in this episode we speak with Andrea ourbag partner and head of global private Investments at Cambridge Associates Cambridge Associates is a global investment firm that works with endowments foundations Health Care Systems pension plans and private clients to implement and manage custom investment portfolios with 50 years of institutional investing experience The Firm delivers a range of portfolio management services including Outsource CIO non-discretionary port folio management staff extension and asset class mandates Andrea leads a 50 person team sourcing and underwriting private Equity growth Equity distressed and Venture Capital funds as well as direct co-investment and secondary investment opportunities resulting in over $10 billion being invested annually across these strategies she is also a member of the firm's leadership team and leads ca's discretionary private Investments practice I'm your host RJ lumba we hope you enjoy the show if you like the episode click to subscribe RJ lumba is the managing partner of growth capab and the executive chairman of Market Insight media he is the host of growth investor a podcast featuring today's best investors Executives and Founders in the minutes ahead we'll uncover insights and strategies for accelerating growth and succeeding in business Andrea thank you so much for taking the time the chat with us today it's it's really a delight to be with you and an honor uh to have this conversation it's wonderful to connect and talk about growth Equity with urj I mean given everything you've done for the space over the years happy to be here appreciate that where I thought we'd kick off as we were just talking about the term growth equity and how maybe others have been adopting the term even though they may not be straight down the Fairway and I did have a distinct conversation with what I'll hly a venture investor who was clearly Venture but trying to adopt the growth Equity nomenclature and then kind of maybe made a hybrid of venture growth but really trying to be seen as growth Equity can you talk a little bit about what you've seen in the market absolutely about a decade ago we put out our version of what we believed was growth Equity okay and if I go back really basic like these are the core fundamentals of what we see as growth Equity at the time and it has evolved it has evolved but at the time found her own business no prior institutional investment that's a little bit of a wiggle room in the moment proven business model so clear unit economics right clear unit economics not shaky unit economics very clear unit economics substantial organic Revenue growth that's obviously why we're all here it's about growth right and then EIT do positive or expected to be so within about 18 months and that was let's call that classic growth Equity definition Circa 2013 actually is when we put our paper out into the world fast forward 10 years growth Equity has become ubiquitous and I think there are many reasons why that is right so growth Equity as you very well know captures some of the upside of venture because these are growing companies growing faster than their peers in sectors growing faster than the overall economy and they're early in their scaling so there's an opportunity to capture some outsized performance relative to say a leverag buyout on the other side but because these businesses have been primarily bootstrapped there's not so much Venture in the stack the valuations are more Tethered to their actual performance rather than a pre-money valuation RJ right and so in the current environment what we're watching is everything seems to be painted with a growth Equity brush and you have to look closer you have to kind of do some bushwacking and get to the truth the ground truth of what is this company does it have an actual proven business model is it actually if you shut off the growth tap if you shut off the reinvesting would it really become profitable quickly or it will it not and I would say the other thing that I think is a clear delineator for not growth Equity is if there are multiple rounds of VC in the stack beneath you and I know as you make your way in the industry you probably see many different flavors of growth Equity but I feel there's really one and maybe we allow one standard deviation on the other side and we can unpack where I think that boundary is but maybe does that resonate with you as well I think we're 100% aligned with the definition of growth equity and it reminds me of this as I was referring to this conversation I had with a venture investor he took a look at some of the firms we we tend to feature and he says you know you really want to look at these and he was pointing to the Venture space that are advertising themselves as growth that could I like no no no I guess that is a version of maybe what you're thinking about as growth Equity but that's not the traditional growth Equity now what characteristics do you typically look for in a great growth Equity Firm characteristics of a great growth Equity Firm there's so many but um as investors at CA we're constantly scouring the universe looking for a great growth that Woody Birds it's expanded a little bit over the years but obviously you got to find what you want to invest in and many growth Equity companies they may not necessarily need your Capital right and so you have to go find them and you have to be thoughtful about what you're looking for maybe be very strong in a specific sector sub sector or theme to be able to present your best self as a GP to the company that you would like to