Mar 25, 2024 · 1h 20m · news
David Clark: Lessons from 32 Years of Fund Investing - Why Exits Will Be Larger | E1131 · 20VC with Harry Stebbings
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In this insightful podcast episode, veteran Limited Partner David Clark of VenCap International discusses the mathematical realities of venture capital, dismantling the myth of the billion-dollar fund returner while explaining VenCap's highly disciplined strategies for manager selection, portfolio concentration, liquidity management, and generational succession.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 22% of the talking time here. How this is scored →
Harry as informed peer 4.4 Guest teaching 3.4 Guest disagreement 1.7 Harry pushing back 3.9
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 28:55 David rejects process-over-output framing
David forcefully pushes back against Harry's view on venture evaluation by asking how anyone can evaluate an investment process without judging its financial output.
Hardest push from Harry ▶ 27:05 Harry confronts David on LP fees without new investmentsHarry aggressively pushes back on Vencap's business model, asking how Vencap justifies charging management fees to LPs when its last net-new manager investment occurred six years prior.
Biggest teaching moment ▶ 11:50 David counters fund-returner myth with proprietary LP dataDavid educates Harry on outcome scale by dropping internal Vencap data showing 45 individual investments that returned over $1 billion to a single fund, debunking the premise that billion-dollar funds cannot produce fund returners.
Harry holds his own ▶ 1:06:26 Harry cites extreme $800M vs $10.2B valuation discrepancyHarry demonstrates sharp market expertise by citing a real-time example of the exact same private company being held at $800 million on one investor's books and $10.2 billion on another's.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Accidental Career: How David Clark Entered Venture Capital | 1 | 0 | 0 | 0 | Harry opens the podcast warmly and asks about David's 32-year tenure as an LP. David describes growing up in Northumberland and accidentally entering venture capital via a newspaper advertisement in the Oxford Times. | |
| Filtering the Noise: LP Discipline and the Power Law | 5 | 3 | 2 | 5 | Harry challenges David's claim that LP filtering is straightforward by highlighting the risk of sitting on the sidelines and missing emerging franchise managers amidst a permanent wall of capital. David responds that LP success relies on staying in one's lane and maintaining discipline across market cycles. | |
| Venture Return Realities: Fund Sizes, DPI, and Future Exit Scales | 6 | 6 | 3 | 6 | Harry questions whether massive billion-dollar fund sizes make 5x net returns mathematically improbable. David counters by dropping PitchBook DPI statistics alongside Vencap's internal data showing 45 individual investments that returned over $1 billion to a single fund. | |
| Disrupting the Giants: Incumbent Dominance vs. Paradigm Shifts | 6 | 4 | 2 | 5 | Harry argues that today's tech incumbents possess unprecedented compute scale and data network effects that make them far harder to usurp than past giants. David cites Clayton Christensen and Thomas Kuhn to argue that paradigm shifts in AI and crypto inevitably shorten incumbent half-lives. | |
| Navigating Liquidity: Vintage Consistency and the M&A Regulatory Chill | 4 | 2 | 1 | 4 | Harry presses on regulatory headwinds and the chill in big-tech M&A exemplified by blocked transactions like Figma/Adobe. David agrees that regulatory blocks compress short-term liquidity, forcing startups to build durable standalone businesses. | |
| Global Asset Allocation: Why VenCap Prioritizes US Venture | 5 | 3 | 2 | 4 | Harry quotes Larry Summers and Keith Rabois on Europe's economic drag, asking why Vencap allocates capital there. David demurs on macro forecasting, explaining that Vencap focuses purely on manager access while revealing a 70% US and 10% Europe allocation split. | |
| Output Over Process: The Core Roster and New Manager Debates | 7 | 5 | 4 | 8 | Harry aggressively challenges David when learning Vencap's last net-new manager commitment was in 2018, asking why LPs pay fees for six years without new manager additions. Harry strongly rejects David's focus on output over process, leading to a sharp debate on how venture decision-making is evaluated. | |
| The Fund III Juncture and the Reality of VC Value-Add | 3 | 4 | 1 | 2 | Harry asks why Fund III is Vencap's entry juncture for new managers. David explains academic data demonstrating that Fund I success is often statistically random, whereas repeat performance by Fund III signals a true franchise. | |
| Sourcing Symmetrics: Sourcing and Winning Elite Allocations | 4 | 3 | 2 | 4 | Harry asks how a fund-of-funds wins allocation in elite, oversubscribed managers when direct institutional access is available. David explains Vencap's 100% outbound sourcing model based on top 1% cap table tracing and capitalizing on cyclical market inflection points. | |
| The Liquidity Crunch: IPO Timelines and Post-IPO Distribution Strategies | 4 | 3 | 1 | 3 | Harry and David discuss post-IPO distribution timelines and public stock management. David outlines Vencap's policy of liquidating distributed public shares while supporting GPs who maintain high conviction in compounding post-IPO assets like Square. | |
