May 9, 2023 · 1h 47m · news
Chris Paik: How I Raised $400M; Substack's Broken Business Model; Music on TikTok vs IG | E1011 · 20VC with Harry Stebbings
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Pace Capital's Chris Paik shares his contrarian frameworks on venture capital, detailing why market timing dictates startup success, how Pace Capital is built on strict equal-partnership and concentrated fund models, and why many modern business models fail to qualify as true venture-scale opportunities.
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 22.8% of the talking time here. How this is scored →
Harry as informed peer 4.2 Guest teaching 4.5 Guest disagreement 3.1 Harry pushing back 3.7
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 57:49 Guest insists Tesla faced immense market risk despite host's strong disagreement
The guest directly rejects the host's premise that Tesla was purely an execution risk story, arguing that auto executives and energy market realities presented massive market risk.
Hardest push from Harry ▶ 59:30 Host forcefully rejects guest's market risk thesis using explicit pushbackThe host openly refuses the guest's framing with explicit language, insisting that green electric transport in developed nations had obvious validated demand.
Biggest teaching moment ▶ 1:41:57 Guest analyzes Substack's structural business model flaw using payment processor benchmarksThe guest reframes the host's defense of Substack by contrasting its 10% revenue share against Shopify, Stripe, and Adyen, explaining how top creators will inevitably negotiate rates down.
Harry holds his own ▶ 18:40 Host challenges 20% ownership feasibility and portfolio scalabilityThe host uses sharp humor and fund math to press the guest on whether a 20% ownership target and 20 board seats per GP without platform support is truly achievable or scalable.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Career Background: Stumbling Into Venture Capital | 1 | 1 | 0 | 0 | Standard background intro. The host asks a friendly opening question about the guest's path into venture capital, and the guest shares his background in New York tech and joining Thrive Capital early. | |
| Leaving Thrive to Build Pace: The Talent Formula | 2 | 3 | 1 | 2 | The host asks why the guest left Thrive to build Pace and inquires how to reliably identify young talent. The guest attributes Thrive's success in talent picking largely to founder Josh Kushner while accepting that hiring remains probabilistic. | |
| The Philosophy of Pace: Incentives and Support Models | 2 | 3 | 1 | 1 | The host explores the core tenets of Pace, including its equal partnership model and lack of dedicated portfolio platform support. The guest explains the logic behind equal ownership and why platform teams scale the GP rather than directly aiding founders. | |
| Pace's Concentrated Portfolio Model and Scalability | 4 | 3 | 2 | 6 | The host directly challenges the guest's 20% ownership target with a humorous personal comparison and pushes on whether high-touch investing without platform support scales as fund counts grow. The guest defends Pace's 70% ownership hit rate and longer deployment cycles. | |
| The Complexity of Value Swaps and Social Graphs | 5 | 7 | 5 | 5 | The host brings up the guest's contrarian tweet against single-sentence company descriptions. When the host tries to test Instacart's pricing dynamics, the guest politely corrects him on marketplace definitions and breaks down atomic value swaps across social platforms. | |
| The Seven Deadly Sins of Consumer Investing | 4 | 6 | 4 | 5 | The guest puts forward a contentious thesis that corporate virtue is inversely correlated with enterprise value creation under capitalism. The host presses with Marc Benioff's stakeholder model as a counterexample, leading the guest to define economic rationality versus virtue. | |
| Disenfranchised Creators and the Dynamics of Market Timing | 5 | 4 | 2 | 3 | The guest details how new consumer platforms succeed by enfranchising structurally disadvantaged creator groups, using TikTok and Charli D'Amelio as an example. The host shares his own shift toward market-centric investing, with both agreeing on the supremacy of market waves over pure founder agency. | |
| Market Risk vs. Execution Risk in Venture Investing | 7 | 6 | 7 | 8 | A intense debate occurs over market risk versus execution risk. When the guest claims pure execution risk businesses are unfit for venture capital and cites Tesla's market risk, the host forcefully rejects the argument with explicit pushback and counterexamples. | |