make an investment in right and so sourcing I think is very very important for any type of manager but within a growth Equity context you have to go find them they're hiding in the wild they're growing they're growing rapidly and your job is to find them at your right inflection point as an investor right and then another element is typically typically we you know we were talking about growth buyouts before typically you are a minority investor you are partner to this management team and so you need to demonstrate you have the chops to actually be a partner and be able to win their hearts and Minds to convince them maybe of an approach that you think is better for the business overall to help grow the high for everyone to be successful and that also relates R.J to what types of value ad can you bring to the table in a non-invasive way like teach them to fish so to speak right give them the help assistance and Frameworks that they need to be able to scale their business successfully and then you as a GP can you lather rinse repeat that across your portfolio all of that's really hard and time intensive and requires dedicated individuals who really want to do this and want the companies in which they invest to succeed there are some other elements around that but I think those are the basics we've had uh numerous conversations candid conversations with GPS and certain Partners within firms and you know in some cases firms don't necessarily take the time to develop strong cultures and you will sometimes find that there's spin outs so there'll be two or or three partners that will kind of go off and start their own thing without it being a kind of a mutual decision or or maybe I should better phrase it as having it be a collaborative kind of discussion I wanted to get your take on culture and if you look into that and kind of what you might look for or when you might quickly see this is unique the way they've kind of set their firm up is really unique is part of what we do it it Bridge we underwrite dozens of firms every year and a large portion of what we underwrite are actually firsttime funds RJ and a lot of first-time funds are spin outs there are folks who decid to just pack up their kit and set out on their own and culture has a lot to do with that lots of things do right lots of things do so the way I think about it is this is Andrea's Theory Andrea's Theory everyone as an investor has a certain true north and it might be lower Middle Market companies between three and five million of Revenue growing at 50% with a skeleton management team in SAS like that literally could be someone's investor true north and another ones could be I like investing in companies that are growing at 15% Topline 300 million in Revenue so heading towards the too big to fail if we could use that phrase here with a full set of management and we're just doing tweaks around the edges right so I feel like everyone has a True North is an investor and when we see spin outs culture can definitely play a role in that as firms mature and they grow they can go past that true north strike zone for a specific investor type that as firms age and firms are living breathing organizations right R.J like they can easily age 10 years and two funds and everything can change the motivations of the individuals who's senior who's doing what all these folks at these firms are ambitious right and I feel like well we not going in the direction I think we should be going in or I've focused my entire career to date on this space and now you're telling me I can't do this space anymore because we're too big now I'm just gonna go is that okay and so we often do look at spin outs and the culture is you know it's a hard thing to quantify I would say we do a number of different things at CA about this quick ways to get at culture as a fund investor talking about ownership economics and decision rights that's the leading indicator of how you're really set up whatever you're going to tell me is great and we're going to have lots of conversations as we're thinking about you know making an investment in you but then we're going to be like okay we're gonna need some specifics here and then see if they match up right and in other ways we sort of test on culture and by the way we meet with managers many many times we've often known them before they've spun out and then we're meeting with them over a period of time to really see how consistent and jelled the team is going to be and that team jelling is that intangible right are they able to finish each other's sentences do they know each other's deals do they have that energy that you're going to need to lift your new firm off the ground we've backed some growth Equity firms that have taken a while to get their first fundraised and that's tough like you've got to stick together for maybe even two years before you really know you have something that's a crucible RJ that is a crucible that you have to got a gauntlet to get through and that can forge a team in a culture or it can un un fortunately it could it could fracture right and so these are all the things that that we do as fund investors is we're constantly testing and monitoring out in the wild it's like out in the wild we're looking at these folks if that's helpful and as an external Observer and someone who talks to growth equity and private Equity firms what I've seen several times is when the firm founder gets a little bit older maybe into you know mid 60s 70s and seems to be just still holding on tightly and not allowing the others who've been there for a while