How I Invest with David Weisburd
00:31:33 · David Weisburd, Jack Selby
[00:31:33] S0: People that you have worked with before. [00:31:35] S1: Yep. I run Copper Sky with a guy named Jason Pressman. Like, he's literally my best friend. He was the first guy that I met when I moved out to Palo Alto in 1999. You know, like, Jason's son is named Jack, not by coincidence, just to give you context. And so oftentimes, you know, adults will tell younger people not to work with your friends, And I think that's literally terrible advice. Literally terrible advice. Because, like, in any relationship, you set up guardrails, of course. But then once you have that relationship within the guardrails... Like, Jason and I can cover topics, subject matter in twenty minutes that would take other people two hours. It's not because we're smarter than other people. It's just we know each other so well. [00:32:11] S0: We have the context. [00:32:12] S1: And... Yes. And even more importantly, what is our most valuable resource? It's our time. And I'm basically multiplying my time with Jason because he and I know each other so well. So if you have the ability to work with people that you know so well, I. E. Your friends, you should take that opportunity to do that all the time because it multiplies your time.
00:32:29 · David Weisburd
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00:34:24 · David Weisburd
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00:35:32 · Jack Selby, David Weisburd
[00:35:32] S1: I was essentially on the road every single week for the first six months of this year, and I took a very significant sample set of meetings with LPs. So I feel like I have a reasonably well informed opinion on this topic. So here's the distillation of what I found. So one, the industry has done a poor job of returning capital to its investors over the last decade, and we can talk more about why that's the case, but that's just the fact. So that's number one. Two, the mega funds. So essentially, eight firms went out and raised, I think, an aggregate of $70,000,000,000 earlier this year for whatever capital that was still positively disposed towards this asset class. That's two. Three, any capital that is left over that is... Remains positively disposed towards private technology, that capital is infatuated with shiny toy late stage AI deals. That's the entire landscape today. Full stop. [00:36:32] S0: And you think that's wrong?
00:36:32 · David Weisburd, Jack Selby
[00:36:32] S0: And you think that's wrong? [00:36:34] S1: Well, to step back as to why Venture got into this position in the first place, after the great financial crisis when the printing presses at the Federal Reserve and other central banks was on full tilt for thirteen plus years and interest rates were zero, it caused a real problem for the venture capital industry in the following way. So yields were zero. Investors were reaching for yield. They associated tech with growth with yield, so they stuck way too much money into the venture capital asset class, which by the way is tiny, especially compared to its big brother private equity. So venture is probably... I don't know what that number is. [00:37:10] S0: Three and a half. 3 and 1,000,000,000,000. [00:37:12] S1: Right. It's a tiny asset class. In good venture, top quartile was the only place you really wanna be or higher. It's even smaller. And so essentially, way, way, way, way too much capital got stuffed into this otherwise tiny asset class that then spawned way too many managers that have turned out to be b minus or worse, and here we are. And because of these private capital structures, the Darwinian cathartic culling of the herd takes forever. There's [00:37:41] S0: ten year vehicles.
00:37:42 · Jack Selby
[00:37:42] S1: They're ten year vehicles, and these venture firms that turn out to be b minus or worse just play the game of manage... Management fee ventures, and they just ride it out and they milk the fees and they're zombies. And so in 2021 hit, and so so many venture managers rode the wave up, top of the cycle, crystallized no gains, which is their fiduciary responsibility. I'm not saying you need to be a macro manager and know when to top ticket, but they crystallized no gains and rode the wave down. So those paper gains just went poof, and that's a real problem. So you have a vintage of venture managers that are ostensibly still in business today, but they're walking zombies because they screwed up by not returning capital to investors at the last cycle peak, which is back in 2021. So that's a problem. And now so many of those folks have reinvented their portfolios as all being AI companies. So if you had a way back machine and looked at their portfolios from five years ago, you would not see nary a mention of AI, and if you fast forward today, all of them are AI enabled companies doing something or another. And they're doing that because that is their only chance of potentially staying in business, because if they can throw a Hail Mary and have one of those companies potentially get acquired, go public, whatever sort of liquidity outcome you could have, then they can stay in business. But otherwise, they're zombies. And probably... I mean, Peter wrote an amazing editorial in Barron's about the hedge fund industry back, I think, in 2006. So... But how does that cleansing, that Darwinian culling of the herd, it just takes forever. And I've been wrong about this because I've been pounding the table about this dynamic, and I would have thought if it was a baseball analogy, we would be in the fifth or the sixth or maybe even the seventh inning of this process. And the reality is we might be in the second inning at best. It's a very, very