Chris and Sean chat with Lo Toney, an MBA alum and Founding Managing Partner of Plexo Capital. Plexo Capital is an institutional investment firm Lo incubated and spun out from GV (Google Ventures).
In this episode, Lo tells us more about Plexo Capital and its goals. Plexo is a Portuguese word that means intricate vascular network, which is what the company is trying to build.
He also shares a bit of his origin, a rundown of his career post-Haas, and how he became a venture capitalist.
We also hear about Plexo’s initiative, the GPx program. It provides free video-based self-learning content to teach great investors a new set of skills necessary to transition into great fund managers.
On becoming a venture capitalist
“It wasn’t something that was on my radar, but I immediately gravitated towards it because I think that’s actually more interesting being on the front end of the process, as opposed to the back end of the process.”
Giving free access to GPx
“We feel that charging for it presents yet another barrier for the type of diverse general partners that we’re looking to back. So, this is our way of giving back to the community – by providing the content, training, and feedback to make that transition from being a great investor to a great fund manager.”
(Transcripts may contain a few typographical errors due to audio quality during the podcast recording.)
Chris: Welcome to the OneHaas alumni podcast. I’m Chris Kim, and I’m joined by our host, Sean Li, and our guest, Lo Toney. Lo is the founding managing partner at Plexo Capital, Berkeley Haas MBA alum, and a thought leader in innovation, technology, and venture capital. Lo, welcome to the podcast, and great to have you on.
Lo Toney: Yeah, thanks for having me. Go bears.
Sean: Go bears.
Chris: Go bears. Lo, we’d love to just start with what you’re doing today. Could you describe a bit about Plexo Capital? What gave you the idea to start Plexo and how has your experience at GV informed what you’re doing today?
Lo Toney: Well, thanks for having me, first and foremost. It’s always a pleasure to be able to do anything related to Haas and Cal since it was really super helpful with my career and just made a lot of great friendships and relationships that persist to this day, both from classmates, as well as the administration and professors. So, always happy to take time out to try and be helpful. And if this story is going to be helpful to folks and maybe inspire some people to do some different things or come to Cal or Haas, then great.
So, to get back to your question, Plexo Capital is an institutional investor. And the best way to describe what we do is we allocate capital across the full stack of opportunities to finance the startup ecosystem.
I got my start with Plexo Capital while I was a partner at GV, formerly Google Ventures, which is the early stage investing unit for Alphabet, Google’s holding company. So, at the time around 2014, 2015, Larry and Sergey, the founders of Google, were still actively involved in all things Alphabet. They really liked the model that GV put in place.
And at the time, GV was about 2 billion in assets under management. Larry and Sergey wanted us to deploy more capital. We looked at a multitude of ways to be able to accomplish that. And one of the ways that we saw was just identifying more deal flow top of the funnel. And the insight was that black GPs of early-stage funds have a unique path into venture capital.
And as a result, end up with really unique networks to source differentiated deal flow. And also have a unique lens to both identify opportunities that others might miss on Sand Hill Road and other hotbeds for VC, as well as a different lens to evaluate entrepreneurs that might not normally be considered as the right founders to lead a company.
We did five LP commitments at GV. So, LP is a limited partner. Those are the people that invest into venture capital funds. So, at GV, we made five LP commitments to seed-stage funds led by black GPs. It worked for us at GV to be able to fill the top of the funnel with more deal flow. And then it also provided those GPs that we back with a way to help their fundraising activities.
So, the ability for a GP or general partner, the people that lead venture fund, to go to a prospective limited partner and say, hey, prospective limited partner, GV is one of our LPs, you know, that would get some attention, maybe then some additional credibility and make the process a little smoother because if an LP respects the work that we’ve done at GV, then they would say, okay well, GV backed this firm, I should at least take a look.
So, it was a win-win situation. It worked for us at GV and I looked at it and said, hey, I think there’s an opportunity there to be able to scale that model up into an independent platform. And that was really the birth of Plexo Capital or at least the initial idea. I came up with that idea in February of 2016, explored it for six months with what was called Google, it’s like at Google school. They let you do something called 20% time. So, it’s take your time and do anything, and it doesn’t even have to relate back to your role or your functional unit. And I said, hey, I think there’s something here around Thanksgiving of 2016.
And my former manager, David Crane, the CEO of GV, employee, I don’t know between 60 and 80 at Google, so, had a lot of respect, a lot of social capital. He approved transitioning my role from a partner on the investing team at GV to an entrepreneur in residence. And the company that I worked on was Plexo Capital.
