venture capital fund

“Once you have a term sheet from a fund, go ahead and ask to meet three or four of the entrepreneurs that they've invested in. And often I suggest that you specify entrepreneurs who've been through a tough time.”

“Historically, venture capital funds have returned to their investors net about 25 to 30%.”

“Lots of times you'll hear institutional investors saying that they want at least 300 to 500 basis points better than what they think they can do in the public market.”

“But with the pensions now seeing aging populations, they're generally not in a position to be doing the 10 to 12 to 14 year lockup, which a venture capital fund typically is. They can't commit to that level time frame of the liquidity.”

“And I think people often forget that the best vintage years are driven as much by how good the exits markets are when you're ready to sell out of the companies as anything else.”

“I think for entrepreneurs, what is a good guide is always looking at the fund size. So you can say that you're an early stage firm or you focus on early stage, but if you You've got this huge, big fund, you know, it will never be it can never be a core part of…”

“There are probably even fewer funds than there are firms, than there are startups, so that database doesn't, it's hundreds, but it's not thousands.”

“At the high level, I do think that there are substantial issues with LPs investing directly. First and foremost is adverse selection. If an opportunity is available to the LP, why are they being shown this? Is something wrong with the company? Does the fund ma…”

“I sincerely believe, and there's a large but quiet group of other experienced VCs with successful track records that who also believe that the strict segregation of funds by size has an information destroying or signal reducing aspect.”

“Because you're going to have to be leading deals if you have a fund of over a hundred million.”

“You have to put that alongside the fact that venture funds have been growing, and the rule of thumb we use there is we say any exit that isn't at least equivalent to the size of the fund is not really material to a fund.”

“That said is, is that it doesn't scale very effectively. And so balance sheet based capital because for a whole series of reasons I can dig into. So funds are really good at that.”

“I think that they have to be longer. I think so. I do. Because I think that the fundamental trends that we are working, you know, the transformation that technology is driving in our society is much longer than that.”

“And even though funds are ten-year funds, which sounds like a long time, you know, the average investment period for most Funds is probably, you know, three to five years, and so what that means is that every three to four to five years, you've got funds out r…”

“I think the biggest opportunity in investing right now might just be a fund that has a 15 to twenty-year life cycle.”

“The reality is most funds have pretty mediocre performance between one and two TVPI. So most investors are not doing that great.”

“Because I think a fund is effectively a new product in the context of a ton of competitors. Money's coming from all sorts of directions, and you have to have a unique value proposition that I think will create a long-term competitive moat.”

“There's a lot of studies that suggest that returns go down as funds get larger in AUM. There's a ton of studies that show that.”

“But I think the process for raising your first fund is a lot more like raising a seed round for a company than it is like any kind of mature venture fundraising process I've seen.”

“Going back to companies staying private longer, that means that the life of funds will also stay in existence longer, and LPs of all different varieties have different tolerance for illiquidity and desire to stay into a fund into years. 10 to 15”

“And I think it's incumbent, and it will be more and more incumbent on these funds and perhaps the size requirement will come down. Even as smaller funds, you really should be expected to be more full service.”

“And that time horizon, even though the IRRs and the multiples will be great, makes it an impedance mismatch for most venture capital funds in the early stages.”

“And don't forget that in that eighty million dollar round that gets cut back to a forty million dollar, if you don't participate, sometimes you get flushed down to zero. And so if you don't have reserves and you're playing in a game where big checks are being …”

“I was seeing all these scout investors across a bunch of different funds, and the vast, vast, vast majority were men”

“I take my fund, allocate 25% to reserves, And the other 75% and divided by the number of months I want to go before I raise a new fund, typically 18 months, and that's how much money I'm writing every month, and I would just keep doing it ad infinitum as long …”

“I think having one person in one fund can be detrimental because if they don't follow on, you're kind of dead in the water.”

“Well, it takes 10 years to be out of business, but I think once you're not able to raise a new fund, it's a slow death, and it's hard for you to be active in the market because entrepreneurs know that you're having trouble raising capital, so it's sort of a de…”

“If you still believe that you can hit your cost of capital at those higher numbers, then you absolutely want to be writing those checks. If you don't think that you can hit your cost of capital at those higher numbers, then you probably want to be adding new p…”

“I think it's a little overdone, this idea that, like, they help in a different way, the C or the A. When I think about my best investors, because they came in all the rounds, I treat them all like they're just great. They're sounding boards, they open doors, t…”

“I'm deeply skeptical of somebody who is a CEO of a startup being able to also run anything else.”

“The fund sizes have gotten much bigger, so it's difficult to share, because you want to invest, you know, if prepared to invest half a million before, and the deal size was two million, now you want all of the two million. So that's made it tougher to share, f…”

“So every fund should not be a climate fund. That's my first piece of advice.”

“Never stop investing. The minute you lose your confidence, you lose your right to exist. Because if you look at the funds that were around in 2000, so many of them disappeared exactly for that reason.”

