The Exchanges

Q back in May, you mentioned writing an article about emerging fund consolidation. In this tweet, you bucketed out into like three different items. So you said this could entail merging with other emerging funds, merging with other large platforms, and well, shutting down. So based on that and the time between it all, uh, Where are you at with the article and what gave you inklings of this potential behavior?

A Yeah, I kind of put it out there. Like sometimes I'll tweet things to see if there's general interest, like kind of like MVP and the idea of writing an article by just tweeting it out. And if people are interested enough, I'll actually write the article. But the general idea was that, um, you know, I'm hanging out with the merchant managers all day long and what's happening kind of in background conversations, I think is, um, a lot of A lot of uncertainty that the market, I think generally knows there, there will be a shakeup. Like that's pretty obvious at this point, but the extent of what that might look like and also the options for GPs, I think are things that people should talk more about. And that if we were to speak as freely about venture funds, as we do startups, like, and viewed that conversation as being okay, that I think it would, it would help LPs and GPs understand the dynamics heading into not only 20, 24, but kind of like the next cycle of, of venture capital, because it's pretty clear, like the world's changed quite a bit. And so I think the, Since I tweeted that article, there's been, even the past two weeks, some pretty interesting ideas that have, that have come out. One was, um, Josh Wolf at Lux Capital wrote his quarterly letter and he predicted that 30 to 50% of venture firms would, um, cease to exist. And then Rick Zulo at Equal Ventures, who's a friend…

AI assessment note: “in terms of where I am with The article, I'm, I'm making a ton of progress”

Q Got it. And maybe before we dive into some more questions on this, it would be good to define what an emerging manager is. So do you mean emerging manager by the Size of the fund by, you know, how many years, the vintage, how are you defining it?

A Yeah, it's actually a really good question because I don't think there's a industry definition. You know, I kind of think of it as being personally just like without applying too many guardrails, think of it as being a fund that was started in the last five years. That's probably on their second to third fund. Um, there's better definitions to be clear. And so 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, you stop Being in an emerging manager, when you actually return every single dollar you've raised, you distribute back to your LPs, then you've graduated from emerging manager status. I don't know if that definition is what everyone thinks of, but it was just a way to apply some metrics to, to the idea of it. I think it's, for me, it's a newer venture fund that has come to market in the past five years. That's trying to become franchise. And so like, ultimately, I think that's the goal. If you're studying a firm is to, to really build a sustainable franchise and There's some point where that becomes a reality, and until you find that level of kind of business stability through your LP base and through kind of that foundation, you're, you're not, you're not quite there as a, as a franchise.

AI assessment note: “think of it as being a fund that was started in the last five years”

Q would work. So how would you structure something like that? How do you manage the incentives? Obviously as a solo GP, you have lots of carry, you have so much opportunity, you know, you have like pretty much like uncapped upside and then face music one way or another. How would you kind of mesh those incentives together, whether it's compensation or the actual culture and that kind of thing?

A Yeah, I think, I think like the longterm solution would be you would just eventually like effectively shut down whatever venture fund was being acquired and be a part of that platform in terms of where like it would start. It'd be more like it would look more on the surface, like a partnership with some shared carry and, and, and upside for the, GP who's being acquired within that multi-stage funds broader platform. So they're, um, 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. Um, but I think it's, I think these were just creative ways, uh, for larger platforms to explore expanding their. Reach in teams. Especially in 20, 21, there was an arms race to grow amongst multi-stage funds. I think that was what was driving some of these conversations, but the structural piece is very hard to get right. And I think the harder piece to If you're managing a, uh, existing LP base would be to go to those LPs and get them really excited about, at least in the current fund, that being a great outcome for them, because if you're going through some M&A, effectively like an M&A process or some partnership with another venture fund and trying to deploy your fund, like something's probably gonna, gonna give, and you might also be, you might be tempted to, to deplo…

AI assessment note: “shared carry and, and, and upside for the, GP who's being acquired”

Q So we're going to end with LA. Jeff, how did you end up growing the fund in LA and what's your bull case? for venture here.

A Yeah, it was all like kind of an accident, but it wasn't like, hey, we want to build an LA venture fund. I had moved on here in 2015 when I joined Tinder and we started the fund in 2019. Actually, I was very close to moving back to the Bay Area because I grew up in the Menlo Park area, spent a lot of time in San Francisco as an operator. 2020 2021 happened and it was pretty clear that you didn't need to move back. We kind of, we built our team actually more distributed. So I have an investor, investor in London as part of our team, New York. So we're actually not a full LA venture fund. Why do I like to be here? Because I always like to be slightly outside the bubble. I grew up in the various, so I go up there a lot. My family still lives there, but I think it's really healthy to be in like the second or third market and still be a plane ride away because if, if two thirds of VCs live in Liberia. You kind of see, at least I see a lot of them competing for the same things and being in Los Angeles, like I just tend to like play a completely different game. It's not an LA only approach, but if you look at what's going on down here within deep tech space, gaming, consumer with folks like Tinder and Snap, like those networks, it's pretty clear there's huge venture scale companies and networks that really matter. So like The space X network, like those people aren't just leaving Los …

AI assessment note: “if you look at what's going on down here within deep tech space, gaming, consumer”

Q What do you think that fund managers think they need to do versus what do you think they actually might not have to do or change at all within their fund or thesis? Maybe this is an extension to the relevance point, but I'm just really curious, like, what do you think is like actually necessary and what do you think is garbage and people spend too much energy on?

A Yeah, I think, I think people aren't introspective enough in trying to figure out what makes them uniquely different within Our industry and there's a temptation to just like open up your computer and try and like pound through the day with the most number of articles, the most number of tweets and the most founder calls or trying to source as many LPs as possible. What's I think really important right now is to ask yourself like the deep existential questions around why you should exist within this industry and what makes your product uniquely different from Everybody else's. And if you can't answer that question, then you need to, to go back to the drawing board until that's answered. Because the, I think what we're, what we've seen is just a lot of like sameness and similar strategies amongst emerging managers based on, I think probably like things that mattered in 2019 that don't matter as much today. And so, um, I kind of think of every, every fund as being like a new record that you're releasing and like, Your next record better not suck because we all know what happens to musicians when, when they release a bad album. You're, you're, it's okay to, to evolve and hopefully not entirely reinvent yourself, but it's okay to evolve and try different things with each fun. And in fact, I'd say if you're not evolving, like you're probably not doing a great job. So again, I think,…

AI assessment note: “temptation to just like open up your computer and try and like pound through the day”

Q That's sick. Can I be a beta user? Like how do I get in on this?

A Yeah. I kind of joke to Jameson, like we should just release it. Um, so like our whole, or what we want to do for marketing is not to be writing the most tweets. It's just to release software and products and be Again, like the question of relevance, it's like, nobody cares what you did five years ago. Like, which is, you know, like I say that with a lot of self-awareness, like the fact that you worked at Twitter or Tinder or wherever else, like that starts to matter less and less over time. What matters is like, what are you building today? And are you, are you aware of like the latest tooling and what's going on? And are you building things that people today find cool? And so that's, that was something we've Come together and talk about a lot. It's like, Hey, it's awesome that we helped build these large consumer companies, but like, stop talking about it and go, go build, like go build the next thing. Right. And it doesn't have to be like a huge, a huge public company. It's just like little projects that, that keep you sharp and keep you top of mind.

AI assessment note: “I kind of joke to Jameson, like we should just release it.”