00:32:17 · Shardul Shah
[00:32:17] S0: Let's try to separate two parts of it. One is a healthy conversation as a business partner. There's different styles, like you can be prescriptive, which is you don't need, you should do, which is an approach often people take as investors. They have the credibility and skill to do that because they may have operated a company before. My style, which is not for everyone, is probably a little bit more Socratic. Why do you think you need all that money? What are you going to do with that? What's your motivation to? And maybe that's the right answer, or maybe it's not, but I try to help someone get to the best judgment call and decision for their business without a personal agenda. It's really what's in the best service of a company. Separately, think there's something super interesting that's happening right now that I found completely counterintuitive, again, as a UChicago economist, which is the higher the price and the more capital raised, the more likely an entrepreneur is to recruit talent. And the reason it's counterintuitive to me is it defies basic arithmetic. If I were an employee, I'd prefer shares at a lower stock option price because I'd have a lower tax bill and I'd have more upside. But, what's happening in the world today is like a luxury product effect, where a higher price implies scarcity, and so there's actually more demand, which drives conversions. And this is a phenomenon that I'm not totally comfortable with because, again, it's not fulfilling basic arithmetic, but that I'm learning to accept and recognize and coach entrepreneurs in a slightly different
00:33:55 · Molly O'Shea
[00:33:55] S1: I see. Maybe this is a trick question, but what is the largest check that you guys can write without risking or hurting the fund performance?
00:34:05 · Shardul Shah
[00:34:05] S0: I think about our firm performance, again, as a function of being the largest, most impactful investor to category defining companies. If we make a small investment and we do not deliver on being the most impactful investor, long term, we're eroding our performance. So, it's not a function of the dollar size of the investment, it's a function of how we follow through on an investment. In other words, for us, we will not play a statistical game of creating a thousand, $2,000,000 checks in order to risk mitigate against and have diversity in the portfolio. We won't have the skill or will to follow through on each of those tiny checks with real advice, impact, activity, engagement with founders to influence their businesses. The inversion of your question is super interesting, which is like, how large of an investment can we possibly make? And I think it's like an in vogue question today because certain investors have done so well with concentration. I think concentration can kind of cut both ways. It can feel great when the market is up and to the right, but if the market changes, and eventually it will, concentration can really hurt. And so, I think when we look at the statistics of our business, we still have 30 to 35 investments in a venture portfolio, so there's reasonable diversification and we're not taking risk on a single position. Because we invest out of multiple funds over time, like with Wiz, we invested over $250,000,000 over time, so there isn't a constraint on dollar size into a company.
00:35:43 · Molly O'Shea, Shardul Shah
[00:35:43] S1: Has the fundraising size or cycle increased in this environment? How has that changed? I ask this because you brought up a really good point. Had a conversation with Brian Singerman, who was a long time GP at Founders Fund, and they focused a lot on concentration to the point where they would bet all the money on, you know, a handful of companies. It worked out really well, and they're like, alright. If we run out of the fund, we'll just raise another one. And they just kept on doing that, and it worked out phenomenally for them. But I'm curious for your stance, how do you think about that, and then how do you think about the cycles and fundraising in this market? [00:36:22] S0: I mean, our LPs, our limited partners, are such an important stakeholder in our business. We never take them for granted, And our belief is they're purely rational individuals that will invest in great fund performance. And so, we try to take that responsibility very seriously. Over the last twelve months, the number of investments, the dollars per investments across the industry have grown. And so, pacing for everyone has accelerated. And I think what used to be a 2.5 cycle, just in the last twelve months, has probably compressed a bit. Will it return to the normal fund cycle? Probably. But we don't think about optimizing on, time duration. We like diversity of exposure to different vintages.
00:36:22 · Shardul Shah, Molly O'Shea
[00:36:22] S0: I mean, our LPs, our limited partners, are such an important stakeholder in our business. We never take them for granted, And our belief is they're purely rational individuals that will invest in great fund performance. And so, we try to take that responsibility very seriously. Over the last twelve months, the number of investments, the dollars per investments across the industry have grown. And so, pacing for everyone has accelerated. And I think what used to be a 2.5 cycle, just in the last twelve months, has probably compressed a bit. Will it return to the normal fund cycle? Probably. But we don't think about optimizing on, time duration. We like diversity of exposure to different vintages. [00:37:13] S1: So as we talk about fund cycles and the evolution of venture capital in this market, how has the exit environment changed? I know we're in kind of an interesting period for IPOs. We're waiting on some very large ones. This year was supposed to be the year of mega returns, and some of them are getting delayed a bit, but also M and A has changed. The floodgates of M and A have opened up, and more people are becoming acquisitive. Even smaller companies are being acquisitive. So, how has the exit environment changed? [00:37:42] S0: We think really carefully about DPI. We also talk about not getting high on your own supply, so making sure we deliver returns to our limited partners is really important. The two drivers of that are IPOs and M and A. IPOs, exactly as you said, are waiting for the window to open or close in a given period of time.
00:37:42 · Shardul Shah, Molly O'Shea
[00:37:42] S0: We think really carefully about DPI. We also talk about not getting high on your own supply, so making sure we deliver returns to our limited partners is really important. The two drivers of that are IPOs and M and A. IPOs, exactly as you said, are waiting for the window to open or close in a given period of time. [00:38:05] S1: Which I've learned from the New York Stock Exchange, their media partner, you can never time. [00:38:09] S0: You cannot time it. But when you're in the right place at the right time, you have to have the courage to take advantage. So, the IPO window is out of our control. M and A has really accelerated. Again, we saw Wiz, we saw Cursor, we saw World Labs. Catalyst is really active, in supporting transactions. So, not only are public companies incumbents buying privates, but we're also seeing private to private mergers and transactions of a variety of different scale and magnitudes. So, the M and A environment is really healthy. The hardest part is when an entrepreneur has belief in themselves, and they've got a really interesting offer in front of them. What do they do? Do they stay independent, or do they sell? And the interesting thing is, most entrepreneurs, when you first meet them, will tell you, I'm on a mission, I'm never going to sell. It's deeper, and it's much more nuanced. And that's where, if you are the most influential investor, you can make an enormous impact on shareholder value in a judgment call where there is no truth.