The Exchanges

Q My word, will I be doing the 20 minute LP in five years time? That would be interesting, but that's a good idea, actually. Uh, having said that, uh, I would love to move into a quick fire round with you now. So I should, let's start with, uh, your favorite book and why.

A Well, I love the great Gatsby, and, uh, a big part of the reason I love it is because, you know, it paints this amazingly rich portrait of a, of a specific time in America, and there, you know, there's this great, uh, line from Fitzgerald. You know, the Gatsby's kind of symbolic of this, and it makes me feel like Silicon Valley today. It said, you know, the, the, the parties were bigger, the, the liquor was cheaper, the morals were looser, the shows were grander, and, you know, the tempo of the city had changed sharply, you know, in 1920 New York. Uh, the restlessness approached hysteria, and I think that that happens in Silicon Valley, and so I, I feel a certain kinship to, uh, to Nick Carraway.

AI assessment note: “Well, I love the great Gatsby, and, uh, a big part of the reason I love it”

Q You can't give Amy as a productivity hack. For everyone listening, you just need to get Amy, basically. Um, okay, brilliant. And then, I'm intrigued on this one. What would you like to see change in the world of LPs?

A What I'd like to see is, I'd like to see LPs more resistant to the insidious forces of Buzz. Work together and, and, you know, kind of stand firm. The GPs, you know, can divide and conquer really easily, and I always imagine, you know, in the Odyssey, there's this great moment where Odysseus is passing the The sirens. And he says, you know, lash me to the mast. And, you know, his sailors kind of lash into the mast because otherwise, you know, he'll hear the siren song and he'll get, you know, he'll, he'll steer the boats to certain doom. And, you know, I feel like, you know, LPs get stars in their eyes sometimes over these, these funds. And boy, I wish, you know, we as a group would be, uh, would be a little bit more critical sometimes and worry less about career risk and more about, you know, doing the right thing.

AI assessment note: “I'd like to see LPs more resistant to the insidious forces of Buzz”

Q to ask that you mentioned hustle. And, uh, as I think I've said before, I'm often credited with, um, slightly having some hustle, um, But in that vein, do you think the LP world does have hustle, generally speaking? Obviously it's the generalization, but do you see growing hustle within the LPs to get into the hot funds, or do you think it's generally still got the sedate image correct?

A So, it's an interesting question, by the way. You, Harry, get a lot of credit for Hustle. You're a madman on the loose, and I love it. You've done great stuff, and kudos to you. Um, here's an interesting, uh, dynamic. You use the phrase hot funds. You know, the phrase hot fund, fund rankles me because, you know, time and time again, we've seen funds kind of get attention and get, you know, kind of wildly oversubscribed only because LPs are Are demonstrating lemming-like behavior. And, you know, there's a favorite bell cow like, you know, Yale or Harvard or Stanford that they're, you know, following and chasing. There is a lot of hustle in the LP world, but I think sometimes it's, it's misvectored. You know, what I think the challenge is, is that, you know, Lord Keynes famously said, you know, it's better to fail conventionally than to succeed unconventionally in matters of the reputation. And I think, you know, a lot of, uh, a lot of LPs worry about career risk. And, you know, I think, you know, there's almost this two by two matrix. You can be with the crowd or you can be alone. You know, on one axis and on the other axis, you know, you're either right or you're wrong. The challenge is, you know, good decisions sometimes have bad outcomes. So you kind of slide along that axis. Hopefully over a career, you're right. You know, you can kind of tilt that, you know, in that distrib…

AI assessment note: “There is a lot of hustle in the LP world, but I think sometimes it's, it's misvectored.”

Q to ask that you mentioned hustle. And, uh, as I think I've said before, I'm often credited with, um, slightly having some hustle, um, But in that vein, do you think the LP world does have hustle, generally speaking? Obviously it's the generalization, but do you see growing hustle within the LPs to get into the hot funds, or do you think it's generally still got the sedate image correct?

