The over institutionalization and rise in popularity of venture capital has crowded out small to midsize family offices from accessing top tier VC deals. Managing Partner of DRA Family Office, Rose Vitale, invited PORTAL’s Managing Partner, Peter Loukianoff, on her podcast to discuss how family offices can regain access to VC and how PORTAL has built an infrastructure to support family offices.

You can listen to the episode on Spotify and Apple Podcasts or read the conversation below.

Want to learn more on how PORTAL can help your Family Office gain access to Venture Capital?

Connect with us here or email us at IR@ASCENDwithPORTAL.com.

Rose Vitale: Live from Bali. And my guest today is Peter Loukianoff. He is actually one of the founding partners of a venture firm called Portal, and he serves as the managing partner, his experience is vast, over 25 years of it in this business. Peter, that’s a long time.

Peter Loukianoff: Lot of scar tissue.

Rose Vitale: Yes, absolutely. So let us talk a little bit about your background. Give us a high level 50,000 foot view about who you are.

Peter Loukianoff: So my name is Peter Loukianoff. I am from the San Francisco Bay Area. I’m a son of immigrants who came here really with nothing, and worked their way up and just worked hard, and luckily this country gave me so much. So I’m so thankful for that. And I’m an engineer by training. Got involved in startup companies pretty early on, got that bug and never looked back. I had a corporate job early, but realized that’s just not for me. And so I’ve been sort of in this business one way or the other since really graduating from college, or a couple years after that.

And I was very lucky. Actually went through, lucky also, it’s good to have some failure in your life because you learn a lot from that. But I had a failure, I had a medium success, and had a good success. And after last one was able to go back to business school. And I had a wonderful experience after business school at a firm called Kleiner Perkins. That was in 1998. And it was my first sort of foray into venture capital, and then later on parlayed that into a role at a firm called Alloy Ventures. It was actually founded by one of the fathers of the venture business. And went on to do other things. And I’ve done a lot of international work, been both an entrepreneur and a venture investor, and that’s sort of the brief background on me.

Rose Vitale: Yeah, I actually didn’t know that you were an engineer. It’s so funny. Diane in DRA is an engineer also. What type of engineer are you, were you?

Peter Loukianoff: Well, I practice systems engineering, so that was my specialty. And worked on some interesting things in the past like nuclear power plants and things like that. But basically looked at system failures and system integrity.

Rose Vitale: Okay. Wow, that’s very interesting. I mean, I always work really well with engineers. I think they work really well with visionary type people. And engineers, you always need an engineer on your team because they always find a way to get the thing built. That’s what I always find.

Peter Loukianoff: Yeah. And it really helps you, I think the discipline helps you think. And it’s all about problem solving. And essentially it’s just great training for being an entrepreneur and being a venture capitalist.

Rose Vitale: I agree. So I want to talk a little bit about this particular fund that you created. And when we spoke very early on, probably about, I would say almost like two, two and a half years ago, you really talked to me in regards to some of the things that you saw in the venture world that, well, I would have to say that you were very unhappy with. And your point of view about how you’d wanted to change the venture world intrigued me a bit. Even though I said no to you at the beginning, you continue to foster a relationship with me. And some of the things that I think is very important is is that people must foster relationships with either their partners, or the investor or any family office that they’re looking to raise capital from. So talk to me a little bit about what you see in the venture space, and how you’re really looking to change that.

Peter Loukianoff: Yeah. Well a lot of this really comes from I was quite lucky to really have been around some incredible mentors in this business. And I mentioned the firm, Kleiner Perkins, and then later on Alloy Ventures. And Alloy, again as I mentioned, was founded by one of the fathers of the venture business. And I remember, I asked him, “Pitch, what was it like when you first started one of the first venture funds in 1962 in Silicon Valley and essentially founded the industry?” A lot of it was about really smaller funds that were very responsive to entrepreneurs, and they were true partners with the entrepreneurs. And a lot of the investors were individuals who had been successful founders or operators of companies. And they not only invested as LPs, but they also got their hands dirty and helped the entrepreneurs grow and succeed.

And if you fast forward to today, 60 plus years later, venture’s a completely different business. It’s really dominated by not individuals. It’s really dominated by these huge pension funds, endowments, and insurance companies. And they’re putting hundreds of millions of dollars into these venture funds. And VC’s gotten sort of big and sort of really bureaucratic, and they’ve sort of lost that, a lot of firms, I’m not saying all of them, but a lot of them have lost this understanding of really a healthy relationship between the investor and entrepreneur, and a lot of them become more asset managers essentially.

