SPEAKER_00: the coin bases the airbnbs the ubers yeah they created brand new sectors they created brand new areas of the market so for us we need to be willing to roll up our sleeves and find venture managers that have been overlooked in the ecosystem because there's such untapped potential by the networks or the ideas or the founders that they can fund and that can allow you know us to break this virtuous cycle and get more capital out to a lot of what i view as the edges or the tails

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SPEAKER_11: back to this week in startups excited to have jamie rode on today jamie recently joined screen door

SPEAKER_13: for those who don't know screen door is a fund of funds what's a fund of funds as you know if you've

SPEAKER_15: listened to this pod before it's a vehicle in which lps give a bunch of money to a group of partners who

SPEAKER_16: then invest it in venture funds why would they do this well they may not have the acumen the time or the want to go evaluate hundreds and hundreds of general partners at venture firms to pick a range of them and so it's sort of like outsourcing to somebody who could do a better job for you screen door has a mission to support underrepresented voices in the venture capital space

SPEAKER_13: managers often deemed uninvestable by conventional standards we'll get into that and they do so by backing these investors on their first rounds of investment um satya patel uh who was recently on this week in startups episode 715 and hunter walk man he was on the show years ago i can't remember the episode um and uh they founded the firm back in 2021 and before joining screen door jamie spent eight years plus as an institutional alligator with a data driven approach holding her

SPEAKER_11: skills at bloomberg and then vertus investment management welcome to the show jamie thank you

SPEAKER_18: thank you so much for having me excited to be here especially a couple weeks into being at screen door

SPEAKER_21: yeah so you had done some research i want to start with this on early stage uh fund managers and

SPEAKER_20: getting enough surface area to hit unicorns you and i traded some emails and dms about it because i was

SPEAKER_23: like hey wait a second i came to the same conclusion at the same time but when i talk to potential lps

SPEAKER_20: unlike yourself they're very confused about what in our industry is derogatorily referred to as spray

SPEAKER_16: and pray in other words uh some gp a general partner a venture capitalist at a venture firm making a large number of investments and hoping for the best in our first fund we did 109 names i believe uh don't quote me on it but i think it was 109 and we hit four unicorns and so that was

SPEAKER_20: like one every 25 and you came to some conclusions about this uh you know large surface area of

SPEAKER_16: investing and then we can get into fund structure optimization which is you know fund architecture my current obsession but what did you learn about sort of surface area investing getting a wide surface area

SPEAKER_28: at the seed stage specifically and precedes it absolutely and i think it all comes down to

SPEAKER_00: understanding that early stage venture is parallel driven and it's the tails or the edges that really drive those returns and so first off you have to gain exposure to those edges those tails and so from my perspective you need to be investing in the new many of the big winners that created brand new sectors came from those edges or from the tails and so how do you go about building a portfolio that properly covers those edges but also understanding that only two percent of startups become the big winners so it comes down to really portfolio construction for the lp you know at a high level do enough fund managers that give you that proper sampling of the edges of the tails of those first institutional check in while recognizing that 98 of those investments aren't going to be a venture-like return and i could go buy the s p 500 and get 10 kager i could go and invest in buyout and get a 14 kager over 12 years and so to really capture that early stage venture portfolio construction to maximize the alpha it's investing in gps that cover the first institutional check that cover the tails and doing enough managers at an lp or allocator level that you have that broad swath of diversification so mathematically 98 of startups don't give you a venture-like return two percent of them do so two percent times 50 deals one outlier 50 deals is my sweet spot yeah you know it's so interesting

SPEAKER_16: when i wrote my book i asked a lot of people what do you think the number of investment an angel investor needs to have in order to have a chance no guarantees of hitting an outlier and i asked this to a bunch of angel investors and the lowest number i heard was 10 but most often numbers quoted were 20 and 30

SPEAKER_21: and some people said 40 or 50 and so i think angel investors maybe who i asked were the successful ones so maybe they had a bias to their own experience and they thought yeah 30 is the right number uh but you're saying 50 based on a little more data-driven approach to this and that speaks well to me that first fund i did is a 5x fund on paperish and it hit four unicorn so okay yeah that means i was double