“So maybe it took multiple decades for a firm to die in the sixties and seventies and whatever eighties, maybe it took it, maybe it's taking a decade, you know, nowadays or last few years, I think that that pace is going to increase. Like information gets disse…”

“When people send cash back, they feel obligated to then return cash back for the next funds. It's very difficult for the LP to be fair on them. To get three X funds returned, and then go, thanks Kyle, not coming back for the new one. It's very hard to do.”

“And we would say, oh, you have a three X fund, Samil, what is it now? I'd probably say it's one and a half X fund. You know, I don't think that that's out of bounds.”

“There's a reason three X net used to be rare until the boom. It's because that beats everything. Three X net beats every other asset class, except exhaust, except timber in good years or diamonds in odd years. Three X net beats everything. And three X net is u…”

“It's sometimes easier to raise a hundred million dollar fund than it is a thirty million dollar fund. Why? Because you unlock new tiers of LPs when you increase the size of your fund. More institutions are able to invest in a hundred million dollar fund than t…”

“An LP will never want to be more than 20% of the LP dollars in a fund, and so the size at which an institutional LP would be interested is when you raise twenty-five million dollars plus at the very minimum, and then they can invest at least Five million dolla…”

“What I'm seeing is no one's marking their books down, and they're keeping them all at the incredibly inflated prices, and claiming that that's still how it is.”

“If we were to take a bet, Harry, is there, are there more LP commitments in 2023 and 24, or 21 and 21 combined? I guarantee you the 20 and 21 number was gonna be bigger than the 23 and 24 number, if you really zoom into that small timescale”

“I think we looked on average funds have come down around 19% on the venture side somewhere between 15 and 20, I would say, is, is what we've typically seen.”

“The multi-stage firms, like any firm, your fund size is your strategy. So if there's a crisis, you're going to tend to worry about the companies that move the needle in your large fund. Less so than, oh, I wrote a million dollar check to this company 18 months…”

“If, you can do it super easy and say, look, I just poach from other funds. I hire people who have been three years in VC. They have the networks. They know how to look at deals. You just get An average index of all the other funds.”

“We've definitely seen the time to first close has increased. It was three months in the boom times, and now it is six plus months. And when I say six plus months what I'm referring to is the timeline went from six and right now it's trending towards seven.”

“I think the pressure to like raise bigger funds and like collect larger fees and do more things is real. It's just like, doesn't matter. Right? Like, will that generate returns? I don't think so.”

“They're funds, they're cutting fund sizes left and right, and they're combining funds to bulk them up.”

“It has swung back to being hard as it historically was, right? It traditionally took two years to raise a fund, not, not an email.”

“Most funds, I mean, when you're big, it's different, but most funds that aren't huge have a few core anchors, right? They really do. And typically those relationships are trust driven, right? They are trust driven. That's why they're anchors. The rest, it is t…”

“I've definitely heard some secondary offers on some big, big companies that I know that are going to turn Some of our peers from seven X funds to one X funds.”

“There's still some level of risk of having an entire endowment based LP base, because they may all sort of have the same denominator effect issues at the same time.”

“There is now a wonderful supportive letter being posted, being, you know, signed by, I think now there's a 150 different venture capital funds globally that have signed on from, you know, eight VC to upfront to Bain to all these wonderful, you know, Lightspeed…”

“I think we've yet to run the math and see a fund that's gone over fifty million that doesn't have to start having some trade-off between ownership and AUM.”

“We've yet to see a fund that's returned three or more X that does not have a company that's returned at least one time the fund.”

“Everyone says 10 years. It's not 10 years. It's like 15, 20.”

“There's so many fewer of those than people thought.”

“We've been looking at data going back to 1995. I was shocked at the breakage. The breakage between Fund One and Fund Two is not every year, but averages out to be about 50%.”

“We saw numbers about, like, 12 to 18 months, which is historically atypical, right? Usually it's three years. So if now they're lengthening back out to three years, yes, there's fewer funds being raised.”

“And so I think what you do have is a lot of investors who are thinking now, Hey, Is that a good thing? Should we be doing that? And I think that can be a way of finding returns for investors in funds that were more challenging vintages. But I think the wrong a…”

“You're probably better off not reserving, and then making ad hoc decisions based upon the quality of that particular opportunity, which includes who's the investor, what's the traction of the company, what do we believe about the founder, what have we learned …”

“And then after that, we have another bucket where the check sizes are typically 10 to twenty million per fund.”

“Honestly, I would say in the first three years, you usually can't tell. Right. It would be some time between three and five years where we start to see whether they're, some of their companies really inflected. And we don't necessarily care whether something h…”

“So you'll see new funds being smaller, but that takes time to work through the system.”

“Look, the reason one should be concerned about venture today Is that there are, there's probably four times as much money in funds today as there was in 2017.”

“Where, where are returns going to come from? They're going to come from private equity. So private equity firms are going to step in and buy assets from venture capital funds. They will either buy A company or they will buy secondary.”

