The Exchanges

Q Can you talk to me about the news with CalSTRS? We mentioned it before, and it's been discussed in obviously the media recently. What does that mean and what changes?

A Yes. So we were very excited. We announced this about two weeks ago that we've taken over the early stage venture fund mandate for CalSTRS and what this means. So for folks that aren't familiar with CalSTRS, they're the world's largest educator pension fund in the world, which is Pretty cool. And they've been, to their credit, running an emerging manager program now for decades. And back in the day when they started it, it was a mix of private equity, some healthcare, some venture. And going forward, they had now picked us to work with them on the early stage venture fund, and they have pivoted to focus on specialized managers, and we're their venture specialists. Which means we now are going to take their money, which we're very grateful for them trusting us with, and deploy it into U.S. early stage venture funds. Emerging, so that's funds one through three. Which then adds additive to our existing programs. So the answer is yes, we're deploying more.

AI assessment note: “taken over the early stage venture fund mandate for CalSTRS”

Q And talk to me, because the mega funds were raised last year, obviously taking up a lot of the LP allocation for last year, does that mean that we'll see a big rise this year? Because they've already raised their funds, so the LP allocation for that Means that there should be a bit of dry powder on the LP side for new managers, does it not?

A Correct. Yes. So we are seeing more new managers this year so far, and we are also seeing fewer five hundred million plus than mega funds. So just as a quick point on that, and then we can talk about your favorite subject, the first time funds, um, Q one of this year only saw one mega fund raise. So props to Mithril two, which raised an eight hundred and fifty million dollar fund, but they're the only one. And that's why this year is Falling short from last year, because last year you had eight mega funds raised just in Q one, and they totaled about seven billion. So if you think about last year, Q one's total fundraise was, sorry, last year's Q one was eleven billion raised by funds, and this year is seven billion, but last year they had all these mega funds. So this year, as I'm saying, it's not, it's not bad, right? It's doing well, but there's not many mega funds, and while we predict there will definitely be more coming this year, we don't think there'll be the same numbers last year by any stretch.

AI assessment note: “Correct. Yes. So we are seeing more new managers this year so far”

Q Yeah, I'm really intrigued then. What made, what was the catalyst behind you wanting to be a sole LP then, and move away from writing three different types to more funding people and funds themselves?

A Well, the great part about doing all three was that I got to really test what I liked, as well as the different kinds of checks and how they move through the ecosystem and how different kinds of companies think about capital as a resource and how it gets leveraged within firms. And that's where I felt started my first entree into being an LP and fell in love with that side of the world. And then followed that passion to DFJ, which is a Sand Hill Road venture fund. But at the time when I joined, I was running something called the DFJ Network, Which was an association, loosely speaking, of about 18 funds throughout the world, and I joined during a period of very rapid expansion. So I spent all my time working with VCs in the U.S., And internationally helping to launch them, helping to fundraise, helping to grow them, helping to develop business development practices, recruiting the whole nine yards. It was a really excellent education in what it means to be part of an adventure firm and grow a venture firm. So while not technically an LP, it was really great background. I met venture capitalists around the world, LPs around the world, and then from there left and joined Sapphire Ventures, and I joined to help launch RLP product at Sapphire Ventures.

AI assessment note: “doing all three was that I got to really test what I liked”

Q out this weekend, but it's like, you know, data breaks, stripe, it's not going to be enough to actually crack open the IPO markets like we think it will be, I don't think. And I don't think they'll come out next year. And so I think it's going to be like, you know, H two, 20, 25. So what do we do then when liquidity is actually that far away?

A It's going to be tough. I mean, people will probably have to keep tightening their belts. I mean, we've seen this before. It took a number of years post 2000. It did take about three years. Um, to correct and for venture to come back in, and there was just a lot less money being committed to funds, and so you'll see a winnowing out. But you also, as a fund manager, if you wanted to wait an extra two years before you raised, you can. I mean, as long as you can pay your rent and do whatever you need to do with your money, and you can, you know, how long you can afford to work without management fees or whatever from a new fund, then no one's telling you you have to stop. You can still manage your portfolio and wait till it develops and then come back.

AI assessment note: “people will probably have to keep tightening their belts”

Q out this weekend, but it's like, you know, data breaks, stripe, it's not going to be enough to actually crack open the IPO markets like we think it will be, I don't think. And I don't think they'll come out next year. And so I think it's going to be like, you know, H two, 20, 25. So what do we do then when liquidity is actually that far away?