SPEAKER_38: or quadruple the industry average whatever it is you know 3x who knows exactly what the industry is here

SPEAKER_39: but you did mention that you need to have startups that don't fit the mold i'm not sure the word you used for that um but that were edge cases yes it comes down to if we look at that emerging manager

SPEAKER_00: ecosystem or if we look at the true funds that are investing in that pre-seed seed or first

SPEAKER_43: institutional check they tend to be emerging managers yeah i mean there's still some brand name

SPEAKER_00: investors established firms that absolutely play in that first check-in but more often than not they tend to be emerging managers and if you look at the data there have been over 4 000 emerging managers since 2015. and so for me when i'm parsing through that i'm looking for gps that are bringing new perspectives new networks new ideas new strategies that are really going to capture you know the edges or the tails of the distribution you know the big wins and when you think about the companies that have been driving the big wins it's really around the ones that have created brand new sectors so finding gps that can play in the tails the edges the new is really really important to harnessing the power

SPEAKER_15: law yeah and so if you were to think of names like that uber airbnb coinbase come to mind

SPEAKER_13: when coinbase and people made that investment fred wilson over flat iron partners i think gary tan

SPEAKER_21: did it y combinator did that that was like a really weird idea like a you know mount gox type situation how is that ever going to make money how is that even legal sure it did have those issues how is it even legal came up then you look at airbnb how's that even legal uber how's that even legal so you know if you just look at those three they all face legal issues so maybe that is actually a little bit of a telltale sign is people are trying to stop them legally maybe they're doing something truly disruptive and i think i would put them into the disruptor category um and you know if you think

SPEAKER_13: about the wave before that it probably would have been tesla spacex facebook meta would have been

SPEAKER_38: that cohort before it and yes tesla did get sued for the dealer network right trying to go direct that got them sued uh i don't know about facebook getting sued they didn't get sued but yeah um tons

SPEAKER_21: of controversy around that company as well so is that what you is that what you mean by the tail and the edges and is there a difference between those two terms you're just using them

SPEAKER_38: you know interchangeably interchangeably yeah yeah and i i think it really is when you look

SPEAKER_00: at a parallel distribution you know it's it's the small percentage it's it's the two percent of the startups that really drive the return so when thinking about how to build an emerging manager portfolio to access those tails or the edge of the distribution the big winners it's important when you're looking at a gp to really kind of understand what their network is what their access is you know the gp market fit is it is their fund you know one plus one equals five or is it one plus one equals two because i'm really looking to to build a portfolio that's giving me access you know to those tails to

SPEAKER_63: to the disruptive technologies that are going to drive the power law return founders always ask

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SPEAKER_13: one plus one equals five you're referring to leverage so let's maybe talk a little bit about what can give a general partner at a venture firm and what give a venture firm leverage you mentioned a couple of items there you mentioned deal flow i think you sort of talked a little bit about

SPEAKER_16: decision making or unique access through networks when evaluating a firm that you think has that kind of leverage that one plus one equals five give me the top three things you're looking for in order

SPEAKER_69: yeah and i would say a simplistic word that we use at screen door is gp market fit i mean we all talk

SPEAKER_00: about founder market fit when you're not talking to venture capitalists but at screen door it's all about gp market fit so does their expertise align with their go forward strategy

SPEAKER_70: is there a path to building an enduring firm and by that i mean long-term vision moat competitive

SPEAKER_00: advantage and then is there a clear understanding and self-awareness of what it takes to go from an investor to a fund manager because those are two totally different things and then i know you said three but it's me so i have to say portfolio construction that's that's like a number one for me

SPEAKER_11: yeah and i too am obsessed with portfolio construction and so let's double click on that since we're both

SPEAKER_58: into it um there has been one philosophy concentration in winners i just had brian singerman on the program you probably saw the episode where he talked a bit about backing up you know 10 15 of a funds

SPEAKER_16: dollars into one just outlier bet they did airbnb palantir and spacex as their three um in the history

SPEAKER_58: of the firm and then there's spray and pray ron conway you know hit 200 you know 100 200 names in a

SPEAKER_13: fund uh which was the model we were taught when i was coming up um and then you know those are the two main models and there's always the classic four or five partners putting three or four hundred

SPEAKER_74: million to work in 30 companies and then hoping for one outlier maybe a second if they get lucky so

SPEAKER_13: maybe talk about what you see in terms of construction and what you think optimal construction is in 2024.