| Passing the Torch: Generational Succession in Venture Firms | 5 | 3 | 1 | 3 | Harry explores generational succession in venture firms. David highlights mandatory age retirement policies as a healthy mechanism for firm longevity, citing successful transitions at Accel, Sequoia, and Foundry Group. | |
| Transparent Diligence: The Re-Up Process and Declining Managers | 4 | 4 | 2 | 4 | Harry asks if LP re-ups are mostly automatic administrative exercises. David details Vencap's rigorous internal diligence and describes how Vencap shares anonymized three-year cohort benchmark metrics directly with GPs to maintain transparency on relative performance. | |
| The Crucial Role of Time Diversification in Venture Funds | 3 | 3 | 3 | 6 | Harry challenges David's insistence on 3-year fund deployment cycles, questioning whether top-tier GPs care about LP feedback when oversubscribed. David acknowledges elite GPs have earned deployment autonomy but emphasizes they remain accountable for compressed-cycle performance. | |
| Evaluating Fees, Carry, and Net LP Performance | 5 | 4 | 2 | 3 | Harry brings up top-tier venture firms charging 3% management fees and 30% carry. David corrects him, noting that in 32 years he has never encountered a 3/30 structure in VC, and reiterates that Vencap evaluates managers purely on net performance. | |
| Stage Allocation and Comparing Early Stage vs. Growth Returns | 4 | 6 | 1 | 3 | Harry inquires about Vencap's stage allocation between early stage and growth funds. David shares internal portfolio data demonstrating that Vencap's US early stage, growth, and international funds have generated virtually identical TVPI net multiples since 2005. | |
| Venture Returns, Write-Down Discrepancies, and the Pending Wave of Pain | 7 | 2 | 1 | 3 | Harry demonstrates strong industry awareness regarding valuation mark discrepancies, citing a real-time example where the same company was valued at $800M by one investor and $10.2B by another. David notes established managers write down valuations far earlier than newer managers. | |
| The Commoditization of Late Stage Venture vs. Early Stage Craft | 5 | 4 | 1 | 3 | Harry quotes Doug Leone on venture's transition from a boutique high-margin craft to a commoditized industry. David agrees regarding multi-billion dollar late-stage crossover funds, but maintains that seed and Series A investing remain fundamentally a craft. | |
| Post-Investment Reviews and the Art of Triangulating References | 5 | 3 | 2 | 5 | David explains Vencap's reference process of asking non-co-investing peer VCs why they didn't back a manager. Harry questions whether this simply invites unreliable competitor 'shit talk', prompting David to explain how Vencap triangulates reference data. | |
| Quick-Fire: The Evolution of LP Co-Investments | 4 | 3 | 3 | 7 | During quick-fire, David calls for democratizing venture capital access. Harry immediately calls out the contradiction, asking how David can advocate democratization while operating one of the most exclusive fund-of-funds in the industry. David defends his primary duty to protect LP returns. | |
| Quick-Fire: The Benchmark Miss and UK Pension Reform | 4 | 5 | 1 | 2 | David recounts a painful historical mistake where Vencap failed to invest in Benchmark's inaugural fund because a UK pension fund client refused to approve a $5M check instead of a $4M check. | |
| Quick-Fire: Leadership Succession and the Value of Debate | 2 | 1 | 0 | 1 | Harry and David wrap up the conversation by discussing leadership succession at Vencap and expressing mutual appreciation for an authentic, debate-filled interview where neither held back. |
Statements from this episode (48)
Clark: 45 Venture Investments Have Returned $1B+ to a Single Fund
“So we had a look at our data and we found 45 investments that have returned a billion dollars to the single fund that invested and were also fund returners.”
Clark: Compare Current Venture Fund Sizes to Exit Market Sizes 10-15 Years Out
“What you need to do is to compare fund sizes today with the exit sizes in 10 to 15 years because that's when those companies are ultimately going to become liquid.”
Clark: LPs do not need every top fund to succeed
“One of the things that, one of the things that we've learned is that you don't have to do every great manager out there. You just have to make sure all the managers you do are great.”
Clark: 30 companies yearly drive over half of global VC exit value
“Venture is a power law industry, and it's one percent of the exits that ultimately generate the bulk of the returns created by the entire industry globally. So we're looking at around 30 companies a year that generate more than half of the total exit value for…”
PitchBook data: Only 2.6% of VC funds reach 5x DPI
“More than 50% hadn't returned one X capital. And so these are funds that are more than, that are 10 years old now, at least 10 years old now, hadn't returned one X capital. There was just 6.6% that had generated three X net DPI. And just 2.6% that had generate…”
VenCap core fund managers deliver ~3.5x aggregate net multiple
“So we have a group of a dozen core managers and, you know, like, 90% of all the capital we've invested over the last decade plus has gone to those managers. And when we look at the performance of their mature funds, so let's take away the ones that were raised…”
Under 3% of VenCap venture fund investments lose capital over 30 years
“What we found is less than three percent of those funds haven't, are showing a TVPI of less than one X. And this is going back Some of those funds are going back 30 years. So that's through the dot-com boom and bust. It's through the financial crisis.”