“My advice to everyone out there that, like, emails me, hey, can I invest in Sastra Fund? Don't put money into any of them, is my advice to individuals. To individuals because I don't even think everyone's full of shit. I think even making three, if you do a se…”

“I kind of look at how many X's is the fund after year eight or year 10. Before then it just doesn't count.”

“It does feel like a period of less cooperation and there needs to be a very specific reason why funds would work together.”

“17 years for liquidity. How long is the nominal fund life? 10 years. It doesn't match up. Doesn't match up. Yeah, you get two one year extensions.”

“This one isn't like epic, but I just think we're sitting on a ton of one X funds in venture. Just so many one X funds. They'll never get out of one X. A whole generation. And listen, I barely saw I, when I was, when I first joined venture, I could see the tail…”

“Those provisions exist for a reason, which is because in harder times, being able to get back one X, not 0.2 X actually across several companies, which is often the case makes a big difference. It can make a half turn on a fund.”

“Investors, they, especially in big funds you usually start your conversation not with, like, partners or mentioned partners, but with analysts or with principles. And this people usually have profile kind of Graduated in Harvard, MBA in Stanford, or graduated …”

“Even when I started fundraising, I thought the duration of a fund was 10 years, and I was surprised to learn that many of the LPs said, we rarely see closed funds before 15 years.”

“And so the loss ratio is about the same between a three X fund and a 10 X plus fund. What matters is the magnitude of your big winners”

“Let's say you have 25 investments in a fund. Your best investment is gonna have to return 64% of all returns. That one deal.”

“Please tell me where all these like three X net funds are all run. It's a complete fallacy.”

“We think there's a lot of really good funds that are really good at investing. We think there's a lot of people that are not very good at selling.”

“To get to this phase. And so it's really 20 years. It's not just 15. It's 15, and then you have to IPO, and then it's three years to distribute, right? But after six months, so we're talking about 20 years to real liquidity, to a real fund.”

“Yes, by definition. I think, and for two reasons, and we'll talk about it. One is, each individual deal has more risk in it. And then on top of that, the whole, it's a totally separate thing, the holding periods have elongated, right?”

“The hardest thing to control is IRR because the timing of those exits, you know, everyone now is suffering IRR degradation. They're going to get the same return in 20, 26 that they thought they were going to get in 20, 24.”

“I'm willing to bet if you got some kind of machine learning algorithm and looked at all the funds that for three or four years in had a TVPI of two X and all the funds that four years in had a TVPI of .8 X and then correlated that to the ultimate outcomes, I b…”

“If you are going to leave a fund, and you can, you have a hot hand, better to do it early. Like staying longer doesn't help. Like it might seem like it helps the fund. It doesn't help you. You're probably not going to leave with much carry, right? You're going…”

“Yeah. Yeah. Yeah. I mean, best case scenario, you don't have anyone more than 10%, but if you're raising a fifty million dollar fund or a hundred million dollar fund and you can, you know, secure a 10, 20, thirty million dollar check and they're long term alig…”

“I absolutely think they will continue to survive and thrive at that range.”

“Us, no. I mean, we are in an extreme performance-driven culture.”

“Generally I don't like investing in funds. It's like they last too long. The capital calls are unpredictable. So there've been multiple cases where it's like, I don't get a capital call for two years, and then a bunch of funds come in, and it, like, totally fu…”

“Nobody raises a first small fund intending to stay with small funds, right? I mean, that's just not how you make the math really amazing. You have, you know, you do a 30 or seventy-five million dollar fund, then you know, double or triple that, and then you ra…”

“These are carries many funds now vest over 10 years. Some even backload carry, right? Because they want to penalize the folks that leave.”

“Look across all VC funds and look at their vintage, whether it's a 99 vintage or a 2004 or 2005 vintage, and the one correlation you can make to success Was timing.”

“If you find your logic being reduced to, I've got to get rid of this much money this month, and this entrepreneur is amazing, so I'm not sure about the opportunity, and I don't like the price, but have a goal. If that's your logic, let me give you some advice.…”

“LPs are uncomfortable with change. LPs say that they're looking at the new generation and the Vanguard. But they are comfortable when the old leadership is still actively involved in the fund. It does make LPs more comfortable whether they're writing, investin…”

“What we're seeing with kind of the perception of funds and the idea of value add and tiers of investors is that perhaps capital isn't so fungible after all.”

“Provided you've got a big enough check size to play in any round as a GP, you actually, quote unquote, have higher risk adjusted return if you have smaller funds because then you have less cross deal aggregation. In other words, two separate one billion dollar…”

“If you see an S tier team, and it's in the right space, and you want to hit your number, your 20% ownership, and your fund is in billions, the math just makes sense. It's a bet. It's just a bet.”

“I do think you don't make the most money if you wait three years to deploy your fund. You make the most money if you can thoughtfully deploy it in 18 months, right?”