Jul 17, 2023 · 1h 15m · news
Sheel Mohnot: How I Got Married in the Metaverse; Founder vs Product vs Market | E1035 · 20VC with Harry Stebbings
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In this episode of 20VC, Harry Stebbings interviews Sheel Mohnot of Better Tomorrow Ventures to dissect the realities of venture capital fundraising, emerging markets, and the future of fintech, concluding with a lighthearted look at Sheel's viral metaverse wedding.
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 27.2% of the talking time here. How this is scored →
Harry as informed peer 5.1 Guest teaching 3.7 Guest disagreement 3.0 Harry pushing back 3.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 3:31 Sheel directly pushes back on Benchmark praise
When Harry argues that top Benchmark partners always know what they are doing, Sheel forcefully counters by recounting an internal Benchmark debate that ended in complete disagreement.
Hardest push from Harry ▶ 3:07 Harry refuses the 'nobody knows what they are doing' premiseHarry directly rejects Sheel's assertion that VCs are clueless, citing elite investors like Bill Gurley and Pat Grady as evidence of consistent skill.
Biggest teaching moment ▶ 48:30 The story of Mrs. B and Warren BuffettSheel educates Harry on Warren Buffett's acquisition of Nebraska Furniture Mart and Mrs. B's spite store to demonstrate that exceptional founders overcome bad market conditions.
Harry holds his own ▶ 36:58 Harry challenges the timing of launching an acceleratorHarry demonstrates industry knowledge by naming Neo, Ali Partovi, Hyper, Gary Tan, and YC to challenge Sheel on why launching 'The Mint' makes sense amidst market unbundling.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Why Nobody Knows What They Are Doing in Venture Capital | 6 | 5 | 6 | 7 | Harry explicitly challenges Sheel's claim that 'nobody knows what they are doing in VC' by citing tier-one investors like Bill Gurley and Pat Grady. Sheel pushes back by sharing internal details about Benchmark partners holding intense debates without reaching consensus. | |
| Venture Capital Fund Sizes & The LP Landscape | 5 | 3 | 2 | 3 | Harry and Sheel discuss VC fund sizes and LP dynamics, noting the hypocrisy of funds rushing to Saudi Arabia during downturns. The exchange is collegial and aligned. | |
| The Dilemma of Follow-On Investing Strategy | 6 | 4 | 3 | 5 | Harry questions BTV's $150M seed fund size based on conversations with LPs and asks whether follow-on investing forces VCs to put capital into weak companies. Sheel explains how early leads must support performing mid-tier bridge rounds. | |
| The State of Emerging Markets Investing | 6 | 4 | 4 | 5 | Harry presses Sheel on the viability of emerging markets, arguing that places like Pakistan and Bangladesh lack liquidity and public exit paths. Sheel agrees valuations were inflated but defends top-tier outliers. | |
| The European Startup Ecosystem and Global Focus | 5 | 3 | 3 | 4 | Harry asks about US firms retrenching from Europe and playfully accuses Sheel of holding back his true thoughts on European startups. Sheel clarifies he only backs European companies building for global markets. | |
| Super Funds, Fund Sizes, and BTV's Lean Mentality | 6 | 5 | 4 | 6 | Sheel explains that BTV waives full management fee drawdowns to remain lean, prompting Harry to argue that under-investing in firm management is short-sighted. Sheel defends the choice as keeping them focused on returns rather than AUM fees. | |
| Debunking VC Value-Add and the Reality of Raising BTV Fund 1 | 5 | 5 | 4 | 5 | Harry voices skepticism about VC platform value-add services, declaring them useless. Sheel counters with a concrete example where BTV's dedicated talent partner won a competitive deal by placing key candidates. | |
| Unit: The High-Stakes Deal that Forced BTV's First Close | 3 | 2 | 1 | 2 | Sheel recounts the origins of BTV Fund 1, an $18M early first close driven by winning the deal for Unit, followed by COVID shutting down their second close roadtrip. | |
| Fund 2 and Managing LP Deadlines | 4 | 3 | 1 | 2 | Sheel details raising Fund 2 in late 2021, setting a 10% cap per LP to maintain independence, and managing LPAC approvals for new initiatives. | |
| Launching 'The Mint' Accelerator | 6 | 4 | 4 | 6 | Harry challenges the wisdom of launching an accelerator in the current market, citing YC's dominance and recent unbundling trends like Neo and Hyper. Sheel defends the program as a specialized fintech alternative. | |
| DPI, Secondary Exits, and the Mistake of Holding | 5 | 4 | 2 | 3 | Harry and Sheel discuss LP pressure for DPI and secondary liquidity. Sheel admits his biggest personal investing mistake was failing to take multi-million dollar secondaries during the 2021 peak. | |
| Founder vs. Market & The Story of Mrs. B | 6 | 6 | 5 | 5 | Harry uses a surfing analogy to argue that market timing beats founder quality, whereas Sheel insists early-stage success is almost entirely founder-driven. Sheel illustrates his point by telling Warren Buffett's story of Rose Blumkin (Mrs. B). | |
| Why Great Founders Fail & Multi-Stage Seed Entry | 7 | 2 | 2 | 2 | Harry brings up his public critique of '5 on 25' seed rounds destroying discipline, and Sheel strongly agrees, explaining how multi-stage funds writing small seed checks ruin future Series A options. | |
