Jan 6, 2017 · 25m · 20vc
20VC: eShares' Henry Ward on Why Portfolio Theory Is Wrong? Why Investors Will Never Take Market Risk & Why You have To Have A Line of Sight To A $Bn Outcome
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In this episode of The 20 Minute VC, host Harry Stebbings interviews eShares founder and CEO Henry Ward to discuss the origin of eShares, conventional venture capital missteps regarding market risk and TAM, and the urgent need for structured private market liquidity.
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 29.8% of the talking time here. How this is scored →
Harry as informed peer 3.0 Guest teaching 5.4 Guest disagreement 2.9 Harry pushing back 2.1
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 13:11 Critique of Eric Ries' LTSE Model
Henry systematically dismantles the premise of Eric Ries' Long-Term Stock Exchange, explaining why exchange-level governance rules fail due to fundamental misalignment between CEO listing choices and investor protections.
Hardest push from Harry ▶ 8:59 Challenging non-home-run returnsHarry pushes back directly on Henry's single-and-double market strategy by questioning whether 3-4x cash-on-cash return benchmarks for mid-tier US funds can realistically be achieved without chasing home run outcomes.
Biggest teaching moment ▶ 13:11 Principal-agent breakdown of capital marketsHenry provides an expert structural breakdown of corporate governance, illustrating how public market broker commoditization creates inherent conflict between issuers and shareholders that private markets avoid.
Harry holds his own ▶ 8:59 Citing LP fund return benchmarksHarry demonstrates crisp venture capital expertise by pressing Henry with precise fund math, referencing the 3-4x cash-on-cash returns required by mid-tier US funds to challenge Henry's incremental market thesis.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Interview Handover & The Origin Story of eShares | 2 | 4 | 1 | 1 | Harry hands off the interview and relays a seed fundraising question from past guest Manu Kumar. Henry explains how seed investors feared market size risk and were paradoxically spooked by obvious ideas that hadn't been built yet. | |
| Chasing Large Markets vs. Building in Steps | 4 | 6 | 4 | 3 | Harry notes seeing three pitch decks in two weeks claiming trillion-dollar TAMs and questions if VC culture breeds over-ambition. Henry critiques VC dogma around line-of-sight to $1B outcomes, advocating instead for Peter Thiel's model of monopolizing small step-wise markets. | |
| Power Law Dynamics & VC Herd Mentality | 5 | 6 | 4 | 5 | Harry challenges Henry's single-and-double thesis by citing specific VC fund performance metrics, asking if cash-on-cash returns of 3-4x can really be achieved without home runs. Henry reframes power law dynamics using Facebook's Harvard launch to demonstrate how conquering small markets aggregates into massive outcomes while criticizing VC momentum investing. | |
| Structural Shifts in IPO Timelines & Private Market Liquidity | 4 | 7 | 5 | 3 | Harry brings up Eric Ries' Long-Term Stock Exchange (LTSE) as a prospective solution to the private market liquidity crisis. Henry delivers a detailed breakdown of why the LTSE model suffers from a principal-agent problem because CEOs choose listing venues, not investors. | |
| Redesigning Startup Regulation & Capital Efficiency | 3 | 6 | 4 | 2 | Harry passes a question from Semil Shah about how startup financing should be regulated. Henry rejects the default Silicon Valley premise that regulation is bad, demonstrating how structured private market regulation can actually lower the cost of capital for entrepreneurs. | |
| The Macro Vision for Private Pre-IPO Liquidity | 2 | 5 | 1 | 1 | Harry transitions into a rapid-fire round covering books, management friction, option vesting, and executive reading. Henry offers insights into extending post-termination exercise periods and matching employee incentives to 5-10 year horizons. | |
| eShares' 5-Year Vision & Interview Conclusion | 1 | 4 | 1 | 0 | Harry asks for eShares' 5-year outlook before wrapping up the interview. Henry shares a bold thesis that the world's most enduring companies will choose to remain privately held long-term. |
Statements from this episode (17)
Manu Kumar promised seed funding if Henry Ward solved stock certificates
“Manu and I were having lunch one day and he said, you know, I have this problem, this stock certificate problem. I would love for a company to exist to solve it. If you'll start the company, I'll invest in it.”
Seed investors optimize for Series A appeal over inherently great ideas
“At the seed round, investors aren't necessarily looking for what's a great idea. What they're looking for is what a Series A investor will think is a great idea.”
Obvious but non-existent startup ideas scare investors rather than excite them
“There was sort of this kind of, I think pessimism or even a little bit of distrust where this idea seems so obvious to people that because it didn't exist, there must be something wrong with this idea that they didn't know. And so, it actually, you would think…”
Early investors criticized eShares for lacking a billion-dollar outcome path
“And that's been true for us for the beginning is that investor criticism of eShares is there isn't line of sight to a big outcome.”
VCs accept execution and team risk but refuse to take market risk
“Almost all VCs will tell you they will take on execution risk. They'll even take on team risk. But they'll never take market risk, because that's the one thing they can't do anything about, which is why VCs tend to look for really big markets.”
Startups should win small markets concentrically rather than tackle huge TAMs
“We're very much a, let's win in small markets, and then concentrically grow out of that, rather than try to take on a huge market all at once.”
VC failure rates are unnecessarily high because funds only seek home runs
“I actually challenge the notion that VCs have to have such a high failure rate. I think Part of the reason there is such a high failure rate is because everyone's swinging for home runs. No one's, no one, there are very few VCs that feel like they can assemble…”
Henry Ward argues much of venture capital is simply momentum investing
“I think a lot of venture is momentum investing.”
eShares extended its employee equity vesting schedule from four to five years
“We changed our best employee vesting schedule from four years to five years”
Startups staying private longer is a permanent structural shift
“The time it takes to build a company these days at the scale that venture and our investors would like us to build companies at just takes longer and longer. It's harder the journey's longer, and it's much more expensive. So I think, and I think that trend's g…”
Capital markets suffer from public hyper-liquidity but zero private liquidity
“I think one of the big problems structurally in the capital markets world today is we have an environment of hyper liquidity in the public universe, and then zero liquidity in the private. And there's literally nothing in between right now.”
Management and investor alignment is stronger in private markets than public
“I think one of the reasons that private companies work well and are working better and better is that the alignment of management and investors is more highly aligned in the private world than they are in the public world.”
Startup cost of capital is high due to a lack of regulation
“One of the reasons that I think cost of capital for startups is so high is because there's lack of regulation.”
Public market regulation is an illogical patchwork driven by historical fraud
“You can tie almost any regular regulation in the public market model to somebody got defrauded. And so we put in this rule to make that happen. And it's a patchwork of rules that holistically don't make a ton of sense.”
eShares requires all executives to read The Essays of Warren Buffett
“It's actually required reading for all the executives here.”