Cendana Capital, which has been backing seed funds for a decade, has $278 million more to invest

When in 2010, former VC Michael Kim set out to raise a fund that he would invest in a spate of micro VC managers, the investors to which he turned didn’t get it. Why pay Kim and his firm, Cendana Capital, a management fee on top of the management fees that the VC managers themselves charge?

Fast forward to today, and Kim has apparently proven to his backers that he’s worth the extra cost. Three years after raising $260 million across a handful of vehicles whose capital he plugged into up-and-coming venture firms, Kim is now revealing a fresh $278 million in capital commitments, including $218 million for its fourth flagship fund, and $60 million that Cendana manages expressly for the University of Texas endowment.

We talked with Kim last week about how he plans to invest the money, which differs slightly from how he has invested in the past. Rather than stick solely with U.S.-based seed-stage managers who are raising vehicles of $100 million or less, he will split Cendana into three focus areas. One of these will remain seed-stage managers. A smaller area of focus — but one of growing importance, he said — is pre-seed managers who are managing $50 million or less and funding ideas more or less.

A third area of growing interest is in international managers. In fact, Kim says Cendana has already backed small venture firms in Australia (Blackbird Ventures), China (Cherubic Ventures, which is a cross-border investor that is also focused on the U.S.), Israel (Entree Capital), and India (Saama Capital), among others.

Altogether, Cendana is now managing around $1.2 billion. In exchange, investors are charged 1% of each Cendana-run fund as a management fee and 10% of its profits, atop the 2.5% management fee and 20% “carried interest” that his fund managers collect.

“To be extremely clear about it and transparent,” said Kim, “that’s a stacked fee that’s on top of what are fund managers charts. So Cendana LPs are paying 3.5% and 30%. And you might think that seems pretty egregious. But a number of our LPs are either not staffed to go address this market or are too large, like the University of Texas, to actually write smaller checks to these seed funds. And we provide a pretty interesting value proposition to them.”

Says Kim of other, bigger fund managers, “A lot of these well-known fund of funds are asset gatherers. They’re not charging carried interest. They’re in it for the management fee. They have shiny offices around the world, they have hundreds of people working at them, they’re raising billion-dollar-plus kind of funds, and they’re putting 30 to 50 names into each one, so in a way they become index funds. [But[ I don’t think venture is really an asset class. Unlike an ETF that’s focused on the S&P 500, venture capital is where a handful of fund managers capture most of the alpha. Our differentiation is that we’re taking we’re creating very concentrated portfolios.”

Specifically, Cendana typically holds positions in up to 12 funds, plus makes $1 million bets on another handful of more nascent managers that it will fund further if they prove out their theses.

Some of the managers it has backed has outgrown Cendana from an assets standpoint. It caps its investments in funds that are $100 million or less in size. But over time, it has backed: 11.2 Capital, Accelerator Ventures, Angular Ventures, Bowery Capital, Collaborative Fund, Forerunner Ventures, Founder Collective, Freestyle Capital, IA Ventures, L2 Ventures, Lerer Hippeau, MHS Capital, Montage Ventures, Moxxie Ventures, Neo, NextView Ventures, Silicon Valley Data Capital, Spider Capital, Susa Ventures, Uncork VC (when it was still SoftTech VC), Wave Capital and XYZ Ventures.

As for its pre-seed fund managers, these include the firms Better Tomorrow Ventures, Bolt VC, Engineering Capital, K9 Ventures, Mucker Capital, Notation Capital, PivotNorth Capital, Rhapsody Venture Partners, Root Ventures, and Wonder Ventures.

As for its returns, Kim says that Cendana’s very first fund, a $28.5 million vehicle, is “marked at north of 3x” and “that’s net of everything.” Kim also notes that Cendana has 38 so-called unicorns in its broader portfolio, and more than 160 companies that are valued at more than $100 million.