The Ledger
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Douvos: Opportunity funds are a sneaky workaround to LP fund-size limits
“Now we've just started calling them opportunity funds, which by the way is just a sneaky way around the issue of my LPs don't want me to get too big. So I'll leave my core fund the same size, but I'll raise this opportunity fund.”
Douvos: Long venture horizons make lucky investors think they are smart
“That's the thing that's crazy about venture. It's like, you have a whole community of people who've been lucky who think they're really smart and the evaluation horizons are so long. There's like no feedback.”
AngelList's high-volume seed indexing strategy functions like buying lottery tickets
“Portfolio construction is an underappreciated yet important art, but a lot of the new entrants just want to buy lottery tickets, and then you, everybody bows at the altar of power law, and you've got AngelList putting out reports saying the secret is to invest…”
Douvos Would Short Stanford University Due to Overhyped Entrepreneur Perceptions
“By the way, if I could short Stanford, I would. It's a fantastic place, but talk about perception, you know, kind of all those entrepreneurs coming out of there that are so have very full perceptions themselves.”
Large Venture Capital Funds Benefit Their Partners More Than Their Investors
“So, like I said, those funds will continue to do well, but some of the venture funds that we've seen grow quite large end up doing much better for their partners than they do for their investors.”
Douvos: Core and opportunity fund conflicts will anger LPs during downturns
“What we saw in 2002 1001, 2002 is all of a sudden you find these companies that have like these distressed fundraisers and you actually find the same fund owning two different securities, which may be in conflict with each other. And maybe one fund has capital…”
Douvos: Mega-funds must deploy dry powder to unlock raising next funds
“Like they have whole business models that are predicated on raising, you know, kind of spinning that black circle over and over and over. Other people's money, OPM, it's a hell of a drug. And so I think they've got to deploy that capital because it's a gating …”
Seed investors should price rounds rather than using small-discount SAFEs
“It used to be 20%. Now we're hearing about a lot of 15% discount saves, and it's like, holy smokes, you're putting the riskiest dollars that are ever going to go into that company in for a very modest return. Now you're on the cap table, and you can put more m…”
Tiger Global's 48-hour checks stem from deep prepared-mind diligence, not recklessness
“As you kind of go into the later stage, it's interesting because one thing that we've seen with Tiger, for example, Tiger doesn't take board seats. They don't care about operations. They're just extremely good at diligence. They're extremely good at prepared m…”
The belief that $400M+ funds cannot generate venture returns is disproven
“Put me in this like very rigid mindset that fund size really matters and that size is the enemy of performance and there was no way you could generate venture multiples with funds that were over 304 hundred million dollars and that has been completely disprove…”
Time Horizon Is the Only Durable Risk Premium Left in Investing
“He said that all of the risk premia have been arbitraged away, except for one. He said, horizon. People just need cash sooner. And by being a long-term liquidity provider, you know, if we can be, he, I think his phrase is BLT investor, if we can be a beyond th…”
Elite VC Mega-Funds Trigger Copycat Fund Bloat Across the Industry
“So Sequoia goes out and raises four billion dollars, and then, you know, Billy Bob Joe's venture firm thinks they can raise four billion dollars, and by the way, there's a lot of money coming to the asset class that, that they can. So, you know, this kind of v…”
Cambridge Associates Study: Over Half of Top Venture Funds Are Funds I-III
“Hambridge Associates did a study, and they looked at post-two thousand venture funds. The cohort of top 10 funds in each vintage year, typically more than half were funds with a Roman numeral lower than Roman numeral three.”
Private Startups Are Valued Higher Than They Would Be in Public Markets
“End buyers, i.e. The acquirers or public markets, haven't, you know, been as forceful with enforcing price discipline, and so you have this inversion where, like, public, private companies are worth much more than they'd be worth in the public markets.”
