The Exchanges

Q of the table, so to speak, and one element of the industry that we share, a common desire for changing is potentially fund structures. And you've told me before that Fund structures need to change for LP liquidity. I agree. For me, fund structures are too short to invest in game-changing kind of sectors and companies. What's your perspective when saying that fund structures need to change for LP liquidity?

A Well, so I, um, I've been fortunate in all my years at RE to spend a lot of time with our LP base, and, and I think at the top level, the ten-year fund structure with a couple of extensions doesn't really work. Uh, it was invented 40 years ago, And it creates a ton of challenges for everyone involved. What are the challenges? So it compresses the investment cycle for us, right? It drives us to try and put all of the initial capital to work in the first few years of a fund's life. It makes it actually very difficult for a general partner to put their hand up and say, you know what? We need to just back off a bit right now. We need to not be investing this capital. We need to sort of slow down because there's Such a premium placed on IRR and generating early liquidity. That's the other sort of, I think, real issue in all of this is LPs need a, a more predictable path to liquidity. I actually think you could structure a fund vehicle that has a defined secondary option in it, and I actually believe if you look at all the massive amount of secondary capital that's, that's sitting on the sidelines right now, I think you could design a primary fund structure of That has a secondary option that an LP could exercise so that they could get actually a relatively predictable way out at a predictable discount to NAB. It might be spread over 24 months or something like that, but that would b…

AI assessment note: “I actually think you could structure a fund vehicle that has a defined secondary option”

Q No, I spend an inordinate amount of time on BuzzFeed. It's far too unhealthy. Um, but I'd love to discuss, then, your favorite Biggest mentor, and how that relationship came about?

A So, I was incredibly fortunate to have a close working relationship with Bill Campbell, the former chairman of Columbia University, chairman and CEO of Intuit, and someone who was Steve Jobs' coach, Jeff Bezos' coach, Sergey Brin, and Larry Page's coach. Bill cared passionately about building high-performance teams, and for the last 15 years, I have taught the second-year course on venture capital at Columbia. I brought Bill in always secretly. He never wanted anyone to know that he was there. And all these discussions were off the record, just Bill and me and the students talking about building high performance teams and some of the companies that I named earlier. And through that dialogue, which we would hold once a year over about 10 years, I learned so much from Bill about being an authentic leader, about being candid with people while showing them that you believe in them. I learned a lot about, about communicating, and you know, I think mentors sometimes are those people who, who gave us some, some harsh and direct feedback that we needed to learn from, and there were a few moments in my career where Bill was there for me in that way.

AI assessment note: “I was incredibly fortunate to have a close working relationship with Bill Campbell”

Q Can I ask, what are the barriers then to implementing really quite a radical change like this?

A Well, I, I think there are, there are cultural barriers because the, the venture industry has sort of, has gotten used to having capital pretty locked up. And to having controls over the unlocking of that capital. And so it takes a forward-looking group of GPs for starters. It takes a group of LPs who are willing to really, frankly, play a role in designing that fund structure. And most of all, it takes a secondary buyer who's willing to sign up for a portion of that obligation. And I think when I watch the best secondary buyers in action, um, they're very efficient. They move with great Speed, and many of them have the scale to support a structure like this. It's something that I've toyed with for a long time, and I think that it may be something we explore even in the future, but those three constituencies have to come together.

AI assessment note: “I think there are, there are cultural barriers because the, the venture industry”

Q Can I ask, where do you draw the line? It's always a really good question for me when thinking about idealism, and just where do you draw the line between vision and kind of idealistic, and then stubborn?

A Well, I think you draw the line by looking at their pragmatism. You draw the line, and I think the best entrepreneurs are able to take people up the mountain with them and show them the view way off into the distance. The best entrepreneurs are able to persuade people of a vision for a changing world, and the people that they're persuading are people who are going to work for them, who are going to buy products from them, and who are going to invest in them. But you have to be able to see in that person the ability to focus in and make hard choices and simplify things in order to get them done. And you look for evidence of both, I guess, is all I can say.

AI assessment note: “I think you draw the line by looking at their pragmatism.”

Q I do want to start this day on the venture industry itself there, as you touched upon, a business that, as you've said before, is the same as the movie business. So I'm too intrigued. What makes you draw this alignment, and where do you see the similarities?