Did that for about a year and a half, incubating it inside of GV and then spun out around March of 2018. And Alphabet came on board as our anchor investor. I was able to bring those capital accounts for the original five LP commitments we made. And then I went out and fundraised successfully to add Intel Capital, Cisco Investments, The Royal Bank of Canada, Hampton University, and The Ford Foundation for fund one. So, fund one, 42 and a half million. We made an additional 15 LP commitments in addition to the five I brought with me. So, a total of 20 LP commitments for fund one, and we have an active portfolio of about 23 companies.
And we’re now investing out of fund two. And we’ve added some new LPs. We’ve added the Southern New Hampshire University Endowment, we’ve added Hearst, and we’ve added The Home Depot. So, pretty excited about the path that we’re going down. The model is, again, simple, the full stack of investing opportunities. So, LP commitments, direct investments, and the beauty of that piece on the direct side is that our model is predicated on operational leverage and information arbitrage.
So, for operational leverage, we have all these great GP is looking at tens of thousands of companies on an annual basis. They narrow that down to the top 1% that they invest into and add to their portfolio. So, that becomes our consideration set. So, instead of having to build out a firm with an army of associates, principals, and other partners to go identify these companies, we partner with our GPs, we share information, and that’s where the information arbitrage comes into play.
So, we have information that others don’t have access to that puts us in a great position. Not only to understand which companies are performing extraordinarily well, but also having knowledge around when fundraising activities are going to happen. So, the model is, again, LP commitments into the GPs that we think are building the best franchises.
It started with black GPs. We added women and other people of color. Again, there’s this diversity play around the ability to have the networks and also the lens. We invest directly, mainly pre-seed seed, series A, kind of, we like to have our entry point be a sub hundred, sub $150 million post-money valuation. We focus on enterprise, marketplace/e-commerce, a little bit of tech-enabled consumers.
And then we’ll even invest a later stage as well. We’ve got about 950 companies underneath the portfolios of our GPs and over 50 of them at this point have unicorn status. So, there’s a lot of growth opportunities in there as well that we’ll do as either primaries or secondaries.
And we’ll even invest in the management companies of GPs. You know, it takes 1 to $2 million to get a firm off the ground and we can invest to provide some permanent capital onto the balance sheet of the management company itself and peel off some of the financial pressure off the GP in those early days, as they’re just getting started. They’re operating more like a startup as opposed to a large-scale venture fund.
So, that hopefully covered a lot of your questions in that long preamble, but hopefully, it sets the context for the balance of the conversation.
Sean: One thing it did not answer is the name, Plexo. When I looked it up earlier, it said the only thing I could dig up was that it’s the Spanish version of plexus.
Lo Toney: Yeah, so, actually, it’s Portuguese. So, it’s Portuguese for intricate vascular network, which is what we’re trying to build.
Sean: That makes perfect sense.
Lo Toney: All the names that I wanted were taken so, I had to switch languages that I always appreciated, and Portuguese is definitely a language I appreciate. And then, I wanted something around network and then discovered Plexo, you know, it’s got the X, has got the O at the end, it’s only five letters. So, you know, from a branding perspective, it actually ended up being the perfect name.
Sean: And it’s two syllables. That’s the magic. That’s a great segue into a little bit more about you, Lo, you know, where are you from? And was venture capitalist something that you’ve always wanted to do?
Lo Toney: So, I’m from Oakland, grew up born and raised in Oakland, California. My dad who unfortunately passed away when I was three, but he was actually working on his Ph.D. at Cal. So, strong ties into India. Cal. Ended up going out east to Hampton University to go to college, a historically black college, and focused on business, but took some computer science classes. Actually, took some computer science classes in high school at Bishop O’Dowd and then took more computer science classes once I got to Hampton.
Did financial services, initially, came back to Haas for my MBA because I really wanted to do investment banking for technology. So, I’m old. So, at this time, you know, the Morgan Stanley’s and the Goldman’s didn’t really touch the IPO’s or the MNA. So, it was all the specialists like Hambrick and Quist, Thomas Wisell Robertson, Stephens, you know, those were the folks that were really focused, Alex Brown. Those were the folks that were focused on technology back then.
So, I wanted to be an investment banker, but proximity matters. So, by going to Cal, I was able to actually see all these venture capitalists come in and discovered venture capital. So, it wasn’t something that was on my radar but I immediately gravitated towards it because I said, I think that’s actually more interesting being on the front end of the process as opposed to the back end of the process. And the eager beaver that I was, I just went up to every VC that came in and said, hey, how do I become a VC?
And at that time, it was really more of a model of being able to have a successful leadership position likely as a CEO to transition. So, I was like, okay, how do I do that? And then the answer that I predominantly got was, oh, go learn product management, get P and L responsibility, become a CEO, and then see if there’s a seat at the table in the world of venture.
