SPEAKER_00: certain percentage of the fund needs to be accredited or qualified purchasers or even institutional capital meaning that non-accredited investors just get to co-invest alongside real

SPEAKER_02: institutional capital so i've never heard anybody is that your idea have you is that idea been

SPEAKER_03: floated before i think i've read that somewhere but yeah it's it's a pretty pretty straightforward

SPEAKER_02: i'm pretty well read on this and i've never heard anybody say the percentage of the fund should be let's say 50 non-accredited investors and then the rest could be equal i mean that actually does well no i think it's a good david rule because what it does is it says if half the fund is sophisticated the other half can be unsophisticated is what you're saying you know if half the funds are already rich the other half could be wanting to be rich this week in startups

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SPEAKER_03: to get a custom live demo welcome back to this week's liquidity podcast with me today i have matt mulvey from liquid 2. next we have jamie road from screen door of course we have jason calaganes from the launch fund i'm your moderator david weisberg co-founder of 10x capital we have a busy schedule today dpi is coming back to silicon valley our return of capital back to lps a new report breaks down demographic data on the backgrounds of unicorn founders and there's several surprising results and we dissect the trends for limited partners and how they are allocating to vc funds today and whether we expect that to continue in the latter half of 2024 let's dive right in after months of lps asking for returns their prayers have finally been answered one acquisition is wiz the ai company that is rumored to be acquired by google for 23 billion leading to significant dpi or distributed paid in capital or returned back to limited partners with funds such as sequoia returning 153.3 x on the original investment of 21 million dollars other firms also distributing capital back to lps include insight index green oaks lightspeed a16z and recent horowitz thrive and others on the heels of that distribution sequoia is also reporting that they're going to be acquiring back shares of stripe from lps that request liquidity in an unusual move for venture capitals uh where venture capital firm is itself buying shares back from limited partners uh this is another form of capital that's coming back to vcs jason what do you think about uh a is dpi back and b are we going to see novel ways that venture capital firms are going to be distributing capital back to lps

SPEAKER_04: yeah uh so good to be back i think this is like an incredible week uh for silicon valley and the the lps and uh gps in the wider industry because we have been waiting for distributions and for the last two or three years a lot of lps have been saying hey we could choose some dpi here because you guys keep raising funds we want to get you you know uh we want to hit our capital calls but you got to send some money back here and this two or three year pause um that we had since silicon coven and silicon valley bank went under uh and then you know all of this um high interest rate environment uh put the kibosh on exits and then of course you have lena khan and this administration not wanting any m a well here we go sequoia capital has their fingerprints on both of these fantastic good leadership from them i think looking at the whiz uh acquisition first i think is a good way to do this this is a four year old company uh as best i can tell and sequoia made this investment in 2020 so they have 153 acts according to this report uh or so maybe it's less maybe it's more who knows what the dilution is and the preference act but let's just say it's over well over 100 x in four years so let that sink in this isn't in 10 or 12 and

SPEAKER_19: stripe is now you know a pretty old company i'm not sure what year they're in but they're well over 10 years since the original investment it's at 14 now so this is an incredibly um juicy return in a short period of time even the irr for people who invested in may is going to be at 2x in four months or you know whenever this closes in under a year so you're looking at like a hundred percent plus uh irr right the the rate of return there so this is incredible and so i think maybe we should tackle the whiz story first with our panel and then we'll go to the sequoia uh stripe secondary purchase because that is very complicated as a whole nother series of talks but i guess jamie uh as an lp and and watching all this happen this is the outlier of the uh power law isn't it it is i mean this is validation as to why you

SPEAKER_23: need consistent vintage year exposure in venture and everyone claimed those prior years were fomo investing or a fake bull market but it shows that you can't really predict or market time tip typically it's a long feedback loop cycle sometimes you get very very lucky and maybe it's only four years i think it also goes to show that you know entry valuation that sequoia went into was 150 million which is pretty pricey for a seed but it goes back to the conversation of it's the first institutional round it's the cheapest entry point into the life cycle of a company so sometimes valuations can be very frothy or that's what you think but when you think about the exit potential and the expected value of exits that can make you adjust your thinking and make the investment worthwhile i think that's an

SPEAKER_19: incredible point jamie that this occurred in the vintage everybody said is going to be like the doa vintage like don't expect much from those four years and here we are yeah it's it's why from an

SPEAKER_23: allocator standpoint market timing is really really challenging i mean there's multiple studies out there that show about 90 of your return is driven by your asset allocation and so it's really really important if you're going to do venture to make sure that you have exposure to every vintage year because if you missed out on the whiz who knows what that 2020 return would be

SPEAKER_35: matthew your last yeah i think obviously this is what this is why we play the game of venture capital right i was surprised to see the company was founded in 2020 but um i think it's incredible

SPEAKER_36: it's a testament to obviously the the um the founding team there but also the opportunity that they were going after and the market size and the problems that they were going after i also love the the sequoia i think sequoia is being extremely creative it's not the first time they've been creative with dpi but i think as managers you have to be proactive with dpi and over the last you know 18 months two years that was a wake-up call uh and so i love seeing that i think they have set the standard for being proactive and always changing and and thinking about how they can be the best and so i i thought that was extremely innovative and the fact that they're not taking carried interest or at least that's what i read on that portion of the 800 million or so that they're going to buy back i think aligns extremely well with limited partners and is maybe something even uniquely a sequoia can do um and so i thought that was well done i have to tell you coming from a

