Jan 28, 2019 · 41m · 20vc
20VC: First Round's Josh Kopelman on Why Price Is Both An Art and A Science, Why Ownership Must Be Built on First Check and The Negative Consequences of Attribution in Venture
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In this episode of The 20 Minute VC, host Harry Stebbings interviews First Round Capital founder Josh Kopelman to explore institutional seed investing, valuation dynamics, board governance, and venture partnership construction. Kopelman shares critical insights on firm longevity, portfolio management, avoiding partner attribution traps, and advising early-stage entrepreneurs.
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 30% of the talking time here. How this is scored →
Harry as informed peer 2.6 Guest teaching 4.1 Guest disagreement 0.8 Harry pushing back 0.7
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 18:33 Rejecting the winner vs. struggler premise
Josh directly challenges Harry's framing on whether to spend time with winners or laggards, noting that in the first 18 to 24 months investors do not actually know who will win or struggle.
Hardest push from Harry ▶ 11:57 Pushing back on ownership timelineHarry resists Josh's reserve deployment explanation by explicitly asserting his core belief that ownership must be established on the first check rather than accumulated downstream.
Biggest teaching moment ▶ 20:16 Masterclass on 'The Pick'Josh educates Harry and listeners on startup mortality, demonstrating how founders spend under ten weeks choosing an idea they will execute for a decade, urging set expansion over arbitrary deadlines.
Harry holds his own ▶ 7:31 Citing Peter Fenton on valuation trapsHarry demonstrates deep venture domain knowledge by citing investor Peter Fenton's rule on valuation traps to challenge Josh on price discipline.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Origin Story of First Round Capital | 1 | 4 | 0 | 0 | Harry asks a standard conversational opening about the origin of First Round Capital. Josh educates on the macro shifts in startup capital efficiency, contrasting a 10x drop in product development costs with a 3x increase in VC fund sizes. | |
| Identifying Life's Work in Venture Capital | 2 | 3 | 0 | 0 | Harry prompts Josh on finding his life's work and managing risk through economic cycles. Josh explains his self-assessment framework of focusing on his top 20 percent strength area while eliminating operator duties where he added no marginal value. | |
| Valuation and Price Sensitivity in Seed Investing | 4 | 5 | 2 | 2 | Harry cites Peter Fenton on valuation traps to probe Josh's price sensitivity. Josh provides high-level industry perspective, citing missed deals like Twitter and Dropbox before balancing Fenton's view with Jim Breyer's quote on valuation as both art and science. | |
| Reserve Allocation and Ownership Strategy | 4 | 4 | 1 | 4 | Harry challenges the idea of building ownership over time, pushing his firm belief that ownership must be secured on the first check. Josh agrees in principle while explaining how reserve allocations shift based on downstream valuation expansion. | |
| Evolving as a Board Member | 2 | 4 | 0 | 0 | Harry asks for personal mentorship on serving on his first board seat. Josh provides practical wisdom on transitioning from operator to asking empowering questions and advising listening during early board meetings. | |
| Portfolio Time Allocation Across Company Stages | 2 | 4 | 2 | 0 | Harry poses the traditional dilemma of allocating time between portfolio winners versus struggling companies. Josh politely reframes the premise, explaining that time allocation should be based on company age rather than early performance indicators. | |
| "The Pick" and Guidance for Founders | 2 | 5 | 0 | 0 | Harry introduces the topic of picking via a reference to team member Finn. Josh delivers a detailed framework on 'The Pick', explaining how founders disproportionately rush idea selection compared to execution. | |
| Long-Term Mentorship and Partnership Selection | 3 | 3 | 0 | 0 | Harry displays clear preparation by mentioning his conversation with founder Nat Turner. Josh reflects candidly on long-term founder mentorship and First Round's self-acknowledged diversity debt in early partner hiring. | |
| Generational Transition and Avoiding Attribution Pitfalls | 3 | 5 | 2 | 0 | Harry brings up generational transition and attribution metrics. Josh strongly critiques individual partner attribution, arguing that tracking individual IRRs incentivizes toxic internal behavior around reserves and deal flow. |
Statements from this episode (22)
Kopelman: Average VC fund and check size tripled between 1991 and 2004
“During that same period of time, the average venture fund had tripled in size, and the average initial investment had tripled in size.”
First Round Capital's inaugural 2004 fund was $7M
“Our first fund was just a seven million dollar fund raised in 2004, primarily our capital with some friends.”
Experiencing market crashes made Kopelman First Round's most cautious partner
“So, I think that it's probably made me the most cautious of the investors in the first round partnership, and that's not necessarily a good thing.”