SPEAKER_00: yeah i think that there's a lot of different ways to slice the venture pie and make money but at the end of the day going back to what i said earlier if at a if you want to level set it industry averages two percent of startups become an outlier 98 don't become an outlier so when you're an emerging manager and you have limited track record i always lean more towards the 50 deals you want to deploy as much of that capitalist as you can into that first institutional check-in it's the cheapest entry point possible any dollars that you use for follow-on capital into series a b and c you were dollar cost averaging down your multiple so it comes down to simplistically the math piece and your fund size because i really think and you've had other guests talk about this your fund size is your strategy and so i think it's really important to make sure based off your own network your own experience um your own track record that you're doing enough deals in a fund to have a high probability of capturing a winner because you can own 20 of a company but if it's not a venture like exit i don't care i can go as an allocator consider other opportunities that can get me that 14 percent type return that you can see in buyout we're here for venture capital and so it's really important for gps to do enough deals in a fund to have a high probability of capturing a winner and then deploy enough capital in that first check-in to make sure they're grabbing as much ownership as possible in that cheapest entry point before we go back

SPEAKER_43: and talk about reserves and follow one strategy and doubling down into the winners yeah and that really

SPEAKER_58: is why i think people have become attracted to seed stage the seed stage just historically versus series a and series b maybe you just educate the audience as to the return profile multiple on cash that people

SPEAKER_16: see in those different uh verticals or different stages rather definitely and it's it's so interesting

SPEAKER_00: because in this type of market environment i think as a venture fund manager if you're investing in a serial entrepreneur or repeat successful founder or anything that touches ai the first entry point price is way higher i mean like 30 million post money valuation versus first time entrepreneur that's doing probably some boring company that entry point might be 10 million dollar post but when i think about the return profiles of early stage venture versus late stage venture late stage venture late stage venture returns look a lot like buyout and growth equity it's why i mention the private equity returns of around a 14 percent return um but when you're at the early stage i looked at some cambridge data from about a year or so ago that talked about uh venture capital producing around a 28 kager over the past 25 years so if we want to level set that into multiples you know if you can compound your money at 28 for 12 years that's a 19x now most allocators endowments family offices they have the capital in the ground for long periods of time so if we can compound at 28 for 25 years that's almost a 500 x versus 14 compounding at 25 years that's a 26x so so if you can get

SPEAKER_16: the average seed stage just anything average it's a pretty amazing business but the issue is and the

SPEAKER_13: reason more people don't go into it is why why do more people not operate on the c stage why don't

SPEAKER_58: more gps choose to do that why do they drift to series a series b series c doing less deals larger deals what what is the dynamic if you if you've identified one you may not have of what is the gp psychology

SPEAKER_41: i think it's really hard to stay grounded in seed stage investing because you have to keep your fund

SPEAKER_00: size small so when i look at uh the managers that i've backed historically and at screen door the average fund size is around 40 million the average fund size of um emerging managers today is 43 million you're playing purely off carry which when i look at historical data it takes about eight to nine years in early stage venture to get to a dpi of one so you can have great paper markups but that

SPEAKER_18: care is not kicking in until probably somewhere around year 10 plus so it's a marshmallow test is

SPEAKER_21: what you're saying would you like three marshmallows in nine years or would you like a marshmallow right

SPEAKER_58: now and that's you know and i it's so interesting that you frame it the way you did because that's exactly what i've experienced and you i had the opportunity to join a later state two different

SPEAKER_16: later stage funds wanted to absorb our firm into theirs because we have good deal flow etc and you

SPEAKER_58: know the pitch to me was hey listen dummy you could put you know 25 million into a series d and in five years 10 exit or five exit who knows and you know hey you could get start getting paid quicker i've