SPEAKER_21: multi-asset class background reading that that reminded me of buyout i mean that that happens a

SPEAKER_23: lot of times in private equity land where newer funds by you know older portfolio companies so the existing lps and the older vehicles can get dpi agreed that i think it's positive that they're not

SPEAKER_41: taking carry on it it's just a parallel that i've seen in other asset classes if you use multiple

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SPEAKER_19: i i this was sort of a breaking news story but i was a little bit aware of it uh because i covered it on a previous episode but essentially what's happening here is there are people who are investors in stripe uh from sequoia uh at a uh you know in a time period i think maybe 2010 ish and it's obviously 14 years later they've been sitting for 14 years on this investment and they were told they had the best company after uber and before airbnb of that vintage yet they uh you know haven't had a ton of liquidity so uh it looks like sequoia with some of their other vehicles which might very much want to buy uh shares of stripe pre-ipo and i think this signals an ipo is coming and that was my big insight here is i think

SPEAKER_54: this is a bit of a tell but sequoia capital from their heritage foundation from their heritage fund and from their growth fund a couple of their different funds they actually mentioned here let me put on my serial killer glasses so we know that each of you has different goals for liquidity and portfolio management we are contemplating a transaction where new purchasers including the expansion fund sequoia capital fund sequoia heritage that's their uh family office fund and sequoia capital global equities will commit to buying up to 861 million of stripe shares held in sequoia funds raised between 2009 and

SPEAKER_04: 2012 that what they're calling legacy funds here at the most recent july 2024 409 a valuation we explicitly focused on these legacy funds which were organized over a decade oh given the normal 10-year life of the funds so uh this is i think the other key point to this david is there's massive amounts of qualifiers in this offer uh they're saying they're contemplating this they're fully disclosing who the buyers are they're doing the most clear concise way to value the shares a 409 evaluation uh very you know legally accounting binding and uh they're doing it with the oldest funds with a very explicit purpose they're past their 10-year lifespan and the the final paragraph that we page down there david i think is worth reading as well limited partners of the legacy funds will have the option to hold or sell all portions of their striped shares so you have the choice if you're one of these legacy lps to participate in this or not so you have choice you have to get educated as the lps if you want to do this or not because the people buying it are expecting probably a 50 pop i would say by the time they exit and this thing goes public in a year or so they say we are pleased to offer this liquidity option to you as limited partners in the legacy funds as each of the legacy funds sequoia capital fund expansion fund heritage and scger funds that are sponsored and managed by sequoia for its affiliates we are also seeking your consent to proceed with the transaction and to make certain amendments to the governing documents of the legacy funds that are required to affect the transaction please complete and return this um and it also says it is important to highlight that sequoia personnel and associated persons will not be offered the option to sell stripe shares previously received as carried interest distributions from the legacy funds and no carried interest will be payable to the

SPEAKER_36: sellers in connection with this transaction uh so that piece is smart too not letting kind of the personnel sell it again aligns how bullish they are and how continued bullish they are in the company um so i think they did a great job on both sides aligning with lps not taking carried interest but also signaling hey this is a small percentage of our overall holdings this is not a fire cell this is not something that we're trying to you know do behind your backs we're doing it right in front of you we're giving you all the facts uh and our personnel are not selling as part of this transaction we are

SPEAKER_00: still bullish i think there's a couple aspects here if you think of venture capital as a product and lps customers uh sequoia is being very responsive to their customers so customers are saying we want dpi we want dpi and instead of saying we can't do that or there's different restrictions and all these they've kind of come together with a pretty novel solution but it has a couple of aspects one is the 409a valuation so they've decided to use this 409a valuations as you guys know 409a valuations are typically a depressed valuation that's where employees typically exercise their options so they're typically it's it has an embedded discount there but they're also they're not being coy and they're not taking advantage of their limited partners they're not forcing people they're not double dipping so they're doing in a way essentially saying look we hear what you need around dpi and we want to accommodate you if you're willing to do that if you don't uh that's totally fine as well we're not we're not being opportunistic around your dpi needs so i think overall this is a positive thing i wonder matt and jamie whether you know you think other venture funds will follow and whether this might be a template for other venture funds to solve around the dpi issue well i think it's the reality of our

SPEAKER_35: industry right now the public markets are no longer a fundraising event they're a liquidity event in a lot of ways right and so the world of amazon going public at a 500 million dollar market cap and

SPEAKER_36: you know the the value expansion taking place in the public markets has kind of flipped that's why my old firm co2 went into the private markets in the first place right um and so i think it's a reality will it look like this i'm not sure maybe a lot of the larger funds i mean for us as an emerging manager smaller funds smaller checks at the precedence seed um you know we like to work with our management teams when the company gets to this pre-ipo or right before they go public um if they're you know if if some if some early investors are taking money off the table we'll try and take a portion off um still be kind of leveraged and and and bullish on the business and keep the majority of our shares in um but look at it in partnership with the management team in partnership with the other early stage investors to help our lps get dpi in what has been a really difficult environment over the last 24 months so i think you have to be proactive is the is the underlying rule now i wonder jamie you mentioned

SPEAKER_00: you referenced different asset classes like private equity and buyout and there if you think about from a first principles basis private equity funds are selling their positions to other private equity funds which are selling to other private equity funds so you have the same private asset you know getting liquidity every three years but over you know three times over nine years do you think maybe there might be an evolution where you know secondary becomes almost part of the process rather than this obscure kind of solution for somebody's liquidity needs does venture capital in general need to have a different liquidity profile in order to expand you know the amount of people are interested in investing i'd say

