How I Invest with David Weisburd
00:29:32 · David Weisburd
[00:29:32] S1: When people ask me about what venture funds should I invest in, what startups should I invest in, I always first make sure that they have the right framework. And the way that I do my venture investing is you have to really understand the role of venture capital in your portfolio. Venture capital is not treasuries. It is not the S and P 500. It is not real estate. It is not private equity. It has a singular role, and that is to deliver outsized asymmetric returns once in a while. It is the most bipolar asset classes, the most bipolar underlying portfolio companies. So the the way that I look at venture is you have to be both paradoxically bold and have the right portfolio construction. What does that mean? You wanna be bold. Every company should be this 100 or a thousand x or zero. Of course, depending on what stage you're on. But even today, I think the reason Benchmark is raised or is is raising a growth fund is because they believe that's... There's there's their power laws at the growth stage. Yep. I don't think Benchmark woke up and suddenly became greedy. They've been one of the most disciplined investors in the world. But regardless of stage, you wanna take these highly asymmetric bets. A 100 x or zero. Just think about it from from an oversimplified... Companies like Anthropic, companies like Instinct, which was Mhmm. This this personal AI app, which, you know, I don't know. Some probability, it'll go up to $500,000,000,000, and some probability, it'll go to zero. Right. And probably nothing in between. And then... And this is the thing that people get wrong. A lot of people get excited by that. A lot of people have this gambling compulsion. They're like, okay. Great. This is great. I wanna put all my all my money on, you know, the number 31 on the roulette table. The next and most important thing is you need to have the right portfolio constructions. You need to be diversified. In our fund, we have roughly 20 positions. So you wanna take these very aggressive bets, and you wanna be diversified across different verticals. If you're an LP, you wanna be across multiple funds. So now you have, let's say, five funds of twenty twenty companies per vintage. So now you have a 100 companies, and then, you know, you you have one Anthropic, and one of your 100 portfolio companies across your five managers who are doing well.
00:31:47 · David Weisburd
What do you think about that, and how would you improve upon that model?
00:31:51 · Gavin Ezekowitz
[00:31:51] S0: It's very, very similar to the way we we think about the world. So I I think that the very difficult part for investors is to understand that venture is a great twenty year asset class. In any given period, with any given fund, you may have a flat spot. Even the best managers, it is not as perfectly predictable as as people might like. What some folks do... You mentioned five. We use 10 in in our strategy. But what some folks do is say, well, great. Well, I'm gonna go and buy an index of venture of some kind. And so what you lose in that, which is the problem, is because of the dispersion, you end up losing all the convexity. And the only reason to do venture is convexity. It is you want the shot at an anthropic. You want to make sure that the the potential is that the weight of that anthropic ideally will be great enough that even if it was in one of your funds, that it would still give you a an an exceptional return. You would still have a much better return than you would have if you'd been invested in Nasdaq or or some other benchmark asset. And I think that's the first key. I think the second key that's really hard for investors, and I'm sure you've seen this in your portfolio, we see it in our own, is that it's always tempting to think there's a right time and a wrong time. Right? I shouldn't invest in the benchmark fund. It's the top of the market. AI's in a bubble, whatever. Yeah. Or or it's a terrible time. Companies are having trouble raising money. This doesn't feel like a very good time to be investing in venture. Or I've just lost a bunch of money. Now's a terrible time. Pacing and sizing. Pacing and sizing is what Matt Cortola, my partner, and I talk about all the time. It's the great advantage the individual investor has because they can set their portfolio. So pacing, develop a program, multiple funds, multiple years. Sizing, ensure that the size is adequate, that you can continue that program over time. And then if you're sizing individual positions, you know, size them on a on a matrix that that allows you to take sufficiently sized bets over time such that no one bet wipes you out. You know? As I say, the dead don't compound. So, you you know, you can't get... You gotta survive.
00:34:39 · Gavin Ezekowitz
And so I think when people think about that corner of their portfolio, then they can start to make probably what I would consider more appropriately aggressive allocations with the recognition that they... It's gonna have a very different return profile than perhaps what they're they're used to.
00:35:03 · David Weisburd
[00:35:03] S1: So so many great points there. On the indexing point, I think the biggest myth in venture capital across the last ten ten or so years is that every... Any manager could get lucky and to get into the greatest companies. And not only was I think this was a myth a decade ago, today, it's almost impossible. These these companies become so consensus so quickly Mhmm. That unless it happened to be that you... Your Stanford roommate just happened to be, you know, Evan Spiegel or or something like that. Like, that... That's the level of luck that you need today to get into a company that you don't deserve to be in Right. From a brand perspective. Even a decade ago, I think that was much more likely the case. We just know the counterexamples are just so memed sometimes for Uber. Everyone knows that Uber was going around and and raising in 25 k checks, a lot of people that weren't even, you know, restaurateurs and people like that got into got into the company. But how many stories are there like that? Not that not that many, especially in the last ten years. And on top of that, you learn, and frankly, I I was heartbroken to learn that Airbnb itself was also... You know, people love this, like, story of the David versus the Goliath Airbnb. Nobody loved them, and, you know, they... It took ten years for them to get all this attraction. When you actually look at the facts, and I was told this by by early investors because my my interpretation of the story was wrong. Yes. It is true. Airbnb, when they went to pitch to Paul Graham at YC, he didn't really like it. And then they're like, well, what do you have there? And they had these cereal boxes and that that Obama owes and the McCain, and he's like, holy crap. You guys are selling cereals in order just to, like, make make it and kind of the tenacity that you need as a start up. But they were hot at their vint... At their y c class. In fact, Sequoia, I believe, invested. They didn't even go to demo day because they got that investment from Sequoia. So even these stories that are supposed to be these great counterexamples, these great examples that anybody could invest in these great companies that they are on the lookout enough. Even they themselves are not are not true. So I think that's the problem is when people hear indexing, sometimes they start to think, okay.
00:37:06 · David Weisburd
Let me just say yes to every manager that I get, and I'll I'll get exposure to that. And that has not been done well. And I I think that's a trap that you fall into if you... If and when you start to subscribe subscribe to to this this indexing. Indexing. One thing that I've learned from talking to hundreds of investors, founders, and business leaders is that planning for the future isn't just about growing assets, it's also about protecting the people who matter most. Life comes with a lot of important milestones. Maybe you're buying a home, starting a family, planning for college, or simply thinking more intentionally about your financial future. As those responsibilities grow, it's worth making sure you protect those you love. Not sure what kind of life insurance you may need? Concerned about how much it may cost? Think life insurance is too complicated? Your local State Farm agent can help answer those questions. They can help you explore your options for life insurance and choose coverage that you can adjust as your family's needs change over time. Financial protection for your loved ones when it matters most. Learn more about life insurance@StateFarm.com. Like a good neighbor, State Farm is there. Support for today's episode comes from Square, the all in one way for business owners to take payments, book appointments, manage staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique, or managing a service business, Square helps you run your business without running yourself into the ground. I was actually thinking about this the other day when I stopped by a local cafe here. They use Square and everything just works. Checkout is fast, receipts are instant, and sometimes I even get loyalty rewards automatically. There's something about businesses that use Square. They just feel more put together. The experience is smoother for them and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are, in store, online, on your phone, or even at pop ups, and everything stays synced in real time. You could track sales, manage inventory, book appointments, and see reports instantly whether you're in your shop or on the go. And when you make a sale, you don't have to wait days to get paid. Square gives you fast access to your earnings through Square checking.