Collective Global, the $1 billion consortium of pension funds, has inked its first deal after launching last year.
The firm acquired a stake in venture firm Drive Capital in addition to making a fund commitment. In total, Collective Global may commit up to $750 million to Drive.
Collective Global is investing capital on behalf of Orange County Employees’ Retirement System, the San Jose Retirement System, and U.K. pension fund Railpen into the venture sector. The consortium acquires stakes, invests in venture funds, and makes coinvestments.
Prabhu Palani, the CIO of San Jose’s pension funds, has been considering a GP-staking approach to investing in venture for several years. “You have an additional layer of returns,” Palani said. When he joined Collective Global, his team benefited from the consortium’s scale and the regional diversification it offers.
Located in the heart of Silicon Valley, Palani’s team has the benefit of proximity to many of the managers located on Sand Hill Road. “A lot of the low hanging fruit in the Valley we can find ourselves,” Palani said. But the industry is slowly diversifying away from San Jose, and Palani wants to be able to access managers outside of the area.
“If you think about GP staking, it’s been done primarily by these large, behemoth asset managers,” said OCERS CIO Molly Murphy via Zoom. “They come for the transaction, and they don’t stay for the relationship. It’s also very concentrated around where those asset managers are located.”
Drive’s mandate, though, is to invest in technology companies between the Hudson River and Rocky Mountains — diversifying away from Silicon Valley, the heart of venture capital.
The Columbus, Ohio-based firm manages $2 billion and has invested in companies like Duolingo, Sidecar Health, and CirrusMD. In 2022, Drive announced two new funds totaling $1 billion in assets. The firm launched an $80 million seed program in 2023, which will support up to 160 early-stage founders.
“We’ve been approached by groups that wanted to invest in Drive in the past,” said the firm’s co-founder, Chris Olsen. “We’ve always said no. We never even explored it. The reason for that was from our standpoint, nobody brought anything else to the table other than money.”
For Olsen, though, Collective Global offered something different — deep relationships with asset owners, who in turn could offer connections to their broad investor networks.
“We think of Collective Global as a bridge between premiere asset owners on one side and the innovation economy as represented by outstanding venture managers like Drive,” said Daniel de Faro Adamson, co-founder and co-CEO at Collective Global. “Once you have that bridge in place, what can flow over it is not just money.”
By way of example, Olsen and his team already approached Collective Global with a co-investment opportunity — a deal which Collective was glad to get involved in.
The venture environment of today is radically different than that of two years ago. Managers are consolidating rapidly — Adamson noted that in 2021, there were roughly 7,500 managers in the space. Now, there are about 5,000. “It’s not the environment of 2020 or 2021,” Palani said. “Valuations were high, expectations were high.”