A It's going to be tough. I mean, people will probably have to keep tightening their belts. I mean, we've seen this before. It took a number of years post 2000. It did take about three years. Um, to correct and for venture to come back in, and there was just a lot less money being committed to funds, and so you'll see a winnowing out. But you also, as a fund manager, if you wanted to wait an extra two years before you raised, you can. I mean, as long as you can pay your rent and do whatever you need to do with your money, and you can, you know, how long you can afford to work without management fees or whatever from a new fund, then no one's telling you you have to stop. You can still manage your portfolio and wait till it develops and then come back.

AI assessment note: “people will probably have to keep tightening their belts”

Q Do you think that craziness was purely a case of the mega funds really raising a war chest for the potentially worrying times ahead?

A Well, certainly that was what the dialogue started out with last year, right? A couple of funds raised, and there was a big concern that winter was coming, and not the sort of the tepid winter that ended up happening, but a real decline, and so folks who had seen that playbook before did the rational thing and raised funds, and it is facilitated when you have an existing LP base, right? And so, especially if you have a brand name, and you've got a track record, and this was off the back of XIV and XV when there was a lot of markups in companies, so there was a lot of With unrealized but high numbers in people's fund portfolios. So all of that sort of came together to facilitate the fundraising last year, which is why this year I said it's off to a pretty decent start because you don't have a lot of those factors coming into play, and yet funds are still being raised.

AI assessment note: “certainly that was what the dialogue started out with last year”

Q We mentioned kind of the shortening fund life cycles earlier in the episode, and I've seen many first-time funds and micro VC funds shortening their fund cycles significantly, even to like, 18 months. I'm intrigued. Is this a problem for you, and do you think then VCs should really slow down their pace?

A Well, the smaller funds are just a bit trickier because they just do have less capital, and if they're doing reserves, it will go through, but let's talk about ones that are sort of, you know, 75 million-plus people that may have a little more Wiggle room to manage the pacing. We're advocates of a three-year, at least, investing term for a couple of reasons. One is time differentiation in your portfolio. If, say, for example, the 18 months you were investing was 14 and 15, you would have had a lot of big, heady valuations going on, and you wouldn't have the benefit of when things Other things that short investing time periods do is they push the bandwidth of the GPs, right? Because you don't tend to exit your companies as quickly as you're making the new investments, right? If you're making six or eight, 10 new investments per year, you're probably not exiting 10 companies from your past portfolio per year, which means your bandwidth is just going to get stretched. So giving yourself a bit more time to work with your companies to, you know, maybe they do raise more money and they can bring on other VCs. Maybe they do exit. All that sort of works to the advantage, and three years really isn't that long.

AI assessment note: “We're advocates of a three-year, at least, investing term for a couple of reasons.”

Q We spoke about the kind of capital markets there, and slightly mess a picture. And with the mega funds, is there the perspective that The mega funds were aware of the kind of changes in the macroeconomic cycles and were raising a war chest to, to cover themselves essentially. Is there ever that thesis in the back of your mind?

A Certainly that is a thesis that has been bandied about. I mean, what you had was a beginning of the year where Q four of 2050 Right. And people didn't know if a massive recession was coming or if things would write themselves quickly. And so LPs showed a really notable preference for experienced managers that had weather downturns, had existing LP bases and track records, which is a very rational thing to do in an uncertain market. It's also good to have money to deploy evaluations are going down in the age old adage of buy low, sell high. So GPs who have been through Also understand this, and if their pacing of investing was such that they could come back to market, they did, which, again, is entirely logical. What also it contributed to, though, is if you have a number of funds coming back to market to raise, it can motivate other people to raise, because in years past, right, in 2009, 2010, or back in one or two, when the market really collapsed, money literally does not exist anymore to be invested for If you're an LP that has public stocks and public bonds, and that evaporates, you literally do not have money to make your other commitments. So some managers came back making sure that they got to it before money went away. And it ended up, it wasn't that anywhere near that kind of a year. But in Q-one, you just didn't know. So a lot of people came back to market. You can re…

AI assessment note: “Certainly that is a thesis that has been bandied about.”

Q kind of flight to quality, and those that are quality, we've seen, obviously, the huge growth stories, and they're entering, often now, the private IPO stage. So talk to me about this, and is this kind of supposed rise correlated by the data? And then for you as an LP, obviously, like everyone, you know, needs cash on cash returns. Does it concern you, the continuation of the private IPO?