SPEAKER_23: you know sequoia has the benefit of a structure that allows them to execute this type of strategy and to matt's point there's probably larger firms out there that can also leverage their structure to take advantage of these situations i think a lot of firms out there do not have this structure and need to find alternatives but the benefit of investing in emerging managers or pre-seed and seed is when you've gotten to evaluation of potentially a hundred billion dollars in the private markets taking some money off the table via a secondary is a great way to provide dpi to your underlying lps while also still keeping you know capital in the ground compounding at a high rate you know playing the optionality upside that venture still offers i think that when you look at venture there's innovation and creativity everywhere so i imagine that there's going to be more creative and innovative solutions coming out there where you know potentially a different structure of a secondary fund or you know some type of private equity style player that's adjacent to venture that comes in and buys up because you know as lps start to get desperate they're they're willing to uh potentially go off their first principles and you know go for go for the capital even though potentially keeping in the ground for another three to five years could be very advantageous from a multiple standpoint there's an opportunity cost to you know putting

SPEAKER_61: your dollars to work yeah and the cleanest way to do this is is part of a primary round right it's it's

SPEAKER_36: i haven't seen something you know too too familiar to what sequoia's doing but usually you see secondary

SPEAKER_35: purchases for fun like myself when people are excited there's a big valuation you're you know we already have 100x out of our seed fund and so we want to take a little bit off the table but you have ready buyers if you're going to try and sell and just the as you were saying david kind of this wild wild west of the secondary markets outside of a primary round you could have somebody who's willing to give you par you could have somebody who's willing to give you a 70 discount you know the the company um bylaws

SPEAKER_36: and what they actually permit it's a lot messier and that's where you get a ton of inefficiencies in these forward contracts and and really kind of the wild wild west but i think if you're tying it to a primary transaction it can be much cleaner i do think this is going to become uh part of our

SPEAKER_19: toolkit here in venture capital land uh you're already seeing we had dave mcclure on he's doing these strip funds trying to buy lp interests to provide this liquidity to lps you've got industry ventures doing it as well it seems to be uh you know that capital finds a way you know that jurassic park line life finds a way like capital finds a way and if mna is taken off the table as i as i pointed out earlier well what is microsoft going to do they're going to just buy the assets of the company the team and leave the shell and they're just going to rip you know the the meat off the bone and just leave this like dismembered you know corporate entity for lena khan to you know uh get to wave some victory flag that it wasn't acquired when meanwhile all the value was ripped out of the

SPEAKER_04: the the the company and this is a similar kind of situation if we can't do mid-market m a if we can't get companies public if there's some resistance or headwinds to that you know and adobe can't do their 20 million dollar transaction well there's other ways and capital finds a way life finds a way and here we go capital has found a way the great irony of this is i think that this is occurring you know probably six months or a year or less when the ipo is going to occur so to your point jamie you know you have to make a really thoughtful decision here as an lp and how do you make that decision is an important question because your career could be on the line if you're in an endowment or sovereign wealth fund a high you know uh family office if you make the wrong decision here so you've got to make a very thoughtful decision are you selling before a triple up and this thing goes parabolic are you and that could have been the best investment your firm ever made or are you pairing your position and this thing goes down 30 in the market and it's an instacart kind of situation so you know sharpen your pencils lps and shareholders here and you i don't think you can go wrong selling 10 or 20 percent nobody's going to blame you but when you start selling larger portions of your position you do need to be very very thoughtful uh but i'm glad that there's more options here and i was starting to get the sense that you know half the people in our industry did not

SPEAKER_81: believe in our industry anymore now i think it's down to 47 percent of people in our industry don't believe in our industry there's a large number of people in our industry who are just like

SPEAKER_84: i don't think this is ever going to work and that's kind of what and i'm talking about lps and downwits are like is this going to work or not you know it seems like a crazy plan we're waiting for whiz and stripe and these power laws it's going to work folks the power law is always going to be there

SPEAKER_88: calm down just pace yourself deploy your capital over four years not 18 months you'll be fine

SPEAKER_21: i think sometimes it's hard as an lp to just sit and be comfortable with your portfolio you're making

SPEAKER_23: investments if you have a great group of curated managers that you feel comfortable re-upping in like a liquid too that doesn't change their fund size very much so it's kind of steady state and it's hard sometimes to just sit there and be like i'm actually happy with my portfolio and i'm going to do nothing you want to start to make tactical decisions you want to start you know making changes to a portfolio so you feel like you're significantly adding value but sometimes patience is the best value

SPEAKER_84: you can add so so well said jamie like i and i think when you read the letter from sequoia it just

SPEAKER_19: instills in you like okay these are adults they know what they're doing they've done it before and they're making very thoughtful decisions in terms of capital allocation and portfolio management

SPEAKER_88: and strategy so i just a plus plus on the leadership from sequoia here uh and i think it's just fantastic

SPEAKER_00: for the industry lots of lessons i do wonder a bit of a contrarian point but of course we want a healthy m a market and we want private companies being able to transact with private companies but what would happen if some of these m a deals had not been consummated historically what if paypal had not sold for one and a half billion what if youtube had not sold for 1.65 billion what if instagram hadn't sold for a billion dollars are there power laws there would instagram be a half trillion dollar company and what would be the total returns of venture i don't think anyone's really run the numbers on that but oh maybe most yeah yeah i mean if you look at the youtube i would tell you because i was