Taking Venture Capital Makes the VC's Business Model Your Business Model
“Once you take venture capital, the venture capitalist business model is your business model. You've got to get liquid at a number that makes sense for them.”
Excessively High Valuations Limit Startup Exit Options and Cause Self-Inflicted Downfalls
“When you have a high valuation, it starts to limit your options. And I think we're starting to see companies that were highly valued, that had a moment where they could have been acquired or gone public if they were, you know, less richly valued, but that mome…”
30% Carried Interest Above a 3x Hurdle Has Become Standard in VC
“In fact, what you're seeing is a lot of people are now kind of going to higher carries after hurdles. So there'll be a 20 carry up to a two and a half or three X, and then it'll kick up to a 30 carry. And I fought that for a while, and it, you know, it's sort …”
Sequoia Rejected Princeton's Endowment Lawyers' Document Comments in 2003 Fund Raise
“When I was at Princeton, Sequoia raised a fund in 2003, and they sent, Docs around, and we were very diligent. We sent our docs out to our law firm, and they came back with, like, three pages of comments, and we sent them to Sequoia, and we got a call from the…”
Douvos: Venture risk premium may just be a horizon premium
“Maybe the risk premia all arises from the horizon premium, which is just like being able to take a longer term bet than the next guy.”
Douvos: Venture works best when capital is expensive and time is cheap
“Venture works really well when capital is expensive and time is cheap. When time gets dear and capital gets cheap, watch out.”
Douvos: Casual seed-stage funds flooded venture and wrecked pricing
“And I think those guys had a really deleterious effect on the market because the marginal dollar sets the price. And so we had all these marginal dollars flooding the ecosystem and quite frankly wrecking it.”
Douvos: Three LPs will replace every allocator exiting mediocre VC brands
“And I think for every person that steps away, there'll be three that raise their hand for anything with even a mediocre brand.”
Expanding startup TAMs almost justify elevated seed round valuations
“The opportunity that startups are targeting, it pains me to say this, but almost does justify some of the valuations that we're seeing in that seed round.”
The barriers to raising a venture capital fund are near zero
“The barriers to raising a fund have gone to zero.”
Active venture capital fund entities have quadrupled from 1,000 to 4,000
“Samir over, he's running his own shop now, but when he was at First Republic, he used to track the number of funds that were out in the market. And it used to be A thousand. Like, that was always the number. Like, NVCA, National Venture Capital Association, al…”
Multi-stage venture firms investing at seed are essentially buying option portfolios
“In venture, what we're doing is we're already buying long dated way out of the money options. And by investing in the seed stage, a lot of these guys, whether they admit it or not, are basically buying option portfolios”
Subscale solo GPs face severe cram-down risks in a market downturn
“I've always worried that the solo GPs with subscale funds would run up against this constraint if the market ever turned and the later stage guys started getting more aggressive. They'd get crammed down and kicked to common and all that stuff. And so I've stay…”
Mid-level engineers at Microsoft are making $1 million in total compensation
“I was just on a call where somebody was talking about mid-level, not even senior engineers at Microsoft are making a million dollars.”
Frontier tech startups attract passionate talent more effectively than enterprise SaaS
“So in my own personal investing, It's caused me to double down on people who are working on really interesting and challenging projects, because I think it's better to find great talent for people who are working on something on the frontier, where you've got …”
Larger exit outcomes and markets justify higher startup valuations despite inflation
“The exits are so much bigger today, the markets are so much bigger, and there's a lot of opportunity, I think, that justifies these bigger valuations, even in the context of this inflation.”
The best late-stage venture investors are stock pickers, not operational helpers
“Where historically a lot of people, because I think somebody told them at some point LPs love it when you say, you know, your value add, but the reality of it is the best late stage investors have always been good stock pickers.”
The transition to Web3 will play out over decades
“And that transition to Web three is probably going to play out over the course of the rest of my career, if not my lifetime. Crypto will be an important part of that, and you just can't ignore it.”
