#246: 🎧 LPs, Solo GPs, and the Power Law: Michael Kim on Backing the Best

In this rare LP-side deep dive, Turner Novak interviews Michael Kim, founder of Cendana Capital, one of the most influential limited partners backing early-stage VC managers. If you’re a solo GP, raising a first fund, or just trying to make sense of this market, Kim delivers a calm, clinical take on what works—and what doesn’t—when it comes to building durable venture franchises.

This episode is also a window into how funds like Banana Capital are evolving operations. Turner shares how they use Salesforce, AI, and offshore analysts to track 3,000+ companies and 300+ funds. But make no mistake—Michael reminds us that in venture, tooling is leverage, but judgment is everything.

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📌 Key Takeaways

1. Founder Access > Company Selection

Kim makes it clear: in early-stage venture, the edge isn’t picking the best startup—it’s access to the best founders, before anyone else. Many seed GPs win by being the first check, long before a Series A.

“There are tens of thousands of startups launching every year. What matters is the ability to filter and find the few truly exceptional founders early.”

2. Solo GPs Can Win—But It’s Not Easy

Solo GPs are nimble, focused, and free of partnership politics. But Michael flags some real risks—like overcommitting to struggling companies and lacking emotional distance.

“Solo GPs often have better clarity and consistency, but they need strong advisor networks and community infrastructure to avoid blind spots.”

LPs still worry about key-man risk, but structural solutions like co-investment rights, advisor councils, and “hit by a bus” clauses can help.

3. Fund Size Dictates Ownership Strategy

Cendana’s mental model: seed-stage funds should aim for 10% ownership relative to fund size. So an $80M fund would target 8% post-money stakes. That sets expectations on upside, portfolio count, and reserves.

“Ownership is the dominant lever in venture returns.”

This math governs everything: check sizes, follow-on pacing, and risk concentration.

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🧠 Operational Deep Dive (via Banana Capital)

While Michael represents the LP side, Turner shares how Banana Capital is building its ops stack. Some highlights:

• Salesforce + offshore analysts to track company metrics, ownership, revenue, round progression.

• Natural language interfaces (experimental) to query past notes on any company or fund.

• AI-assisted deal flow tracking, but human review remains critical.

“We're tracking 3,000+ companies and 300+ funds. Our system helps us understand round dynamics, valuations, and exits across the stack.”

Michael tempers the AI enthusiasm with realism: the best funds are still grounded in human relationships and discipline. AI is a lever, not a replacement.

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💸 Secondaries are the New IPOs

Kim notes a major structural shift: secondaries are now a core part of liquidity planning, not just an edge case. Partial exits help GPs return capital, reduce risk, and create pacing for new funds.

“In many of our best-performing funds, secondaries delivered the bulk of early distributions.”

This reframes fund return timelines—and aligns LP expectations with the real, illiquid nature of venture.

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🧬 What Makes a Great GP?

Michael lists the signals that matter when backing emerging managers:

• Access to breakout founders before everyone else

• Hustle + high agency (e.g. showing up at hacker houses, demo days, underground communities)

• Clear investment philosophy and pacing discipline

• Operational track record, often from elite platforms (YC, Stripe, etc.)

“We look for GPs who create founder pull, not just investor push.”

He also discusses references—triangulating across founders, co-investors, and peers to gauge a GP’s reputation and edge.

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🧩 The Fundraising Reality Check

Michael doesn’t sugarcoat it: fundraising is brutal post-2021. Many GPs from the tourist class of 2020–2021 can’t raise Fund II or III. Institutional LPs want:

• Early proof points (write-ups, warehoused deals)

• Scarcity value (early closes, real traction)

• Returnable math (credible pathway to 3x+ gross)

“You can’t fake pacing or performance. LPs are looking for signs of durability.”

He advises first-time managers to lean into warehousing capital, even before the final close, to prove momentum and build trust.

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🗂️ Portfolio Construction Matters—A Lot

Kim is a student of structure: seed funds typically run 25–35 names, with reserves and follow-ons managed carefully. He warns against over-diversifying with small checks that dilute ownership and create “zombie” portfolios.

The best funds:

• Stay disciplined in check sizes

• Use follow-ons surgically, not programmatically

• Consider partial secondaries to lock in outcomes and recycle capital

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🚨 The Messy Middle Is Real

Not every startup becomes a rocketship—or a write-off. Many hit $10–30M in revenue but grow at 10–20% annually. These “middle market” companies don’t fit VC or PE neatly.

Some funds explore holdcos, roll-ups, or strategic M&A—but founder psychology is a barrier. This segment is underexplored, underliquid, and ripe for innovation.

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⚖️ The LP Lens on Venture

Kim ends with a sober truth: VC is a power-law asset class with a 10+ year duration. The best funds aim for 5x–10x net to justify the illiquidity and risk.

“Institutional LPs are asking: do we still believe venture can beat the S&P?”

For Kim, the answer is yes—but only if GPs maintain discipline on ownership, pacing, and founder access.

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🧠 Final Word

This episode is a rare LP-GP dual narrative. Kim brings clarity and humility to a noisy space. He backs the best by recognizing the patterns early—not in companies, but in people.

And as Turner builds Banana Capital with systems, data, and AI, it’s a reminder that tools are important—but edge comes from judgment, grit, and relationships.

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