SPEAKER_19: there and i know chad and ruloff you know had just invested in mahalo right after he did youtube and i remember reading his deal memo when he was in his first year or two at sequoia and um i believe youtube would have gone out of business no uh venture-backed company ever survived a lawsuit of that scale in in history and so i don't i believe google made like the asymmetric risk bet of all time with that

SPEAKER_04: one with instagram uh yeah that one would have gone you know 100x from the billion dollar valuation

SPEAKER_19: that was a huge mistake and everybody knew it at the time every single person knew it at the time including sequoia which had just put money in i believe at 500 and doubled their money in three months i believe the back channel i heard was they begged them not to sell begged them and so that's instagram wait that's uh and then paypal you know that was a different era the concept of secondary at that period of time and then they were also under the sword of damocles i think they call it like you

SPEAKER_04: know like you're about to get beheaded because of fraud and i don't think you know it's not like elon and peter thiel and those folks had a lot of cash in their bank accounts to fight that fight and it just shows you having partners with deep pockets who can weather storms and have been through it before actually matters so if you're a founder listening to this pick your partners wisely because you know uh founders who get a little skittish i'm sorry partners who get skittish and founders who have 99.999 of their net worth in a company leads to a bad outcome long term that's the playbook

SPEAKER_00: that i've seen work really well don't sell sell 20 of your company to us via secondary we'll back you

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SPEAKER_03: assemblyai.com twist moving on a new study by defiance capital titled the unicorn founder dna report showed that 70 percent of founders are underdog founders defined as immigrants women or people of color diving deeper into the numbers we find that only 53 percent had degrees from top 10 universities only 49 percent or less than half of ceos have stem degrees and surprisingly outside of sv angel yc and liquid 2 uh from from this podcast not a single venture fund has invested in over three percent of

SPEAKER_00: unicorns jamie i know you've done a lot of research on this on underdog founders and managers and you invest in them tell me about what you've seen in the data yeah i'd say i think this unicorn report does

SPEAKER_23: a great job of showing how diverse founders create winners and why it's so crucial to find managers that are willing to back these kind of founders so no plan b a chip on the shoulder unlimited self-belief is key and it's really why screen door was started in 2021 by sati and hunter at homebrew they recruited eight other gps with diverse perspectives who used to be emerging managers that are now established brands and pretty access constrained you can think of kearson green from forerunner charles hutz from precursor leah sullivan from fuel and they really started screen door because they wish they had an lp like screen door to invest in them when they were just starting out and what i would say you know not just from myself or my two other colleagues that have been allocators their whole careers but from the 14 gp advisors that we work with is that the winners and venture come out of the tails and i know this group absolutely knows it i've chatted with all of you about it um the winners really come out of the tails or the edges and you know to get that power law return it's really really important to be embracing and non-consensus investing you need to find gps that have had journeys that provide them with perspectives to be able to pick out that non-consensus founder from the crowd to really think and invest differently than everyone else in the room they need to embody what that uh report showed is that grit that chip on the shoulder unlimited self-belief you know those obvious networks and geographies you know a lot of the multi-stage firms they pile into those early stage rounds or they try to get in as quickly as possible but when you think about it hot rounds or those high-flying founders that everyone wants to get access to you know that means you're actually consensus or technically part of the crowd you know but to win in venture you need to be non-consensus and right so kind of following the crowd following you know those big brand names into the hot founders is not actually the way to potentially be producing those outlier style returns one of my favorite founders on the planet is is

SPEAKER_36: tracy young from plan grid uh and actually my wife was there was their head of people at plan grid helped them scale to 20 through 450 people she had a 900 million dollar exit to almost a unicorn company and has now founded tiger eye and and almost half of her company are underdogs at tiger eye is that because you know they're underdogs no it's because they're fantastic technologists that happen

SPEAKER_35: to be underdogs right and so um i thought that the research was fantastic i think we're going to see

SPEAKER_04: more diversity which is a positive in this data i do think the one that's worth looking at is it's actually based upon desperation uh and i think people who are already wealthy or who have safety nets behave differently in the world um and i know i certainly did i had a you know different kind of drive than the people i met when i first came to manhattan who were trust fund kids you know and who had their apartments paid for and their colleges paid for and i didn't have those things and so i just had a chip on my shoulder that was very different uh because i had to fight to meet everybody and they had knew everybody from darien connecticut and the hamptons and i didn't so i you you will see that a lot in terms of immigrant founders which is why i pushed former president trump and future president trump apparently on the issue when he was on all in of green cards and you know recruiting the best talent to come here we want to win on a global basis recruiting immigrants is the greatest thing you can do there are many more smart people outside the u.s than inside the u.s statistically there's nothing to do with any judgment on any particular you know uh society or country or culture there's just 300 million people here and 7 billion people out there therefore for every person here there's 20

SPEAKER_00: people out there i think what this report also highlights is that you can succeed when you come from a different background i think that's an important thing that people are aware 70 are underdogs 53 don't go to top 10 schools you mentioned jason you know you didn't go to stanford a lot of people think that if they didn't go to stanford they didn't go to harvard they don't have a chance so i think it's important that that this information is out there that there are different ways to get to success which in this case is defined as a billion dollar plus company it's true success at its highest form so i think that should be exciting uh to to many people and networks right maybe a

SPEAKER_35: little bit outside of the diversity component um it's networks right i mean ron has been an og of

