Oct 16, 2024 · 53m · sourcery
Inside VC’s Existential Crisis: Jeff Morris Jr. on Surviving & Winning · Sourcery with Molly O'Shea
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Sourcery, host Molly O'Shea speaks with Jeff Morris Jr., General Partner at Chapter One, about the impending shakeout facing emerging venture capital funds, product-driven VC firm strategies, and the strategic advantages of building tech companies in Los Angeles.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Molly holds 21.5% of the talking time here. How this is scored →
Molly as informed peer 3.6 Guest teaching 3.1 Guest disagreement 0.9 Molly pushing back 0.1
speaking balance: gold is Molly, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 47:15 Pushing back against the narrative that SaaS is dead
Jeff explicitly rejects popular contrarian VC takes like Chamath's claim that 90% of SaaS companies will easily be replaced by AI code generators.
Hardest push from Molly ▶ 20:54 Molly challenging market estimates with NVCA dataMolly brings detailed NVCA and PitchBook data to challenge vague perceptions of industry contraction, asking Jeff to reconcile reported figures with on-the-ground reality.
Biggest teaching moment ▶ 7:23 Defining emerging manager graduation by DPI returnJeff reframes Molly's question on fund definitions by quoting Roger Ehrenberg's precise criterion that a firm ceases to be an emerging manager only after returning 1x DPI on all raised capital.
Molly holds their own ▶ 51:26 Molly detailing the perils of SF herd mentality and group chatsMolly demonstrates firsthand knowledge of venture hubs, citing Trey Stevens on sheep behavior to explain the analytical edge of investing from outside Silicon Valley.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Molly as informed peer | Guest teaching | Guest disagreement | Molly pushing back | Why |
|---|---|---|---|---|---|---|
| The Emerging Fund Consolidation Thesis | 4 | 3 | 1 | 0 | Molly opens by referencing Jeff's viral tweet about venture fund consolidation and asks about his findings. Jeff elaborates on background conversations with LPs and industry predictions like Josh Wolfe's. | |
| Institutional vs. Non-Institutional LPs & DPI Pressures | 3 | 4 | 1 | 0 | Molly prompts Jeff on insights from institutional LPs like Beezer at Sapphire. Jeff explains the divide between institutionally backed funds and non-institutional managers struggling with DPI. | |
| Defining the "Emerging Manager" Paradigm | 4 | 4 | 1 | 0 | Molly asks Jeff to define an emerging manager by vintage, fund size, or metrics. Jeff provides definitions including returning 1x DPI and candidly breaks down the harsh market realities for fund 1 and fund 2 managers. | |
| Partner Spin-Outs and Emerging Fund Mergers | 4 | 3 | 1 | 0 | Molly asks for specific examples of fund mergers or partner spin-outs. Jeff details recent high-profile partnerships formed by former multi-stage VCs. | |
| Sponsor Segment: Archer Aviation eVTOL | 0 | 0 | 0 | 0 | Molly reads a mid-roll advertisement for Archer Aviation followed by Jeff finishing his prior thought on firm consolidation examples. | |
| Structuring Venture Mergers, Incentives, and LP Dynamics | 4 | 3 | 1 | 0 | Molly asks about how venture mergers and carry structures work mechanically. Jeff walks through the economic realities, carry-sharing splits, and LP complications. | |
| VC Market Statistics & The Reality of Silent Fund Wind-Downs | 6 | 3 | 1 | 1 | Molly cites specific NVCA 2023 industry headcount and fund data to ground the discussion. Jeff validates the directional trend while explaining that funds rarely shut down publicly but rather slowly wind down. | |
| Predicted Non-Institutional Shakeout & Career Opportunity Costs | 3 | 4 | 1 | 0 | Molly asks where fund counts will normalize post-downturn. Jeff projects over 40% of non-institutional managers will fail to raise subsequent funds due to opportunity costs and life stage shifts. | |
| The Relevance Crisis in Early-Stage Venture Capital | 4 | 4 | 1 | 0 | Molly asks about the single biggest limiting factor for growing fund managers. Jeff argues that maintaining relevance amid fast technological shifts is the core struggle for small teams. | |
| Strategic Advice: Introspection & Product-Market Fit for Funds | 4 | 4 | 1 | 0 | Molly questions what busywork managers should eliminate versus what is essential. Jeff stresses deep introspection, warning that VCs hypocritically demand PMF from founders while ignoring it in their own funds. | |
| Time Allocation & Strategy Evolution as a GP | 3 | 3 | 1 | 0 | Molly asks Jeff how he splits his time as a solo GP. Jeff outlines how his strategy evolved from a high-volume access model in Fund 1 to a concentrated 1-2 deals per quarter approach. | |
| Chapter One's Product-Driven Strategy & Internal Software Tools | 3 | 3 | 0 | 0 | Molly inquires about Chapter One's incubation and building efforts. Jeff explains their internal LLM tools and software applications created to support sourcing and operations. | |
| Product Development Principles: Consumer vs. B2B Enterprise AI | 4 | 3 | 2 | 0 | Molly asks for product development principles. Jeff draws contrasts between fast consumer iteration and enterprise AI retention, also pushing back against Chamath's SaaS replacement theory. | |
| The Bull Case for the Los Angeles Tech Ecosystem | 5 | 2 | 1 | 0 | Molly asks about Jeff's bull case for Los Angeles. Both exchange notes on the distinct advantages of being outside Bay Area groupthink while staying connected to deep tech and consumer hubs. |
Statements from this episode (16)
Josh Wolfe predicts 30% to 50% of VC firms will shut down
“Josh Wolf at Lux Capital wrote his quarterly letter and he predicted that 30 to 50% of venture firms would cease to exist.”