A So I'm going to answer some chunks, and when I Fall off a question. Bring me back in. Um, yes, you definitely see it in the numbers, because even though we're down on deal count for the year, there's already been some forty billion that has gone into U.S. venture-backed companies this year through Q three, which really isn't that much below. I mean, sixty billion went in last year, but 2014 was fifty billion, so we're still in the zone. I mean, there's less, I guess I should say, hard to raise as a relative term, and what's driving at it is that there are, there have been some larger later rounds into well-known companies, and that pushes the whole Overall numbers way back up. And to your question about the private IPO, it's definitely put some tension Around how healthy is it to delay an IPO and what that means? And should companies be coming back into the exit market? And from what our banker friends tell us, there are a number of companies now lined up. They're looking to IPO. And while the stock market was frozen the first bit of the year, it seems to be fine, which we're positive on, right? That's always a healthy exit market is always a good thing, right? Both on the MNA side, as well as the IPO side. So we're optimistic that things will shift going forward. We have heard from a number of companies themselves that their thinking about being a public company is also changi…

AI assessment note: “yes, you definitely see it in the numbers, because even though we're down on deal count”

Q Do you think it would be harder to, For European funds to raise, or maybe let's be more specific, for UK funds to raise with such kind of macro uncertainty surrounding their tech environment?

A You know, we've certainly, we have a European portfolio, some funds in London, some funds in other countries in continental Europe, and we've certainly been talking to them, and so far, they feel like people are working their way through it, and we haven't seen, although I'm still sort of looking at some numbers for We haven't seen a notable drop off, so I would say so far so good. And the other caveat I'd add is if you're an established fund with an established LP base, that's going to give you a lot of, um, strength and backing, and your LPs know you, and they, no one ever knows what the future holds, and when you're an LP, you're investing in what's called as a blind pool, and certainly nobody knows what the world looks like five years down the road from any sort of level, so you back managers that you feel can figure out how to weather ups and downs, and Brexit will be one of those things that people will have to figure out how to manage.

AI assessment note: “We haven't seen a notable drop off, so I would say so far so good.”

Q said about the funds raised by, by the GPs themselves there. What if a GP says that they're going to have a four-year investing period, and For whatever reason, their cadence is much quicker than they expect, and they go through it in two years. What does that look like for you as an LP, and how does an LP respond to that? Inconsistency in terms of the investment cycle?

A Well, the first thing I'd say is hopefully it's not new news. You, you really hope that you don't wake up one day and say, oh my gosh, it's been two years and, and all of a sudden the fund's gone. That there's, I don't know the time when there hasn't been communication along the way. And then I'm going to underscore the importance of that because as an LP, you see, you get your quarterly reports and you see the money being invested. So, you know, the fund is getting invested faster and The original commitments, right, are not going to take four years, they're going to take two years, so I would then encourage there to be a dialogue about that, so you also know before the two years are out, and this is why annual meetings exist, and LPs do try to check in and GPs reach out, and these conversations exist so that the why of that pacing difference has been discussed so that you know as an LP what to expect, and if they're going to come back to market, which is code for fundraising again at a different pace than what was originally anticipated, You know when you're prepared because LPs have portfolio construction just like VCs, and if you're going to shift things around, you need a heads up. So my, my takeaway is always just give the information necessary so everybody knows what's going on, and then people can make choices as a, as they need to.

AI assessment note: “so you know as an LP what to expect, and if they're going to come back”

Q And when you look at the LP ecosystem as a whole, and, you know, potentially looking back over time now, are there commonalities when you, when you witness the great LPs that have managed their funds exceptionally well?

A The things that I've noticed, because we study the venture ecosystem and what the great VCs have done as well as the great LPs, a couple things stand out. One is a commitment to the asset class over time, that timing of the market doesn't seem to be something anybody suggests. And instead it's the, you have to invest consistently over time year after year after year. So the great LPs and the great VCs do the same. It's also a being open to the new and the different. And I say this because if you look at some of the industry research reports, Cambridge Associates does some great research on this. You will see that what is considered emerging managers, and these are venture funds that are on their first through fourth fund cycles. Are always represented in the best and the worst performing managers, and then the established funds, the ones who are vintage five, six, seven, and on and on, play within all of those, and the takeaway that we have from that is you have to have both. You can't ignore any one section, so that means being open to the new and the different when new funds come to market, and being open to the fact that even established funds will have succession and change, and over 15, 20 years will look different, and just always be mindful of that and open to it That seems to be how it, how it works best when you observe the great investors.

