🤝Last Money In GP Spotlight - Justin Smith, Managing Partner at Recharge Capital

Who are the leading VC Fund/Syndicate GP’s and how do they think about allocating capital via Funds, SPV’s and the like?

Today, we are excited to present our inaugural interview with a General Partner (GP) who we highly respect and have gotten to know well, exclusively for LMI readers. The objective of this interview is to showcase many of the leading VC fund and syndicate GPs and provide them with an opportunity to delve deeper into their identities and investment philosophies.

Our guest today has a unique path in this ecosystem having worked at a highly respected venture capital fund prior to launching a VC syndicate, only to later start his own venture capital fund Recharge Capital.

Let’s share more on this GP…

GP Profile:

Our first GP spotlight is Justin Smith, a Managing Partner at Recharge Capital, a leading thematic-first private investment firm focused on driving innovation and impact across various sectors including fintech infrastructure, women's healthcare, synthetic biology, semiconductor enablement, and digital assets. Prior to managing Recharge, Justin ran the Chaos Ventures Syndicate, and was a Vice President at Tusk Ventures, which invests in early stage companies in highly regulated markets with a portfolio that includes Fanduel and Coinbase. Justin has experienced the venture ecosystem from a number of different lenses, and in addition to his VC fund experience, has closed over 180 SPV/early stage investments since 2014.

For context, Alex and Zach have known Justin for over five years combined, and have worked with him on a large number of co-investment opportunities. He’s an incredible thinker, deal evaluator and overall trusted partner and friend!

Check out our interview with Justin below:

You’re one of the few syndicate leads who started in venture, working at Tusk Ventures, before becoming a Syndicate Lead. Why did you make that transition?

When I joined Tusk, we were a relatively young firm, having just completed our first close of the first fund. It was a great place to get my feet wet in all aspects of the venture business from developing a sourcing network, to monitoring the portfolio, to selling the story of the firm and the value we brought to the table, and ultimately underwriting entrepreneurs and their ideas. Tusk was a great place to learn how a specific/narrow specialization could be leveraged to gain access to a funding round despite being a smaller check and a lesser known name at the time. Tusk taught me much about deal making and the politics behind it, but ultimately I realized that to create longevity as an investor, I needed to have people that trusted me with their capital regardless of the brand behind me, my own limited partner base. I began running my own syndicate as a way to bridge this gap and build relationships with investors so that they could learn how I source, underwrite, communicate, and invest.

How would you compare the pros and cons of working at a traditional fund versus running a syndicate?

The primary difference between managing a syndication business vs. managing an investment partnership (fund) is having discretion over investment decisions. Whereas with a blind pool vehicle under an investment partnership (fund) allows me to have full discretion over investment execution and risk management of the portfolio, the syndication business does not grant this discretion. Instead, syndicates present opportunities and allow the investor base to make a decision to opt-in to the investment or pass. This lack of discretion is a pretty significant hurdle to syndicated deal making as you have to carefully balance investment target founder expectations with potential demand from your investor base. On the flip side, this flexibility for limited partner investors to cherry pick their deals translates into syndicate leads having an easier path to achieving investment return hurdles and generating carried interest. Syndicates operate on a deal by deal basis as opposed to a pooled fund. Pooled funds are required to return their entire capital base, spread over many deals, before the manager can earn carried interest. It is easier to realize carry when setting the hurdle deal by deal than when the hurdle includes an aggregation of deals in a fund.

How did Syndicates play a role in leading to your next foray into VC?

Managing a syndicate paved the path to many fruitful relationships that otherwise would have taken many more years to develop. As these relationships build trust in your process, philosophy, and insight, they eventually want to leverage more of your time to directly manage their assets for a specific strategy or risk exposure. This is the point at which you can raise blind pool funds and start exercising trusted discretion over a third party investor's assets.

What’s the most interesting way you’ve heard about a startup that you ended up meeting with or investing in as an angel?

I don't really have one particularly amazing story that sticks out but when I first moved to NYC in 2013 I was looking to meet people and wound up joining a coed soccer team with a bunch of random people that didn't know each other. That team ended up playing together for 8 years and most of those people were early Uber and Slack employees. When I first entered angel/venture investing in 2014, this is essentially where I started to develop my network in tech while I was still working in more traditional private equity.

How do you identify potential investment opportunities and evaluate the viability of startups or businesses?

I tend to invest with a particular lens on the founding team's subjective traits rather than the specific business opportunity. Ultimately, capital translates into labor and the execution of ideas and when you are investing at the 0 to 1 stage, you need people that exhibit certain qualities around character, intelligence and a host of other attributes that translate to business success. Taking this strategy as core to evaluation, it also makes sense to layer in a particular macro theme or industry vertical and run a specialized deployment strategy. It is very difficult to develop any sort of consistent investing edge. Investing edge is ultimately developed from a perpetually evolving mix of relationships, successes, failures, and beliefs.

Can you describe some of the most memorable investments you've made and the impact they have had?

At Tusk, I was fortunate to work on the underwriting of our investment in Lemonade in 2016 (2020 IPO). Lemonade was one of the first insurtechs to try and leverage technology within all areas of the insurance workflow: distribution, underwriting/binding, and claims adjudication. On top of that, Lemonade was able to attract enough capital to become its own carrier, thus reaping more economics across the entire insurance value chain. Although Lemonade has struggled to convert lower LTV renters into higher LTV homeowners, I am still bullish on the company. Long-term, they are in a better position than incumbents to continue to leverage technology to gain cost efficiencies and potentially underwrite risk where others cannot. Their technology-first approach will continue to drive forward more useful and affordable risk mitigation tools across businesses and consumers.

What trends or sectors in the startup ecosystem excite you the most currently, and why?

At Recharge Capital we are purists for thematic investing. We take a top-down approach to constructing our portfolios, placing highly concentrated bets with significant conviction, and then leveraging our capital base to vertically integrate within our strongest themes. Using this platform structure allows us to own/influence the distribution channels to the end consumer. We are currently focused on four major trends: the importance of fertility technologies globally, decarbonization of global production and consumption, defense technologies in an increasingly polarizing world, and the influence of synthetic biology in consumer product sustainability. We've identified each of these areas as being considerable areas of societal growth where we can also leverage our network of influential families, investors and multinational conglomerates to drive innovation.

One piece of advice for aspiring angel investors?

I've done over 180 SPV/early stage investments since 2014. I look at angel investing as more of a way to build partnerships rather than a way to build wealth. I have seen numerous angels in my network make investments and then later partner with or take employment with the companies that they back. I have also seen occasions where a startup fails, but then that same founder restarts a new company, receives funding from new investors, and then comes back to their original investors (in the company that went to zero) and offers them a special private deal into their new company at advantageous terms to try and "pay back" those angels for their early support. My advice is to simply invest with and in people you trust and that are hyper focused on building and innovating. Even if their project ultimately fails, the relationship may yield many other benefits than you anticipated with your investment.

If you enjoyed this post, please share on LinkedIn, X (fka Twitter), Meta and elsewhere. It goes a long way to support us!

We’ll be back in your inbox next Wednesday on our next topic. Thanks for tuning in!

Questions? Comments? Feedback? We welcome all, and would love to hear from you!

Follow the Last Money In authors on LinkedIn

✍️ Written by Alex and Zachary