| Moats, Defensibility, and Tech Structural Timelines | 5 | 6 | 4 | 4 | The host calls early-stage defensibility claim bullshit, prompting the guest to argue that moats are intentionally built from day one. The guest then walks through how mobile bandwidth constraints dictated the historical order of social platform emergence from text to video. | |
| The Broken Venture Product and LP Alignment | 6 | 5 | 5 | 5 | The host critiques structural misalignments in venture capital, including GP fee stacking. The guest agrees and proposes taxing carried interest as regular income, while also pushing back against the host's tactical approach to managing LP reference call data. | |
| Pace's Fundraising Strategy and GP Misalignments | 3 | 4 | 2 | 2 | The host asks specific fundraising metrics regarding Pace's Fund One and Fund Two operations. The guest explains how Pace pitches LPs on long-term firm strategy rather than short-term fundraising outcomes. | |
| LP-GP Structural Misalignments and Bloated Funds | 6 | 4 | 3 | 4 | Host and guest collaboratively identify industry misalignments, ranging from cross-fund carry clawbacks to SPV cherry-picking and arbitrary GP commit percentages. Both share informed observations on LP/GP structural dynamics. | |
| Quick Fire: Twitch Lessons, Substack's Flaws, and Pace's Future | 4 | 6 | 4 | 3 | In the quick-fire round, the guest offers a sharp critique of Substack's 10% take-rate business model, comparing it to Shopify and Stripe margin compression. He also explains why he avoids using associates for investment diligence. |
Statements from this episode (31)
Paik: Founders cannot create market waves, only surf them
“I think that great founders are incredible at putting themselves in the position to surf waves, but I don't think anybody can make waves themselves.”
Paik: Thrive Capital's first venture fund was only $10 million
“At Thrive Capital at the time, it was a ten million dollar fund.”
Paik: Thrive Capital backs young talent better than venture peers
“One of the things that Thrive does really, really, really well In my opinion, maybe even better than anyone else in the industry is it leans into people's potential regardless of their age, regardless of their credentials.”
Paik: Twitch was my first board seat at age 25
“The first board I ever sat on was Twitch. I was 2005 or 26.”
Paik: Senior startup executive hiring succeeds at best 50% of time
“I feel like in startups, right, like senior hires at best, Is a coin toss of whether or not it works out and that's okay.”
Paik: A 51/49 venture partnership split feels like 80/20
“I mean, like, the distance between a 51 49 split is way more than two percent. Like, it might as well be like 80%.”
Paik: Venture capital is not an asset class meant to scale
“We think that venture isn't an asset that is meant to scale. It's pretty hands-on.”
Paik: Pace Capital hits 20% ownership in 70% of portfolio companies
“We've been successful at hitting our ownership target in 70% of the companies we invested in.”
Paik: Investors break the most rules on their highest-conviction investments
“The highest conviction things that you get comfort with are the ones that you break the most number of rules on.”
Paik: Companies that can be described in one sentence lack ambition
“If everything that a company is doing and building can really be accurately described in a single sentence, it's probably too one dimensional. It's probably not Ambitious enough.”
Paik: DoorDash and Instacart succeed by price-discriminating consumer laziness
“The genius behind Instacart and DoorDash and other companies like that is that they, Perfectly price discriminate laziness and the value of like a leisure hour.”
Paik: Social graphs are becoming obsolete compared to content recommendation engines
“The social graph works and worked because of the idea that who people select for in their social graph is a proxy for their interest. And so in some ways you are using somebody's social graph as spark notes for the integral, the fully like, you know, my new in…”
Paik: All human behavior is driven by the seven deadly sins
“I actually think the seven deadly sins are really core motivators. They describe why people do things. And I would go far as far to say, like, honestly, They're the only reasons why people do things. I think it's possible to distill down any individual behavio…”
Paik: A company's virtuousness is inversely related to its enterprise value
“This is, like, probably contentious but one of my frameworks is, I think that the, like, virtuousness of a company is inversely related to its enterprise value.”