A So, it's an interesting question, by the way. You, Harry, get a lot of credit for Hustle. You're a madman on the loose, and I love it. You've done great stuff, and kudos to you. Um, here's an interesting, uh, dynamic. You use the phrase hot funds. You know, the phrase hot fund, fund rankles me because, you know, time and time again, we've seen funds kind of get attention and get, you know, kind of wildly oversubscribed only because LPs are Are demonstrating lemming-like behavior. And, you know, there's a favorite bell cow like, you know, Yale or Harvard or Stanford that they're, you know, following and chasing. There is a lot of hustle in the LP world, but I think sometimes it's, it's misvectored. You know, what I think the challenge is, is that, you know, Lord Keynes famously said, you know, it's better to fail conventionally than to succeed unconventionally in matters of the reputation. And I think, you know, a lot of, uh, a lot of LPs worry about career risk. And, you know, I think, you know, there's almost this two by two matrix. You can be with the crowd or you can be alone. You know, on one axis and on the other axis, you know, you're either right or you're wrong. The challenge is, you know, good decisions sometimes have bad outcomes. So you kind of slide along that axis. Hopefully over a career, you're right. You know, you can kind of tilt that, you know, in that distrib…

AI assessment note: “There is a lot of hustle in the LP world, but I think sometimes it's, it's misvectored.”

Q the opportunity, I, I love the VC and LP aspect, uh, that role, that the role of FOMO plays. Talking of FOMO, how often do you hear the, it's amazing how confident some fund managers are, uh, you know, you'll be sorry you missed this comment, uh, Uh, how often do you hear that and how does it affect your investment decision making? Does it really get inside your psyche?

A It's interesting because, um, it does create anxiety, right? In a business that is so deal oriented. And so if something comes along that's exciting and it's got a short fuse, boy, it feels like there's a lot of pressure in there. There are a lot of investors who, who look for social proof, right? You know, in the classic example, If, you know, Yale or Harvard or Stanford is investing, you know, some people will do those investments sight unseen. But that said, you know, I kind of try to take a different approach to it. So first off, um, Warren Buffett famously says there are no called strikes in investing. So right. You know, you can, you can let pitches go by and, and, you know, it's, it's not the last. Now that may be less true adventure than it is anywhere else, but at least I tell myself that to help myself sleep at night. Uh, when I miss things. Um, the other thing I try to do is I try to spend a lot of time kind of getting out in front of funds. So getting to, I'm constantly asking entrepreneurs who they think is a really interesting, constructive partner and getting to know those people ahead of the fundraising cycle, because, you know, marrying haste and repent at leisure is, you know, is not only good advice for investors, but sweethearts as well. But, you know, I think about first round, right? Like, as you may know, I helped, uh, I helped kind of, uh, the first roun…

AI assessment note: “It's interesting because, um, it does create anxiety, right?”

Q Do you not think that's potentially damaging to the VC community? If you couldn't, as you said there, you could invest straight in the startups. You could, I mean, essentially you could cut out the middlemen of VCs altogether if you have the network and the ability to communicate with the entrepreneurs. Does that worry you?

A It's an interesting question, right? And I think this is something that we're struggling with. And I think, you know, it's, uh, but I think what What GPs have, you know, certain GPs have concluded is that having LPs who can co-invest is, uh, a way for them to, them to punch above their weight. So they can then, uh, they can then invest, you know, kind of more heavily. Or one of the things that I think is an endemic problem to the micro VC space is that funds are undercapitalized and own too little and are kind of subject to the vagaries of, uh, of later stage financing rounds where they may get, the rounds might get structured in ways that are detrimental to the To the small early holders. And so, as a result, you know, I think if you have LP capital that can, uh, that can help, you know, kind of extend your runway of playtime, as it were, in these companies, you can have ball control longer, and as a result, protect yourself better. So, I think, I think it's a strategic advantage. I think, you know, there are certain LPs who want to cut, uh, VCs out, and, you know, you know, that's a strategy for them, and they can, you know, they can pursue it. I, I certainly wouldn't Wouldn't pursue that. I like to be more of a partner with our, with our VCs, um, you know, where we can, uh, where we can be, uh, additive either in helping them fill out a round or, uh, or helping, you know, he…