SPEAKER_36: silicon valley was one of the first super angels you know ever right um you look at y combinator had over 20 000 applications for that they're only getting stronger and stronger um the two people that put us in business so the three people were jessica livingston and paul graham from yc and ron conway from sv angel um so it's almost like a little sv angel yc look with two mafia there at the top with similar strategies uh jason similar to your strategy so i think some of these network-based strategies where you have these pockets of great people are so diverse and everywhere to where if you're just a vertical specific fund or just focused on you know people coming out of google or facebook or just focused on people coming out of stanford you're missing you know a large portion uh of of great founders so that was the other takeaway i had obviously as a network-based fund especially with those top three names is you have to be everywhere now um and venture to capture the outliers the

SPEAKER_115: report also says most had a personal story of feeling unfairly treated or feeling limited in their native environment and this study observed these traits and communities left behind for generations

SPEAKER_23: and so i think from a diversity angle you know that backing gps that have diverse perspectives or have had differentiated journeys to get to venture because i still think there's a level set basic requirement to be a venture capitalist but they can provide access to those communities that have been left behind and it also creates a huge opportunity to find founders that can you know create companies that meet the needs of those types of communities and it wasn't long ago david that you know we would be

SPEAKER_55: sitting here in silicon valley i remember when i came into the industry 25 years ago as a journalist

SPEAKER_19: uh covering silicon alley here in new york and you know asian and indian entrepreneurs or just even rank and file workers at startups you know work were not considered leadership quality uh they were you know great developers they were kind of put in a box over here and you had to be a white dude from stanford to run the company and then these were great people to have on your team and then you look across silicon valley uh and i've watched it happen in my career you know the age of you have to be a white guy to be ceo is like long over microsoft google like go down the list like find a straight white male running a tech company at scale there might actually be you know the minority of uh numbers i haven't actually run those numbers of the top 10 market cap companies but um it's certainly very different than it was in

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SPEAKER_03: let's move on in a tweet storm a friend of the pot samir kaji of allocate highlighted the tale of two cities and venture capital detailing how limited partners focus on blue chip managers has come as a serious expense of newer venture funds also called emerging managers nearly 45 percent nearly half of all lp capital in 2024 has went into only five vc funds out of thousands of venture funds matt this is quite a statistic and it's gone up two and a half times from 2023 to 2024 what's driving this

SPEAKER_00: uh desire to pile into the same five funds in silicon valley well i think one of the factors is

SPEAKER_35: that we're a little bit uh it's a it's a it's a you know sickness of our own success almost right to

SPEAKER_36: where a lot of these limited partners have made a tremendous amount of capital with through venture capital right um and you look at some of the largest pension funds some of the largest endowments billions and billions and billions of dollars i run a fund that's an 80 million dollar seed fund and and uh you know a 60 million dollar growth fund i can't really target ontario teachers pension that necessarily doesn't want to i don't know if they do or not but i imagine they want to write larger checks and so i think part of it is is the industry has been incredibly successful uh if you look at the past couple of decades there's more people that want to come in and and invest behind this trend and invest in this industry and they need to write larger checks and i think what you have is those top largest firms look more like asset managers than they do look true venture funds um they have you give them 100 million dollars and you're put in seven different funds even though you really just want the seed or pre-seed fund and you know i i don't think there's a lot of incentives for those large funds to shrink um they make an incredible amount of money uh on you know management fees sometimes we look at ourselves in the office with great performance we could raise a lot more money every fund's oversubscribed we keep them small and we think are we the dumbest guys in the room but we're staying true to our chassis jamie not here she likes her 10x funds um but uh but we stay true to it but we do

SPEAKER_35: see you know a lot of these elkies need to write larger checks if you're new to the industry you want to go with a great brand you know andreason horowitz is well known um in my old firm co2 when i started

SPEAKER_36: was 350 million of aum when i left was 10 billion of aum just six years later um and so they're happy to take your money as well and and they've got good places to use it but i think it's a byproduct

SPEAKER_115: of the success to some some degree i'd also say some of those larger brands you're just getting a completely different product and you're also getting a completely different return i mean in the beginning of this discussion we talked about you know sequoia and their structure and their ability to you know essentially buy out their earlier funds you know shares in stripe and so i think with the multi-stage firms or those larger brand firms you're getting you know especially if it's late stage venture exposure you're getting returns that look a lot more like buyout and growth equity i think that late stage venture can absolutely provide diversification benefits to an asset allocation but if you're looking for you know the power law style returns you're looking for the extreme compounding that venture can offer you unfortunately and this is where the friction and the challenges come in the marketplace with those larger check writers the ontario state pension um or country you know pensions sovereign wealth funds things like that i love them if they want to invest they can invest i know we're calling one person out but for the larger check writers of the world we should say you know if there is friction and there is challenges into getting access to those emerging managers you know at liquid 2 you guys kept your fund size small with all the emerging managers that we see at screen door in our existing portfolio most of these funds are not really changing their fund sizes i'd say it's five to fifteen percent incremental changes from you know fund one to fund two and then fund two to fund three especially in this market environment most are just keeping their fund sizes the same and so we saw it before the the seed return that you can get you know in a

SPEAKER_23: wiz style acquisition and so you know early stage venture is highly attractive it's just actually

SPEAKER_115: access constrained for the large check writers of the world and so there's a lot of friction out there um it's why i joined screen door to kind of help alleviate a lot of that friction and complexity out

SPEAKER_41: there but you know recognize the challenges that are in the in the ecosystem today yeah it's really uh