SPEAKER_16: already made some money already so i didn't need to i can go for the long game but it is hard because you don't have the management fees of those larger funds so you don't get to live the cushy lifestyle that you thought you would so you're taking a vow of jedi monk deferment of rewards being

SPEAKER_101: in the seed stage aren't you exactly you're playing the long compounding game and that compounding it

SPEAKER_00: doesn't really show up in the multiple until the very end of your fun life so it's a long game and that can be hard and it's why i've seen a lot of fun managers have their fun one and two be more pre-seed seed a little more diversified and then around fund three they start to shift and go bigger and build greater firms and raise the management fee and and it's an evolution and it's really really why one of the key questions we ask a screen door is you know can you build an enduring firm and are you focused on precedency you know what is that long-term firm vision brand because as lps we're not just backing you ideally for one fund we want to back you for multiple funds yeah our first fund was 10

SPEAKER_16: second 11 so basically the same and then the third was 44 million the average you what was the exact

SPEAKER_58: average you said 43 i think and then this fund you know i planned for between 50 and 100 and i think

SPEAKER_21: we'll land somewhere right there and i specifically had some lps who were like hey if you were going 150 you

SPEAKER_16: 150 you know our minimum check size is 25 so this is the other pernicious thing about trying to stay small is the big lps don't want you to stay small they want you to put more money to work and it's you

SPEAKER_13: know i've had to say you know sorry no because i'm five million dollars of this fourth fund essentially

SPEAKER_111: um you know my money so like i'm all in on this like uh and i can't make it that big if you make it

SPEAKER_21: bigger then i've gotta up the average check size and we we're writing 25k 125k and 500k checks you can't

SPEAKER_16: drown to five million dollar company in three million dollars they just the founders won't take it so

SPEAKER_89: yeah it's it's conflicting market um dynamics and you really need to be disciplined if you want to make the seed stage work you also have to want to work with those style of companies and i think my observation i can say this you can't just you know a lot of my peers are lazy and they just look at how hard i work and they're like you're dumb you work too hard just do one investment every you know six months as opposed to we do two a week we do 100 a year you know when you have an incubator it's slightly different obviously right but you know it's it's a lot more work it is it is

SPEAKER_70: and i think that can be really challenging as an lp or an allocator when you're underwriting a gp to kind of truly understand what their value add is and kind of what their key strategy is in the

SPEAKER_00: market um it's also helpful now i have the the resources in this gp advisor network at screen door to underwrite emerging managers not only as an lp but i tap into my gp advisor network and ask homebrew or ask precursor or ask cowboy ventures to to come and help me underwrite this gp to kind of truly understand what their vision is do they have the capabilities to build an enduring firm stay true to the strategy that they're looking to deploy and have the actual expertise to be the best manager

SPEAKER_43: possible for the type of strategy that they're looking to invest all right listen i am addicted

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SPEAKER_11: youtube network how many managers are you going to invest in uh as part of this process and then how do

SPEAKER_00: you get from 4 000 down to that number yeah i think that the market is taking care of the 4 000 down to a small number for me i mean i think that there was some pitch book stack that came out that of the 667 first-time venture managers that closed between 2019 and 2021 over 247 of them won't be able to raise a second fund so sounds great about half yeah exactly and and i think the market's taking care of it for us so i really think it's important to be looking for venture managers that um are really bringing the new perspectives the new strategies um that have been overlooked in the ecosystem and then just invest in the best athlete possible to get my broad diversification of those edges or those tails and so for us uh with me joining and my partner lane joining um it's really expanding the mandate to invest in in the best emerging managers that we see in the ecosystem and it started as more of a dei

SPEAKER_129: fund of funds if i understand correctly remember correctly but i hear you communicating very clearly

SPEAKER_21: you're going after the best athletes so is that a little bit of a change in strategy or just very

SPEAKER_58: precise language here because dei has gotten a really uh bad name or you know a lot of um uh

SPEAKER_38: negativity around dei right now in the marketplace how do you go about the original mandate versus the reality of the game on the field today when it comes to dei uh and the contentiousness about it