to really rise up and maybe take the helm or take more ownership and invariably it results in fracturing kind of the firm leadership what do you think are ways to kind of mitigate that well you need a plan you need to make a plan right I think there are two components that are important being self-aware and honoring that you have actually built something as a firm founder that is actually going to survive you and planning for those moments there are some firms that do an incredibly good job of that it's well known it's communicated actively it's forecasted you know the LPS are kept up to date and then others like you've described R.J you can almost predict when a spin out is about to happen because you can see you have a Founder who may no longer be active who may have the majority of the economics who is just Sheltering in place and waiting and maybe not thinking through this thing that I've built is going to survive me and I need to start acting like that and making contingency plans because I'm not going to be here forever I remember you know there's that phrase like Americans will work to be the the richest people in the cemetery right and so there's a little bit of that go get it and never stop stopping or whatever and think about that a lot in the field that we're in because you do see that out there I think the other thing that's interesting and controversial from an LP perspective is that you do have these GP staking funds which I think the other factor that some of these Founders might be thinking is I built this whole thing and how do I transfer this to the Next Generation because they can't afford it what I think it's worth and then you might have an option given the fund Finance Market that's active today and it's evolved quite a bit to maybe find a way to acquire that interest Usher in the Next Generation from an LP perspective we can unpack that there's some questions we would have around that activity but I do feel it's come of age because it is a way to help increase that transition but the first ingredient is self-awareness self-awareness the other thing I had a question about was you know as we think about here at growth cap and we look at a lot of different firms and try to analyze them and see who we think are really kind of in that top tier I've had conversations with other GPS and we talk about okay what makes for an excellent durable long-term great firm and ultimately my short answer and this was probably overly simplistic was you know I think the best firms are run by really good people like I think they're in the industry long enough they develop a reputation of being good to work with and trustworthy and that carries weight over a long period of time I haven't tested that maybe it's like an ideal something I'd like to see what do you think well RJ when you said you know good people I think that translates to me to character and integrity that's really what you're right and you really see uh from our perspective at CA when we're making decisions about making an investment in a growth Equity Firm or any firm for that matter we do meet them over multiple time frames we try to see them at their best and at their worst to see how consistent they are and how they bring themselves to interacting with us right and so we're looking for character we are looking for integrity in terms of yes we took a write down yes that was a loss I'm gonna own that I'm gonna own that in front of you right like don't look over here at our challenged companies but being willing to say look you know some of our companies aren't doing so well and I want to tell you why and I want to tell you what we're going to do about it right or departures and so we're looking for character and integrity and the other thing that we do to test for that as anyone would is we do a lot of referencing around these GPS right talking to the CEOs of their companies exited existing active challenged and hearing how this person that we're meeting with brings themselves to the other side of their business which is how are they interacting with the CEOs the companies in which they've invested and how have they delivered on that and so I I think it's really hard to escape the Mosaic that can get created by an interested party like Cambridge Associates because we are trying to do a 360 view of what are we going to get because we'll be invested for 12 years right so I mean you can't do enough homework on the way in and do enough close observation and so I would like to believe that folks who bring themselves to the growth investment space with integrity and are good people and all the walks that they have to walk as an investor will pay dividends in terms of winning that deal over others in terms of gaining the trust of a management team that actually owns the majority of the company to get them to maybe try it your way based on all the pattern recognition and experience you bring as a GP to the growth space right so I believe in the expected outcomes of being a good person I believe in that and we try to quantify it but it's it's hard as you're asking that question I'm like that's a hard question answer our day right you know one other area that's also a little bit murky is ESG and the degree to which firms kind of adopt ESG practices and their involvement in it how do you view it and what would you prefer to see for firms to undertake in the growth space it's such an interesting question I've definitely had conversations with growth Equity GPS several years back and I've said you know because at Cambridge we explore ESG and all the managers