Venture capital returns inherently carry massive public market beta through exits
“Everything eventually has to exit, and either you're going public or you're selling to somebody who's got an inflated or deflated public currency, the amount of beta as a result is huge.”
Taking a startup from zero to one represents pure alpha
“The thing that has always attracted me to the seed stage has been that there's no beta in going from zero to one. That's all alpha.”
Venture dry powder will support top startups even in a 40% downturn
“In the venture world, we've got an incredible overhang of capital. And a lot of new entrants who are here for good, and even if tomorrow the market went down 40%, you still have an incredible amount of dry powder ready to support the best companies.”
LPs cannot build real conviction picking emerging managers at showcase conferences
“I don't understand, by the way, how people who are building new programs today, and they fly out from Ottumwa, Iowa, and go to the Raise Conference, which is one of the big showcases of emerging managers, and make bets. I don't understand how you can do that w…”
Formal venture training carries far more weight than an AngelList track record
“Everybody's got an angel-less track record today, but I'm talking like formal investor training. So I love introducing people like, I mentioned, you know, Ross Fabini, who spent, you know, years with Canaan Ventures, or Sunil Nagaraj, who launched Ubiquity aft…”
Touting $25K angel checks in consensus hot companies shows zero value proposition
“The thing that kills me dead, and this is a work one, is when I meet with folks, and they tell me about what a good investor they're in, because they're in companies A, B, and C, and the number of times that I hear, literally in the course of a week, the same …”
Hedge Funds Divide the Pie While Venture Capital Expands It
“In hedge funds, with all due respect, it feels like we're just fighting over how big our slice of a pie is gonna be, whereas in private equity and venture especially, it feels like we're growing the pie.”
Top University Mega-Endowments Continue Outperforming Despite Multi-Billion Dollar Size
“But you look at, kind of, what Princeton and Yale and, you know, Northwestern's ten billion dollars, Stanford's twenty billion dollars, you know, these guys continue to put up great numbers At very large sizes, we always thought size was the enemy of performan…”
Asking Sand Hill Road for VC Recommendations Yields Warmed-Over Conventional Wisdom
“The way most people do diligence is they run up and down Sand Hill Road, and they say, hey, Mike Moritz, who's good? Hey, John Doerr, who's good today? And you're just getting this warmed over conventional wisdom with sometimes a healthy, you know, dose of pol…”
Volatility Is a Misspecified Measure of Venture Capital Risk
“There's a whole riff I can go on about how that completely is a misspecified measure of risk, even in public stuff, but especially in private stuff, not only with stale prices, but like, when I think about the startups that I invest in, not only do we have, li…”
Venture Bubbles Occur When Time Is Scarce and Capital Is Cheap
“When venture's working really well, time is really cheap and capital is really expensive. He says what happens in bubbles is that time becomes really scarce and expensive. People don't have any time. And as a result, their capital becomes cheap.”
Venture Capital Returns Cannot Be Meaningfully Risk-Adjusted
“The risks are so high as to be almost infinite, so you can't risk-adjust it. You can maybe time-adjust it, slash duration-adjust it, but that's nothing.”
Returning a $500M VC Fund Requires Generating $15B in Enterprise Value
“So, if you look at the ownership for a firm that owns on average 10% at exit, they've got to return 15, one five billion dollars. They've got to create fifteen billion dollars in enterprise value to get a billion and a half in returns, right?”
Fund III Is the Optimal Venture Fund Because Hunger Meets Experience
“I've always had this hypothesis that fund three is like the optimal fund. It's where, you know, hunger and experience intersect.”
Making Small Exploratory LP Commitments Is De-Worsification, Not True Diversification
“We shouldn't pick and choose among our managers. Once we decide to hire them, the bar is so high that we should hit them hard. We shouldn't take these, like, little, you know, hesitation marks, right? Like, I know a lot of people are like, oh, I'll throw a mil…”