Clark: Tech venture exit sizes will increase over next 10-15 years
“Ultimately the markets that they're playing in, and the share of the economic pie that technology is going to capture, in our view, is only going to increase. And so that gives us confidence that whatever the multiples are at the time of exit, the directionall…”
Clark: LPs must invest across every vintage rather than timing markets
“From an LP's perspective, the way that you're able to do that is to make sure that you are investing consistently across every vintage. You're not trying to time the market.”
Stebbings: Regulatory Pushback Has Completely Broken the Tech M&A Market
“M&A is pretty much fucked.”
Clark: M&A regulatory chill will concentrate VC returns in fewer companies
“I think the impact that will have is that the concentration of returns in venture is going to be even smaller as they're going to be fewer companies that ultimately account for that, that performance.”
David Clark: VenCap has only 10% of its portfolio invested in Europe
“And when I look at our portfolio there's a reason only 10% of our portfolio is invested in Europe.”
David Clark: VenCap's China allocation dropped by half over ten years
“It's come down by half over the last 10 years.”
Stebbings: 20VC has only one European LP, all others are US-based
“I have one European investor and everyone else is U.S.”
David Clark: VenCap managers backed 85% of top VC exits over 6-7 years
“And so when I look back at the best VC exits over the last six or seven years, The managers that we've backed have been in 85% of the top 20 or 30 exits there.”
Clark: VenCap last added a net-new fund manager in 2018
“Our last one was probably 2018. And it was a fund 18.”
Clark: LPs prioritize capital deployment over 15-year fund performance
“Most LPs probably aren't going to be in the same job when that feedback comes. So they're more worried about deploying than they are about what happens 15 years down the line when, you know, when the performance data is, is actually in.”
Clark: VenCap typically enters VC manager relationships at Fund III
“The earliest we would intercept a manager would probably be fund three. And that's where we've had the most success historically. So if I look at our 12 managers, probably half of them we ended up doing it from three.”
Clark: A Venture Manager's First Hit Is Random, But Repeatable
“So, again, going back to some of the academic data that's out there, it does suggest that that first success is actually random, but once you've had that first success, There's a high likely or higher likelihood that you can then leverage it and start that vir…”
VenCap Disregards VCs Who Passive-Rode Small Seed Checks to Large Returns
“So if you wrote a 50,000 dollar seed check and Turned up 15 years later and found you had a company that, you know, went public at a ten billion dollar valuation, then that's less interesting for us. If you were leading around, if you were on the board, if you…”
Clark: VenCap Has Never Invested in a Manager Who Pitched Them Directly
“We have, I want to say we've never invested in a manager that has come into us directly.”
Clark: Poor Succession Planning Is a Leading Cause of VC Firm Failure
“One of the reasons why we see great firms fail is because they don't handle succession well, and some of them will handle succession badly, but get there eventually.”
Clark: LPs will wait 18-24 months for liquidity after IPOs resume
“So even if we start to see IPOs in the second half of this year, it's going to be six months before those shares become freely tradable and again, it will probably be another 12 to 18 months before those positions ultimately get fully distributed.”
Clark: VenCap sells distributed public stock immediately rather than holding
“We tend to sell because we don't think it's our job to hold public stock for our investors. They have their equity managers who do that and would do a better job than we would.”
Clark: The Sequoia Fund structure was right despite bad market timing
“And I think it's interesting that the criticism that Sakaya had for the Sakaya Fund It's absolutely the right idea. It just happened that they implemented it at a time in the market where you saw a significant correction once it was put in place.”
David Clark: VenCap Backs Venture Firm With Mandatory Age-Based Retirement
“So there's one of the managers that we back that have a, that has a policy that says once you get to a certain age, you're out unless you're invited by the rest of the partners to stay Within the partnership.”
Clark: Accel Has Successfully Managed Generational Leadership Transitions
“I look at someone like Excel who, you know, is probably on the third or fourth generation now of leaders within that firm. I think they'd probably admit that, that, you know, they didn't get everything perfect, but I think they've handled most of those transit…”
Clark: Foundry Group Handled Succession Well by Deciding to Wind Down
“Foundry Group have done a really good job. Because they've understood that, actually, we're not going to try and do that. There's a group of people here that want to work together, and when we're done. And that, I really respect that. That, that they haven't t…”
VenCap re-ups with roughly 90% of its existing fund managers
“I think 90% of the managers that we have, you know, we're very happy with, we know we're going to re-up with them.”