AI assessment note: “I certainly wouldn't Wouldn't pursue that. I like to be more of a partner”

Q the opportunity, I, I love the VC and LP aspect, uh, that role, that the role of FOMO plays. Talking of FOMO, how often do you hear the, it's amazing how confident some fund managers are, uh, you know, you'll be sorry you missed this comment, uh, Uh, how often do you hear that and how does it affect your investment decision making? Does it really get inside your psyche?

A It's interesting because, um, it does create anxiety, right? In a business that is so deal oriented. And so if something comes along that's exciting and it's got a short fuse, boy, it feels like there's a lot of pressure in there. There are a lot of investors who, who look for social proof, right? You know, in the classic example, If, you know, Yale or Harvard or Stanford is investing, you know, some people will do those investments sight unseen. But that said, you know, I kind of try to take a different approach to it. So first off, um, Warren Buffett famously says there are no called strikes in investing. So right. You know, you can, you can let pitches go by and, and, you know, it's, it's not the last. Now that may be less true adventure than it is anywhere else, but at least I tell myself that to help myself sleep at night. Uh, when I miss things. Um, the other thing I try to do is I try to spend a lot of time kind of getting out in front of funds. So getting to, I'm constantly asking entrepreneurs who they think is a really interesting, constructive partner and getting to know those people ahead of the fundraising cycle, because, you know, marrying haste and repent at leisure is, you know, is not only good advice for investors, but sweethearts as well. But, you know, I think about first round, right? Like, as you may know, I helped, uh, I helped kind of, uh, the first roun…

AI assessment note: “it does create anxiety, right? In a business that is so deal oriented.”

Q kind of Increasing time that companies are staying private for, and you've written before about the circularity of funds and how funds invest, get returns, and it's those returns which then fund their follow-on funds. Right. With, with the privatization increase, that, you know, those follow-on funds aren't coming so much, so how do you react to the extension in privatization for, for firms, and does it affect your thinking?

A Right. Yeah. So it's a really challenging question because the Nirvana, and it was great to see this at Princeton and, and, and few, you know, few institutions have the history that those types of institutions do. So even a lot of, a lot of the more recent entrants have cashflow negative programs, right? But when you, when you see a portfolio like a Princeton portfolio where I, you know, I was at Princeton from Oh one to Oh four, you know, and you get to the point where you're, you know, in the, in the lingo of the business, you're recycling distribution. So your portfolio is mature enough that the, Seeds you planted several years that were coming out, you know, you sprouting and, and providing feed stock for the, the, the new, you know, plants, whatever mixing metaphors, but, um, you know, you're, you're, you're getting that kind of great circle of life. Right. And it's in the program becomes self-funding that's Nirvana. Right. And not many people have that. And I think, you know, what happens is that we've seen, you know, companies stay private longer. It's really interrupted that cycle. And so this is what I call capital constipation. Feeding the snake with deals. The snake is kind of, uh, you know, bulging and bulging and bulging. And at some point, something needs to come out the back end, right? The, I I've gotten in trouble for using the phrase, the exit sphincter, but, …

AI assessment note: “counterintuitively what I'm doing is I'm actually going earlier. In, in the life cycle”

Q And I'm really interested, how, how much time do you kind of focus on the terms themselves of the fund? You know, obviously we have the standard two and 20. Does your investment decision differ wildly if it's, uh, three and 30? Like, like a sequoia.

A That's an interesting question. Um, terms are important, you know, the economics are, are important. You know, at the end of the day, we have to make sure that we are, you know, getting, you know, net outperformance, right? You know, over time, you'd imagine that, you know, some funds who have generated performance are, uh, are then able to extract, you know, more of that surplus as it were. Um, and then the challenge is where does that, you know, where does that shake out? Um, so, you know, what I'll do is when, when we have a fund with, you know, kind of nonstandard terms, you know, we'll, we'll try to figure out in a rigorous way, although, you know, it can be challenging, um, you know, what we expect those, uh, returns to be and how, How those will, will kind of flow through to a net, you know, net performance.