SPEAKER_00: yeah i think it's such a challenging part of the market to navigate but um screen door was started in 2021 by leading early stage venture capitalists you mentioned earlier you had satya and hunter on and it really was started in more of this experimental idea of you know there's a lot of overlooked managers in the ecosystem that needed backing and from my prior experience being very very data-driven and that helped remove a lot of the behavioral biases of investing especially on the private market side it had led to a highly diverse portfolio i do think in venture you can't be so restrictive and selective that's tends to lead to missing out on the big winners um it's expanding the mandate to really look for managers that have been overlooked in the ecosystem uh managers that bring that new perspective new network new ideas new strategies and it's up to the gp to come to us as screen door

SPEAKER_51: and tell us why you have been overlooked and what new edge you're bringing to the market so i could be

SPEAKER_135: like hey i'm a white guy from brooklyn didn't go to stanford i'm overlooked you would consider it

SPEAKER_41: guy from brooklyn and you could tell me that you've had one tough upbringing living in the bronx and i'm

SPEAKER_129: willing to listen absolutely yeah it's a it's an interesting world we live in right now you know it's um um i i do agree with the premise and i had this talk with arlen hamilton uh a couple of times on

SPEAKER_21: this podcast where you know she was had a very specific mandate she wanted a female underrepresented

SPEAKER_141: founders awesome and i said well what if you meet you know like an amazing you know i don't know the

SPEAKER_20: founders of airbnb or coinbase both happen to be white males like the ceos would you not invest them she said yeah no i wouldn't invest in them i'm like that's a mistake because if you're meeting with all these founders anyway and you happen to find a diamond in the rough you you should grab it oh there's plenty of diamonds in the rough of the other ones and i was like yeah that's not how this works you might happen to stumble upon a giant diamond and it may not fill the specific narrow mandate that you set for yourself and then you're doing yourself and your lp's a disservice because you're not going to be able to raise the next fund because you missed out on a 5000x or a 1000x

SPEAKER_143: once in a career opportunity yeah um yeah i think just the the key piece too is that a lot of those

SPEAKER_00: companies the coin bases the airbnbs the ubers yeah they created brand new sectors they created brand new areas of the market so for us we need to be willing to roll up our sleeves and find venture managers that have been overlooked in the ecosystem because there's such untapped potential by the networks or the ideas or the founders that they can fund and that can allow you know us to break this virtuous cycle and get more capital out to a lot of what i view as the edges or the tails or truly the untapped

SPEAKER_79: potential in the ecosystem yeah and this is where the gross margins of the business and the nature of

SPEAKER_13: the businesses matter you know one of the things we saw over and over again uh was some of the

SPEAKER_16: businesses that communities that weren't as funded were aligning with were lower gross margin businesses cpg services type businesses non-traditional vc businesses and so we need software businesses marketplaces those have high gross margin and this was a lot of attention in the marketplace you know

SPEAKER_58: over the past decade i think it's changed actually over time where we're seeing more you know under represented founders as a as a broad catch-all pursuing software marketplace fintech high-tech high margin gross margin businesses and that was one of the problems 10 years ago is you know if you were talking to female founders maybe half of them were pursuing something like cpg and that just was a non-starter for a while there did you see that in the and how do you think about the sectors that the gps

SPEAKER_28: are going after yeah you know i attended up front a couple years ago and i can't remember who spoke but

SPEAKER_00: it was a founder of a highly successful company and he recognized that um only 20 percent of his customer base let's call it was a typical white male and the other 80 percent who had a lot more of a diverse background and he recognized that his c-suite needed to match that of the customer base to truly serve that customer and so that really resonated with me where i think for me it's up to the gp to decide based off their networks um where they should be deploying the capital but overall i think to build a highly diversified and a highly successful portfolio it's on me as an allocator or other lps listening to this to really build out a portfolio that covers all the sectors that exist today but all the sectors that exist tomorrow so going back to 2012 there was no blockchain focused funds so if

SPEAKER_41: you only did sector focused funds and you made very specific sector bets you likely missed out on coinbase