A I think the similarities are obvious. All of us, you know, in the early stage of venture business spend our time really thinking about talent, and we, we, we could just as easily be talking about, you know, leading actors. I mean, we're looking for massively talented people who can play a leading role in a market story that's going to develop, and we are frankly functioning as the producers. We are, we're sitting there trying to bring it all together. A great product team, a superstar CEO who can really be our headliner. And when it all begins to work, the market takes it up and runs with it, just like a blockbuster hit. I use that analogy because it captures, I think, our frankly obsessive focus on talent. Understanding talent in the market in which we principally invest here in New York is super important. Understanding where people are in their life journey and in their career journey. Are they really ready to commit the 80 to a hundred hours a week for four to five years that it really takes to build a company? Have they done enough earlier in their life, or are they too far along in their career to be that person that can, can build a company? And I think the analogies are really strong to, to, to finding the right role for the right actor at a certain point in their career.

AI assessment note: “we're looking for massively talented people who can play a leading role”

Q ask, how do you look to determine that when kind of assessing a founder and their ability, whether it be timing, To put in those 80 to a hundred hours, or whether it be skill, how do you really kind of stress test that founder? Is it the case of kind of nine months of getting to know them? Are there questions that can tease out those kind of abilities?

A Well, look, I mean, in the best case, we get to watch, because nothing is, is more informative than just watching execution. In other senses, though, I mean, we focus in on just trying to understand the challenges that that person has had to overcome in their life, and I think we see a pattern of Great entrepreneurs generally didn't have it easy in whatever they were doing before they founded a company. They might have come from pretty modest circumstances, or they might have come to this country, uh, with, with little in the way of resources and had to make their way. They might have struggled with a learning disability. They might have had, frankly, a contentious relationship with, uh, a prior boss or, or colleagues. We, we look for people who have almost strong Survival skills and leadership skills who can apply the things that they've learned in other periods to growing something great. We look for people who are intensely commercially driven, but also, frankly, pretty idealistic in wanting to build something that matters in the world.

AI assessment note: “in the best case, we get to watch, because nothing is, is more informative”

Q Can I ask, what was the biggest learning from Bill? I have to take the opportunity. Was there one that stuck out?

A There was, God, there were so many. I'll tell you what it was. It was the, the value that Bill was often good at communicating, that smart people People of all walks of life and backgrounds, less smart people, less ambitious people. Everyone needs to be led, and he used to tell this story about the early days at Google when there was really a culture of just hiring a lot of really bright people and letting them work on things that interested them, and person by person, Bill would go through the company and ask people what they were working on and ask them what they wanted to be working on or whether they wanted direction, and people basically came back and said, yeah, I'd like to have a boss. I'd like to know what I What I can do to, to really kind of drive this organization forward. It was that realization that in every company, leadership is, is the key ingredient.

AI assessment note: “in every company, leadership is, is the key ingredient.”

Q of the table, so to speak, and one element of the industry that we share, a common desire for changing is potentially fund structures. And you've told me before that Fund structures need to change for LP liquidity. I agree. For me, fund structures are too short to invest in game-changing kind of sectors and companies. What's your perspective when saying that fund structures need to change for LP liquidity?

A Well, so I, um, I've been fortunate in all my years at RE to spend a lot of time with our LP base, and, and I think at the top level, the ten-year fund structure with a couple of extensions doesn't really work. Uh, it was invented 40 years ago, And it creates a ton of challenges for everyone involved. What are the challenges? So it compresses the investment cycle for us, right? It drives us to try and put all of the initial capital to work in the first few years of a fund's life. It makes it actually very difficult for a general partner to put their hand up and say, you know what? We need to just back off a bit right now. We need to not be investing this capital. We need to sort of slow down because there's Such a premium placed on IRR and generating early liquidity. That's the other sort of, I think, real issue in all of this is LPs need a, a more predictable path to liquidity. I actually think you could structure a fund vehicle that has a defined secondary option in it, and I actually believe if you look at all the massive amount of secondary capital that's, that's sitting on the sidelines right now, I think you could design a primary fund structure of That has a secondary option that an LP could exercise so that they could get actually a relatively predictable way out at a predictable discount to NAB. It might be spread over 24 months or something like that, but that would b…

AI assessment note: “I actually think you could structure a fund vehicle that has a defined secondary option”

Q I do want to start this day on the venture industry itself there, as you touched upon, a business that, as you've said before, is the same as the movie business. So I'm too intrigued. What makes you draw this alignment, and where do you see the similarities?