Kopelman: Venture capitalists are paid to take risk, not avoid risk
“Having seen the pain that companies went through, that my friends went through, that founders went through in the dot-com bus, I've had to consciously try to remember that we get paid to take risk, not avoid risk, and it's one of the real strengths of having a…”
First Round lost Twitter and Dropbox seed deals over valuation limits
“First round offered Twitter their first term sheet months before Union Square led their round. We offered Dropbox their first term sheet, and I'd say we lost both of those due to sticking to price.”
Kopelman passed on Twitter at $5M and $20M pre-money valuations
“So, we offered Twitter a term sheet at a five million pre-money valuation. We were an investor in Odeo, Eb Prior companies. So I think I was user Twitter user number 275. We were right there. We offered five. Fred came in at 20 a few months later, and to make …”
First Round flexed on valuation to back Square at $40M pre-money
“So when Jack was starting square and we met with him, he said, well, you know, if you thought Twitter was expensive, this is going to be even more expensive. And his first round was at a 40 pre and we learned our lesson and we were fortunate enough to be the S…”
First Round allocates roughly 50% of capital to initial checks
“Today, we're putting a little more up front. We're kind of back to where we started. We're pretty close to fifty-fifty, primarily because what we've seen is later stage valuations have increased Far faster and far greater than seed stage valuations”
Kopelman: VC ownership must be established on the initial check
“Our view is that it's pretty important to build it on first check. I think that it just gets so expensive to accumulate ownership in the later rounds that to some degree, I think your ownership is your first check and later investments are more of a cash on ca…”
First Round requires two-thirds majority vote for investment decisions
“As a partnership, we decide investments together. It's two-thirds. We don't need unanimity. No partner has a veto, and fundamentally, it's a pretty collaborative process.”
Kopelman: Partner meetings should focus on finding truth, not winning deals
“The goal isn't to sort of win, but rather the goal is to find truth. And a successful outcome could be when I learn something from my partners, and we don't invest in a company that I brought in, and vice versa.”
First Round focuses proactive investor support on companies' first 24 months
“I tend to be far more proactive during that first 18 to 24 months, where I think we've built up a skill set and a competency around those go-to-market muscle movements, around the hunt for product market fit, And then we kind of shift to be a little more react…”
Kopelman: Deal selection takes 10% of VC time, drives 80% of returns
“Maybe when you sort of look at the amount of time we spend in partner meetings and in diligence sort of doing the pick, it's 10% of our time, but it probably drives 80 plus percent of the return.”
Kopelman: Founders spend under 10 weeks picking ideas they execute for years
“Most founders spend less than five to 10 weeks picking an idea. But they're going to then spend five to 10 years executing on that idea, and so if I had to give one critique of founders, like, the most common critique I give is I feel like they're rushing thei…”
Kopelman: Startup failure is largely determined at idea selection, not execution
“I believe that a high degree of startup mortality is baked in at the pick and not on the execution.”
Kopelman: First Round takes pro-rata in 100% of outside-led follow-on rounds
“Like first round, we pretty much tell founders when you get the first round, the second round comes free. We will take our prorata and a hundred percent of outside leads Second rounds.”
Kopelman: Partner selection matters more than company picking for firm longevity
“I believe that when I look back at my career in venture, I would rather be known as a better picker of partners than a picker of companies, because that's what enables a venture firm to scale, grow, and endure just beyond any one person.”
Kopelman: First Round treats each new fund as a fresh cap table
“At first round, we really view each new fund as a new cap table so that there isn't that partner tax from the prior generations of partners”
Kopelman: First Round does not track or report individual partner IRR
“We don't track individual partner IRR of individual track partner Performance, and nor do we share it with our LPs when they ask us during diligence.”
Kopelman: Founder community cannot be sprinkled into a venture firm post-hoc
“Virality is really hard to engineer and build in and you have to build it in from scratch. And I think that community is not something that could be Sprinkled in. Like, you really have to work hard, and it has to be part of your DNA, and it has to be part of t…”
Kopelman: Platform shifts favor college rookies over Wall Street veterans
“We're seeing it now in crypto, for example, where I'd argue that there are seniors in college who have just more experience in crypto than derivative traders at Goldman Sachs. It's this dislocation in the experience curve. That creates real opportunities for r…”
Kopelman: AI reduces the competitive gap between rookies and life science veterans
“And when you sit down and look at life science and healthcare companies and their medicinal chemists and their traditional drug discovery flows and all of those assets, I would argue that AI right now is such a disruptive platform that it really is reducing, n…”