And a lot of this really came from just listening to entrepreneurs. I kept hearing entrepreneurs saying that they’re really frustrated in the fact that, when they go out and raise capital, a lot of these firms overcapitalize them because they’re trying to solve their problem because their funds have gotten so big. So they’re just trying to deploy capital, and it’s not done in a very good or efficient way. And also they’re not as helpful as they used to be.

And so that was the first sort of when I started listening to this, and hearing that pattern over and over again from entrepreneurs, I was saying, well, something’s here, and maybe there’s a different way of doing it. And then I’d also interface with high net worth investors and some families as well. And their frustration was they’re not able to get into venture deals. Because a lot of the firms here used to have these sidecar funds and so forth. But because there’s so much capital in VC now, the funds, they don’t need to cater to individuals and smaller families. So those groups have been shut out. And so what we provide, the reason actually we’re named Portal, and the full name of the firm is Portal Venture Partners, is that the Portal really is about access. It’s providing families, especially smaller family offices and individual high net worth investors, access to the venture capital asset class.

Rose Vitale: Interesting. So when you say that, let’s say, particular families can’t get involved, what is a typical check size that a family office typically tends to allocate towards a venture like this?

Peter Loukianoff: Well really, I guess it’s really up to them, first of all. And each family office, as you know, is different. But generally, Yale University has in the neighborhood of 20% of their allocation in venture capital. It’s one of the better performing asset classes. And so if you’re looking to benchmark it against a Yale, for example, 20% or so is probably a good reasonable allocation for families as well. But it sort of just really depends on their personal situation.

And the other thing we like to do is really provide a lot of education for families. There are a lot of families who made their money in real estate or oil and gas or something non-tech. And we love to be able to interface with those families, provide them some background on venture. Because there’s really some tremendous opportunities in venture capital, one of which a lot of people really don’t even know about. And it’s called the qualified small business stock exclusion. And this was actually put in, it’s actually part of the IRS code. You can look it up, or any of the audience can look it up, it’s section 1202 of the IRS code, and it allows up to $10 million of tax free capital gains on qualified deals.

And this was originally put in for larger institutions, again, the pension funds, endowments, insurance companies, to encourage them to put more money into venture capital. But the law applies equally. And so individuals and smaller family offices get this benefit too. The problem is they haven’t recently had access to venture capital. And so that’s another reason why we’re providing this access, to allow family offices and individuals to take advantage of things like the qualified small business stock exclusion.

Rose Vitale: That’s very interesting. I wasn’t familiar with it, so I’m glad you brought that up. So I think that’s really, really interesting. So talk to me a little bit about the types of investments that you guys do. Is it typically tech, or what type of ventures do you guys focus in on?

Peter Loukianoff: Yeah. Well maybe before I get into that, one thing that’s really a unique part of our community, and this really goes back to the original founding of venture capital as I described it, where the funds were smaller and they’re more responsive and they’re made up of primarily individual investors. Well, Portal, what we call ourselves is a community first venture capital firm. And that’s really sort of the innovation in this space. We’re sort of creating that category.

And the community includes smaller family offices, individuals who’ve been, again, successful founders and entrepreneurs and CEOs of companies, and they constitute our community. And a lot of these folks have tremendous backgrounds. And frankly, it’s an untapped resource. And that’s one of the reasons we’re so excited about what we’re doing is we’re really tapping into an underserved market of these kind of people. And they have tremendous relationships, experience, and expertise that they’ve built over the years, and they’ve got really no outlet for it. And so we’re providing them an outlet for them to leverage all this talent that they’ve got, and put it to work for the next generation of startups.

And one thing also just to reiterate is we, as a firm, when we lead a deal and get a board seat, we as a firm get a board seat, but we as partners choose not to take the board seat typically. We prefer people in our community to take that board seat for us so we can really focus on scaling our business and getting this talent involved in our company. So investors in our community can take part as board members, they could be mentors, they could be advisors, and really sort of get more involved in the portfolio companies.

Rose Vitale: That’s a very smart strategy, Peter. I was not aware obviously of your company doing so. So I think that’s a very important point that you brought up because I think, strategic-wise, it’s very smart because, to your point, maybe there’s expertise from some of these investors, that maybe somebody from your team or you don’t want to allocate those type of resources. And it allows obviously somebody such as myself to get more involved because, at the end of the day, people want to feel, not only that their capital can make a difference, but their knowledge can make a difference. I think that a lot of times there’s a lot of investors who they’re passionate about, they’re entrepreneurs, I think, most of them, right?

