In This Episode
Most allocators learn to evaluate risk from a distance. Alex Tonelli learned it by nearly running out of money.
“We closed a round with $16 in our bank account,” he says, describing the early days of what would become Funding Circle, the small business lending platform he co-founded after Stanford GSB. That number isn’t metaphorical. It’s a specific, concrete memory he returns to often, because it shaped how he thinks about conviction, partnership, and what it actually costs to get a business off the ground. He often relates abstract investing concepts to specific moments from one of the companies he has built.
Today, Alex is a Partner of Endurance Companies, a platform of serial entrepreneurs that manages their investments across asset classes while continuing to incubate one to two companies per year. He sits in an unusual seat: a founder who became an allocator but never fully made the transition. That in-between identity, somewhere between the garage and the investment committee, turns out to be one of his sharpest edges.
From PE to Founder to Allocator
Before Stanford, Alex worked at Summit Partners and was inspired by the entrepreneurs. Initially, that spark caused Alex to build a chain of fitness centers “off the side of his desk.”
“I was a 25-year-old junior PE guy right before the GFC, and I had people trying to take me to baseball games to stuff $100 million in our pockets at 9x EBITDA,” he recalls. “And yet I couldn’t raise $100,000 for our very successful small business.”
That frustration became the founding insight for Endurance Lending Network, which later merged with a UK-based platform Funding Circle to form the largest global marketplace for small business loans (which went public in 2018) and a pioneer of the early fintech wave.
He and his Stanford classmates built six companies over a decade through the Endurance platform. Five of the six succeeded, which is less surprising when you realize that his early Partners include Chris Klomp of Collective Medical (having moved recently to an inactive role since taking the positions of Chief Counselor at HHS and Deputy Administrator of CMS) and Sam Hodges of Vouch Insurance.
The liquidity from those outcomes raised an obvious question: What do you do with the money? “We felt like we had a better vision for how to manage that capital than the commercially available options,” Alex says. So they started investing together. Over time that became an investment office, though Alex is quick to resist a tidy label. “We never intended to become a family office or an asset aggregator,” he says, nor do they use those labels today.
The firm still incubates companies, analogous to how some family offices have a core business. Alex often serves as founding chairman with healthcare and fintech as primary focus areas. An archetypal example of their current focus includes Rockland, an AI-native administrative platform to help community health organizations manage reimbursement and other workflows that currently run on post-it notes.
The entrepreneurial identity isn’t just biographical color; it’s the operating premise of everything Endurance does on the allocation side.
How Endurance Actually Constructs Its Venture Portfolio
Excluding incubations, venture capital accounts for roughly 15% of Endurance’s total allocation, which Alex describes as “endowment-style” based on modern portfolio theory. “We carefully project return, volatility, and correlation assumptions within and between the asset classes to arrive at a theoretically optimal portfolio. It’s false precision, but I prefer that to no precision. It’s another way of saying, “aim small, miss small.”
Endurance’s partners and co-investors subscribe to annual funds to create agency in steering asset allocation while maintaining discipline on vintage risk, one of the most important, but least talked about drivers of returns. Within each annual pocket, the allocation is roughly even amongst three categories: market leaders, breakout funds (typically funds three through five in sectors where the firm has developed genuine first-choice status), and emerging managers. The direct investments that flow from these funds and the partners’ wide-reaching networks represent a large and growing allocation percentage.
That allocation to emerging managers is deliberately high, and Alex is comfortable defending it. “Every piece of data I have seen points to the fact that smaller, earlier funds outperform,” he says. The explanation is straightforward: a fund manager in their first or second fund has everything riding on performance. “In fund seven, a 1.5x return isn’t a disaster for the GP if you’ve got a billion-dollar-plus fund. But in fund one, their entire livelihood depends on it. People often confuse franchise risk with risk to an LP. We don’t need an emerging manager to become a16z for it to be a success for an LP. We need them to produce a 5x net, which is much easier to do on $50M than $500M.” Alex acknowledges that this isn’t a secret. “Many investors know this is true, but are not authentic to the ecosystem in a way that allows them to capitalize. We are natives, not tourists,” which gives Endurance an unfair advantage.
