The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:48:58 · Harry Stebbings, David Tisch
[00:48:58] S1: Who, when they send you a deal, do you pay most attention to? [00:49:01] S0: Great founders. That's who I pay the most attention to. When founders inside of our portfolio, and I don't think it's the best ones only. I think it's the founders who we believe have high quality taste bars and high quality networks. When those people send you someone they know, someone they like, that's when you pay the most attention. [00:49:19] S1: When you look at one part of our business, it's investing. Another part is also, but only making money for our LPs and and selling. And we have very liquid secondary markets today. How do you think about that and taking cash off the table when there is so much demand for some of these names?
00:49:35 · David Tisch
[00:49:35] S0: I work for our LPs, and my customers are founders. And that, I think, is a totally, again, dislocated two sets of relationships. My job is, as you said, to give the people who believe in us and invest money in us as much money as I possibly can. And one way to do that is to try to get out of positions at different times. And there's a risk to it. And there's a financial risk to it and a relationship, a sort of reputational risk to it. And I think that's a really important thing to balance. So in general, we don't sell early. We believe we are investing at the seed stage to join the founder for their journey. And that could be fifteen years, it could be twenty years, it could be four years. But selling early to me risks two things. One is like, if a founder doesn't want you to sell early, you're risking reputational risk in relationship with that founder. In this market, a lot of founders are taking secondary. So you could argue, if you're doing it, I can do it. I don't think that's necessarily the right framework. I really don't. And I can talk about why, but I don't use that framework to think about it. And then the second one, I think the best companies compound the most at the end, Right? Going from like a $2,000,000,000 to $4,000,000,000 to an $8,000,000,000 company is easier than going from zero to a billion. And if you believe that you are in a company that's great, I don't see why you would get out early. I think you're leaving the most money on the table by getting out of something early. And I don't want to do that. I want to see it through. And if I still believe in a company or one of my partners believes in a company, I don't think de risking it is the right answer. We're in the business of risk and we should stay investors in the companies that are gonna keep compounding because every turn you have at the end is a big win for your LPs and for your firm and for the founders.
00:51:33 · Harry Stebbings, David Tisch
[00:51:33] S1: Why do you not think that if a founder's taking money off the table, investors should maybe do the same? [00:51:39] S0: Because I think founders have a different set of economic conditions that are not related to what investors have. Let's say a founder has debt. Let's say a founder is living in a place that creates stress and overhead cognitively for their life. In reality, having some money to improve some things outside of work allows them to be better at their company, or knowing that I have $10.20, dollars 30,000,000 in my pocket, I am now willing to see this through. I'm willing to have bigger risk appetite to like go for it because I feel some safety net. I don't think that that is the same risk analysis that a VC uses to be like, I need to take, you know, 20% of my position off here to like make my fund mouth look good or tell my partners I took some money out of this thing. I just think they're totally different. Or giving early employees like a tender offer and allowing them to have some early liquidity. I think it could help with retention. I think it could keep a lot of those employees happy and engaged and excited to work at a company knowing that they offer tenders every couple of years. We have a bunch of companies in our portfolio that are regularly doing tenders to the employee base, and I think that that's an incredibly valuable culture to set and a retention tactic. And so I just don't believe that they're always related. [00:53:07] S1: What did you believe about Vanisher that you now no longer believe, David?
00:53:07 · Harry Stebbings, David Tisch
[00:53:07] S1: What did you believe about Vanisher that you now no longer believe, David? [00:53:11] S0: Well, it just took a while to see. Right? Every firm thinks they're in the top decile. Right? I mean, I've [00:53:17] S1: never heard any firm be like, no. We're bottom bottom quartile. [00:53:21] S0: Right. So I'm I'm, like, waiting to meet all the bottom three quartile firms in the in the venture industry. When you hear all the LPs explain that... And you look at the the data and it says, you know, all the returns in venture are aggregated to the top five, 10% of firms. I haven't met the the others yet. [00:53:38] S1: Do you think we'll have more or less VCs five years' time? [00:53:41] S0: There's less noise in the venture market than ever before, and there's more competition. [00:53:47] S1: What do you mean less noise and more? [00:53:48] S0: There's less new firms. [00:53:49] S1: Really? It feels like there's more spinouts than ever before.
00:53:53 · David Tisch
[00:53:53] S0: I think they're less. Like, think on it... I think if you actually look at the data, you know, it takes a long time for firms to go away, even if they're still alive. They become irrelevant. They're not investing a lot. They might not have raised a new fund. Nobody's sort of taking them off the map. So the names remain, but the activity goes away. You know, you had asked before about like sub $100,000,000 in San Francisco concentrated seed funds. I think I like didn't answer that fully. I don't think very many people get into venture and want to stay consistent in doing what they do. Meaning, the starter VC is a seed fund. Right? You get, like, if you're new, if you're sort of unproven, you'll get a $20.40, $80,000,000 fund, whatever it is to start. But your goal is to raise a way bigger fund one day. When you raise a bigger fund, when you scale your business, when you have partners and scale AUM, your investment style, your stage, your concentration, your check size is all going to fundamentally change. So when I meet new investors, I always ask like, what's Fund IV look like? Because Fund IV is actually your vision. It's the same as when you meet a founder and you ask, what's the big vision? So I wanna know not what fund one is doing today. I wanna know where you're going with this. Because to me, the advice that you give that person should be in line with how do you get to your actual ambition, not how do you execute your starter fund. And I think what you see in the new firms today is a big ambition. They wanna start with something small and get bigger and do something different really quickly. And I think what's I love about what we do here is this is who we are. This is who we've always been. We are an early stage firm. We write checks at the very early stage, and we don't have any ambition to do anything else.
00:55:45 · Harry Stebbings, David Tisch
[00:55:45] S1: To be clear, you did just raise, what, $5.50 across two funds. I mean, the scale Yeah. The scale has changed. [00:55:53] S0: Sure. But the same exact investment style. And I think we see founders today come to us and say, you're doing the same... Like, you're you're exactly where you were ten years ago when I started my last company. Maybe the check size is different, but we are not... We as a firm, our DNA, our craft is oriented towards being there at the very beginning, at the dream stage. And that to me is, like, what I wake up and get excited about. And I think that when you look at new venture firms, their ambition is to be a multistage firm for the most part. And that's a very competitive part of the market. [00:56:25] S1: It is. I don't actually think they know what their dream is. And I know I know... And what I mean by that is, like, you know, one thing I would say to young people, I sound really old, is, like, be careful what you wish for because you might just get it. And I think the truth is if you know the people at the multistage firms, a lot of them are not happy, the ones who are running it, and wish they were the smaller firms.