Clark: VenCap declines existing VC managers only for performance and succession
“I think that the two reasons we don't do, the two reasons we would say no to an existing manager would be performance and succession.”
VenCap’s worst-performing fund was a 1999 vintage deployed in 15 months
“One of the mistakes we made in the late nineties was deploying our funds too quickly in, I think we had one fund that was fully invested in 15 months. And it was the worst fund we had. So it was in, you know, the 1999 vintage fund.”
VenCap targets three-year deployment cycles across all its funds
“Time diversification in a fund is so important. And so we look to invest all of our funds across a three year period.”
VenCap maintained a nearly three-year deployment pace for its 2019–2021 fund
“When I look at the fund that was deploying 1920, 21, we did that in a quarter under three years. So even though our managers were coming back, some of them in 18 months, we still maintain that time diversity in our portfolio.”
David Clark has never seen a 3% fee and 30% carry VC fund
“Two and a half. I'd have to double check that, but I'm pretty sure there's nothing that I've seen that's a three and 30.”
VenCap accepts higher VC fees if net performance stays top-quartile
“For us, it's about net performance. So, you know, what does that performance look like after the fees and carry have been taken off? And if it's consistently top quartile and it's consistently strong then we're relaxed about that.”
David Clark: Early-Stage VC Funds Must Offer 1x Fund Return Potential
“We still feel comfortable that they're, whatever the fund size they're investing out of, that there's a, an opportunity for them to return the fund from within it, with a single investment. It, it's slightly, certainly for early stage funds. I think for later …”
VenCap targets a 50-50 capital allocation between early and growth funds
“We want to be sort of roughly fifty-fifty between early and growth. It's a challenge to manage that if we end up being sort of, 45, 55, I think we're comfortable with that. We don't want to be 30, 70.”
VenCap's early, growth, and non-US funds yield nearly identical aggregate TVPI
“We looked at what's the performance of the early stage US funds from our core managers from 2005 onwards. What's the performance of the growth funds from our core managers from 2005 onwards? What's the performance of the non-US funds from 2005 onwards from our…”
VenCap's top-performing fund of the past 15 years is a growth fund
“Our best performing core manager fund in the last 15 years as a growth fund.”
Clark: Newer VC managers maintain last-round marks while established managers write down
“From newer managers, one of the things we look at are where are they holding their marks, and generally we've seen the new managers holding last round value marks, and not writing anything down, where it's the more established managers that are perhaps earlier…”
Clark: Historically, 60% of early-stage venture investments return under 1x capital
“Historically for an early stage fund that's been 60% of companies don't return one X cost.”
Clark: Early-stage loss ratios will return to 60%, causing widespread startup failures
“My sense is that it's going to go back to the average. It's going to go back to that sort of 60%. So I think there's a lot of pain still to be had. So that's not just companies who are going to get see their values reduced. I think there's a lot that ultimatel…”
Stebbings: Two VC funds carried the same startup at $800M vs $10.2B
“I was looking at one today and one was valued at eight hundred million and the other person had it at 10.2 billion.”
David Clark: Late-Stage VC Returns Will Decline as Valuations Become Efficient
“If you're talking about, you know, the people that are raising multiple billions of dollars to do you know, to do the crossover deals, the late stage private rounds, Then I think that is more of a capital allocation exercise than it is a kind of craft business…”
David Clark: Quantitative VC Decision-Making Erodes Excess Returns
“I think the more quantitative the decision becomes, the more that excess returns will probably get competed away.”
Clark: Reference VC managers with non-co-investing sector peers
“So I think that's probably the biggest thing that's come out of our decision review process is to be, is not just to reference people who we know work with each other, but reference people who are in that particular sector, who we would normally expect to have…”
Clark: Big VC IR departments make direct partner access harder
“It's getting harder, you know, particularly where, you know, you mentioned firms that have, you know, big IR departments and it's harder to have that interaction with individual partners. You've got to work at it more.”
David Clark: Direct co-investments can selectively capture top 1% venture returns
“I'm not all the way there yet to say that, that actually it's a good thing, but I do think there are situations in which there are different ways to optimize for those top one percent companies. One is to do it through the best primary managers. One is to do i…”
Shorts cut from this episode
▶ #1 Lesson for investment funds 🔑 · 20VC with Harry Stebbing (@57:25)
▶ Predicting fund sizes in 15 years 👀 · 20VC with Harry Stebb (@0:14)
▶ Being successful in venture isn’t easy ❌ · 20VC with Harry S (@9:24)
▶ Why it’s okay to miss out on good fund managers 🤔 · 20VC wi (@5:42)
▶ Lessons from 32 years in venture capital 💰 · 20VC with Harr (@0:00)