AI assessment note: “One is a commitment to the asset class over time”

Q OpenLP, talk to me. Why did you start OpenLP, and what's the aim with it?

A OpenLP kind of gets at what you're talking about with the marketing and branding around the LPs, because what was happening for us over the last year plus is that we were getting a huge number of questions about what is an LP, you know, the reason why you're doing this podcast. Who are they? Where are they? What do they do? What do they say? And at the same time, we studied the venture market, and you know, 1015 years ago, the same questions were being posed to venture capitalists, and you saw the response. And the level of transparency, and engagement, and discourse, and the strengthening of the ecosystem, because now VCs and entrepreneurs are engaged in a just much more active dialogue, and it's present, right, in Twitter, on blogs, and in the newspapers. And we just felt like you could marry the two, and it just felt so logical that we could launch OpenLP, which is a website. It's very simple. We work with simple first principles. It's a website that has collected all the postings that we could find of LPs In the last, call it, 18 months, so if you want to read it and know what LPs are saying, you just go there, and there it is, and it's us, and it's others, and then we created a hashtag, OpenLP, because similarly, some LPs tweet versus writing, and we just wanted to collect it, so when people come to us and say, who is saying what, and who are they, we can say, check out th…

AI assessment note: “try to amplify the voice of others so that we can encourage more LPs”

Q Yeah, I'm really intrigued then. What made, what was the catalyst behind you wanting to be a sole LP then, and move away from writing three different types to more funding people and funds themselves?

A Well, the great part about doing all three was that I got to really test what I liked, as well as the different kinds of checks and how they move through the ecosystem and how different kinds of companies think about capital as a resource and how it gets leveraged within firms. And that's where I felt started my first entree into being an LP and fell in love with that side of the world. And then followed that passion to DFJ, which is a Sand Hill Road venture fund. But at the time when I joined, I was running something called the DFJ Network, Which was an association, loosely speaking, of about 18 funds throughout the world, and I joined during a period of very rapid expansion. So I spent all my time working with VCs in the U.S., And internationally helping to launch them, helping to fundraise, helping to grow them, helping to develop business development practices, recruiting the whole nine yards. It was a really excellent education in what it means to be part of an adventure firm and grow a venture firm. So while not technically an LP, it was really great background. I met venture capitalists around the world, LPs around the world, and then from there left and joined Sapphire Ventures, and I joined to help launch RLP product at Sapphire Ventures.

AI assessment note: “fell in love with that side of the world”

Q I've got so many things to unpack from such a small segment. This will be a short show. Onesies and twosies it to outperformance. What do you mean by that?

A Well, if you think of a growth stage portfolio, it's not that one doesn't want to have a power law company and have it return a hundred X and be two to three times your, your fund. It's just much harder when you have a large fund. So a lot of those funds end up having a number of exits then end up adding up to driving performance. In a early stage fund, if you We've yet to see a fund that's returned three or more X that does not have a company that's returned at least one time the fund. And that's what I mean by like, you can't do the single and base hits like, oh, I got a two X on this deal. I got a three X on that deal. Those are all great to add to the portfolio. But if you don't have a fund returner or a couple of half fund returners, it's, we haven't seen a fund that's hit out performance.

AI assessment note: “you can't do the single and base hits like, oh, I got a two X”

Q think that actually LPs are too diversified. Given the breadth of, like, venture portfolios, 30 to 50 companies most often, if you have 10 managers, you have 300 to 500 underlying portfolio companies. I mean, that's a lot of diversification. Do you think that LP portfolios are too diversified, or do you actually think that they're not diversified enough, given the importance of having just one of those power law?

A LPs are like snowflakes. No two are the same. So some people do like diversification. I know some LPs that specifically look at the overlaps or the lack of overlaps between their managers, and what they really are trying to do is they cover the seed market for exactly this point, and they want to make sure if they catch something, it happens. And then what the LP does is sort of a look through on the math and says, well, what if I'm putting X dollars into this fund and they're putting Y dollars into this company, what needs to be true for those companies to be Productive on my side. And I know other people that say, hey, I think this area is really interesting. So I'm fine if I've got two or three managers that invest in the same area and even in the same company, because if they hit one, it's going to be that much more productive. And it really comes down to how the LP wants to build their portfolio.