Peter Loukianoff: Absolutely.

Rose Vitale: So I think that’s an incredible strategy. I don’t really hear a lot of venture firms talking about this.

Peter Loukianoff: And Rose, I think you hit on it, they want to give back. So a lot of these folks have been, I won’t mention a name specific, I’ll give a background, he used to be very senior executive at a major gaming company. Started another company that essentially founded the gift card industry, and then he was actually a top executive at PayPal. So he was sort of joking me with me, in fact, I talked to him today.

He said, “Peter, it’s like you’re really scratching my itch here because I’ve built up over my career,” he’s still relatively young and he’s built up all these relationships, expertise, and experience over his career, but he’s saying, “Look, if I don’t use it, I lose it. I can only play so much golf. And so I’d love to be able to invest with you because your model allows me to invest in your fund and I get diversification that way. I can invest deal by deal in your syndicates and choose what deals I do. But the most important thing for me is I get to basically take all this experience and relationships I’ve built over my career and help the next generation of entrepreneurs grow and succeed.”

And by the way, our entrepreneurs love that because they’re able to really tap into this enormous resource. And so you asked me the question which I didn’t answer about the deals we’re doing. A lot of the deals actually come from our community. So today, and I think that that will change over time, we’re going to get other people with other expertise, but in terms of our overall investment thesis, the thesis is staying human in the age of AI and big data. And so obviously AI and big data is a big wave that’s we’re going to ride for probably another 20 years or so. But the staying human aspect is really important because we’re talking about a lot of these technologies today that can really be intrusive, can be used for nefarious or negative purposes. And what we want our entrepreneurs to really be thinking about, how do you leverage technology to give the power to the human versus having the human controlled by the technology. And so that’s sort of where we focus our energies is looking at these positive technologies that will help humanity.

Rose Vitale: Yeah, I love that. I love that. I mean, I think that’s really critical. And really the first of its kind. Like I told, we were talking earlier on before we started recording here, is that I met one of your partners at the Tim Draper event about a month ago, I guess. I think it’s about a month now.

Peter Loukianoff: Yeah, Mark.

Rose Vitale: So yeah, Mark. And so it’s very fascinating how you’re looking at venture different. And one of the things I want to talk to you about as well is that, based on where you sit and based on where I sit, is that we kind of discussed this prior to the recording here, is that, well, at least what I see in venture over the next 12 to 18 months, and I really see that venture’s going to really shake itself out. There was a lot of people who got in venture who I feel didn’t really know what they were doing. So I wanted to hear from your point of view about what you see over the next 12 to 18 months in terms of opportunity, number one, and what you think in terms of the instability of just so many people getting into venture who thought they could do venture well.

Peter Loukianoff: Yeah. Well first of all, I think it’s really going to be an interesting opportunity and a great time to be investing in venture deals. I worked through the 2001 crisis. I was a very young venture investor at the time. But then I had my own firm in 2008, and we lived through that. And we actually had some great returns coming out of that period of time. So I sort of see this period of time being similar to that. I expect more bad news to come, which is good news for us. And I think the valuations will come down even more, and there’s going to be a great opportunity here for firms with fresh capital like ourselves to be able to do that.

Reflecting on this, I’ll just share a little bit of my experience. I mentioned the firms I work with early on. So one of them, my first venture experience actually was at Kleiner Perkins as I started out as the lowest on the totem pole. I don’t think anybody remembers me there. But I was an intern. And one of the partners there told me a couple things that really stuck with me, and this is an absolute truism. He said, “Venture capital is an apprenticeship business. It’s learned by doing.” And it’s very much the case. You really can’t learn this stuff in a book, you just have to do it.

And that’s where I feel very lucky that I’ve had great mentors throughout my life and worked for some great people, and really did learn the business from people who had been, like this gentleman who was one of the fathers of venture business, over 60 years now of experience in that space. So I was lucky in that. And partly, and we can touch on this later and maybe you can take note, we want to give back in that regard and help people who come from underserved communities to get that internship and that apprenticeship with us at Portal, and maybe we can touch on that later.