Chris: That’s awesome. Yeah. Well, I feel like, these days, especially, you know, that HBCU experience is becoming more well-known, especially for folks who weren’t familiar about it in the past, but how did you end up deciding to go to a place like Hampton and what was it like? To be honest at a really prestigious HBCU and being part of organizations like Alpha PSI, which are really well-known at such a historic unit.
Lo Toney: Yeah, that’s good research. So, my mom wouldn’t let me go to Morehouse because I had many friends at both of those schools. And so, then she said well, Hampton is okay. Cause you don’t really have any friends. I think she was worried that I would get distracted. It probably ended up being a good thing.
But the experience at Hampton was amazing. You know, having gone to majority white schools my entire life, the ability to be able to go to a historically black college was amazing. And I always figured that it was probably in the cards for me to go back to grad school anyway. So, I said, well, I’m going to get that big collegiate experience anyway.
So, this going to Hampton, HBCU. Perfect, you know, definitely was the right decision. Stayed in touch with Dr. Harvey, who was the president while I was there still the president, even though I’ve got all this gray hair, he’s got more gray hair. And, you know, that led to Hampton coming in as an LP.
And then, the experience of Kappa Alpha Psi, my fraternity, you know, I have lifelong friends now. We have a group chat that we continue to recognize everyone’s accomplishments, recognize people’s birthdays, recognize additions to the family, recognize the unfortunate, you know, events as well, parents starting to pass now.
So, it’s been an amazing experience. I’m truly blessed to have the lifelong friends of both high school, college, my fraternity. And look, I also am able to do some business as well. One of my fraternity brothers is actually on the endowment board for Hampton University and I’m sure that helped.
Chris: That’s awesome. Yeah, Lo, you talked about like you were thinking about coming to graduate school anyway, you talked about wanting to be in proximity to maybe the bay area, but how did you think about taking an MBA and what was that, you know, maybe the post-MBA experiences? We don’t really hear about that. You had this roadmap and this plan, but what was that journey like post MBA, and until you ultimately became a venture capitalist.
Lo Toney: So, I really wanted to do a little bit of a transition into tech. The thing that I did right before go the summer before coming to Cal, I bought a book on HTML and started doing web pages for people. And I realized, I was like, wow, this is before Netscape went public, and Netscape went public while I was at Cal.
And that really opened my eyes to the technology. And, you know, again, I was thinking about the other side, which was the finance side, and it opened my eyes to opportunities to be able to actually get operating experience, especially product experience with these tech companies which became invaluable, being able to better understand some of these business models and technologies that are driving a lot of the companies that we think are attractive to invest into, but it was, you know, a little bit happenstance, right? Like I got the feedback of go learn product management, go get P and L experience.
And I was fortunate to go work for some iconic companies. The ability to be able to, I was employee 2340 at eBay. And when I left, it was 15,000 people. I was at Nike running the strategy around the user experience and product for the website, worked at Zynga and, you know, got the ability to better understand data-driven decision-making around product as well as the customer acquisition using new channels, namely Facebook at that time you know, the transition of poker, which I led at Zynga from web to mobile, you know, I got the chance to learn mobile and how customer acquisition differs there and got the ability to learn, no, really, I think the game mechanics actually, which have become more prevalent, in fact, probably so prevalent we don’t even really think of them as being called out as game mechanics anymore. So, you know, all of these experiences came together and got a chance to lead a company.
Ran a big P and L Zynga then got a chance to lead a company. I think all those experiences came together in being able to position myself to enter venture capital. The irony is by SCC definition Plexo Capital is not a venture capital firm, but just like, Goldman Sachs is not a venture capital firm, but they make venture investments. We’re not a venture capital firm per se, but we make venture capital investors.
Chris: Gotcha. Lo, you’ve really become a really visible advocate for innovation and change. One of the questions I wanted to ask you is, what did topics like diversity mean for you, and could you share maybe why diversity is not only good for the world as many usually perceive it to be but also really good for business? I know you had some opinions I saw in other publications. Would love to hear your thoughts on it.
Lo Toney: Happy to share them. For me, diversity means a lot of different things, you know, for us at Plexo Capital, we’re specifically focused around diversity, around ethnicity and gender. So, again, we started with this strategy at GV, Google Ventures with a focus on black general partners leading early-stage venture funds.
It proved to provide not only additional deal flow but actually a little bit of alpha as well, especially given that there’s not a lot of data for these early-stage companies. So, it really comes down to familiarity with some of the problems or the opportunities the entrepreneur is going after and for what we want to accomplish.
