The Wisdom Wall
12 quotable lessons, heuristics and mental models. Every one is playable at the moment it was said. No fortune cookies allowed.
“Essentially, money managers sell diversification as a way to, uh, increase their own importance and also to, to increase fees, some would argue.”
“venture capital is also the worst asset class on the planet as well. Uh, there's not many funds where you can invest and you could lose money or, or lose like half your money. So venture capital is all about getting into the top, top quartile and getting to those top opportunities.”
“Power laws pretty much end at about a hundred million dollar valuation, right? Uh, depending on obviously like whether stuff will expand, you can't, you can't invest out a five hundred million dollar valuation, get a thousand X. It's just the math. Math doesn't work”
“One of the paradoxes of asset management is that as your fund scales, you actually become more attractive to the majority of capital in the markets, not the majority of LPs, but the majority of capital, and you start to get phone calls from people like CalPERS.”
“A lot of people say, you don't know until year 15 whether you're good at VC. That's completely idiotic because you obviously have people marking you up. Once you get to a series B, you could sell via secondary. So whether or not you choose to sell does not mean that that asset isn't worth anything.”
“So I think DPI is important. And DPI is kind of like ground truth. Like it's an equalizer. You could be the worst marketer in the world, but eventually like your DPI will catch up. Right? So it is a great equalizer is the most empirical fact, but it is a highly lagging indicator.”
“I think you sell 10, 10, 15, 20%. A lot of LGPs get short-term greedy. They're like, well, I wanted to let it ride and get more carry. Well, first of all, I could go down to zero. But secondly, if they're really thinking, you know, strategically, that DPI will help them raise their next fund.”
“I don't actually recommend 10. I think 15 is a good number.”
“If you have a portfolio of 25 in your, let's say, ten million dollar solo GP, the odds of you being a three X fund are high, if you're competent. Uh, the odds of you being a 20 X fund are low.”
“One thing that is probably the most found foundational part about the venture capital ecosystem is venture capital is truly an access class, not an asset class.”
“One key thing is to always be in the market, always be time diversified. And there's a very actionable way to do that, which is you make sure you invest in six to seven year increments. So you're putting in a sixth of your money every year, um, to make sure that your time diversified.”
“What's kind of crazy about VC is that you don't really know until fund four. Why is that? Because you typically are raising in two, three year increments. So you don't really know. You don't really have DPI until let's say fund three. So you don't know. You don't actually have the returns data.”