But the other thing that this partner said, he said, and it was almost like this throwaway kind of line, but he said, “The average venture capitals, it takes them $30 million before they know what they’re doing.” And that was in ’98, so maybe in today’s dollars it’s 50 million. But what he meant by that was that you sort of just have to experience it. That amount of money probably allows you to invest in, call it six, eight, ten companies. You see the pros and cons of what’s going on. You see the struggles within the companies and the successes and the failures. And you maybe see an economic cycle or two, and you sort of just figure it out after that time. And that’s really the case.

And I can’t tell you how many times I just go back and come up with some kind of scenario that happened, and I lean on that experience of having these great mentors and remembering what we did in those situations in these firms. And that’s really quite helpful. And to your point also, I think there’s been a lot of firms formed recently that have been formed by people that may have had corporate success and made a lot of money themselves but had never had that apprenticeship. And I think that’s when, when things really hit the fan and things get tough, being able to lean on how do you restructure a deal, how do you reduce the risk of your portfolio? All those things, that’s a learned process over a lot of years. It’s not something that you can just come out of some corporate gig, and say, oh, I’m a VC. And they’re going to probably learn the hard way. But I think to your point, I think there’s going to be great opportunities here to buy up companies really cheap, and in fact, buy portfolios really cheap as well.

Rose Vitale: Yeah. That’s exactly what we’re waiting for is the opportunity to acquire portfolios. And I think that over the next 12 to 18 months, we’re really going to see the opportunities emerge here. I’m actually working on a white paper called Why 98% of Most Investors Lose Money. And this is true. I see a lot of my friends who are quite, quite wealthy. I would have to say, they’re some of the billionaires of the worlds. And so I even see them losing money.

And we talk about some of the thoughts and processes in regards to why they’re losing money. And actually some of them don’t even mind losing money. And I’m like, God, I don’t know if I’d ever want to be in that position, no matter how much money that I have, not minding if I lose money. But I think this is a very important topic because, realistically, the fact of the matter is is that most investors do lose money. But how do you mitigate those losses, and how do you learn from those mistakes, unless you’re doing it for a particular reason like tax? But I don’t really know if I’d even want to do that. But I think that it’s really important to really know some of the thought processes and some of the situations that arise when that does happen.

Peter Loukianoff: Yeah. And that’s true. And so we leverage a couple different things. So first of all, our team experience, I think we’ve got over 100 years of operating in venture experience among us. And then we leverage this, essentially, the wisdom of crowds with our community. Because again, the community has a lot of knowledge and expertise in what it can offer us. And it offers us not only great abilities to source deals, but also evaluate deals. And so we leverage that quite a bit. And I guess, in essence, the whole community first venture capital that Portal Venture Partners has sort of created here, it’s essentially the wisdom of crowds applied to venture capital. And so that’s a way that we can mitigate risk.

But another way we mitigate it is that one of my last operating roles was I helped co-founded a company called Silicon Valley Data Science. And so I had some background expertise in the data science area. And as we were building that, as I was thinking about Portal, I was thinking, why not apply machine learning and data science to the venture space? And so we basically created our own product, our own software, to help us not only source deals, but now we’re using it also to evaluate risk in a portfolio.

And so what this enables us to do is to invest, not only just on the company itself, thinking about what the company risk is and opportunity is, but also what is the context of that particular company, adding it to a portfolio, how does that change the risk profile of the portfolio overall? So that’s something we’re applying in our case. And I think, so Portal takes a art and science approach. Certainly there’s a lot of art with the wisdom of crowds with our own team, but then the science approach with this machine learning software that we’ve built.

Rose Vitale: So what you’re saying to me is is that you guys have developed a system to de-risk it a lot more than what the typical venture funds are doing. It sounds like this.

Peter Loukianoff: Yeah. Well I know before a lot of venture was gut feel. And what we’ve tried to build into it is a lot of discipline because you want a process… repeatable. And so, it’s important to have discipline and it’s important to not just be emotional on investments. And so building those processes in, and this is part of the equation here, certainly is I think a different way of doing it.

And in fact, the professor, one of our other team members led this development, but when we talked to this professor who’s an expert in this space, they said actually a lot of venture firms, they didn’t know of anybody actually doing this. And they’re an expert in the space. Now, certainly that’s done maybe in private equity and black box trading on Wall Street, but it hasn’t been applied in venture capital. There’s one firm that I know that does it, but they don’t lead deals, are sort of a passive investor, and they build portfolios that way and have done that successfully. But I don’t know anybody else who’s actually doing it.