Paik: New UGC value comes from empowering disenfranchised creators
“If you are trying to create structurally new value, one, I think the best way and has proven in the success of user and content networks is to, you have to empower a previously disenfranchised set of creators.”
Paik: Market selection matters far more than founders in venture capital
“I tend to agree. I think that markets are significantly more markets are huge, huge, huge input into outcomes, particularly in venture.”
Paik: Being too early in market timing is as fatal as being late
“I think timing, like, being too early is just as bad as being too late. In many ways, it's kind of like rock, paper, scissors, where you kind of have to be just one step ahead. If you're multiple steps ahead, you lose.”
Paik: Most direct-to-consumer brands are not suitable venture investments
“I would say the vast majority of direct-to-consumer brands, not suitable venture investments.”
Paik: Excess venture capital subsidizes businesses unfit for VC
“With the glut of venture capital and dollars chasing returns, I think that venture capital Perhaps intentionally, maybe unintentionally subsidizes business building of companies that should never have been venture capital targets.”
Stebbings: ButcherBox will reach $1B revenue and $3B-$4B EV in 3-4 years
“I had the founder of ButcherBox on the show recently, and ButcherBox does six hundred million in revenue, very high quality revenue, the leading brand and category in the space. If you project out to a three, four years time, they'll be at a billion, enterpris…”
Paik: VC is only for companies that cannot exist without it
“I think that is almost certainly like if the company Literally could not exist without venture capital. That probably is the area where venture capital is a suitable, like, spitballing this in real time. That's probably a good criteria to suggest that it is wi…”
Paik: Startup moats are intentional and embedded in product from day one
“So if you were to look at the system design behind companies that ultimately developed modes at scale, it's not something that like happens magically overnight once the company's up and running. It's like embedded in the core product from day one. And so I thi…”
Stebbings: 20VC accumulated 20,000 investor reference checks across 2,000 episodes
“Well, I did like, I did 10 references before every show that we do, and we've now done 2000 shows, and now I have 20,000 references. It's an incredible data moat on a generation of venture investors.”
Paik: TikTok could not exist before Twitter due to bandwidth constraints
“There's a very clear reason why the order of founding went from Twitter first, to Instagram, to Snapchat, to TikTok. And it is because mobile as infrastructure and bandwidth in its earliest stages, supported the lowest packet size, text. And then next compress…”
Paik: Taxing carried interest as ordinary income would redistribute tech talent
“You probably should tax carried interest like income tax. That would write, that would like break that structurally different incentive mechanism, and then it would defuse talent elsewhere.”
Paik: Optimizing fundraising for outcomes over alignment creates structural misalignment
“We had kind of a mantra, which is optimized for alignment, not outcomes. I think in many situations, people, companies can optimize for outcomes rather than alignment. And that over rotation ultimately over time leads to misalignment.”
Paik: Multi-billion dollar bloated VC funds will unwind over a decade
“I don't think all, I almost, like, definitionally, I don't think all of them make it. I think we're gonna see over the next, here's the thing, like, it's gonna take a long time, it's gonna take a decade plus for this stuff to unwind, but they're gonna get lost…”
Paik: Acquisition retention packages create founder-VC incentive misalignment
“One of the biggest areas of misalignment between founders and investors is probably management incentive in an acquisition. So management incentive in acquisition is basically when the acquiring company says you, the management team will have this compensation…”
Paik: Misalignments peak when venture participants play final-round games
“I think the Mac, the areas of maximum misalignment are when it feels like the reputation does not carry over in between iterations of the game, or that's the final iteration of the game that any one participant is playing for. Because then people are incentivi…”
Paik: Poaching creators from rival platforms using minimum guarantees never works
“On navigating competitive environments, I think seeing Twitch firsthand gave me one of my mental frameworks, which is, are like companies or platforms that start with the explicit strategy of poaching, like economically incentivizing supply from another platfo…”
Paik: Substack faces margin compression as top creators negotiate down take rates
“And I would expect that business model to have a leaky bucket at the top or at best get margin compressed at the top. So you have the best, like the people that have the most distribution that are the best for the platform from marketing perspective, dramatica…”