SPEAKER_02: because there really was no coinbase before then yeah or you could miss out on tesla and spacex because

SPEAKER_21: they were doing hardware intensive things deep tech that was like how is that possible to do a car company right like people had lobbied elon to make it a software company and just a technology company that sold components to ford and mercedes and in fact if you go back and you look mercedes and toyota did make an investment in tesla i think it was a series b or c and it was under the concept of sharing technology etc and the early model s's had a i think the drivetrain and the stick shift looked oddly familiar to the mercedes and it was because they used the mercedes um you know drive shift or whatever

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SPEAKER_21: let's talk about carry and fees a lot of controversy around that top firms might get 25 30 carry they might get instead of two and 20 that make it two and a half and 25 maybe they get ratcheted up to 30 35 i mean when you're a fund of funds you're taking one and ten percent most typically so you have to add those two things together i've heard some fund of funds say hey they their mandate doesn't let them you know invest with people with 25 30 carry other people say yeah you get what you pay for all we

SPEAKER_38: care about is the net returns at the end of the day after the fees and everything's baked in so how do

SPEAKER_41: you think about it i think every gp that we're looking at we're underwriting back a 3x net net is what

SPEAKER_00: we're really looking for and so when it comes to raising your first institutional fund i think asking for premium carry personally is aggressive unless you have a track record where i've been seeing a lot of people looking to spin out from established firms and so if you have a track record to prove out the premium carry can get comfortable with that especially if the premium carry shows up around a 5x if there's a hurdle involved in there the discussion around that becomes a lot easier but i think around the space where you have to prove that you can pick well and you can prove that you're a successful investor it's really challenging to add you know hefty fees or hefty carry in terms of management fees i look at what the management fee is over the life of the fund so maybe if it starts at two and a half or three but it drops down and turns into an average of 1.75 over fund life totally comfortable with that but yeah i agree when people throw up this premium carry based off of some short track

SPEAKER_171: record i'm not exactly sure that they recognize that for early stage venture um it can take seven to

SPEAKER_00: nine years before a fund settles in their ultimate quartile ranking and most of the time i think the stats around 90 of the funds shift three or four quartiles through their fund life so when you're adding that

SPEAKER_171: premium carry to uh the fund think about the track record and if that track record really has settled

SPEAKER_58: out because it takes such a long time so let's talk about the percentage of a fund that you're willing

SPEAKER_13: for targeting so somebody said 43 million was like the average let's just say 40 million dollar fund how much would you ideally want to be and what's the minimum and the max that you would be feel comfortable with being an lp in a 40 million dollar emerging managers fund yeah so it's green door

SPEAKER_41: we're a minimum 10 of a fund size we want to be a catalyst check so we want to go in early and really

SPEAKER_00: sit there and underwrite you and help you build your lp base we also have uh 14 gp advisors and so every gp that we back gets paired with a gp advisor and i would say for me this is a huge value add so those two pieces um are really really crucial to the underwriting process and even post investment process um also we partner up with endowments and foundations even family offices and they view us as

SPEAKER_41: an extension to their team so we are not only minimum 10 of your fund but we also have the network

SPEAKER_00: and the access with lps that are looking to double down on some of our fund managers or back you when you move up and out of the core emergent manager space have you um announced how large your fund to

SPEAKER_58: fund is and which fund to fund you're on and you know how many names you'll have in it on average

SPEAKER_186: yeah i would say you're asking me this question three weeks into the new job love it um just

SPEAKER_00: ballpark yeah so uh we would say that we're expanding the mandate to not only back first institutional funds which is what we've done historically expanding that mandate to invest beyond just first institutional check um especially with the addition of johnson and i you know all of us are all hands on deck uh lane has the experience of understanding truly what uh established successful fund looks like she also comes from the world of texas teachers and goldman and constantly reminds me about what it's like to write large checks where i came from family office world and having more entrepreneurial spirit to writing the smaller checks um and so for us we're really looking to build

SPEAKER_41: out a portfolio that can cover um a significant portion of emerging managers amazing uh and so