SPEAKER_19: the number of relationships an individual can maintain uh especially important ones with a lot at stake is small uh i know this because we have over 400 portfolio companies we do 100 new investments a year we are a high-scale investor with 21 people on our team uh which is huge for the size of our uh funds which is you know which is 50 million dollars now we write a lot of 25k checks with our founding

SPEAKER_55: university pre-accelerator we let a lot of 125k with launch accelerator which is kind of like a yc

SPEAKER_19: contemporary or tech stars contemporary but you know i can no longer maintain relationships with all the founders therefore each of the 12 members of the investment team and the rest of support and podcasting you know side they each have you know 40 relationships each to manage and then we have to come together as a group and put these into you know and scaling this is very hard why combinator has scale issues and challenges and you really have to level set with the founders we have to level set with the founders hey we are in making a lot of investments and here's the determinants for us making that second or their investment so now you go to an lp and how many l how many gp relationships can they manage and i'm guessing you know one lp can manage 10 or 20 uh with such a high stakes relationship which is to say how many people can you talk to every week uh and have a thoughtful discussion and if you're

SPEAKER_04: an lp in a fund uh you're putting a 25 million dollar check in you know maybe i talk to that gp once a month twice a month i'm not sure what the right cadence is some people uh michael kim you know from sandana tells me he's in a he's on chat with his uh gps like every week or every other week and i was like you know i just want to have my that relationship with you put a dollar in my fund

SPEAKER_81: so i can just have that relationship with you because i would love to have an lp relationship like that

SPEAKER_161: but i can confirm he does do that yeah he does i mean i i mean it must be amazing for you to have

SPEAKER_04: somebody care enough to have that phone call and that's really the issue is how do you scale that and you know when you're dealing with the sovereign wealth fund that's trying to put a billion dollars to work or an endowment trying to put two billion dollars to work whatever it is in venture they got to write 50 million dollar checks for each fund 25 million dollar checks for each one they can't be writing 50 i'm sorry 105 million dollar checks and it's just too crazy and and we even have a challenge with it but to jamie's research on you know um having a very large spread of bets and then doubling and in my case we we call it tripling we're trying to triple down on the winners and so we have two stages of winning likely and definitive we try to do two bets and we make you know maybe per fund

SPEAKER_164: 10 get the second bet and then 5 get the third bet we're really trying to be thoughtful about that portfolio management so i just think it's there's two different businesses going on here i'd say classic vc is 400 million or smaller fund sizes that's the classic venture industry and then there's

SPEAKER_04: injuries and horowitz lightspeed ivp whatever you know sequoia doing full lifespan and you know everything from you know what heritage fund is doing at sequoia etc all the way down to their scouts program so it's just two different industries have emerged and some of them are going for the

SPEAKER_02: the beta they're just going for the average and the average is pretty pretty darn good right if you

SPEAKER_100: could get the average i mean that's what you're doing isn't it jamie you're trying to hit the average of emerging seed and seed the average of seed is great so the average of seed with the

SPEAKER_115: optionality of exceeding the average is extraordinary it is i mean the average return of emerging managers in early stage venture is significant and if you can you know select a bucket of managers that can get you above the average or get you alpha in venture that's insane and the that type of return is really i think why everyone wants to invest in venture it's just really challenging to get because only a small number of startups uh you know turn into the big winners and only 20 of venture funds you know produce 80 of all the returns and so it's really really hard to pick those managers and sometimes to even access it as we've

SPEAKER_23: talked about the 50 million check writers there's there's no way you're able to access precedence

SPEAKER_41: seed i'd say the average fund size at screen door is about 40 million jason that relationship piece

SPEAKER_35: is pretty important and i'm gonna brag on and pump up jamie here is one of my favorite lps of all time

SPEAKER_36: but as you know our fund was started by joe montana thank god he did not play for like the detroit lions or else we'd be like an automotive fund or something like that and i would not be there

SPEAKER_35: but he played in silicon valley um but jamie's flying out to see us we're going to a very public restaurant in cow hollow roses cafe packed restaurant uh jamie walks in in full eagles gear into the

SPEAKER_36: restaurant to have lunch with us with with joe and our team at liquid too um and so that's about his personal life i have to about as personal of a relationship as it gets and and is talking smack to joe over email leading up to the game um you are you are one of the best my friend thank you thank

SPEAKER_158: you i how many lp relationships do you have jamie and then like what do you think the upper bound is

SPEAKER_115: for you um i'd say that spanning across my entire career it has to be north of 50. i mean i sub 100

SPEAKER_23: north of 50 i haven't done the full full math there but i think that you know my lesson learned is always be a learn it all definitely don't be a know-it-all jason i don't know how you view this

SPEAKER_35: but we have a significant portion of family offices or ras as our our lps and the reason we do that is

SPEAKER_36: um we love families that have operating businesses you invest in a lot of companies we invest in a lot of companies it helps us so i think that is actually nice in terms of helping manage lp relationships when you're reaching out saying hey can you be a customer of one of our companies as opposed to just reporting on the you know the fiduciary and and the financials of the fund um that's how we've been able to extend it a little bit larger um one of the largest chemical families in taiwan you know one of the largest sports franchises a bunch of manufacturing families logistics um just for touch