AI assessment note: “when we have a fund with nonstandard terms, we'll try to figure out”

Q And I'm really interested, how, how much time do you kind of focus on the terms themselves of the fund? You know, obviously we have the standard two and 20. Does your investment decision differ wildly if it's, uh, three and 30? Like, like a sequoia.

A That's an interesting question. Um, terms are important, you know, the economics are, are important. You know, at the end of the day, we have to make sure that we are, you know, getting, you know, net outperformance, right? You know, over time, you'd imagine that, you know, some funds who have generated performance are, uh, are then able to extract, you know, more of that surplus as it were. Um, and then the challenge is where does that, you know, where does that shake out? Um, so, you know, what I'll do is when, when we have a fund with, you know, kind of nonstandard terms, you know, we'll, we'll try to figure out in a rigorous way, although, you know, it can be challenging, um, you know, what we expect those, uh, returns to be and how, How those will, will kind of flow through to a net, you know, net performance.

AI assessment note: “we'll try to figure out in a rigorous way... what we expect those returns to be”

Q and the VC industry. Um, so pretend like we do have a monopoly of wisdom for this one. Um, so in 2013, you said micro VC was the most exciting space. This is now, um, filled potentially to the max. Do you think this has reached the climax point for For the proliferation of micro VC, or do you think we'll see a further bulge in the micro VC ecosystem?

A Yeah, so it's interesting, because I'm surprised that I said it that late, but I think that there was this moment, you know, kind of, oh, five or six percent when, you know, the whole field was, was nascent. It was almost a Somebody once, once told me, you know, kind of 8586, 87, you know, the team would run up and down Sand Hill Road and meet all the firms, literally all the firms, right? And, you know, but there were only, like, 30 venture firms. They'd invest in, like, half of them, and there was this huge option value, and out of those investments came Sequoia and Kleiner and, and TVI, which became Benchmark and IVP and all these things, um, you know, to kind of titans of their era, and I kind of Feel like that's what micro VC was like in oh five or six or seven. I'm, I'm lucky that I was fortunate enough to stumble into, you know, having met the right people that directed me in that direction. And the funds that I did during that period, first round and floodgate, you know, IA out of New York and several others. And my partners, uh, before I joined them, they were, you know, I was still at TIFF in those days. They did true. It was impossible to miss. Even the things we turned down, it was impossible to miss almost, right? All those funds of that era, you know, And I'm thinking of Felicis and SoftTech and others, you know, they've all done, done really well. I think that wa…

AI assessment note: “I think today it's the, you know, almost the opposite of a good time.”

Q kind of Increasing time that companies are staying private for, and you've written before about the circularity of funds and how funds invest, get returns, and it's those returns which then fund their follow-on funds. Right. With, with the privatization increase, that, you know, those follow-on funds aren't coming so much, so how do you react to the extension in privatization for, for firms, and does it affect your thinking?

A Right. Yeah. So it's a really challenging question because the Nirvana, and it was great to see this at Princeton and, and, and few, you know, few institutions have the history that those types of institutions do. So even a lot of, a lot of the more recent entrants have cashflow negative programs, right? But when you, when you see a portfolio like a Princeton portfolio where I, you know, I was at Princeton from Oh one to Oh four, you know, and you get to the point where you're, you know, in the, in the lingo of the business, you're recycling distribution. So your portfolio is mature enough that the, Seeds you planted several years that were coming out, you know, you sprouting and, and providing feed stock for the, the, the new, you know, plants, whatever mixing metaphors, but, um, you know, you're, you're, you're getting that kind of great circle of life. Right. And it's in the program becomes self-funding that's Nirvana. Right. And not many people have that. And I think, you know, what happens is that we've seen, you know, companies stay private longer. It's really interrupted that cycle. And so this is what I call capital constipation. Feeding the snake with deals. The snake is kind of, uh, you know, bulging and bulging and bulging. And at some point, something needs to come out the back end, right? The, I I've gotten in trouble for using the phrase, the exit sphincter, but, …