I had to focus on the economic benefits of our model, because at that time, again, we have to go back to when I came up with this idea in 2016, there was the unfortunate killing of George Floyd, Breonna Taylor, those hadn’t happened yet. And that was really a pivotal point to change the narrative.
So, when I got started with Plexo Capital, I had to focus on the ability to be able to deliver alpha, to generate superior returns with our model, and as a by-product of our model. And I think there’s a potential for a flywheel effect. The more that we can get capital into the hands of diverse general partners, again, diverse by ethnicity and gender and what we do know, the data shows that their portfolios, those diverse GPs tend to have a more diverse portfolio. And so, then if we can get the capital to those founders and entrepreneurs, they can execute on the strategy.
And if they have a successful exit, the founder goes down a wealth creation path. Early employees can also have enough capital to act as a financial backstop to take more risks. So, starting a company, investing in a colleague’s company as an angel investor. And then, you know, I think that’s how we can get that flywheel started.
And then capital goes back from those successful exits to the general partners. If they string together enough of those exits, the general partners go down a wealth creation path, and then capital goes back to the limited partners who can see, oh, wow. This actually is working. This is an important business imperative if we want to actually make money and not miss these deals. And then that can really kickstart the flywheel and LPs and say, hey, let’s double down or triple down on this.
So, I think, the two go hand in hand, now, that said, the good news is the narrative has begun to change. So, people can have a different conversation now. People can actually, and we’ve seen examples of this, people can actually say, hey, I want to start a venture capital fund to back diversity in terms of ethnicity and gender. We didn’t really have that when I got started, but I’m happy to see it happen now. And what we do need to continue to see are the increasing valuations that companies led by diverse entrepreneurs can achieve based on execution.
And, you know, if we continue to do that and then ultimately, we should start to see some exits and then the proof will be there. So, I’m excited about what the future holds, you know, look, there’s other kinds of diversity as well that I think are also important, and these are the two that we decided to focus on at Plexo.
Sean: That’s great. That’s amazing. No, I think that leads to my favorite question, obviously, aside from diversity, what are some things that you’re passionate about?
Lo Toney: I’ve got a lot of passion. So, I love two things that I really love to do. One is more of a summer activity. One’s more of a winter activity. But I love to snowboard, and I also have a passion around cars, typically cars that are driven when the sun is out and there’s no rain. So, those are two passions that I appreciate. And it’s nice to be able to carve some time out, to be able to do both of those.
Sean: That’s awesome.
Chris: Yeah, absolutely. I was gonna ask Lo, I know you have a couple of different initiatives. Let’s just check it out Plexo website preview a little bit earlier and you have some really awesome initiatives about sharing information, about investing. We’d love to kind of get your take on why you ended up deciding to do that. I forget if it’s called GPx. If that’s the name of the, yeah, I would love to kind of hear where did you get the idea and how’s that been going?
Lo Toney: So, I got the idea based on my own personal journey in starting our firm, Plexo Capital. The beauty of being at a firm like GV is that, at that time when I was there, Larry and Sergey were still involved, so we didn’t have to fundraise, you know, Uncle Larry and Uncle Sergei would give us a billion dollars every year. And that was nice. And we had no idea what it was like to have to actually go out and raise money from institutional LPs. And I discovered that. I discovered I have to form a fund. I have to go and I have to raise the fund and then I have to actually manage the fund. And there’s a whole army of people at GV that () the challenges behind that, right?
Larry and Sergey give the funds there’s accountants, their finance people, their legal people that handle all of the formation back office. And then there was a whole team of people that handle your product managers. And engineers that built bespoke tools to handle, you know, assistance with sourcing diligence and portfolio management.
So, when I went out on my own, I discovered this whole, it was really a rude awakening. And I actually discovered that I was exercising way more entrepreneurial muscle than the type of VC muscle that I did at GV. I started to surround myself with a great group of advisors. One of them in particular a lady named Georganne Perkins.
I have other great advisors. I’ve got Laura Alber, who’s the sitting CEO for Williams-Sonoma, Ken Coleman who’s known as the black godfather for Silicon Valley, but in particular, a lady by the name of Georganne Perkins who had spent over 23 years heading up the Stanford Endowments investments into both venture capital and private equity, really was able to surface things that I needed to know, that I didn’t know that I needed to know. And there’s a lot of gotchas out there. And so, I started keeping track of all of these different things that were important across those three buckets, forming the fund, raising the fund, and managing the fund. And I kept this long library and list of articles that I could find that were hard to find if you don’t know that one needs to know them.