SPEAKER_19: points i mean if you're running a 50 million dollar fund like i am um and you think you can put 200 names into that fund and you know have concentration on the top 10 you know that come out of it top 5 you really don't need institutional lps and so i think you know for people who are doing the boutique vc classic vc business i'm talking about and aiming for alpha you know it's kind of nice when you have you know hundreds of lps and i do think you know with the changes in the administration and maybe a more fluid capital allocation support system with trump's and jd vance involved and you know listen i i hate politics i'm a moderate and i like building companies and products and services and i hate politics but it the truth is mna has a big impact and the rules around the sec and capital formation do and i believe there is a unique opportunity i'm not announcing who i'm voting for yet i'm undecided i'm gonna wait to see who the democrats run but i would like to see capital formation evolve to the

SPEAKER_54: point at which the majority of the country perhaps the whole country could make a bet in a venture

SPEAKER_04: firm and so if i could have for my 50 million dollar funds and you know just literally have i don't know 500 000 people putting in a hundred dollars or 50 000 people putting in a thousand dollars i would absolutely absolutely run towards that opportunity to give people like my parents blue collar people uh salt of the earth people the ability to have access to this asset class and that seems profoundly fair to me and would give people the ability to go uh you know and maybe move their station up in life uh through this incredible innovation going on and right now we've limited to

SPEAKER_55: six percent of the population in the united states which seems incredibly unfair and qualified purchasers

SPEAKER_103: or even smaller portion of that six percent it is interesting because you can put significant

SPEAKER_00: guardrails on this to make it so that uh non-accredited investors for example a certain percentage of the fund needs to be accredited or qualified purchasers or even institutional capital meaning that non-accred investors just get to co-invest alongside real institutional capital so i've never heard

SPEAKER_02: anybody is that your idea have you is that idea been floated before i think i've read that somewhere

SPEAKER_03: but yeah it's it's a pretty pretty straightforward i'm pretty well read on this and i've never heard

SPEAKER_02: anybody say the percentage of the firm the fund should be let's say 50 percent non-accredited investors and then the rest could be qualified i mean that actually does well no i think it's a it's a good david rule because what it does is it says if half the fund is sophisticated the other half can be unsophisticated is what you're saying you know if half the funds are already rich the other half could

SPEAKER_04: be wanting to be rich that is actually a very brilliant solution that the sec should understand and we should clip this and send it to our friends over at the sec because the advantage the united states has is not its weaponry and i think our weapons are becoming less of an advantage as time goes on and we have asymmetric warfare nukes hypersonics etc our weapon is our ability to build great products and services and companies so if you if you want to have a secure america and a secure planet and democracy build more companies build more great products and services i'm jason kyle cannes i'd like to have your vote

SPEAKER_190: this november this november 2032 the incremental weaponry does come from entrepreneurship and from taxes from new venture creation so there there is unfortunately a a a correlation there and just in

SPEAKER_36: case it is the weaponry we invested in andrewal chaos in biofire so just in case just we want to

David Friedberg: make sure i'm a huge fan let bygones be bygones and do not drop anything ordinance over my horse ranch please

SPEAKER_00: i'm on his side i'm on his side one thing i did want to show this is part of the the tweet storm this is you know speaking of weaponry this is the decimation of first-time funds last year which which was down from half from 2021 went down another 90 percent in terms of first-time funds fund raised so only 28 funds so far in 2024 have raised 1.6 billion so we are seeing a pretty significant you know tail tail of two cities uh to use samir's language and pause on this you know so

SPEAKER_54: the people who are listening in 2021 428 new first-time funds raised what is the uh 23 billion 23 billion

SPEAKER_164: and then you see this drop down to 348 in 2022 149 in 2023 and 28 in the first half of 2024 for 1.6 billion

SPEAKER_03: yeah that's incredible and the problem with that is uh most of these first-time funds are really going

SPEAKER_00: in early these are these micro funds that are putting in the pre-seed capital that are actually taking funding the incremental startup the startup that a top fund might not fund because they just have too much capital to deploy so this is a real issue in the innovation economy for for the us and this is somewhere where to your point jason public policy could certainly uh help help spurn the spur the

SPEAKER_26: economy and this is um you know really important to think about i think jamie you're probably looking at this because your ability to select new managers is based on this number now one of the great things about this is i think we had venture tourism i think a lot of people wanted to play the role of

SPEAKER_55: venture capital and live the lifestyle of successful venture capitalists and they thought the lifestyle

SPEAKER_60: was off and taking 12 weeks vacation and going to aspen i was going to say jason what is that lifestyle

SPEAKER_84: i have not experienced that lifestyle i am waking up in a cold sweat thinking about dpi and what we know

SPEAKER_19: what the last 10 investments we made and making these decisions so that's the great i think news here is there were probably two-thirds of these funds were people who should never have started funds so maybe

SPEAKER_55: we're balancing out the all these people who just wanted to live the venture lifestyle and got to do it for five years and now they're not going to raise their second or third fund but yeah if you can raise a fund in this market and i mean i'm invested in two of those 28 i invest in typically one fund a year i did two i think in that period so i think those people are very brave and they are kind of like the dogged founders we were talking about earlier jamie like to start a fund in this

SPEAKER_60: insanity when nobody believes in venture and everybody's like oh it's there's never going to be another exit there'll never be another ipo this is the end one of the core questions i ask is why

SPEAKER_209: are you doing this and asking that question now versus a couple years ago you're you're getting more

SPEAKER_115: real answers more genuine answers that you're in it to build the firm i think to your point you were seeing a lot of tourists and i think one of the key questions that i've learned over my career is to really understand does this gp know how to go from investor to fund manager because those are two totally different things if you're just raising 15 20 million dollars to invest in all your buddies that are leaving some top growth firm and you have a great network today that's wonderful that's a probably one-time opportunity but if you're in it to build a firm and to capitalize on your experiences in your life and your diverse backgrounds and your new perspectives and you're going to evolve and adapt over time you know that's a totally different answer and i think it's really important to have the mindset and the framework to know that raising a venture fund means you're probably spending 50 of your time not investing there's a lot of operational headaches that you know go into raising an institutional venture fund and i think a lot of the managers that i'm seeing today are are really in