Roger Ehrenberg: Emerging managers graduate after returning 1x DPI on all capital
“I've heard like, I think it was Roger Enberg defined it as any fund that's returned one X DPI on all capital they've raised to date. And so you stop Being in an emerging manager, when you actually return every single dollar you've raised, you distribute back t…”
LPs no longer accept TVPI multiples and strictly demand DPI
“No longer do you walk into a pitch meeting and show your multiple and invested capital and, or even like TVPI, like you have to like, just show DPI and be really clear what that number is.”
Post-2023 emerging VC managers hold a distinct advantage over older vintages
“There are emerging managers who are coming to market with new funds, so call it Like a 20, 23 plus emerging manager who I think has the benefit of not getting caught up in what was, what's been a really challenging market cycle. And so if you're just starting …”
Large VC platforms are freezing hiring and seeing investors depart
“A lot of the larger venture platforms are, they're not hiring huge amounts of investors right now. And in fact, a lot of folks are leaving those platforms.”
Kurzweil, Shen, and Goldberg left top VC platforms to form a partnership
“The recent examples I think are most interesting would be like Ethan from Bessemer, Christina Shen from Andreessen Horwitz, and Mark Goldberg from Index Ventures joining, leaving those large platforms to form like a real partnership, right?”
Social Capital previously attempted and failed to merge with Kleiner Perkins
“There's one point where social capital tried to join Kleiner Perkins for a variety of reasons that didn't work. Mamoon ended up joining Kleiner and is now managing the fund.”
A major multi-stage VC platform attempted to acquire Chapter One
“Call it with them in the past three years. We've been approached by at least one major multi-stage platform to be their seed fund, which for a variety of reasons, we just didn't happen.”
Acquired GPs surrender up to half their carry to multi-stage VC platforms
“So they're all their fund vehicles, you'd get exposure to, and you'd be giving up some amount of your carry, probably a significant amount, maybe up to like half Your upside to that platform.”
Data shows only 17% of venture capital funds survive to Fund IV
“At least like the data I've seen is only 17% of venture funds make it to fund four.”
Jeff Morris Jr. predicts 40%+ of non-institutional VCs will fail to raise
“Non-institutional venture funds. I think the majority of them call it, I think that 40% number is, would be on the lower end of people who I think won't be raising additional funds in, in the next cycle.”
Chapter One built ten internal software tools and is incubating two startups
“So we're incubating two companies right now which is awesome. And then we build a lot of internal software. And so we, we've built probably like 10 like real products internally that make our lives easier across every category of fund management. So sourcing, …”
Chapter One is incubating a dating startup expected to make global news
“The second idea is going to be a venture scale company and it's within, without saying too much, it's within the dating category. And so we, again, feel like we're like uniquely qualified to do this. But we think it's, when we announce it, we think this is goi…”
Many B2B AI startups are stalling at $1 million to $3 million ARR
“We're seeing a lot of teams get stuck in like the one to three million dollar AR range. And that's harder because now you have customers in revenue and you don't have like the freedom to just completely like walk away from that, those relationships.”
Deep vertical software will survive displacement by AI large language models
“If you get within these like deep vertical workflows and very industry specific software will persist and ultimately it's hard to compete with if you're just trying to use large language models or code generators to try and compete. Like I think, I still think…”