What Alex Looks for in an Emerging Manager
Alex stresses the importance of value-add beyond the check. Strategies built purely on access, writing small checks without a distinct reason a founder would choose that firm over another, are harder to scale and replicate. He looks for a right to win. Examples in their portfolio include a healthcare firm with regulatory expertise that genuinely opens doors to partnerships, a seed fund with an embedded consultancy that generates proprietary insights, and incubation models which get founding economics.
Fee structure, he says, is a revealing contra-signal precisely because it isn’t supposed to be the differentiator. A manager presenting 2.5% management fees or a carry ratchet without having earned that right isn’t just asking for more money. They’re demonstrating a misunderstanding of what the LP relationship is supposed to be.
“If you show up looking abnormal on the things you’re not trying to innovate on, that’s a mismatch,” he says. “The thing you’re trying to innovate on should be a narrow, specific differentiation, and I promise you it’s not fees and terms. Most firms we speak with who do this get bad advice from their lawyer about what they perceive to be ‘market,’ when the reality is that we see hundreds of firms who don’t hit their target and are turning off a large number of investors, likely without knowing it.”
Alex advocates strongly for emerging managers to seek anchor investors early, even if it means giving up a GP stake, a revenue share, or agreeing to fee structures that favor the LP. “Getting in business is so important,” he says, drawing from the Funding Circle experience, where passing on early capital to hold out for better terms nearly cost them everything. For managers trying to cross the chasm from a $25 million fund to a $150 million institutional vehicle, an anchor partner willing to write a meaningful check and engage as a genuine thought partner can change the trajectory entirely. “Most EMs never get there.”
Endurance is walking the walk by starting to play an anchor role in new funds, earning participatory economics for their willingness to show conviction before others.
Where Alex Thinks the LP Community Gets It Wrong
Alex noted two common pieces of LP wisdom that he thinks are misguided.
The first is what he calls the 10% rule, the common institutional practice of refusing to anchor more than 10% of any single fund. The practical effect is that LPs using this rule can only meaningfully participate in funds of $100 million or more, which structurally excludes many early-emerging managers. “That’s basically so you can hide behind other people,” he says. “It’s defensibility, not conviction. Someone is prioritizing their warm seat or trying to drive consensus over hunting the best return. As Principal-first investors, we don’t care about how things look.”
The second is the flow of capital toward brand-name mega-funds. He points to the widely cited dynamic in which institutional capital concentrates in a small number of established firms, driven not by return analysis but by perceived safety.
“Swimming against the flow is almost a necessary feature of success in entrepreneurship and VC,” he says. “Being a follower can work for short periods of time, but over the long-run, the lemmings wash out.”
Investing in a $5 billion fund that needs to deploy enormous capital into late-stage companies at high valuations isn’t lower risk. In his view, it’s a higher-risk, capped-upside play.
An alternative positioning: identify firms in the three-to-five fund range that have built first-choice status within a specific sector, still operate with normal terms and fund sizes under $500 million, and still have a legitimate path to a five-to-10x fund return. “That’s the golden zone,” he says. “Not chasing the biggest, shiniest name because they have to deploy a certain amount into projects whose valuations you can’t verify for another 10 years.”
Looking Ahead
Alex’s view of the current moment is less about AI as a theme and more about portfolio construction. By building concentrated exposure to pre-seed and seed companies through a diversified roster of emerging managers, Endurance will have interest in a wide range of early-stage companies. This synthetically creates a late-stage portfolio, just at a much lower entry point with real outsize return potential.
“It seems like everyone’s playing yesterday’s game by piling into these late-stage companies begging for table scraps. That’s not venture capital; it’s IPO arb. The real winners have already been minted. We had some early-mid exposure to the LLM wave which was earned in our strategy five years ago. Now we’re focused on ensuring that we’re at the main course for tomorrow’s generational winners that are being founded right now.”
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