How I Invest with David Weisburd
00:47:53 · David Weisburd
[00:47:53] S1: That's almost a mark of all the top venture funds as they've evolved now into their follow on capital is it's much more concentrated. Founders Fund is famous for doing it to an extreme... Putting, like, half of their fund into one company, like a SpaceX or Airbnb. But on a on a lesser scale, they'll take a third of their follow on capital and put it in one of three companies. Mhmm. They'll... Instead of... They might have twenty first first checks and, you know, three three follow on checks. We land closer to that, which is like, okay. You try to get 20 really good asymmetrics. Some of them take off, and you put it in kind of those those rockets.
00:48:29 · Gavin Ezekowitz
[00:48:29] S0: We pay as allocators for conviction. Right? I mean, we're we're buying conviction. And I think that that's fantastic. I often say to our venture managers that the real magic is that you're willing to bet, your business, your reputation, meaningful portfolio returners. It's a big deal. It's a really big deal. Mean, getting them wrong is very painful. But for that, you deserve an excellent return for yourselves and when you get it right. I think there's nothing wrong with that at all. But I'd rather have that outcome, the outcome where you have conviction, you have a big winner, you make a monstrous return out of the carry, then have folks who are trying to cut the middle ground, not get it too wrong. If we do it this way, can we then go and raise another fund? I am seeing, you know, it's a good process. I'm not sure about it over time where with the focus of DPI, folks are selling more positions in the secondary market a little earlier. Some of that I really like. Some of it concerns me that we're effectively cutting off the potential in our portfolio. You did all the work to get this incredible thing to hear. Now you're going to go sell half of it. Yes, we appreciate getting the capital back, but we can't necessarily you know, replicate that position ourselves. How do I feel about it? I I mean, I get torn. I get torn because, of course, we want DPI to do other things and so forth.
00:50:22 · David Weisburd
[00:50:22] S1: That goes back to what I was talking about, like, venture being the singular asset class. You have to know how to use it. And it's on the GP level, it's on the LP level. There's this concept that I've been talking about LP capture, which is an otherwise good manager. If you have the worst LPs in the world, they could end up making you sell your anthropic position at this, you know, at a five x or or sell your space x out of three x. And you would have... All you had to do was not sell, but because you have these LPs that are pressuring you because they're misusing the asset class, either they're overly concentrated. We didn't... We haven't talked about this, but you shouldn't have too much money in venture because lo and behold, if you're having a bad vintage, you might do you might do the dumb thing because, you know, your other part of our portfolio is struggling and you need that capital. So you have to be very careful on how you look at venture and how you use venture out of portfolio. And then on a GP level, in many ways, the GPs should be encouraged to take more risk because they have this n of one. They have this one fund. In many ways, you should want them to be more risk on because they're doing all this career managing. They're trying to get to at least a two x Mhmm. Ideally, three x returns so that they could raise another fund, get more management fees, and they're kinda managing their career. But oftentimes, you have the GP that's trying to be more bullish, and LLPs are kind of asking them to cut back, and then that that could be highly counterproductive.
00:51:43 · Gavin Ezekowitz
[00:51:43] S0: I was on a call early this morning with a very significant LP, and she she asked a really great question. She said, well, given the macro environment and so forth, and we know a little bit about that. Given the macro environment, like, how are you, you know, how are thinking about allocating capital in in your fund and so forth? And I said, you know, this is a really it's a really big question. Right? And I think Because I think what LPs want is you to perfectly predict the future and not buy the overvalued stuff, wait six months and buy it all cheaper, and so forth. Wonderful if we could get it so perfect. I said, Whether or not I've got an absolutely precise and perfect view of of the cycle. If I am taking too big a macro leg view, too big a macro view on allocating capital, I'm doing you a disservice because you've given us capital to invest with a very specific agenda. And if we are not delivering on that capital allocation, to the extent that I'm completely wrong, let's say I'm bearish and the market continues to travel, I haven't done the job for you. And I'd say on the flip side, your sizing should be sufficient such that I know that Gavin is going go and allocate capital to these kinds of companies with this kind of underwrite, and not in a sloppy way, but he's allocating in this environment, in this current environment, And I need to size accordingly. I need to size because I think it might be a toppy market. So maybe my check will be half as large as it might have otherwise been. And if it turns out that there's downturn and, you know, there's a... Maybe that'll be a chance to re up and do other things and and so forth, and I can take advantage of that. But I think that it's very tempting to get overly manufactured around macro views to become very embedded in having a conviction that certain things absolutely won't work or this is going to be the way. And I think one of the things that being in the investment industry for a long time has taught me is that we are wrong a lot. As investment managers, we are wrong a lot. At least half the time in venture, 70% of the time. We're wrong even when we have conviction. And so we need to have an open minded view about what the paths may be. I think all that we really need to lean on is digging deep and saying, Do I really have conviction here?
00:54:50 · Gavin Ezekowitz, David Weisburd
Or am I just afraid that I'm going to miss this name? That I won't be able to face my family because I didn't invest in the cursor $10,000,000,000 round. [00:55:03] S1: You have a tough family. [00:55:04] S0: My brother's an LP. But, you know, that reality, right? But I think, you know, is your real conviction? Do you really believe it? We know we're gonna get them wrong. And then we invest in this market. As a very wise investor said to me the other day, he said, There's going to be a cycle. The kinds of companies I buy are going to get... Buys hyper growth companies are going to get sold off. Even in the private market, they're going get sold off. My playbook has been to know those companies well enough to go and be happy to buy... Increase my position at a discount, and wait it out because I I believe in the fundamentals of the business. Right? That is, yeah, you've you've just gotta be willing to do it. So you gotta have the dry powder to do it. You gotta have the knowledge of the company, the relationship with the company in order to be able to deliver on them.
00:56:06 · David Weisburd, Gavin Ezekowitz
[00:56:06] S1: I'm always so impressed when I meet people that have a rate on the market and they're drinking their coffee. I'm always thinking about what's in this coffee? I need to put this in the coffee because I'm meeting with top people at Sequoia, at Andreessen Horowitz, at Thrive, on or off camera, and I'm like, what inning are we in? Are we in the second inning? Like, I have absolutely no clue. Yeah. I can't even tell you whether they were in the second inning or the seventh inning, let alone the second or the second half. And then I talked to macro investors in the public markets, and they're like, they could beat the market by 1% a year Mhmm. On, like, thousands of trades. And yet these people are sitting down and telling me directionally exactly where the market's going. I'm like, how do you have? You're obviously a smart person. You've been around for for thirty years. So when when I'm sitting with... Down with someone, I'm like, how do you have so much confidence still? You've gotten beaten down so much by the market, but you still have this level of confidence, and it's incredible. [00:56:59] S0: We are, to a great extent, in the predicting the future business. [00:57:03] S1: You get paid for having this confidence.