AI assessment note: “LPs are like snowflakes. No two are the same.”

Q Do you think about it in buckets? I see so many LPs that think about it through like, oh, I need early stage consumer. I need, you know, series A and B enterprise. Do you think about it through that bucket?

A Well, we just do early stage. So we, which in our definition, that means we started out originally with series A and we've now moved down into seed and pre-seed. So within that area, we then look at what is the overall underlying, um, distribution of companies that we have. Like, do you want a lot of deep tech? Do you want some climate? Do you want consumer and enterprise? We tend to think in the consumer and enterprise as who's the end user of the goods or software versus too many more specifics within it. And we've just done a lot of research in consumer enterprise and looking at how they return, how they grow, and you can get compelling exits in both, but they have different dynamics, so we want to make sure we have enough to capture those. Don't want me to be more specific. Is this for the jet lags kicking in? No, not at all.

AI assessment note: “We tend to think in the consumer and enterprise as who's the end user”

Q think that actually LPs are too diversified. Given the breadth of, like, venture portfolios, 30 to 50 companies most often, if you have 10 managers, you have 300 to 500 underlying portfolio companies. I mean, that's a lot of diversification. Do you think that LP portfolios are too diversified, or do you actually think that they're not diversified enough, given the importance of having just one of those power law?

A LPs are like snowflakes. No two are the same. So some people do like diversification. I know some LPs that specifically look at the overlaps or the lack of overlaps between their managers, and what they really are trying to do is they cover the seed market for exactly this point, and they want to make sure if they catch something, it happens. And then what the LP does is sort of a look through on the math and says, well, what if I'm putting X dollars into this fund and they're putting Y dollars into this company, what needs to be true for those companies to be Productive on my side. And I know other people that say, hey, I think this area is really interesting. So I'm fine if I've got two or three managers that invest in the same area and even in the same company, because if they hit one, it's going to be that much more productive. And it really comes down to how the LP wants to build their portfolio.

AI assessment note: “LPs are like snowflakes. No two are the same. So some people do like diversification.”

Q Do you think about it in buckets? I see so many LPs that think about it through like, oh, I need early stage consumer. I need, you know, series A and B enterprise. Do you think about it through that bucket?

A Well, we just do early stage. So we, which in our definition, that means we started out originally with series A and we've now moved down into seed and pre-seed. So within that area, we then look at what is the overall underlying, um, distribution of companies that we have. Like, do you want a lot of deep tech? Do you want some climate? Do you want consumer and enterprise? We tend to think in the consumer and enterprise as who's the end user of the goods or software versus too many more specifics within it. And we've just done a lot of research in consumer enterprise and looking at how they return, how they grow, and you can get compelling exits in both, but they have different dynamics, so we want to make sure we have enough to capture those. Don't want me to be more specific. Is this for the jet lags kicking in? No, not at all.

AI assessment note: “Well, we just do early stage. So we, which in our definition”

Q With the deterioration or diminishing amount of first-time funds, do you think this goes contra, and it'll be interesting, especially with your kind of Series A hat on, uh, do you think this goes contra the thesis of there being too many first-time funds and the seed market being overcrowded?

A Well, it certainly could be put Last year and the year before still aren't there. If people are investing on a two to three year timeframe, there's still plenty of funds. There should be plenty of funds with plenty of capital. Of course, if they spent it all, that's a different story, but you can't tell that from, from the numbers that we have quite yet. So there doesn't seem to be evidence of people saying there's no capital. I would say this year does not feel like there's a capital shortage here. In fact, there's clearly a ton of capital in the market. So, so we haven't seen that yet. Maybe it'll play out more in In coming years, if the new small funds coming back to market are unable to raise, you might see that coming down. But you also still have capital on the 150 to 203 hundred million dollar funds that could decide to go back into seed, right? It's not game over. They don't have to not do it.

AI assessment note: “this year does not feel like there's a capital shortage here”

Q And then final one, what concerns you with some of the data points presented today?