A I think the similarities are obvious. All of us, you know, in the early stage of venture business spend our time really thinking about talent, and we, we, we could just as easily be talking about, you know, leading actors. I mean, we're looking for massively talented people who can play a leading role in a market story that's going to develop, and we are frankly functioning as the producers. We are, we're sitting there trying to bring it all together. A great product team, a superstar CEO who can really be our headliner. And when it all begins to work, the market takes it up and runs with it, just like a blockbuster hit. I use that analogy because it captures, I think, our frankly obsessive focus on talent. Understanding talent in the market in which we principally invest here in New York is super important. Understanding where people are in their life journey and in their career journey. Are they really ready to commit the 80 to a hundred hours a week for four to five years that it really takes to build a company? Have they done enough earlier in their life, or are they too far along in their career to be that person that can, can build a company? And I think the analogies are really strong to, to, to finding the right role for the right actor at a certain point in their career.

AI assessment note: “we're looking for massively talented people who can play a leading role”

Q ask, how do you look to determine that when kind of assessing a founder and their ability, whether it be timing, To put in those 80 to a hundred hours, or whether it be skill, how do you really kind of stress test that founder? Is it the case of kind of nine months of getting to know them? Are there questions that can tease out those kind of abilities?

A Well, look, I mean, in the best case, we get to watch, because nothing is, is more informative than just watching execution. In other senses, though, I mean, we focus in on just trying to understand the challenges that that person has had to overcome in their life, and I think we see a pattern of Great entrepreneurs generally didn't have it easy in whatever they were doing before they founded a company. They might have come from pretty modest circumstances, or they might have come to this country, uh, with, with little in the way of resources and had to make their way. They might have struggled with a learning disability. They might have had, frankly, a contentious relationship with, uh, a prior boss or, or colleagues. We, we look for people who have almost strong Survival skills and leadership skills who can apply the things that they've learned in other periods to growing something great. We look for people who are intensely commercially driven, but also, frankly, pretty idealistic in wanting to build something that matters in the world.

AI assessment note: “we focus in on just trying to understand the challenges that that person has had to overcome”

Q Can I ask, where do you draw the line? It's always a really good question for me when thinking about idealism, and just where do you draw the line between vision and kind of idealistic, and then stubborn?

A Well, I think you draw the line by looking at their pragmatism. You draw the line, and I think the best entrepreneurs are able to take people up the mountain with them and show them the view way off into the distance. The best entrepreneurs are able to persuade people of a vision for a changing world, and the people that they're persuading are people who are going to work for them, who are going to buy products from them, and who are going to invest in them. But you have to be able to see in that person the ability to focus in and make hard choices and simplify things in order to get them done. And you look for evidence of both, I guess, is all I can say.

AI assessment note: “I think you draw the line by looking at their pragmatism.”

Q Can I ask, what are the barriers then to implementing really quite a radical change like this?

A Well, I, I think there are, there are cultural barriers because the, the venture industry has sort of, has gotten used to having capital pretty locked up. And to having controls over the unlocking of that capital. And so it takes a forward-looking group of GPs for starters. It takes a group of LPs who are willing to really, frankly, play a role in designing that fund structure. And most of all, it takes a secondary buyer who's willing to sign up for a portion of that obligation. And I think when I watch the best secondary buyers in action, um, they're very efficient. They move with great Speed, and many of them have the scale to support a structure like this. It's something that I've toyed with for a long time, and I think that it may be something we explore even in the future, but those three constituencies have to come together.

AI assessment note: “I think there are, there are cultural barriers because the, the venture industry”

Q There was another element that I wanted to pick up on it. It was the pressure with regards to the IRR that potentially GPs can feel. I'm intrigued. Do you ever feel this pressure yourself, and how do you look to instill discipline around the cadence of investments that you make, and how do you think about that?

A Well, so I think that diversification by time is, is one of the most important instruments, uh, that, that we have as investors. And it's actually crucial that in composing a fund, it's not heavily concentrated in a single time period, just as you don't want it to be concentrated in a single sector or a single stage or that sort of thing. And, uh, you know, within the boundaries of being an active early stage lead investor. So diversification by time matters, but once you get out beyond an initial investment period of, say, four years, you create other problems for yourself, because the Series A deal that you do in year four of a fund that takes, let's say, you know, best case, six to seven years to, to realize, well, you're already into the first year of your fund extension, and in all likelihood, you're going to go further out than that. And all of that is going to weigh heavily on the IRR of the fund. I know that my LPs want to see two things in the first few years of the fund. They want to see early liquidity. They want to see us get well up into double digits in terms of net IRR. And there is that pressure to, frankly, produce performance early in the life of the fund so that everyone can look at it and say, well, gee, it looks good. It's early days, but it looks good. It's early days, but it's even kicked out a bit of liquidity already. You can't manage a venture portfoli…

AI assessment note: “there is that pressure to, frankly, produce performance early in the life of the fund”