that we're contemplating investing with growth Equity does not get a Buy on that concept and so we do talk about it with the managers we've been doing this for years and but I remember one growth Equity GP I said look we I want to talk with you about you know your USG policy and their response was we don't need one I was like why is that and they're like well we invest in software companies that does they don't hurt the environment I was like you know there's an s and a g in there right like you know it's not just about e there's an S and A G right and so you're like let's unpack that for a few minutes and so what I would say is appreciating every investor could have a different level of what they want to dial up or dial down from an e and G perspective right from a Cambridge perspective what we're looking for is a little bit of acknowledgement that these are areas that historically were considered externalities if I just do the right kind of growth investing the returns everything the Integrity the character all flows through to a positive return but I would say as we're considering the implications of not having really good governance of not encouraging infusing other degrees of social elements right in terms of maybe having a a diverse Workforce from a perspective experience Walk of Life could actually result in Better Business better business models Better Business outcomes representing and reflecting the clients that you're actually trying to attract all those elements and so pulling those more into an investment process and stopping for a second and contemplating them because more of that is likely to have an impact going forward as well like I'm a gen xer I swear I'm a gen xer so I'm like the cynic who used to wear flannel but we're dealing with Gen zers now who have very different orientation and what they're going to expect from their service providers as they start to run businesses and I think part of ESG is we need to think ahead we need to look around corners and start incorporating that into what we do as investors including growth Equity investors now you head up all of private Investments globally what is the most exciting area or where do you stop and think like this is an area that I think is going to be really important and it's one I want to go deep on and spend a lot of time in I'd say the current theme that is moving through the shop and is sort of in the back of our heads these days is the application of AI of course right I had to say that into so many different corners of strategies how are companies able to utilize it are you as a manager finding ways to utilize it we at Cambridge are exploring ways to utilize it for what we do at CA and so that seems to be an interesting exciting element and if you think about what AI is already doing in the health care space in terms of looking for Solutions rapidly processing information and looking for Solutions where maybe a team of dedicated humans just couldn't possibly cover that degree of ground in that shter period of time there's some really interesting developments which could really support the growth Equity space in addition to other investment spaces so that's just a broader theme that we're watching settle on you know watching it carefully of course but looking at it settle onto the investment space I would continue to say though growth it if you think about it and we think about it a lot so RJ we know that companies that are growing their revenues by 20% or more at the time at which they're exited from a growth Equity shop what have you over half of those deals are realized at a 3X or better and so we married our operating metric database with our returns database and we've obviously been not using AI just yet but we've been looking for patterns and that's one we teased out some time ago and what I would say is that growth Equity itself it's still a small portion of where investment dollars go today and when we looked at fundraising by asset class between Venture buyout and growth Equity growth Equity is still only 15% of overall fundraising it's this little wedge right the little little wedge but if you think about what these managers are looking for and they're constantly iterating and improving how they're looking for them what they're going to do with these companies and when you think about that growth statistic of generating 20% or more Revenue at Exit over half those deals are 3x or better which is a top core tile performance if we have the data we know this and so growth Equity continues to be a space that we're very excited about now to go back to the beginning of our conversation is it the growth Equity we're talking about you and I and not this like there are five rounds sitting underneath this air quote growth Equity investment oh and it's not profitable and it's not really going to be that's not a growth Equity investment that's a venture investment and so as investors you need to be very clear on what you're investing in and that's part of what we do at CA is make sure we're all clear on this is an actual growth Equity strategy versus something masquerading as a growth Equity strategy now talking about the other side of the equation you know where are the capital comes from you know one of the spaces that's been really interesting to watch is the family Office Space and how that has been evolving and growing have you been kind of seeing that be really kind of like a ripe area to introduce more growth investing into yes in fact at Cambridge we work with and invest on behalf of both endowments and Foundations as many