AI assessment note: “counterintuitively what I'm doing... is I'm actually going earlier. In, in the life cycle”

Q and the VC industry. Um, so pretend like we do have a monopoly of wisdom for this one. Um, so in 2013, you said micro VC was the most exciting space. This is now, um, filled potentially to the max. Do you think this has reached the climax point for For the proliferation of micro VC, or do you think we'll see a further bulge in the micro VC ecosystem?

A Yeah, so it's interesting, because I'm surprised that I said it that late, but I think that there was this moment, you know, kind of, oh, five or six percent when, you know, the whole field was, was nascent. It was almost a Somebody once, once told me, you know, kind of 8586, 87, you know, the team would run up and down Sand Hill Road and meet all the firms, literally all the firms, right? And, you know, but there were only, like, 30 venture firms. They'd invest in, like, half of them, and there was this huge option value, and out of those investments came Sequoia and Kleiner and, and TVI, which became Benchmark and IVP and all these things, um, you know, to kind of titans of their era, and I kind of Feel like that's what micro VC was like in oh five or six or seven. I'm, I'm lucky that I was fortunate enough to stumble into, you know, having met the right people that directed me in that direction. And the funds that I did during that period, first round and floodgate, you know, IA out of New York and several others. And my partners, uh, before I joined them, they were, you know, I was still at TIFF in those days. They did true. It was impossible to miss. Even the things we turned down, it was impossible to miss almost, right? All those funds of that era, you know, And I'm thinking of Felicis and SoftTech and others, you know, they've all done, done really well. I think that wa…

AI assessment note: “I think today it's the, you know, almost the opposite of a good time.”

Q That's very rare though, isn't it? For LPs to intersect with fund managers so heavily in the creation phase.

A Again, you know, it's all about trying to use your advantages, and one of my advantages is geography, and so, you know, I'm in the fortunate position, and look, the 30 mile radius around, you know, University Avenue does not have a worldwide monopoly by any stretch on innovation, but there's such a depth and a richness here, and you know, literally I can walk down the street and visit A dozen companies in, in an afternoon. Um, and then there's some interesting people that kind of, uh, uh, get, um, you know, kind of magnetized to that and try to kind of, you know, formulate white space. And the other thing that's actually interesting, which I think is a problem is, is I think about ecosystem investing. One thing that I think can be a problem is that in, and I, I don't want to cast aspersions, um, at any particular ecosystems, but in some places, you know, people, you know, get kind of wealthy, you know, kind of sell a company and then disappear. They move off to, The South France, or Miami,

AI assessment note: “it's all about trying to use your advantages, and one of my advantages is geography”

Q That's very rare though, isn't it? For LPs to intersect with fund managers so heavily in the creation phase.

A Again, you know, it's all about trying to use your advantages, and one of my advantages is geography, and so, you know, I'm in the fortunate position, and look, the 30 mile radius around, you know, University Avenue does not have a worldwide monopoly by any stretch on innovation, but there's such a depth and a richness here, and you know, literally I can walk down the street and visit A dozen companies in, in an afternoon. Um, and then there's some interesting people that kind of, uh, uh, get, um, you know, kind of magnetized to that and try to kind of, you know, formulate white space. And the other thing that's actually interesting, which I think is a problem is, is I think about ecosystem investing. One thing that I think can be a problem is that in, and I, I don't want to cast aspersions, um, at any particular ecosystems, but in some places, you know, people, you know, get kind of wealthy, you know, kind of sell a company and then disappear. They move off to, The South France, or Miami,

AI assessment note: “it's all about trying to use your advantages, and one of my advantages is geography”