the way, I had met some pretty interesting people who were building a merchant.
Which has kind of a, hybrid of an investment bank and a BC fund What is a merchant bank?
it's an amorphous term that
I think people use liberally to kind of mean different things in different circumstances. For us, it meant we had an advisory practice, so you could come to us and we would help you raise capital. We would help you sell your business like a boutique investment bank.
And we were doing deals as a principal. we had a small pool of capital. We also would raise capital on a deal by deal basis, kind of like a syndicate,
I never knew what it meant. Okay. Go on.
Yeah. So I spent four years doing that. And then that firm overnight kind of dissolved. And I was a. Given the opportunity to rethink what I wanted to do next and in that journey of, discovery and thinking What the next step was, I reached out to, it was now a good friend of mine, a woman named Sarah Lacey, who had been a senior editor at tech crunch and had recently started Pando daily as this kind of new emerging venture startup media company.
And I reached out to her cold and said, you know, I love what you're up to. I think, you know, there's room for kind of another voice in this space. I said to her, you know, you should cover LA. Nobody's really doing it. Well, , the tech crunches of the world are not really paying attention and you could kind of own this beat. And she said to me I kind of agree with you that that's a great idea, but I'm going to start up.
I have three employees and I have no capacity. Allocate resources to LA, but if you're seeing interesting stories, you can send them my way. If you want to write a guest post here and there, go for it, again, it was not intended to be a career oriented job, but it was kind of way to.
my intellectual curiosity and spend some time while I figured out the next thing. And so I started writing? this guest column for panto about the rise of the LA tech scene and, you know, fast forward that turned into a three year job where I ended up as the west coast editor And it was great. , it was one of those serendipitous things where, although I didn't set out to go down that path, it ended up being one of the greatest things happen in my career in terms of both learning, but really just the people I met, the network I built, and it's probably how a lot of people in LA think of me first, although, , it's kind of this, weird anomaly in the middle of a finance career.
Yeah, no, I think we talked about the fact that we have a quote from you on our deck as does cross-cut right?
Yeah. I mean, I remember one time, one time was launching and, and, you know, David was kind of pitching me on the vision of this , Caltech to Santa Monica
. What about writing? What did you find is being like, you've been a chemical engineer. You hadn't been a
writer. what did you learn doing that?
I mean, still find writing to be. Intellectually clarifying, I thought of myself more as a and again, this is maybe my perspective, but I was less a journalist, a more, a business analyst in that role.
I was. And, how does this business, or making sense, how does this market work? and people ask me a lot if I miss writing.
And I always say the thing I miss is. conversation, you kind of like put this thing out into the world and you get this feedback. And so every time you go to a, coffee meeting or you hop on Twitter, somebody has an opinion for you about, you know, what you were right about and what you were wrong about.
And so I get less of that, or I have to find other ways to get that, conversation these days, but I don't miss the deadlines.
I don't miss the waking up and knowing I have to write a certain number of words, a certain number of pieces of content this day, or this week. That was not my thing.
One of my more favorite episodes. I shouldn't say that, but it was Brett brewer just recently talking about the early days
the Brett's oh, Gog. He's been here since the very beginning. Yeah.
All Brett's fault.
Yes, of course. But hearing him just talk about how much the LA ecosystem just had to support itself, because it was getting no support from the bay area. It's really interesting. I think there's a lot of truth in that. there are markets where there's less VC dollars available and you'll see companies much more predisposed to operating profitably in the early stage.
, , they frankly just can't afford to, to. prioritize growth over profitability. Cause they don't know that the capital's going to be there. There's a reason why LA is still one of the greatest demand gen uh, talent pools the world.
Because early on, you know, a lot of internet monetization came out of LA. , look at partners and what they built at applied semantic. That's kind of the foundation Google's business these days. And, you know, a lot of the early e-commerce businesses were built here.
So you were covering venture, but then you moved to upfront, like what's surprised you make him move into.
Yeah. I mean, so upper was my first, you know, traditional VC role.
And so I learned quite a bit about, , the nuances of. how to think about founding teams and you know, what types of skill sets and disciplines, you, know, you need to see in terms of, , again, , founder, skillsets, matching companies, frankly, Kara likes to talk a lot about that.
people talk about founder market fit, but there's like kind of founder upfront fit too. Like how you are founder of VC fit, how you interface with that company, what skillsets you bring to bear to fill in their gaps or to help them kind of be a thought partner.
How about um, things you learned, maybe being a board member, like what sort of board member you were talking about that fit?
What have you seen that's really helpful or just like, what's your.
so upfront has a great approach to this, I think is, before you take boards, you end up kind of sitting on boards as an observer with a partner. And so I got to sit on three or four boards with different partners that upfront and, you know, observe their styles. And again, every board member has a style.
Company board is a different dynamic. It's like a small family. And so there's the, you know, everyone kind of fits into a role in terms of, how much they talk and what they focus on and you know, what their , predilections are. Um, And so that was a learning journey. And so I got to sit on a total of, I think, six boards in my time at up front.
And they span the gamut from both stage and company size. And so a lot of the journey was, understand. The individual founder, the individual management team, understanding where you could uniquely add value relative, frankly, to other board members. You know, there were boards where, , it was myself and let's say an angel investor or a strategic who had a different level of,
Experience or commitment to be on that board. And I had boards where I was with, you know, kind of luminaries of the venture world. And, so I got to spend a lot more time learning from them and letting them kind of run point. And so it's very situational, I think it's a really important function obviously.
And it's one that kind of a craft and you, have to develop.
I totally agree, but I'm going to move off boards entirely. Michael, how would your friends describe you? Um, I think my friends would describe me as hyper-competitive,
Fairly organized disciplined. Maybe on OCD. I like to be prepared and organized have those kinds of tendencies. Hopefully empathetic. think I'm a reasonably good and friend.
What about listing it on competition? How do you channel that effectively? Like how does that manifest? I know you were D one golfer, right?
Yeah. I mentioned, so my, mother's commentary, my teen years, my mom thinks that's been my like great life journey is to figure out how to be a healthy, competitive individuals as opposed to unhealthy competitive and individual. Yeah, I mean, I, I grew up as an athlete.
I played team sports my whole life. I was always the person that. Yeah, the most excited what we want and most upset when we lost, I still find myself wanting to, thrive succeed and compete in all the things I do. You know, whether that's professionally, whether that's competition is probably the wrong word, but I, want to raise great kids. I want to take it seriously. I guess I don't want to.
Trust that it's all just going to work itself out that, you know, I think you have to put time and energy into, into that stuff, into relationships, you know, with my spouse, like I try to be at least as thoughtful about those things as possible, rather than just haphazardly kind of going through each of those roles in life.
kinda wrapping up, like who's the right person to get in touch and how do people get in touch? Whether it's funds or just potential clients? How little welcome I have and still come get a free consultation.
I'm an open book Twitter, DMS is a great place. You can find me on LinkedIn?
and frankly, you know, one of the things learned from my time in venture and I've tried to carry over is I try as much as I can to give before, I get or that expectation.
So I'm happy to spend time with folks who are, maybe not ready to be clients try to offer them. Kind of insight feedback wisdom as possible.
So I spent a lot of time just helping founders think through strategy through fundraising, through, you know, team building you know, through board dynamics and then obviously through the kind of wealth management stuff. when the time comes.
I love that give first mentality that the tech world really does have. Well, Michael, it sounds like a great role. Thanks for coming on the podcast and telling me about it.
Well, it's been great. It's really good to chat with you and Gratz on everything you've built with this podcast. I'm an avid listener and a big fan.
Thanks so much.