SPEAKER_36: it for the long haul yeah nobody told me when i left co2 i wouldn't have a nine person ir team um you know i'm definitely missing those folks or the folks at eclipse angela i think does the best

SPEAKER_216: job in the business i need one of those nine folks can you send them over yeah i'm trying to

SPEAKER_218: you're looking at one i guess yeah i mean yeah it's it is a full-time job i think um to do this

SPEAKER_55: investor relations thing i need somebody to do that you know as a small fund it's like becoming a more important function and so i've been trying to figure out do i build that person internally or do i hire that person i think i need to find somebody great at ir and then find out who their number two

SPEAKER_158: person is oh god i need their number two person come work for me so if you're that person if you if your boss is never leaving your front and you've hit the ceiling come work for me and let's break the

SPEAKER_35: ceiling i need you i need somebody for ir for emerging managers it feels like the two biggest roles to get leverage on investing is head of finance head of ir that's what i need i need somebody who can do both

SPEAKER_55: of those things for me because i i'll be honest when i have to do those things it's less time with the founders and you know it's it's fine but i mean there's also the chance you know i've been thinking about it to our earlier conversation of instead of doing a 50 million dollar fund you know every four years but whatever it is you know deploying over four years it's pop up a 25 million dollar fund every two years and just do it by email and just say if you want it and fill out this form and we're done so you know i've been talking to my internal team about that a lot of like you know maybe we need to innovate a little bit and just never do a roadshow again never do meetings with lps again you know we're a known quantity here's our strategy here's the company's full disclosure take a look here's the list of the companies we invested in this fund here's the ones that pulled through if you think we're good at what we do here's a form filling out you want to put in 250k 2.5 million whatever it is put it in first come first serve fund closes we're on to the next one and just 25 million dollar 25 million 125 company funds and just rinse and repeat and just do it every 30 months or something i don't know i've been thinking a lot about that but of course by the time you think about that we're going to be in a hot market again where people are going to be dumping money on our heads and not this like 18 months to raise a fund kind of situation so play the game on the field this was a

SPEAKER_19: good quartet i have to say this is a good spicy quartet lots of strong feelings lots of knowledge i like this quartet we've got to do this one again why don't we just book these guys for like eight

SPEAKER_04: weeks from now and just do it one more time run it back we'll do it i was also prepared for ai

SPEAKER_36: you should see mine i've got we've got 800 companies we could have done the whole thing just on our between you and i jason just in our company i mean it is like just to go over time here keep

SPEAKER_04: recording i mean the ai the impact ai is having on our portfolio is super profound not just in the great ideas and products and services being built but how the companies are being built and that i'm as excited about the latter as i am platform are you seeing as well yeah i think i mean one of the

SPEAKER_36: questions that we were going to talk through was like you know the cios are getting hounded for for you know tangible results what they're looking for right is roi return on investment and from what we've seen i'm sure you're seeing a similar trade is some of the in our life cycle or in the cycle of ai right now it's mostly automation of repetitive tasks are showing great initial almost immediate roi roi and mostly cost savings right um you know we've got some companies that are also doing revenue generation but if you think about like jasper ai which we're in the seat of um helping to automate the writing process for marketers or overjet helping to automate the claims adjudication in the dental space um folks like patlytics who are doing uh automation of patents um by looking at all the research and and 50 million kind of public patents that are that are already published um but i think the more interesting thing than just the kind of workflow automation are these enabling technologies um companies like applied intuition um that are creating even new use cases or allowing companies to bring to market autonomous systems in the field of construction or logistics or automotive some of the most or in defense um some of the most legacy industries on the planet that's where the thousand xers i think are going to come from uh are those enabling technologies it's just such a no-brainer to

SPEAKER_26: apply this technology into verticals to save people time and money it reminds me of when i when i'm because

SPEAKER_55: i'm here in new york i'm kind of reminiscing about my time as an it executive and i would put in document management systems and computer systems for law firms like big ones sherman sterling cahill gordon etc uh and kelly dry warren when we put them in you know the expense was about ten thousand dollars an attorney and then probably you know another ten thousand dollars for their assistance so you had this

SPEAKER_19: discussion is this worth doing getting a pc for five thousand dollars networking it for two thousand dollars putting a network card and getting servers building a server room for 250 000 inside the office space running the cabling running cisco routers all of this you know two million dollar three million dollar you know install for 200 attorneys it was like a big debate should we be doing this or not um and it was like a really stupid debate because it was like well obviously this is the future if you're an attorney and you're not using document management what are you doing oh you're sending documents down to the typing pool in the photocopy room in the library to produce documents and so it's the same thing with ai like it people are just trying to understand why it's worth spending this million or two million dollars it's like can you if it replaces the entire customer support team or 80 of their calls can you not squint a little bit and look around the corner and just assume that

SPEAKER_54: it's going to do these other four jobs like you can i think you can okay uh this was a great episode

SPEAKER_02: david great job you always get the best gas and build the best dock and well done david it's been

SPEAKER_03: another great episode of the liquidity podcast for matt mulvey jamie roe jason calicanis this is your host david weisberg thanks for listening