SPEAKER_13: qualitatively gps are unique individuals in the world in my experience what do you think are the qualities that make them perform at a high level consistently what do you think are the qualities that maybe lead to hubris and poor returns in your experience yeah i would say starting with the

SPEAKER_00: red flags it's capitalizing on the theme of the moment going from web 3 to ai to whatever's hot

SPEAKER_41: um and i would also say this this one kind of flows into the good and the bad as an lp i underwrite

SPEAKER_171: people who underwrite people so this is really a relationship game here and when gps become very

SPEAKER_00: transactional it's a huge red flag for me because we're entering a marriage one fund will likely be 15 years and if we back you again and again this starts to extend out um so that's a really important piece for me is the relationship-centric part of the underwriting process because at the end of the day at pre-seed and seed you're really talking to people underwriting people um and then the other piece is not understanding portfolio construction i mean that's a huge part of setting yourself up for

SPEAKER_171: success at the early stage and if you just say well i looked at some of the the best firms and i saw they did it this way so i figured i would just do it this way sometimes i just want to say did you look at all the firms that failed and did your portfolio construction now you tell me jamie now where were you

SPEAKER_21: 12 years ago i could have used your help 10 years ago no i mean when i came into the business it was like set up a 10 million dollar fund make 100 investments 100 kh and hope for the best which is

SPEAKER_58: what we did then we look back on it and this was the weakest part of my game you nailed it we had four unicorns in that first superhuman which was the second time i'd invested in raul we knew it was a rocket ship calm we knew it was a rocket ship the stats showed it very clearly um robin hood we knew it was a rocket ship again the stats showed it clearly and then density density was unclear because they were building a hardware uh density.io they're building a hardware product that allowed you to do people counting and it was taking a long time to build this hardware like hardware companies uh you know sometimes do so three out of the four it was definitively clear that they were going on to unicorn decacorn status something in in that range we would have easily put a

SPEAKER_16: second bet into any of all three of them and we have the emails where i passed on doing it because we were one and done constructing my fourth five and then we didn't so we didn't have the ownership percentage we owned i think two percent of superhuman it was like four percent went down to two we didn't

SPEAKER_13: take our prorata we could have or we took minimal yeah then robin hood well under one percent ownership density five percent ownership and calm five percent ownership with our syndicate so we started to realize ownership percentage matter now we regularly get to 10 to 15 ownership in our

SPEAKER_58: winners and we have a definitive strategy like a because you need to build process that's what i've learned about a firm you need to have a process and then you need to look at your decision-making process and you have to constantly refine it so every year at our off-site we look at

SPEAKER_16: our anti-portfolio proratas we passed on that we shouldn't have you know and then we came up with

SPEAKER_13: an architecture this year or last late last year earlier this year on when we doubled down and when we double on down a second time so we try to do two double downs likely winners definitive winners we made that architecture we implemented it man it's been working well and getting that ownership

SPEAKER_16: percentage up but i when i architected this fund i said 50 of the dollars into the top five percent of the fund and then 50 percent into the accelerator companies the programs and the directs which roughly will translate into maybe 200 names and then 10 names so if it winds up being a 70 million

SPEAKER_38: dollar fund let's say 35 million into the first 200 35 million into 10 names 15 names maybe 20 who knows we'll see you know and we think that this is the first time any fund has ever any seed stage fund has done that aggressive of a reserves and so yeah this is the architecture i think could crack the code on early stage i don't we'll see you know it's taken primarily from my experience being an lp in the whatsapp fund that did four investments and then watching brian singerman but i think this will be the the new strategy that i think a lot of people are going to copy is can you get i don't know 10 of your fund into the best name 5 into the second best name and then 35 into the other you know 10 best names and then have the first half of the fun going to them what do you think of that strategy you and i talked about it offline but i think i think we did at some point um what do you think of that strategy

SPEAKER_196: too aggressive for percent for reserves uh give me permission to be candid you know so you can

SPEAKER_38: i'm always to find either way yeah be candid you think it's too aggressive you think i'm crazy you think it's crazy like a fox you think it's an experiment worth watching i i totally think it's an

SPEAKER_28: experiment worth watching because i think for me you check the box of you're doing enough deals up front