Rose Vitale: Yeah, I mean that’s why it actually piques my interest, and you brought up the word discipline, it’s actually something that probably about two months ago we had an opportunity for an investment. And I was going to get behind it just because it was sort of I knew this person really well and it was kind of helping her out. But then I was thinking about the word discipline. It’s so funny you brought this word up because I even looked up the definition of discipline. And it’s the practice of training people to obey rules or a code of behavior using punishment to correct disobedience.

So think about this, the punishment’s losing money, Peter. So if we’re not disciplined in our philosophies of allocating capital, well guess what? When we lose money, that’s a indication. That’s a pretty bad punishment, at least from where I sit. And so it’s so interesting that you brought it up. I mean, I actually did not know this in regards to your guys’ funds, so I’m really excited and happy to learn about this. Because you’re absolutely right, because over the next 12 months, we are going to be allocating a significant amount of money towards private equity just because of the lower evaluation of what’s happening in the marketplace today. We’re going to be able to pick up companies. As of right now, we’re seeing a 20 to 30% lower market evaluation. I think that, over the next probably three to six months, we’re going to probably see it closer to 40%. And so I think it’s a great opportunity for private equity. And like you said, in regards to this never being applied to venture, you’re absolutely right. So you really have my interest here.

Peter Loukianoff: I’m glad to hear it. And hopefully, there are other family offices out there that can take advantage of this. And one thing that we didn’t talk about is we have a sort of a thing that we call venture capital as a service. And essentially, this came out of our process of how we evaluate deals. So I’ve mentioned our model. We have two vehicles. We have a fund vehicle and a syndicate vehicle. And the fund vehicle provides diversification with a portfolio. And the syndicate provides essentially investors’ choice because they can do a investment deal by deal.

But when we do the syndications and the syndicates, we go through a process of we do an industry analysis, a company analysis, and then we bring in the CEO to do a webinar, and essentially tell the audience, sort of given them an update and then take questions and answers. And so through this process, we realized, we started talking to a number of families. And a lot of them, especially who haven’t done venture before, they were saying, “Well, gee, I don’t know if I want to do this because then I want to invest, but I don’t know how to.”

And so we thought, well, maybe we can offer our process essentially as a service where some families, and there’s been some expression of interest in this, where they can essentially look to us as an outsourced sort of group for their venture capital practice. And so we can start slow or whatever pace they want, but basically provide them this ability to partner with a team like ours where we essentially become their venture arm, and then we work with their investment committee and sort of process things in a way that makes sense for them.

And because a lot of these firms, our guess is that family offices, call it up to 500, 600 million, probably it’s harder for them to afford a dedicated resource in venture. And oftentimes when you do look to hire somebody, it’s really hard to find somebody who’s had that apprenticeship that I talked about earlier. And so this allows them to essentially get our full team expertise, they get access to our crowd and our community, and the wisdom of that crowd, and they get access to our software and the rest of our process. So I think that seems to be gaining interest with some families. We’ve just recently started talking to groups about it, but that seems to be pretty intriguing to people.

Rose Vitale: Yeah, absolutely. I mean, it’s intriguing to me. So talk to our audience a little bit about how they can get ahold of you. If some of these family offices who’s listening to our show today, how can they get ahold of you and let them know that they listen to our show and want to get involved, and feel that they have some expertise and capital that they’d like to allocate, whether it be time or resources, or financial resources or time resources. How can they get ahold of you guys?

Peter Loukianoff: Well, they would go to ascendwithportal.com. There’s a lot of Portals out there. So we chose essentially a theme of what we’re doing. So we’re ascendwithportal.com. And yeah, just go to our website. We’ve got a full way that people can register and just join. And they can just join our community and just sort of check us out. But everything is really done through referral and by invitation. And so we’re keeping the bar pretty high. If anybody does join us, you probably want to put in that you met us through Rose and DRA and make sure that we know about that. And then we’ll hopefully have you join the community. And you can just sort of wait and see, and just sort of check us out for a while and maybe get our newsletter and see some deals come by from time to time. And then if you want to get more involved, we’re happy to have a deeper conversation.

Rose Vitale: Perfect. Well, thank you again so much for the opportunity. Really, really enjoyed learning more about you because a lot of things I really just didn’t know about you, Peter. So really appreciate the opportunity. And I think that what you’re doing is very intriguing, and I think it could be intriguing to a lot of families who are listening to the show. So thank you again for the opportunity.

Peter Loukianoff: It was my pleasure, Rose. Thank you.