How I Invest with David Weisburd
00:17:54 · David Weisburd, Jack Selby
[00:17:54] S0: What was the... What was wrong with the concept as it was? [00:17:57] S1: What I would have done differently is I think having connectivity back to Silicon Valley is really important. And so to put it differently, if you're trying to operate on an island in one of these noncoastal places without that connectivity, I think it makes the probability of success really, really low, if not impossible. So having that bridge... And I'm talking my own book, but I believe this to be true, and this is why we have the strategy the way that we do. You have to have that connectivity. It's like I sit down with an entrepreneur, and I give them a blank piece of paper that is effectively like an a la carte menu. And I'm like, here are the different options that I can bring to bear for you to help you with your company. You can choose out however many items you like off the a la carte menu. You can choose zero. Choose your own adventure, but I wanna help you with your business, and oftentimes, it would require bridging back to Silicon Valley. And I think in the early days of a lot of the noncoastal venture capital op... Activities, that bridge was not sufficiently established. [00:18:49] S0: Empirically, in terms of valuations, do you have any data in terms of different geographies within The United States and and what the valuations are today?
00:18:49 · David Weisburd, Jack Selby
[00:18:49] S0: Empirically, in terms of valuations, do you have any data in terms of different geographies within The United States and and what the valuations are today? [00:18:58] S1: What we saw with our first fund is that we could usually invest, at about between... Let's see. About one tenth of the average series a valuation of what you would see in Silicon Valley. One tenth. One tenth. Yes. So, yeah, essentially, 10¢ on the dollar. [00:19:15] S0: And how does that translate into portfolio strategy and and how you think about portfolio construction? Construction?
00:19:21 · Jack Selby
[00:19:21] S1: So this is the core of it, and so I don't care about what what type of investing you do, but entry price matters. And if you can invest at 10¢ on the dollar versus what's going on in Powell today, that makes a huge difference versus, if you're investing in thinking machines in a pre series a round at a $14,000,000,000 valuation, how does that work? How does that math work? Is thinking machines going to be the next SpaceX? I don't know. Maybe. But it has to be for the venture math to work. Full stop. And people don't talk about this. So my math is very, very, very different because my entry point is so much less expensive. I can usually buy between 1020% equity in a noncoastal series a deal for an average ticket of $3,000,000. Those are the brass tacks. I think that is something I can do with relatively good probability compared to Silicon Valley, BC today, and very importantly, because I was lucky enough to be a series a investor in SpaceX, which by the way was almost nineteen years ago. So so much of Silicon Valley, the pitch today is like, I'm gonna go find you the next Elon Musk at age 24. That is a terrible pitch because the probability of that is basically zero. Peter can find the next Elon. Marc Andreessen can go find the next Elon, but the handful of folks that can do that in terms of true access is very, very, very limited. That's one. Two, you pair that with an outrageously long extended duration. That's a poor parent. So what I think I can do is I have better odds because my minimum bar that I need to cross, that $500,000,000 threshold, is easier. It's more realistic, and importantly, I can get there more quickly than telling you I'm gonna find you the next Elon, and by the way, that's gonna take two two decades from a gestation perspective.
00:21:02 · David Weisburd, Jack Selby
[00:21:02] S0: Yeah. There's a joke. Three x over twenty years is not a good return. [00:21:06] S1: Well said. [00:21:06] S0: Certainly, it's not controversial what you're saying in terms of valuations are low outside the coast and, apparently, 90% lower, which is a bit surprising to me, but believable. At which point does the arbitrage actually take place? In other words, at which stage for a company, revenue or fundraising milestones does a Carvana start to be treated like a truly Silicon Valley company? One thing I've learned from talking to hundreds of investors is that great investment firms aren't built on investment returns alone. The firms under are great at the things most people don't see, their operations, their relationship with LPs, and the quality of information they use to make decisions. And here's what AI has changed. Every firm now has access to the very same models, so the intelligence isn't the edge anymore. Edge is what you could feed it. Firm with its fund operations and data in one connected record can actually put AI to work. A firm running on disconnected systems simply can't. That's why thousands of GPs run their funds on Juniper Square. Juniper Square puts your fund operations, data, and administration together in one connected record. That means less time managing disconnected systems and more time investing, working with LPs, and building your firm. This episode is brought to you by Juniper Square, the operations partner for private market GPs. Learn more at junipersquare.com/howiinvest. That's junipersquare.com/howiinvest.
00:22:33 · Jack Selby, David Weisburd
[00:22:33] S1: Yeah. It's a good question. And I think, you know, if it was a KPI for what we're doing at Copper Sky, if you fast forwarded, say, five or ten years and you saw more coastal firms coming to the interior, to the middle market to quote unquote compete with us, I would view that as a successful outcome for what we're trying to do. Because the reality is right now, you know, essentially, a venture capitalist has two core jobs in my opinion. You're sourcing deals, and you're competing for deals. [00:22:58] S0: Do you know this joke about the further a VC is from their board, the the better the company does? [00:23:03] S1: I'm very well well aware of this joke. Yes. It's an excellent joke. [00:23:06] S0: It's an expert... It's very spot on. Joke because it's actually empirical. And the reason it's empirical, there's different theories about it. Right? You could debate the causation. But the the official, I think, academic interpretation is that VCs, once they get to a certain level of success, they become lazy at the margin. And if you could go in your coffee shop in Palo Alto and meet a company versus go to Milwaukee, Wisconsin, and then have to go to Milwaukee, Wisconsin in the next fourteen years, two, three times a year, then you're gonna be more likely to stay in Palo Alto. And because of that, you're willing to pay up a little bit for for lifestyle reasons.
00:23:06 · David Weisburd, Jack Selby
[00:23:06] S0: It's an expert... It's very spot on. Joke because it's actually empirical. And the reason it's empirical, there's different theories about it. Right? You could debate the causation. But the the official, I think, academic interpretation is that VCs, once they get to a certain level of success, they become lazy at the margin. And if you could go in your coffee shop in Palo Alto and meet a company versus go to Milwaukee, Wisconsin, and then have to go to Milwaukee, Wisconsin in the next fourteen years, two, three times a year, then you're gonna be more likely to stay in Palo Alto. And because of that, you're willing to pay up a little bit for for lifestyle reasons. [00:23:40] S1: Let me be fair. There is so much talent in the Bay Area that the top tier Sand Hill Road guys do not need to leave Santa Clara or San Mateo County to find amazing deal flow, in fairness. And so they don't need to get on a plane and fly to Milwaukee or Phoenix or Cincinnati. They just don't need to. And so You know? And they get... Like I think you said, there's a degree to which they get a bit lazy, and they like to ride their bikes or at most [00:24:05] S0: Some some could argue efficiently lazy. [00:24:07] S1: Sure. And there's a degree of efficiency, I think, in the approach, but they prefer to ride their bikes or at most drive their cars to their board meetings and not have to get on their g five and fly to Milwaukee. And that's fine, but therein lies the opportunity.