A I think we're living in this really kind of interesting time, and that's totally outside of the government and the politics, because you have all this capital that's been raised. People last year were concerned about the exit market. Companies weren't going out, so there was a calmness on the money going into companies. But now you have what looks like a much healthier market. Attitude of companies to go public. So you do have a lot more companies in the pipeline, a lot more companies coming out. So it's a kind of a question of will like crazy bubble times come back? Cause you have a lot of capital on the sidelines and if people think they can invest it and get great returns and it's going to be a wonderful, vibrant market. But if people just price up rounds, but they don't do it intelligently, then you're just going to have a bubble. And at the end of the day, bubbles don't really help. So we're, we're watching these contradictory forces and just sort of hoping for the best, but always being mindful.

AI assessment note: “it's a kind of a question of will like crazy bubble times come back?”

Q So again, so many things. I've met quite a few endowments who are 35% plus weighted in venture, which I thought was like blisteringly high. Made me happy as a venture manager. I think all LPs should be that high. But I was like, wow, that's a lot. Where do you think it's kind of reasonable?

A I think everybody has to pick based on, to your point, their liquidity profile. And then, you know, what do they want to do and what kind of returns are they striving for? So it's, it's hard to give it Common answer. I do know when a lot of endowments started looking at the Yale model and being willing to go very long on that, they shifted to that, and maybe some people are rethinking it. I do know there are some managers, some LPs, I'm sorry, when I say managers, who are like, we're just going to have to pause for a bit while it rebalances, which also has its own dangers. I mean, there is a very long history of looking at venture returns, which says if you're not in the market, you just don't know how to call the exit, so you have to be consistent about committing. But if you have a bunch of existing managers who are still putting money in the ground, you could probably skip a year and still have money going in, just not be re-upping or making new investments.

AI assessment note: “it's hard to give it Common answer. I think everybody has to pick based on”

Q these companies show that early stage venture models that have been so prevalent don't really make sense. Even your Robin Hoods as well, which were supposed to be Yeah, 30, forty billion. I think Robin Hood's a seven now, which is, which is great, and I'm not at all, but it's not what it was, and what we thought it would be. Do you think Sam has grounding for that?

A I understand his point. I think from a very specific LP, GP perspective, it's hard to find on when you get out of the investment. We have managers that would have potentially sold into some of those later rounds because if they could sell, I'm making up the numbers, but 10 or 25% of their ownership and return a fund or half a fund and still hold some for the upside and then potentially distribute the stock when it's high. Again, you have to wait for a lockup and there's all these Parameters that might not make it possible. And if there's a small float, it's also a little bit more tricky sometimes, but you can make money on those deals. Absolutely.

AI assessment note: “you can make money on those deals. Absolutely.”

Q these companies show that early stage venture models that have been so prevalent don't really make sense. Even your Robin Hoods as well, which were supposed to be Yeah, 30, forty billion. I think Robin Hood's a seven now, which is, which is great, and I'm not at all, but it's not what it was, and what we thought it would be. Do you think Sam has grounding for that?

A I understand his point. I think from a very specific LP, GP perspective, it's hard to find on when you get out of the investment. We have managers that would have potentially sold into some of those later rounds because if they could sell, I'm making up the numbers, but 10 or 25% of their ownership and return a fund or half a fund and still hold some for the upside and then potentially distribute the stock when it's high. Again, you have to wait for a lockup and there's all these Parameters that might not make it possible. And if there's a small float, it's also a little bit more tricky sometimes, but you can make money on those deals. Absolutely.

AI assessment note: “you can make money on those deals. Absolutely.”

Q So again, so many things. I've met quite a few endowments who are 35% plus weighted in venture, which I thought was like blisteringly high. Made me happy as a venture manager. I think all LPs should be that high. But I was like, wow, that's a lot. Where do you think it's kind of reasonable?

A I think everybody has to pick based on, to your point, their liquidity profile. And then, you know, what do they want to do and what kind of returns are they striving for? So it's, it's hard to give it Common answer. I do know when a lot of endowments started looking at the Yale model and being willing to go very long on that, they shifted to that, and maybe some people are rethinking it. I do know there are some managers, some LPs, I'm sorry, when I say managers, who are like, we're just going to have to pause for a bit while it rebalances, which also has its own dangers. I mean, there is a very long history of looking at venture returns, which says if you're not in the market, you just don't know how to call the exit, so you have to be consistent about committing. But if you have a bunch of existing managers who are still putting money in the ground, you could probably skip a year and still have money going in, just not be re-upping or making new investments.

AI assessment note: “everybody has to pick based on, to your point, their liquidity profile.”

Q Okay, so you've been an LP for many, many years, and you have the chance now to cool yourself up the night before your first day as an LP. Knowing what you do now, what would you advise yourself?

