The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:28:40 · Harry Stebbings, Scott Wilson
[00:28:40] S1: You you said about stupidity within private markets. What did you mean by stupidity? Like, what are you pointing to? Is it valuations? Is it deployment speeds? [00:28:48] S0: Yeah. It's just valuations. I'm sure that half of these kind of, you know, I guess super intelligence is the correct term now, but these AI related companies, like probably half of these companies don't exist ten years from now. And it's not clear how many have like a defensible moat around their business. It's not clear to me what the ultimate profit pools look like for these companies. I I think it's a super strange dichotomy. If you take the top five kind of large language models and they all had the same user interface for 99% of problems or tasks, like, you probably couldn't tell the difference. Right? You wouldn't know which model you're using. I I can't describe another industry like that that has a big kinda deep profit pool. [00:29:27] S1: Do you have much exposure to OpenAI or Anthropic, the model providers? [00:29:31] S0: We have pretty decent exposures to Anthropic through a few of our partners. [00:29:35] S1: With the greatest of respect, as you said, that the ability and willingness to switch, the commoditization, do you ascribe little value then to that model providing layer?
00:29:35 · Harry Stebbings, Scott Wilson
[00:29:35] S1: With the greatest of respect, as you said, that the ability and willingness to switch, the commoditization, do you ascribe little value then to that model providing layer? [00:29:45] S0: The way the business models are currently constructed, yeah, when there's a free alternative customer willingness to pay drops very, very quickly. And I think everybody starts with the frontier model. And this is definitely true when I talk to our companies in our portfolio, you know, everybody starts with the frontier model because if you're trying to implement AI and like, you know, you're starting at spending at zero and you allocate some budget to it. So I think everybody starts with the most expensive models and they use it, they find it useful, they ramp up spend. And at some point they say like, you know what? For most of our tasks, and certainly this is true on on my team, like, we don't really need a frontier model. We're not solving millennial price problems. [00:30:25] S1: Why have you not sold then? We've had very liquid secondary markets. I completely hear and agree with you on everything. But then why why hold a position that could be sold? [00:30:34] S0: Yeah. For us, it's relationship driven. These aren't held in SPVs where we could easily sell. It's one exposure in a fund of 40 other investments, so we wouldn't be selling just one thing in isolation. Those particular partners, like, they're they're great partners for us, so we're happy to hold it. And, you know, if it goes public, we have the ability to hedge if if we think the price is right.
00:30:34 · Scott Wilson, Harry Stebbings
[00:30:34] S0: Yeah. For us, it's relationship driven. These aren't held in SPVs where we could easily sell. It's one exposure in a fund of 40 other investments, so we wouldn't be selling just one thing in isolation. Those particular partners, like, they're they're great partners for us, so we're happy to hold it. And, you know, if it goes public, we have the ability to hedge if if we think the price is right. [00:30:54] S1: How do you think about the stock distribution lens? We've seen several managers say, actually, we think we can manage your position once public, and so we're gonna create vehicles to do that. Others say we're gonna distribute straight to you in stock. How do you think about what is the right way? And then what do you do once distributed with the stock? [00:31:15] S0: Yeah. I mean, it depends on the the situation. We have stuff that we owned as private companies, and it went public five years ago, like Nubank, it's in our 13 f. We've owned that since it was a private company. It was distributed and we still own it in almost five years later. Other companies that goes public and we have the ability to hedge exposures, pre pre distribution, we'll do that if we think the valuation is frothing. So for us, it's it's kind of valuation. We we probably have some independent view on what we think the right value for the the stock is, and so we'll partially hedge or fully hedge the position.
00:31:15 · Scott Wilson, Harry Stebbings
[00:31:15] S0: Yeah. I mean, it depends on the the situation. We have stuff that we owned as private companies, and it went public five years ago, like Nubank, it's in our 13 f. We've owned that since it was a private company. It was distributed and we still own it in almost five years later. Other companies that goes public and we have the ability to hedge exposures, pre pre distribution, we'll do that if we think the valuation is frothing. So for us, it's it's kind of valuation. We we probably have some independent view on what we think the right value for the the stock is, and so we'll partially hedge or fully hedge the position. [00:31:50] S1: So you get stock. You do a, like, scheduled sell down over an eighteen month period. It's totally ad hoc, and it depends on a per name basis. I agree. I think Nubank's amazing, David is a rock star. I'm a I'm a holder too. But how do you do that? [00:32:05] S0: For something like SpaceX or a really big position that we think still has, like, a ton of potential upside over the next five, ten years, like, we'll, you know, try and be as thoughtful as we can. And it's... You know, I always say it's better to be not stupid than clever. So it'd be stupid to not take some chips off the table because we have a fiduciary obligation to the university and the mission of the university. So we'll take some chips, but if it were a much smaller position, we would just hold it for the next ten years. So we're, to some extent, just risk managing that position, but we'll gradually sell out of it over, you know, a multiyear period.
00:32:05 · Scott Wilson, Harry Stebbings
[00:32:05] S0: For something like SpaceX or a really big position that we think still has, like, a ton of potential upside over the next five, ten years, like, we'll, you know, try and be as thoughtful as we can. And it's... You know, I always say it's better to be not stupid than clever. So it'd be stupid to not take some chips off the table because we have a fiduciary obligation to the university and the mission of the university. So we'll take some chips, but if it were a much smaller position, we would just hold it for the next ten years. So we're, to some extent, just risk managing that position, but we'll gradually sell out of it over, you know, a multiyear period. [00:32:38] S1: Scott, I believe you were one... Well, the only allocator to suggest to Sequoia that maybe the eternal and evergreen funds were not optimal. How do you think about and reflect on that? And did you did you kind of sit back and go, wow. This is a bold move as you were doing it? [00:32:54] S0: I mean, it was controversial enough that we discussed it with the board. I mean, they're great investors. They're great people, And they've obviously made LPs a ton of, money over long periods of time. Like, didn't fit super well into our kind of co investment model. So they weren't great partners for us at that point in time. And, you know, it was probably detrimental to some LPs when they switched that structure. And we really haven't followed the firm as closely since then, but, hey, those guys will degrade over long periods of time.
00:32:54 · Scott Wilson, Harry Stebbings
[00:32:54] S0: I mean, it was controversial enough that we discussed it with the board. I mean, they're great investors. They're great people, And they've obviously made LPs a ton of, money over long periods of time. Like, didn't fit super well into our kind of co investment model. So they weren't great partners for us at that point in time. And, you know, it was probably detrimental to some LPs when they switched that structure. And we really haven't followed the firm as closely since then, but, hey, those guys will degrade over long periods of time. [00:33:21] S1: Scott, I'm so sorry to be so blunt. You don't freaking turn down Sequoia. Like, you just you just don't do it. I really like you because you're blunt. You're honest. You're just a good dude. But, like, what are you doing? Even even if they one x, the point is you're you're close to the green leaf, and goodness comes from being close. It's like the genie in the lantern, you know, in the cartoons. Maybe don't rub it. [00:33:47] S0: Yeah. No. I'm sure it was a mistake if you look at the returns that they've generated, but we've done just fine. [00:33:53] S1: Did every LP just come to you and be like, wow. That was so bold. [00:33:58] S0: You know, it was funny. I... There was a bunch of LPs that called, and we expressed, you know, our view. And, I think everybody complained about it, but everybody did it at the end of the day.