Jul 13, 2023 · 44m · capital-allocators
Ravi Viswanathan – Venture Secondaries and Growth Capital at NewView (EP.327)
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In this episode of Capital Allocators, host Ted Seides interviews Ravi Viswanathan, founder and managing partner of NewView Capital, exploring the expanding market for venture secondaries and growth equity. Viswanathan breaks down NewView's hybrid model combining direct investing and secondary portfolio acquisitions, disciplined valuation underwriting, and operational company building across market cycles.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 16.2% of the talking time here. How this is scored →
Ted as informed peer 4.7 Guest teaching 4.6 Guest disagreement 0.6 Ted pushing back 0.5
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 27:40 Avoiding the 100x ARR club
Ravi emphatically explains why NewView refuses to bid with insulting 80% discounts on absurd 2021-era 100x ARR valuations, dismissing unreasonable seller expectations.
Hardest push from Ted ▶ 11:31 Ted questioning external spin-outs vs. internal retentionTed directly presses Ravi on why NEA would choose to spin out valuable portfolio companies rather than dedicating internal resources to maximize returns.
Biggest teaching moment ▶ 29:10 The fallacy of secondary discountsRavi educates Ted and listeners on why secondary discount percentages in venture are illusory compared to private equity, emphasizing baseline valuation dates and intrinsic cash flow fundamentals.
Ted holds their own ▶ 24:05 Ted highlighting non-standard venture risk profilesTed demonstrates deep allocator expertise by contrasting NewView's bounded 3-5x return underwriting with classic venture power-law distributions.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Overview of Guest Ravi Viswanathan and NewView Capital | 4 | 3 | 0 | 0 | Ted introduces the sponsored insight episode and prompts Ravi to detail his transition from material science into Goldman Sachs and NEA. Ravi provides an extensive career overview in a friendly, biographical tone. | |
| Lessons from the 2000 Dot-Com Bubble Downturn | 4 | 4 | 0 | 0 | Ted asks Ravi to revisit the 2000 dot-com crash and lessons learned across 15 years at NEA. Ravi educates listeners on how downturns serve as a referendum on product-market fit and the importance of active partner support. | |
| The Catalyst and Founding of NewView Capital | 4 | 5 | 0 | 0 | Ted inquires about the specific catalyst behind launching NewView Capital. Ravi explains the portfolio dynamics at NEA, the power law phenomenon, and the regulatory need for an RIA to execute secondary spin-outs. | |
| Strategic Spinning Out vs. Internal Fund Management | 6 | 5 | 1 | 2 | Ted probes why NEA decided to spin out these assets rather than internally dedicating resources to manage them. Ravi walks through firm ethos, VC power law incentives, and the massive underpenetrated market size of venture secondaries. | |
| Contrasting Buyout Secondaries with Venture Capital Culture | 5 | 6 | 1 | 0 | Ted asks why the venture secondary market is so much smaller than buyout secondaries. Ravi explains the historical IPO-or-bust VC mentality versus buyout's multi-stage handoff ecosystem. | |
| Handling LP Pushback and Discount Expectations | 5 | 5 | 1 | 1 | Ted asks about investor pushback during fund formation. Ravi details the challenge of educating LPs accustomed to distressed close-out discounts on pricing higher-quality growth assets. | |
| Differentiated Sourcing and Value-Add in a Crowded Market | 6 | 4 | 1 | 2 | Ted asks how NewView competes directly with established venture funds when their attention is split between direct investments and portfolio secondaries. Ravi highlights their artisanal, operator-led model and cap-table flexibility. | |
| The Sweet Spot: Post-Product-Market Fit and Scaling | 5 | 4 | 1 | 1 | Ted notes that NewView's target profile sounds distinct from standard venture power-law distributions. Ravi clarifies their 3-5x banded underwriting targets and focused ARR parameters ($10M to $50M). | |
| Structuring Tailored Portfolio Acquisitions with General Partners | 5 | 5 | 1 | 0 | Ted asks about competitive dynamics when bidding on venture portfolios. Ravi outlines the complexity of secondary transactions, including ROFRs, board alignment, and tailoring liquidity to GP-specific constraints. | |
| Valuation Discipline and Navigating the 100x ARR Legacy | 6 | 7 | 2 | 1 | Ted asks about pricing negotiations and the fallacy of discounts. Ravi breaks down why headline discounts in venture are meaningless without intrinsic valuation metrics, rejecting the legacy 100x ARR valuations. | |
| Operational Value Creation Across Direct and Secondary Assets | 5 | 5 | 0 | 0 | Ted explores how NewView works with companies operationally post-acquisition. Ravi explains why all their operating leaders are full equity partners with check-writing authority rather than advisory operating partners. | |
| Evolution of Portfolio Transactions Since the Initial NEA Deal | 4 | 4 | 0 | 0 | Ted asks Ravi to compare the outcome of the initial $1.3B NEA portfolio to subsequent transactions. Ravi explains how subsequent funds narrowed in scope to enterprise software and fintech. | |
| Multi-Faceted Exit Strategies Across Changing Market Cycles | 4 | 4 | 0 | 0 | Ted inquires about exit avenues across market cycles. Ravi outlines the emergence of private equity buyout buyers like Vista and Thoma Bravo alongside traditional IPO and secondary paths. | |
| Triaging Legacy Portfolios and Evaluating Product-Market Fit | 5 | 5 | 1 | 0 | Ted compares the current market to the 2000 tech downturn. Ravi describes his framework for triaging legacy investments and vetting new deals based on net retention, must-have durability, and CEO coachability. | |
| Building a Durable Institution: The Long-Term Vision for NewView | 3 | 3 | 0 | 0 | Ted asks about long-term goals for NewView. Ravi reflects on building an enduring multi-generational institution modeled after NEA. |
Statements from this episode (26)
Viswanathan: Venture secondaries market grew two orders of magnitude in 20 years
“If you fast forward 20 years, we spend a good chunk of our time focused in that market. It's changed in that it's probably two orders of magnitude larger in terms of market size.”