A I would say really understand the importance of the power law. Which I know sounds like a bit of a nitty gritty. And I'd gotten this advice from other LPs, which is the difference of having a power law defining company in your portfolio and the experience of that for the GP along with the entrepreneur really changes the understanding of how a venture works. And you really just can't, or maybe you can, and we just haven't seen a fund that sort of, in the early stage, onesie twosies it to outperformance. It's hard to walk that until you really feel it. And then you see these activities, you see the companies taking off, you see the difference. And what it looks like to have that kind of a power driver in your portfolio.

AI assessment note: “I would say really understand the importance of the power law.”

Q And I want to finish today then on, on things that VCs need to know going into raising a fund. So say I'm raising a fund, what should I know going into today's environment with regards to communication with LPs?

A Well, 2016 is a really interesting year. It's been something we've called the year of the haves and the have-nots, and it's still far from played out, but you've seen just an incredible amount of money being raised very quickly in the first quarter And when you dive into the nature of the funds that did the raising, significantly larger number of over five hundred million dollar fund sizes, and the names themselves were all predominantly the established names. Which is, this just goes to why we called it the haves and the have-nots. Usually there's a fairly interesting number of new funds coming to market every year, a significant number of sub-one hundred million, and that's been skewed so far. Whether or not that evens out during the year, we're going to be tracking. But I can tell you in April, the same trend has continued, and you've seen a number of familiar names coming back to market, like GGV, Menlo, Mayfield, Felicis, Union Square. All that was just April.

AI assessment note: “2016 is a really interesting year. It's been something we've called the year”

Q And then final one, what concerns you with some of the data points presented today?

A I think we're living in this really kind of interesting time, and that's totally outside of the government and the politics, because you have all this capital that's been raised. People last year were concerned about the exit market. Companies weren't going out, so there was a calmness on the money going into companies. But now you have what looks like a much healthier market. Attitude of companies to go public. So you do have a lot more companies in the pipeline, a lot more companies coming out. So it's a kind of a question of will like crazy bubble times come back? Cause you have a lot of capital on the sidelines and if people think they can invest it and get great returns and it's going to be a wonderful, vibrant market. But if people just price up rounds, but they don't do it intelligently, then you're just going to have a bubble. And at the end of the day, bubbles don't really help. So we're, we're watching these contradictory forces and just sort of hoping for the best, but always being mindful.

AI assessment note: “if people just price up rounds, but they don't do it intelligently”

Q With the deterioration or diminishing amount of first-time funds, do you think this goes contra, and it'll be interesting, especially with your kind of Series A hat on, uh, do you think this goes contra the thesis of there being too many first-time funds and the seed market being overcrowded?

A Well, it certainly could be put Last year and the year before still aren't there. If people are investing on a two to three year timeframe, there's still plenty of funds. There should be plenty of funds with plenty of capital. Of course, if they spent it all, that's a different story, but you can't tell that from, from the numbers that we have quite yet. So there doesn't seem to be evidence of people saying there's no capital. I would say this year does not feel like there's a capital shortage here. In fact, there's clearly a ton of capital in the market. So, so we haven't seen that yet. Maybe it'll play out more in In coming years, if the new small funds coming back to market are unable to raise, you might see that coming down. But you also still have capital on the 150 to 203 hundred million dollar funds that could decide to go back into seed, right? It's not game over. They don't have to not do it.

AI assessment note: “I would say this year does not feel like there's a capital shortage here.”

Q What's a bigger reason for funds to not make it, do you think, from fund one to fund four? Team breakage and partnership breakdown or performance?

A Back in the day, if you had three years between funds, you're talking about a decade of investing. So I think performance would be able to be being seen along, and then tied into that is like strategy and all those things. And then I think team, it's very, very hard to do this, because No one documents it, but you could see we ran the numbers on funds that from every year, who was the one that has gone on to raise the most vehicles, core vehicles, not all the other layered. If they went multi-strategy, we didn't track all that. I was shocked the fund sizes didn't balloon as much as I thought they would because the dollars were going into these other growth vehicles. But you see these funds that got to, you know, fund four, five, six, and then never raised another fund, and it was, it would have to be some combination of team and track record. Maybe you did so well, you didn't want to keep going. I mean, there's, there's the, there's the positive side of that, which is, it's good.

AI assessment note: “it would have to be some combination of team and track record”