Jul 20, 2016 · 26m · 20vc
20VC: Why The Whole Industry Is Backward Looking, The Best Funds Are Entrepreneur Led and Venture Is All About Access with Alex Bangash, Founder @ Trusted Insight
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of The 20 Minute VC, host Harry Stebbings interviews Alex Bangash, founder of Trusted Insight, to discuss institutional LP investing, why venture capital has inverted into an access class, and how tech-driven platforms are disrupting traditional fundraising. Bangash offers critical perspectives on LP backward-looking bias, fund sizing strategies, power-law returns, and the migration of seed capital.
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 25.4% of the talking time here. How this is scored →
Harry as informed peer 3.9 Guest teaching 5.6 Guest disagreement 1.3 Harry pushing back 1.3
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 19:17 Emphatic rejection of uniform LP return expectations
Alex immediately responds with 'Absolutely not' to the premise that small and large funds should have identical return expectations, forcefully setting small fund target bars at 5-10x net.
Hardest push from Harry ▶ 9:28 Probing whether venture has become purely about accessHarry pushes Alex on whether emerging manager selection has shifted entirely from deal picking to pure access rights alone.
Biggest teaching moment ▶ 7:37 Reframing venture as security picking managerAlex reframes traditional asset class dynamics by showing how in venture capital the security (entrepreneur) picks the manager rather than the reverse.
Harry holds his own ▶ 19:02 Citing peer LP Michael Kim on fund return profile differencesHarry demonstrates domain mastery by bringing in a question directly from LP industry peer Michael Kim regarding portfolio return dynamics.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Alex Bangash's Path to LP Investing and Operational Backgrounds | 3 | 6 | 2 | 2 | Harry asks standard background and follow-up questions regarding LP backgrounds. Alex reframes Harry's prompt about operational backgrounds, arguing that the larger issue is finance being backward-looking, and challenges the myth of venture fund persistence with specific Midas list data. | |
| Venture as an Access Class: Security Selection vs. Entrepreneur Selection | 3 | 6 | 1 | 2 | Harry asks what common traits successful fund managers share. Alex educates on how venture is an inverted asset class where entrepreneurs select managers rather than VCs selecting securities, citing Sequoia and WhatsApp as examples. | |
| Platform Models, Market Downturns, and AI as the Next Wave | 4 | 5 | 1 | 1 | Harry brings up Naval Ravikant and AngelList opening up early-stage investing. Alex outlines the structural advantages of platform models like YC and AngelList, cautioning how market downturns expose weak managers. | |
| The Fate of Underperforming Fund Managers and Shifts in Return Expectations | 4 | 6 | 1 | 1 | Harry addresses a topic rarely discussed publicly: what happens to underperforming fund managers. Alex explains the LP dynamic of underperformers recycling capital through a 'bigger fool' dynamic across different LP tiers. | |
| Evaluating Second-Time Funds and the Upward Migration of Seed Capital | 5 | 6 | 1 | 2 | Harry names specific seed funds like Lowercase and SoftTech while asking about fund scaling vs staying true to seed thesis. Alex explains how Series A has migrated upward to $15M-$100M rounds, effectively replacing later-stage rounds. | |
| Return Expectation Differences Between Small and Large VC Funds | 5 | 7 | 3 | 1 | Harry cites peer LP Michael Kim from Saqqara to ask whether return expectations are identical across fund sizes. Alex emphatically rejects the premise, laying out the mathematical reality that small funds must target 5-10x returns. | |
| Quickfire Round: LP Challenges, Trusted Insight, and Must-Read Sources | 3 | 3 | 0 | 0 | A rapid-fire quickfire section where Harry guides the tempo and Alex shares concise opinions on institutional LP challenges, network effects, and tech media influences like Peter Thiel. |
Statements from this episode (15)
Most LPs still lack operational and technical backgrounds
“I would say that there are definitely some exceptions, but by and large that is still true.”
Four of the top 10 Midas VCs lacked firms 10 years ago
“Four out of the top 10 VCs, Steve Anderson, Chris Saka, Josh Copeland, Peter Thiel, In that they didn't have firms 10 years ago, right?”
Venture capital performance persistence is a myth due to high fund churn
“So for all this talk of we see being increasingly persistent the reality is it's not. And the reality is that there is a huge churn in venture capital.”
Institutional LPs struggle to identify disruptive entrepreneur-led VC funds early
“The entrepreneur-led models, which, by the way, tend to do, you know the most of, the most disruptive new models are very hard for institutional investors to identify.”
Venture capital is inverted because entrepreneurs select their fund managers
“Today, the entrepreneurs are picking the managers. This is in stark contrast to any other asset class. So in any other asset class, you can look at a great manager and you can assess their ability to pick securities. Ok, so it's a security selection. So ventur…”
Half to two-thirds of venture capital managers lose money
“In most asset classes, a third to a quarter of managers lose money. In venture, that, that could be, depending on the vintage, that could be half, two-thirds of the managers.”
AngelList-style platforms will become some of the top venture managers
“So we think some of the best managers, which I will actually be platforms like AngelList.”
Artificial intelligence is as fundamentally disruptive as the early web
“And the next big wave, as we talked about, AI is, Is almost as fundamentally disruptive as the web was.”
Underperforming VCs survive by continually raising capital from lower-tier LPs
“Amongst the established managers, if you are a traditional quote-unquote VC not an incubator, accelerator, post-accelerator, what is, what's actually happening is that there is always this theory of a bigger fool. So what happens to them is that they might not…”
Baseline venture capital return expectations have dropped from 3-5x to 2x net
“The return expectation of venture used to be three to five X and above, and now there are folks in the industry that are perfectly fine with a two X net return because internally their return expectations are much, much lower.”
The best investment returns are found where others cannot invest
“In every asset class, in every sector, the best returns are always in places where others can't invest.”
Series A funding has become the fourth or fifth institutional round
“So almost the series A has become the fourth or fifth institutional round.”
Over 90 percent of venture capital avoids true early-stage deals
“There was close to forty billion raised last year, 14, fifteen billion in Q-one. 90%, 90 to 95% of that Is not going into true early stage.”
Top-performing small venture capital funds should target 5x to 10x net returns
“My thinking is that if a smaller fund is worthy to be invested in they should have a shot at five to 10 X.”
Small VC funds succeed by avoiding direct competition with Tier-1 firms
“The nice thing I like about some of these small funds is that they don't compete in their sector, in their geography, in their states. They don't compete with Sequoia and Excel, benchmark, and increase. So they are dominant. They will never lose to them becaus…”