Jan 21, 2019 · 38m · 20vc
20VC: The Framework LPs Use To Assess Emerging Managers, What Concerns and Excites LPs in Potential Opportunities & The Current State of Seed Today with Hunter Somerville, Partner @ Greenspring Associates
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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 Hunter Somerville, Partner at Greenspring Associates, to explore how institutional LPs evaluate emerging fund managers and navigate evolving venture capital market dynamics. Somerville shares deep insights into seed fund saturation, LP due diligence on spin-out teams, portfolio construction math, Series B financing challenges, and secondary liquidity solutions.
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 31.9% of the talking time here. How this is scored →
Harry as informed peer 2.9 Guest teaching 3.9 Guest disagreement 1.0 Harry pushing back 1.3
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 11:03 Reframing the spin-out narrative
Hunter explicitly reframes Paul Martino's assertion that spin-out funds easily raise capital, explaining that junior or mid-level spin-outs with unclear attribution face significant friction.
Hardest push from Harry ▶ 16:39 Challenging VC AUM fee scalingHarry directly challenges the venture capital model, asking whether managers scaling AUM live off management fees rather than performance and where LP accountability lies.
Biggest teaching moment ▶ 8:43 Explaining micro VC fundraising dynamicsHunter educates Harry on why micro VC numbers continue to expand despite LP saturation, pointing to the low barriers to entry of raising $25M-$50M from high-net-worth individuals.
Harry holds his own ▶ 14:44 Questioning track record as a forward indicatorHarry cites Fred Destin's multi-year performance timeline to challenge the traditional reliance on track record as a backward-looking, non-predictive metric.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Hunter Somerville's Background & Journey to Greenspring | 1 | 1 | 0 | 0 | Harry asks a warm introductory question about Hunter's background. Hunter details his career transition from law to MBA and eventually joining Greenspring Associates. | |
| Evaluating the Micro VC Landscape and Market Saturation | 3 | 5 | 1 | 2 | Harry asks informed questions contrasting US and UK market dynamics regarding multi-stage funds investing early. Hunter provides deep LP context on why micro VC funds continue proliferating despite LP market saturation. | |
| LP Perspectives on Spin-Out Funds from Top VC Firms | 3 | 5 | 2 | 2 | Harry references Paul Martino's comments about spin-out funds raising easily. Hunter politely reframes the premise by distinguishing senior partner spin-outs from junior/mid-level spin-outs with mixed attribution. | |
| Assessing Track Record & Projecting Future Performance | 4 | 5 | 2 | 3 | Harry challenges Hunter on whether managers play an AUM scaling game to live off fees rather than carry. Hunter explains how Greenspring evaluates underlying portfolio construction and projected performance over 5 to 7 years. | |
| The Shortage of Dedicated Series B Funds | 3 | 4 | 1 | 1 | Harry highlights an LP bottleneck in allocating Series B funds. Hunter agrees and breaks down the risk profile, loss ratios, and valuation challenges of 'treacherous B' rounds. | |
| Direct Secondaries and Secondary Liquidity Strategies | 4 | 4 | 1 | 1 | Harry brings up quotes from Samuel Shah regarding secondary market mastery for seed managers. Hunter details how Greenspring approaches secondary purchases from employees versus fund manager sales. | |
| GP-Led Restructuring and Fund Lifespans | 3 | 5 | 0 | 1 | Harry asks about GP-led restructurings and partner economic splits ('hogging economics'). Hunter shares how LPs evaluate sourcing attribution and generational transition plans non-intrusively. | |
| Quickfire Round with Hunter Somerville | 2 | 2 | 1 | 0 | In a rapid-fire Q&A, Hunter shares advice on LP selection, placement agents, and why GPs should avoid complacency with non-performing partners or legacy LPs. |
Statements from this episode (24)
Greenspring Associates Direct Portfolio Includes Sonos, DocuSign, and Alibaba
“On the direct side, their portfolio includes the likes of Sonos, App Annie, DocuSign, and Alibaba, just to name a few.”
Greenspring Associates Has Backed Accel, Founders Fund, and Thrive
“As for their fund investing, they've backed the likes of Excel, Founders Fund, Thrive, Lightspeed, Foundry Group, and many more incredible managers.”
Somerville: US West Coast has 600 to 650 active micro VC funds
“Somewhere around 600 to six 50, I think, is the right estimate.”