SPEAKER_00: that you have a high probability of being in the winner i think um ownership absolutely matters but it only matters if you're in a winner and i think the challenge is and and this can also come from experience as an investor but the challenge is is when you have to make that follow-on decision is running the probability math to understand the opportunity cost of the dollar is the dollar being deployed in that follow-on going to be as just a good of return as if that dollar is deployed in another startup in the portfolio and it is the gp's responsibility to do the math and do that decision process exercise and make the choice and make the investment if you tell me that you ran an analysis and said it's better to make the follow-on here i have insider information i have a great idea that this company is going to be huge go for it but that's a choice that you're going to have to live with and then when you run your anti-portfolio and you passed on one extra deal was that one extra dear airbnb or was

SPEAKER_100: that follow-on dollar airbnb yeah and this is the absolute terror that gps have to live with if you think about our accelerator 125k just like y-combinator attacks ours for seven percent okay let's

SPEAKER_120: say we decide we're going to put 1.25 million into a company at a 25 million dollar post we think it's one

SPEAKER_13: we think it's one of our breakouts and we want to own another two and a half percent of it right or no five percent of it 1.25 right 2.5 would be 10 1.25 roughly five percent okay we want to make that

SPEAKER_16: five percent bet well we could have made 10 more accelerator bets so is which is the better use of the capital and i can tell you one of the leaks in the game too was when we were starting out and we had a small team we would have people come and say hey we're raising our round we got a bridge we're doing a bridge can you just put 50k into this 500k bridge so we have your signaling and you know founders are very convincing we've got a great relationship we want to be supportive of the founder it's like okay you know what it's only 50k of a 10 million dollar fund it's only 50k of a 44 million dollar fund

SPEAKER_20: and what i've had to reprogram the team and myself is explaining to the founders we only have reserve capital for the top five percent of our portfolio we've defined the top five percent of the portfolio here's where you are so here's you know 10 buckets of you know uh not court well here i could give you the quartiles but here's the quartiles you're in the second third fourth quartile in terms of performance not only are you not in the top five percent you're not even the first quartile so we can't even have the discussion of us doing follow-up funding we're a seed fund you you have to go make your way in the world and so we stopped doing those 25 50 100 k feel good support the founder bets because they were screwing up exactly what you're saying oh man we could have you know i look back on funds one two and three and if there were 10 of those bats that's 30 more bats maybe i get another superhuman in there and statistically i would have so god damn it you know like and this is what being a great fund managers is admitting when you made mistakes and then changing your game and i

SPEAKER_13: can tell you man i talked to a lot of other gps they do a lot of these feel good 50k 150k 250k follow-ons just be supportive and you got to be i hate to say it i don't want to say cutthroat but you

SPEAKER_228: have to be disciplined and you have the problem communicating it to founders that's the hard part

SPEAKER_00: absolutely and i think that's something that at screen door we have the capability to do

SPEAKER_41: meeting these gps so early on in the process that we can just be like listen this is your fun this is this is what you're thinking but let's level set it from the beginning and say when you make these

SPEAKER_00: follow-on decisions this is my strategy this is how i'm going to execute it don't be afraid to be using your words cut throat be clear and communicative from day one and then you choosing not to follow

SPEAKER_43: on with 100k is not actually not a negative signal in the market it's just your strategy and they took

SPEAKER_129: your capital day one and they know that yeah then you just have to communicate it to them from the get-go all right listen this has been amazing continue your success uh if people want to reach

SPEAKER_13: out and they want to get evaluated uh potentially for being part of your fund of funds what's the best

SPEAKER_16: process should they do they have to jump through hoops and find somebody who knows you and get a warm referral can they go to a web page and upload their deal memo what's the best way can they email

SPEAKER_234: you find me on linkedin gps and lps here to be collaborative but on the screen door website we

SPEAKER_00: do have a gp submission form we love chatting with all gps uh here to educate the community on the gp and

SPEAKER_107: the lp side and work with as many people as we can okay amazing continued success uh and we'll be watching and i wish you all the best thank you we'll see you all next time bye-bye