The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:18:58 · Harry Stebbings, Scott Wilson
[00:18:58] S1: So just so I understand, we have 50% of privates and directs. In the venture funds allocation, how much do you allocate towards those 20 to 30 names? [00:19:09] S0: At cost, you know, always tell... If we don't have enough conviction to do 1% of the portfolio, then we probably don't have enough conviction to do it at all. But typically, we... You know, at this point, that's close to $200,000,000 and we just don't... We don't have capacity. So, you know, we have to continue to back the companies that we have high conviction in over time. So we might start off with a $50,000,000 check-in a co investment and then scale that up over [00:19:36] S1: investment, will you do a $20,000,000 fund check if it's completely irrelevant from a returns perspective? [00:19:41] S0: You know, it probably means it's a very small fund. And if it's a very small fund that's doing, like, really interesting things, and we would have an opportunity to write a bigger check into one of the underlying companies, then we would do it. But we don't do many of them because it's just not scalable. [00:19:57] S1: You have 20 to 30 funds. How many do you add a year? [00:20:01] S0: I think last year, we added one. We have one that we're gonna add. We know we're gonna add next year. But if we add one or two funds, it's kinda one in, one out. It's not a hard hard line, but but we don't add partners very often.
00:20:01 · Scott Wilson, Harry Stebbings
[00:20:01] S0: I think last year, we added one. We have one that we're gonna add. We know we're gonna add next year. But if we add one or two funds, it's kinda one in, one out. It's not a hard hard line, but but we don't add partners very often. [00:20:14] S1: You said before about mega funds that, like, maybe instead of just growing, they should be more judicious about where they invest is... I'm kinda paraphrasing you. And it seems like the the world has moved in favor of mega funds. Capital is a moat now for many startups. Computing CapEx is a very real cost that maybe wasn't there before. Have you reflected on that and changed your mind or not? [00:20:38] S0: No. I I mean, our model doesn't really work with the mega funds. They don't need our capital, and they certainly don't really need us for co investment unless it's some massive round and some massive company that we can probably go direct in anyway. You know, I I think these mega funds, it's gonna be very hard. We'll see. It's gonna be very hard to kinda generate the historic multiples of invested capital that they have on those much smaller funds. With respect...
00:20:38 · Scott Wilson, Harry Stebbings
[00:20:38] S0: No. I I mean, our model doesn't really work with the mega funds. They don't need our capital, and they certainly don't really need us for co investment unless it's some massive round and some massive company that we can probably go direct in anyway. You know, I I think these mega funds, it's gonna be very hard. We'll see. It's gonna be very hard to kinda generate the historic multiples of invested capital that they have on those much smaller funds. With respect... [00:21:02] S1: And I think this show is phenomenally successful because I do push back. So forgive me because you are an OG, and I'm a podcaster. But, you know, you see Thrive absolutely crush it with OpenAI and Cursor and positions in sizes of outcomes that are just previously never seen before. And we're seeing outcome expansion so real as you've seen with SpaceX. With respect, that would suggest that you could get venture returns on mega funds if in those outcomes.
00:21:02 · Harry Stebbings, Scott Wilson
[00:21:02] S1: And I think this show is phenomenally successful because I do push back. So forgive me because you are an OG, and I'm a podcaster. But, you know, you see Thrive absolutely crush it with OpenAI and Cursor and positions in sizes of outcomes that are just previously never seen before. And we're seeing outcome expansion so real as you've seen with SpaceX. With respect, that would suggest that you could get venture returns on mega funds if in those outcomes. [00:21:31] S0: Yeah. And certainly when you when you get these trillion dollar plus outcomes in private markets even before they're public, it's possible. You know, I, I think if you just think about the dynamics when you double your fund size, right? You either have to double your check size in every company at the same valuation. And we know that doesn't happen, right? They end up pay, it's a, it's a much bigger check, but it's a much higher valuation. So the multiple money's probably not gonna be as good going forward as it has been historically, or you have to do twice as many investments and you know, your 50 bets investment is not as good as your top 10 investments. So you either have to do way more investments, double your check size. And typically, when they double the check size, it comes with, a valuation that's commensurate. [00:22:13] S1: I think they would say they double their check size, but the companies need so much more capital. AI is this exhaustive capital that Venture needed. Finally, we have an avenue to deploy the billions of dollars that you very kindly give us.
00:22:13 · Harry Stebbings, Scott Wilson
[00:22:13] S1: I think they would say they double their check size, but the companies need so much more capital. AI is this exhaustive capital that Venture needed. Finally, we have an avenue to deploy the billions of dollars that you very kindly give us. [00:22:27] S0: Yeah. I mean, they're certainly massively CapEx intensive businesses, but it... It's not clear to me what the long term returns on that CapEx is gonna be. [00:22:36] S1: With respect, given the size of checks that you need to write, are you able to not be in the mega funds? Just when you think about concentration on a per fund basis, if you have to write 50 to $100,000,000 and you don't wanna be more than a 10% of the fund, I mean, you've gotta be in billion dollar plus funds.
00:22:36 · Harry Stebbings, Scott Wilson
[00:22:36] S1: With respect, given the size of checks that you need to write, are you able to not be in the mega funds? Just when you think about concentration on a per fund basis, if you have to write 50 to $100,000,000 and you don't wanna be more than a 10% of the fund, I mean, you've gotta be in billion dollar plus funds. [00:22:53] S0: Yeah. We're obviously in lots of funds that are north of a billion dollars. We're not in any that are north of 10,000,000,000. Yeah. And we we would certainly have a strong bias. I wouldn't say never, but we would have a strong bias that that's probably not the best use to work capital. And we have no problem getting concentrated positions. You know, if you look at our look through exposures, you know, we have lots of significant capital allocated to a small handful of names that, we built up over time in really great companies that we don't need trillion dollar outcomes to have, you know, SpaceX like outcomes. Yeah. It's just a completely different strategy. We, we would rather be at somebody who's small, doing really interesting things in these companies early, and we can partner closely enough with it that we know those companies. We can develop conviction early on and, you know, we can essentially lead some of those middle to late stage rounds. [00:23:46] S1: When is it interesting for you to get involved? Company valuations are soaring so far so quickly today. How do you think about, like... When's the wash you insertion?