Somerville: First-time micro VC fund raising barriers are relatively low
“It's not that hard to raise a micro fund being that typically a first time fund would be looking to raise 25 to fifty million in size and that really requires that you have an aligned set of high net worths that believe in you that you've worked with for a whi…”
Somerville: Micro VC funds will face harder fundraising as LP market saturates
“It will increasingly become harder to raise subsequent iterations or to scale, and I think you've started to see that with even some groups that have a track record now and have done a pretty decent job struggling to find new LPs on the institutional side to c…”
Somerville: Senior VC spin-out funds raise under the radar and are highly competitive
“I think if you have someone that's been a partner or a senior member at an established brand who decides to leave and start something smaller, more focused on their own, those are generally highly competitive to get into. There's a big access premium. Most peo…”
Somerville: Junior VC spin-outs struggle to raise due to unclear deal attribution
“If it is more of a variety of spin out where it's someone who's junior or mid-level at a firm that Maybe has mixed attribution or has been responsible for sourcing, but not monitoring or carrying something through end to end. That can be a more challenging fun…”
Hunter Somerville: Very few new VC funds launch directly as large Series A funds
“You just do not see a lot of new funds that emerge that want to do 200 to four hundred million dollar fund focused on A and start with that initially.”
Somerville: Creation of new Series A venture firms is static or declining
“And we actually had a slide at our annual meeting, and surprisingly enough, the number of A-round firms that come into existence has been rather static to slightly down.”
Somerville: Future Series A VC firms will predominantly originate from micro VC funds
“And so I do think the ones that choose to compete in that category will do so, for the most part, coming out of seed micro as a beginning point.”
Somerville: Evaluating VC Funds Requires 5-7 Year Forward Performance Projections
“What you need to build a view on is what projected performance can look like five to seven years from the point of assessment, and that requires having an understanding of the underlying companies, understanding what's showing traction, what that could mean, w…”
Somerville: LPs target 3x net returns, which becomes mathematically harder at scale
“Because at the end of the day, an LP that's deciding whether to invest in venture wants outsized multiple performance, I think generally above a three X net, and the math is just harder in order to get there, particularly as fund size increases.”
Somerville: Venture funds face scaling limits unlike buyout and growth equity
“Yeah, I mean, I think within venture, there's still limits to scaling that you don't see in large growth equity or in elements of buyout. I think there still is a limit You don't see a ton of multi-billion dollar funds, and even the funds that are above a bill…”
Somerville: Venture firms will continue raising opportunity and select growth funds
“Then you will see the continued emergence and raising of opportunity select and growth funds, and to the extent that those are backing companies that they're already in and building bigger positions behind it as a life cycle partner, I think it very much can m…”
Somerville: Late-stage funds sourcing new deals are less interesting than select growth funds
“Where I become more skeptical is groups that add later stage focused funds or other vehicles like that that aren't actually playing off of the inherent advantage that they have being in companies already. If they're just sourcing late stage companies they thin…”
Somerville: There is a shortage of dedicated Series B VC investors
“Yeah, I think there's definitely a shortage of dedicated B round investors.”
Somerville: Series A funds increasingly preempt Series B rounds for top winners
“And while you're not seeing a proliferation of new B round focus groups, Back to our discussion five minutes ago, you're seeing the A round groups increasingly look to preempt and build bigger positions in their winners, or look for flexible partners that allo…”
Somerville: Median fund performance across the venture capital industry is bad
“And we all know that the median performance within venture is not good. It's actually bad.”
Somerville: Fund managers selling into secondaries is a negative signal for LPs
“For us as a direct secondary buyer, just for our model, we're more interested in buying typically from employees or departed employees just because for us as an investor in funds, if your fund manager is selling out into a secondary, it's not a great sign for …”
Somerville: Micro VCs should sell majority stakes into mega growth rounds
“Yeah, I mean, I think definitely on the micro side, it's something that people should be actively doing, and I would even consider selling majority positions, not full positions, into these mega growth rounds. I think it makes sense as a seed investor, you're …”
Somerville: Fund lifespans will extend as companies remain private longer
“Going back to companies staying private longer, that means that the life of funds will also stay in existence longer, and LPs of all different varieties have different tolerance for illiquidity and desire to stay into a fund into years. 10 to 15”
Somerville: Healthy VC firms plan generational transition 10 years ahead
“Generational transition is something that is very difficult for any firm to navigate, and so it being done gradually with a good plan in place where people are thinking about it even 10 years before it's going to happen is the mark of a good firm with a health…”
Somerville: High-Ownership Unrealized Winners Outweigh Early Liquidity for LPs
“For us, it's great unrealized positions with high ownership behind it that will ultimately matter at an aggregate level at the end of the day. So it doesn't matter necessarily if it's realized or unrealized.”
Somerville: Venture capital firms retain non-performing partners for too long
“I think people keep non-performing partners for too long, and there's not as much of a focus on transitioning those folks out or giving them the ability to fix a portfolio rather than continue to deploy at the same clip.”