people think of us we also work with pension Sovereign wealth funds and families actually families institutionally sized families are a big part of who we work with at Cambridge Associates what we've seen because growth Equity has as we mentioned a little more of the upside than buyouts and less loss than Venture Capital so it's clearly a way to gain access to the Innovation economy but at a slightly different stage and really earn that return so we have seen family offices move in and expand an allocation a dedicated allocation to growth Equity what I've observed is all families are different and it may depend on how they have set up their office or or maybe the source of their wealth is it an industrial company is it a venture company and that may inform their level of comfort in investing in growth Equity per se the other thing that's been happening quite a bit is you know co-investment is a fairly significant part of the investment industry today and we have a co-investment practice and we have clients evaluating co-investment as well and growth Equity is interesting because it can be Break Even profitable and so again as a family office or as a co-investor being comfortable that the manager and that company can achieve its targets come into profitability and keep going on a path to a productive exit from an under earning perspective that's a little harder than evaluating a buyout right and so there's some interesting wrinkles around how many other investors are coming towards growth equity and how they're embedding an understanding of it because it's not Venture and it's not buyout but it's got elements of both and kind of being able to parse that and our family clients have definitely embraced it as a strategy we're coming up on time I do like to close with a couple questions one is can you tell us about a person who has had a profound influence on you a single person would be really hard but what I would say RJ having been in the private investment space for a couple decades which I don't really like thinking about that it just makes me feel very old but the opportunity that I've had to basically have a master class talking to managing General Partners who have started firms and grown them substantially who have started firms and maybe gone sideways and then come back I feel like the most influence I've had is the 10,000 hours I've been able to spend talking to folks like yourself getting your experience and really getting to Pepper these folks who have dedicated their lives to their investment strategy as to why how and created an amalgam so to narrow it down to one person besides my mom would be really tricky would be really tricky to do but it's been a master class I've had ringside seats for a long time and I I really relish being at ringside is what I would say well one thing is you've done very well in your career and I think you have a a way of being your demeanor I think is conducive to doing well you know just you know working collaboratively any tips for others that are aspiring to rise through the ranks and the investment space that's an interesting question I would say i' be curious to get your take on this RJ there's really no balance right there's no real balance to how you do things and so what I've tended to do myself is go deep in short bursts so if someone's just starting out lose yourself in your work in a short burst Don't Lose Yourself for 10 years that's not a good path but if you you lose yourself you go deep and you really immerse yourself in something for three months on a deal six months on a project you expand fully into something you've been assigned then you should come away with a lot more knowledge than you would have thought and also a sense of did you really like that and that may help take you to the next thing that you would like to truly immerse yourself in because when I reflect on what I've done as an investor over my career that's kind of how I've done it I said yes a lot early on right yes like yeah I'll try that sure yeah I'll help you with that said yes a lot and then was willing to try things intensely for short periods of time and then came out of that with a lot more to work with I would say that's just one person's observation that's a great Insight okay last question can you tell us about a charity cause or other Endeavor that you're passionate about sure sure more information about me I have four brothers I grew up with four brothers I'm the only daughter and I was fortunate enough to earn a scholarship to A Smith college which is a all women's college in Western Massachusetts where I'm from Massachusetts and I now have at this stage in my career and where I am in life I'm able to give back to the college which honestly really kind of put me on this path like I was recruited into a leveraged buyout firm from Smith college like a graduation crazy town right didn't even know what an lbo was RJ at the time right I do now I can assure you I do now and so I'm a trustee and I'm involved in the college and really happy to support the mission of the school and I'm back frequently I'm actually teaching a class there next month on private equity and venture capital and growth Equity so that's one way I'm trying to give back to a community that embraced me a long time ago and and really put me on the path that I've I've been able to be on so that's one yeah excellent well Andrea I want to thank you again for taking the time this has been a wonderful conversation appreciate the time RJ really took away some insights to use in my day job so I'm grateful for that [Music]