And then also, you know, some samples, like a sample book or a sample LP, a limited partner agreement, the contractual agreement for people that invest into venture funds. And ultimately, I was starting to share this with a lot of GPs and I got the feedback of my God, this is like the best list of resources I’ve ever seen. And I thought that’s odd.
Then ultimately what I decided to do is, you know, Michael Seibel is one of the partners at Y Combinator and runs the YC program. He’s one of our limited partners and I started to talk with him and spent some more time going to the demo days. And then also looking at some of the content they had put up for startup school. And I realized, I said, hey, there’s actually an opportunity to be able to do something similar for GPs.
And so, I had a vision of, okay, what if we were to put together the equivalent of many people have called it a Weiss for GPs where we actually have similar to Start-up School. We have content modules in video format done by a lot of the leaders in venture capital and limited partner institutional investors. So, we have over 30 at this point modules from people like Beezer Clarkson from Sapphire Partners, Lindel Eakman from Foundry, Michael Kim from Cendana. We even have some GPs, Charles Hudson from Precursor and they’re covering topics of how to develop a minimum viable fund size to go raise for, how to go and successfully present to the investment committee of an institutional investor, how to put together a portfolio of construction. And we not only are putting it out so that anyone can have access. We haven’t launched it yet. We launch it this month. All someone will have to do is put in their information to register. They’ll get access to all this amazing content.
We also put together a small cohort of about 13 to 15 general partners who are on fund one or fund two to kind of go through the program together. And then with that group on certain topics, we’ll go a little bit deeper and pull some of the subject matter experts that actually did the modules. And those subject matter experts will lead a deeper session on that topic. So, it’s something that we’re really excited about.
There are people in the market that are charging for this, and we didn’t feel that was the right approach because we feel that by charging for it, it presents yet another barrier for the type of diverse general partners that we’re looking to back. So, this is our way of giving back to the community and being able to kind of remove yet another barrier, which is access to this information to be able to help one position themselves and transition from being a great investor to a great fund manager, because those are two different things.
The folks that we’re focused on, they’re already proven to be great investors. That’s why they want to go out and start a firm of their own and raise their first fund or their second fund. What we really laser-focused on is helping them by providing the content, the training, the feedback to make that transition from being a great investor to a great fund manager.
And what we also provide is kind of a little bit of a suite of help as well. So, we have someone at our firm who handles investor relations and that’s a luxury, you know. It’s a luxury to have someone whose sole purpose is to go out and identify prospective LPs and nurture the relationships with existing LPs. And so, what he does is, Coogee is his name, Coogee will actually work GPs that are Plexo Capital GP network, as well as those GPs in the cohort to help them put together a go-to market strategy that’s institutional-grade, provide them with the introductions and even coach them on how to actually have those conversations with LPs.
We have our portfolio manager Vishal who received his master’s in financial engineering from Cal. He actually will work closely with our GPs and the program of GPX, the in-person to actually virtual in person, to help them put together the appropriate portfolio construction model and help them understand how to keep within the guardrails of that strategy and have it make sense and how to present that to prospective investors. It’s a lot different raising from an individual or a small family office, as opposed to raising from a foundation, an endowment, a pension plan, or a fund to fund. It’s a different conversation. And it takes a little bit of coaching and training.
And so, we like to think that comprehensively with all of these different elements, the video content modules, the in-person with the subject matter experts on zoom in person, as well as access to our resources on our team, that we’re positioning general partners to be extremely successful. And again, that transition from a great investor to a great fund manager.
Sean: That’s exciting. That’s exciting to hear. I’m actually going through Startup School right now.
Lo Toney: Oh, awesome.
Sean: With a startup that we took through the launch to accelerator. We raised some angel capital and now we’re going through Startup School. And the resources are quite amazing. So, fingers crossed, we make a big exit startup. Definitely find Haasies like Chris to start up a fund and we’ll have to reach back out to you.
Chris: Lo, we definitely appreciate being part of the show today, sharing really just an amazing story and super motivational for current students like myself. Also, a recent alum like Sean here. Do you have any final words that you’d like to share for folks listening to the podcast and to the Berkeley Haas community?
Lo Toney: I just want to first again, thanks for the opportunity to be able to share a little bit about our story. Hopefully, people do find it interesting and maybe a few will find it motivational. And I just want to say, you know, the Haas community is an amazing community. The ability to be able to have an internationally recognized top tier educational institution, both on the undergraduate side, as well as the various graduate programs that are, you know, most of them are top 10, if not top five.
What an amazing blessing for me to be able to give back however I can. So, thanks again for having me on and if anyone ever wants to reach out, please feel free to do so. It’s email@example.com.
Sean: Thank you so much.
Lo Toney: Awesome. Thanks.