| Board Dynamics & LP-GP Misalignments | 6 | 3 | 4 | 5 | Harry and Sheel analyze board dynamics and GP-LP misalignments. Harry strongly argues that founders raising side funds show disrespect toward their primary venture investors. | |
| Getting Married in the Taco Bell Metaverse | 1 | 2 | 1 | 1 | A lighthearted conversation detailing how Sheel and his wife won a contest to get legally married in the Taco Bell Decentraland metaverse. | |
| Quick-Fire Round: Top VC Picks & Founder Secondary Strategy | 4 | 4 | 2 | 2 | In a quick-fire round, Sheel shares his favorite VC firms and outlines his rule of thumb capping founder secondaries to 1x ARR at Series B. | |
| Reforming Venture Capital, Future Valuations, and BTV's 5-Year Goal | 6 | 4 | 3 | 2 | Harry notes uncalled GP commits and debt overhang in large funds, while Sheel shares a story about a data-driven VC investing in Zume Pizza based on Facebook shares. |
Statements from this episode (42)
Mohnot: Data-driven VC invested in Zume Pizza based on Facebook shares
“So, okay, on that company, I met a guy who invested in that company early, or relatively early, and it was a data-driven VC. And I was like, what data do you have for this company? And he was like, we have all this data on, like, number of shares on Facebook o…”
Mohnot prefers in-person work but will not mandate it for startups
“And now, it is actually my preference that companies are in person, but I can't mandate it. I don't mandate it because I think we've seen too many success stories that aren't all in person.”
Mohnot: Even top venture capitalists struggle to identify moats
“And I think it's like, there are ways that you can invest, but actually knowing what to invest in or what a mode is, I think people are still figuring it out. And even if you look at the greats, they have a bunch of misses and they have a bunch of companies th…”
Mohnot: VCs who opposed Saudi money are now hypocritically seeking it
“We haven't, but I think it is very hypocritical that all these folks who were anti-Saudi money are now over there just praising everything.”
Mohnot: More venture capital funds will shrink their fund sizes
“I think we'll see more. I think we have to.”
Mohnot: Large VC funds prioritize management fees over investment returns
“And I think a lot of the large funds have gotten so large that they're really more management fee focused than they are returns focused.”
Mohnot: VC funds will not return uninvested capital this cycle
“I don't think so. I know that that's happened in the past. I don't just, I just don't see it happening this cycle. And probably if it were to happen, it would have already happened.”
Mohnot: Better Tomorrow Ventures runs $150M seed and $75M opportunity funds
“So we're a hundred and fifty million dollar seed fund and a seventy five million dollar opportunity fund.”
Mohnot: Seed leads are forced to follow on when reputable investors join
“If you lead the seed round and somebody good is following on, you kind of have to follow on.”
Mohnot: Single-check VC strategies force follow-on capital into weaker companies
“If your strategy is just to do one check, but you have to do some follow-ons, then you end up not Following on to your best companies, you end up following on when you have to, which can be your worst companies.”
Stebbings: Follow-on investing fails because early winner prediction is impossible
“I think follow on is actually just an inherently hard strategy, because it assumes that you can essentially predict your winners so much sooner than I think you actually can.”
Mohnot: 2021 emerging market seed valuations hit $20M despite hard exit paths
“People started paying, like, seed rounds at twenty million dollar valuations, and in, in a market that's gonna be a really tough path to get to a billion dollar plus exit.”
Mohnot: Better Tomorrow Ventures' European investments do not serve local markets
“Some of the companies we've invested in Here are actually not serving the local market. So one of them is a company that sells into banks globally. One of them actually sells primarily in India. And then we have a couple that actually none serve just the local…”
Mohnot: Fintech is not dead, just back to its historic baseline
“So I don't think fintech's dead. I think we're just back to where we were a few years ago.”
Mohnot: Over-funding duplicate startups destroys sector profitability through price competition
“In 20, 20, 20, 21, every company we funded, there were five companies just like it. Also with great founders, with great investors. And so what ended up happening is a bunch of capital went into these companies and five companies serving the same customer set.…”
Mohnot: Hype-driven founders have left fintech for generative AI
“I think now we're in a much better place and the people that, that incremental founder that was building in fintech because it was cool is now building a gen AI tool.”
Mohnot: Better Tomorrow Ventures waives part of its 2% management fee
“You know, now we have three hundred million AUM. We could take two percent, which is six million to run our business. We actually take a much smaller amount and return it to LPs.”