Downturns serve as referendums on startup product-market fit
“Saw a lot of business models that up until then was masked with capital, and that's something that every downturn is a referendum on product market fit. Whereas before, when you had that run-up, capital or some other factor masked that,”
VC generated 5x to 10x returns in two years during 1999
“I remember having conversations with folks and they thought, oh, if I invest in venture, I'll get a five to 10 X in two to three years, because in 1999, in the early part of 2000, that was actually happening.”
Investors must build a 'goodwill bank' to ask founders tough questions
“Building a relationship, coffees, dinners, lunches, whatever, with the CEO, with the management team, because what you're doing is you're building trust and respect, and you're building this goodwill bank such that when tough times happen, you have the agency …”
Venture-backed startups stay private 10 to 12 years, up from seven
“Companies, for sure, were staying private longer. Instead of seven, eight years, it was 10 to 12 years.”
Traditional venture capital operates on an 'IPO or bust' ethos
“Since the dawn of venture capital, it's been IPO or bust. You're going to have these, we call them needle movers, these iconic companies that really define venture capital and define venture capital firms. The quest is about that versus we've got really good c…”
Orphaned mid-stage portfolio companies represent a dislocation across the VC industry
“I tested this with a lot of my peers and found that this was not just unique to NIA. This was really, this dislocation was happening across venture, which also made sense.”
Private equity secondaries market penetration doubled to 2% over a decade
“In private equity, it's about two percent penetrated, and that's doubled in the last decade from one percent to two percent.”
Venture secondaries are only 0.3% penetrated, representing a $100B opportunity
“Venture is 0.3% penetrated. So in that market, our estimation, we've done some analysis, 50 to a hundred billion, just In what we're doing.”
Unlike VC, buyout private equity thrives on multi-tiered secondary sales
“On the flip side, if you go to the buyout world, it's this evolution of man, the lower middle market folks. Get companies, and they sell to the middle market folks, sell to the large cap folks, and you have that virtuous cycle. And actually, you have situation…”
Early venture secondary LPs expected steep discounts for high-quality assets
“Two pushbacks from new LPs. One, this was such a foreign concept. They'd never seen such a big venture secondary that wasn't a closeout fund or something else. That was one. The second is they were trading in discounts that were far greater than the discount f…”
NewView concentrates 80% to 90% of capital in B2B software
“I'd say 80, 90% of what we do is B to B software and fintech, which is where I grew up investing in.”
NewView primarily targets software companies with $10M to $50M in ARR
“The 10 to fifty million zip code in terms of ARR or scale is a sweet spot for us. I'd say half, if not more, of what we do is there.”
Scaling past $10M ARR requires replacing hero sales with operational machinery
“Where you really need to institutionalize. You're going from a hero sale to more systems and processes. You probably need a CRO or a COO. Need a lot more metrics focused, and you need that machinery and that instrumentation layer to get formed.”
NewView underwrites growth investments to 3x to 5x returns
“You underwrite to a three to five X. You have a lower loss ratio to compensate. Maybe the upside isn't as a true power law early stage franchise.”
Most NewView investments grow over 50% annually and remain unprofitable
“Most of our deals are well above 50%, many well of a hundred percent. Are unprofitable.”
NewView allocates 10% to 15% of its fund to early-stage bets
“Now, having said that we do leave, I'd say a small percent of our fund called 10 to 15%. We'll go early where it's a space we know really well, or a team we know really well, and we're willing to take that leap of faith and go earlier.”
CEO and board alignment is the best hedge against secondary friction
“What we try to do really is make sure we have a really good relationship with the CEO. It's blessed by the CEO. It's blessed by the board. They see the value add capabilities. And that is the best hedge against any friction in us being able to transact.”
NewView avoids bidding at 80% discounts to protect VC GP relationships
“We won't go and say, we'll do it at an 80% discount. It just doesn't make sense for us because we'd rather not engage on that particular company because it Could be insulting to the GP.”
A 5% secondary discount can be more valuable than a 50% discount
“Discount is important, but I can show you a five percent discount on a company that's far greater than a 50%.”
NewView Capital gives operator partners fiduciary and check-writing capability
“We have five partners. Three of them are operators. One finance, one product, one go to market, and they're not operating partners. They're full partners. They have fiduciary capability. They have check writing capability. They're fully integrated”
Traditional venture operating partners lack full status and check-writing power
“Probably the biggest difference is they're not full partners, and sometimes they're not in the full partner meetings, and they don't have the check writing capability in that if there's a follow-on or some financing, they have to go back to the partner group o…”
NewView Fund I comprised 31 companies acquired from NEA
“NewView one was 80% was 31 companies from one firm, NEA.”
Financial sponsor M&A will be a vibrant VC exit channel
“We've exited by financial sponsor M&A. That's going to be a very vibrant area over the next decade. And these folks like Vista, Tomo Bravo, and others are arming themselves with tens of billions.”
NewView manages structured tender processes for startup employee liquidity
“We've effectuated large tenders where you give liquidity to employees and we run that whole process. And then you can tack on early founders and angels and exited employees and all that.”
VC fundraising deadlines create a massive secondary market opportunity
“I would say that a real opportunity is just the explosion of venture firms realizing, okay, I have a fundraising calendar in 23 and 24. I need to do something about it, and that probably is the biggest opportunity, I would say, that's really emerged.”