Mohnot raised Better Tomorrow Ventures' $75M Fund 1 without an anchor LP
“No, we had no anchor. So, so there was fund zero, my fifteen million dollar fund, then fund one, 75, and we had no anchor. In the seventy five million dollar fund.”
Mohnot: Unit is the winner in banking-as-a-service
“That company has been super successful, like, they're, you know, I think the winner in this banking as a service space.”
Mohnot: Emerging VC managers should execute a first close immediately
“Just close as soon as possible, like, then they, then LPs can take you seriously because you have a fund and you're investing.”
Mohnot: Every committed LP backed out of BTV's March 2020 fund close
“And this close that we were supposed to do in March, everyone who had already committed, including people who had signed, backed out.”
Mohnot: Better Tomorrow Ventures caps individual LP concentration at 10%
“So we, all of our LPs are 10% or less of our fund, and it makes us feel good now in a market where if any one LP doesn't come into our next fund because, you know, circumstances changed, it doesn't, it's fine for us.”
Mohnot: Y Combinator is too scaled to provide specialized fintech support
“YC is a totally different beast. YC is great. Like they've great, great companies, but it's really built for scale. And it, and some of our portfolio companies that went through YC said they didn't really get the support in FinTech that they needed. They have …”
Mohnot: BTV accelerator will invest $500k each in 6-10 startups
“So ours is, we'll probably have about 10 companies in this We're thinking six to 10, and we're investing a half million in every company.”
Mohnot: 500 Fintech cohorts produced five 70x return companies
“We have five companies that are more than 70 X on each, in each of the, so we did five cohorts of six to 10 companies, and out of all those, so say it's like 40 companies in total, we have five companies that are delivering more than 70 X return.”
Mohnot: Failing to take secondary liquidity was his biggest investment mistake
“For me, it was not taking enough cash out. So, like, I had the opportunity to take a lot, like, I could have returned multiples on the fund, and I didn't”
Mohnot: VCs should invest only in category leaders, not secondary players
“Invest in the best company, not in number two or number three. And a lot of those haven't have shaken out to not, not work out that well.”
Mohnot: Three of his top five portfolio companies were pivots
“So listen, three of my top five companies were pivots.”
Mohnot: Large seed rounds create complacent startup teams
“Raising big rounds makes people like makes people cushy. You end up attracting people with salaries that, like, actually they could have gone into a big company and actually they belong at a big company.”
Mohnot: Multi-stage funds lose winners by writing small competitor checks
“My portfolio company that is working is raising a series A or series B. They don't want to talk to that investor because that investor invested a million dollars in their competitor. That competitor is almost dead anyway, but they're like, fuck them. I'm not g…”
Mohnot: Better Tomorrow Ventures will cap its fund size at $225M
“My fund zero was fifteen million, then we went to 75, and now we're two 25 total. But we don't want to grow from here.”
Mohnot: The venture industry does not need thousands of new managers
“I actually don't think we need like, we don't need like a hundred new managers or thousands of new managers every year.”
Mohnot: Operators running tiny micro-VC funds will struggle to raise Fund 2
“I don't think many of these folks are going to continue on. Like their fund two, fund threes are going to be really tough.”
Mohnot: Active founders leading venture deals through side funds is crazy
“I think there are founders who have funds on the side who like lead deals. And that is crazy to me.”
Stebbings: Founders raising side funds disrespect their existing startup investors
“When you take external capital for a second thing, on top of something that you've already raised significant millions of dollars. For the first one. If I'm in the first one, I'm like, that is disrespectful to my money.”
Mohnot: Taco Bell paid $25k for his honeymoon after metaverse wedding
“I, they gave us, they gave me 500 bucks for my birthday in Taco Bell credits, which actually Taco Bell gets you pretty far. They also paid for our honeymoon, 25 K, which is pretty nice.”
Mohnot: Founders should limit secondary sales to 1x ARR at Series B
“My rule that I like to live by is at the series B and beyond, you can take as much secondary as you have in ARR.”
Mohnot: Founder secondary sales exceeding 1x ARR correlate with negative returns
“But I think if you look at, if you did an index of companies where founders took You know, a lot more than that, what I described, like, one X ARR off the table. You have a very negative returning fund.”
Mohnot: A severe startup valuation drop is coming due to market overhang
“I think there's this overhang of valuations and we haven't yet seen the drop that is going to come and it's going to be so severe.”
Mohnot: Tiger Global will raise much smaller funds moving forward
“And I think, so I think they're doing a really good job now, and I think I think it's gonna be a much smaller fund, and like you said, it's gonna be a ton of their own GP money, but I'm excited about them. I think they're good actors.”
Mohnot: SoftBank made incredibly poor decisions pouring capital into unready companies
“SoftBank, I think, is just really tough. Like, they made just a ton of incredibly poor decisions, poured a ton of money into bad companies, and they really sort of, like, We talked about five on 25. For them, it's more like 500 on 2.5 for a company that was no…”