How I Invest with David Weisburd
00:57:05 · Gavin Ezekowitz
[00:57:05] S0: You you have to have a measure of conviction. And I think and I think what you've got to balance that with... No. I don't know. I think it's the Kendrick Lamar sign. It's like, Sit down, be humble. Yeah. Right? You've got to be humble. You've got to have great humility. What is your ability to predict the future across any set of parameters, including our own lives often? Right? We... It is very limited. And so in that environment, with that limited information, that limited window, how do we do it the very best we can? How are we great fiduciaries? And people entrust us with their capital. They entrust us to make good, solid, well founded decisions, and that's what we do. And to be careful, right? And if you're thinking about you've got your 20 positions equally weighted, and you you know, you've you've invested in 18 companies, you got the last two, and you're sitting down getting ready to write that check for number 18. I think if you're not sweating, if you're not going, Am I convinced that this one is the deal I should do? I wonder about what investor you are. I think we need to feel the weight of that of that decision. You know? And I I also think we need to be aware that we're always gonna have limited information. The And the hard challenge for us is how do we, to the best we can, give ourselves an unfair advantage. What can we do to give ourselves more conviction to believe that we've got more precise view, which which underpins the underwrite and and so forth? And then are we willing to say no? One of the hard things, you've done all this work, spend all this time, and you've gotta be able to come to a no. You've got to be able to say no. And it's not the easy no. The, you know, one call, you know, got... I'm not... That doesn't work. It's the no where you've put in tons of hours. And that's what we talk a lot... About a lot on our team is what level of conviction do we have. We can't be afraid to say no regardless of how much work we've done.
00:59:30 · David Weisburd
[00:59:30] S1: I realized we started the podcast. I didn't I didn't even credentialize the BFA, one of the top adviser. I think you just won an award in private equity, so congrats congrats on that. If you had to really sum up to what you're looking for in the best venture capital managers, how would you stack rank those characteristics?
00:59:49 · Gavin Ezekowitz
[00:59:49] S0: There is our line, which is, you know, people and and process. I think fundamentally believe that the investment management world is driven by... And returns are driven by exceptional individuals. Sometimes they're they're in collections of teams. Sometimes it's just simply a person. Sometimes that person is in a leadership role. Sometimes they're deep in the team, and you you gotta figure it out. But I think it is all about people. Those people tend to have a process that whether it's a very refined process that they can write down almost like a script or it's a little looser. It is a process for creating the opportunities, for spotting them, for working them through, and diligencing them, how they start. Some people start thematically. Some people just take every meeting. Manager told me the other day, he said, the meetings I like are when somebody says to me that they come up... They're talking about their new idea. And he he says, I... I've never thought of that. I never thought that was a business. I never even thought that was possible or whatever. He said, I get excited. Why? Well, because with those other businesses, if I've thought about it, there's probably 30 other people that are already doing it anyway, and I'm just meeting one of them. But this thing, I'm pretty sure there's not gonna be many other people. Right? And that gets me excited. I start to work. I think, oh, that's interesting. There are a million ways to assess, but I think it is people and then in that process. And then you've got to see some evidence of how that process has played out. And I think that there's an overreliance on it playing out with amazing returns. I mean, wonderful if it does. But but sometimes returns occur because of market events. Maybe you had a bunch of companies that were ready to SPAC during that SPAC period in 2021. Wonderful. You got the returns. I mean, I think that's spectacular. And and but but is that are those conditions repeatable? Like with those? Can you go find businesses like that? And does that environment exist in that way? Yeah, maybe you've got a narrative, but maybe it's okay to get lucky, but maybe that was a bit lucky. And we need to look for something else other than just those
01:02:26 · David Weisburd
[01:02:26] S1: You guys back to... How do you repeat that?
01:02:28 · Gavin Ezekowitz
[01:02:28] S0: I think the repeatability comes in a bunch of different areas. One of them is, can you create a team so that you can scale the breadth of your activities with your capital? Which is quite hard in venture because, of course, often you have to invest ahead of the fund closing and and so forth. And we talk about the quality of teams in founding businesses, you know, with founders and so forth. The quality of teams in venture businesses, very interesting. Very interesting. It is so often the case that you have one or two, particularly in smaller earlier firms, one or two really exceptional individuals in in their own way. They don't all look the same. And then you'll meet the rest of the team. Got pretty ordinary group of folks. Right? Pretty ordinary. They... I'm not seeing a lot that's interesting here. Now that's fine if people are junior analysts and tasked with doing things like... But if you... If that's your next level, in the same way as you you would assess SpaceX or or a founding company of the quality of people that they can recruit, I look at that, and I go, oh, that's interesting. Is it they couldn't recruit someone who wanted to believe in the journey? Wouldn't we all love to be joining a rapidly growing venture firm? Is this what they think good looks like? What if the founder gets ill? Would any of these people be people that I'd want allocating capital? And so you do see wide variety. And as an aside, I think we're gonna go through the most interesting period here over the next three to five years, as we see hopefully all these IPOs that come to pass with tremendous returns. A number of firms have got senior partners who are between, you know, 40 and 60, 65, who are going to have made more money than they've ever made in their lives. They may already be affluent, but they're now going to be uber affluent. The nature of these firms is that it is often hard to bring new blood in to share carry and so forth. And we could see some vacuums. And I think it's gonna be really interesting to see how firms deal with that dynamic. Again, you know, I think like any industry, it's there's there's often that really weird spot mid career for folks where they it's quite hard to find people that would fit that slot. They're either happy where they are, they've started their own firm, or you've to give up a lot of economics.
01:05:19 · Gavin Ezekowitz, David Weisburd
And sometimes folks in the VC space are willing to do it and sometimes not. So I think we're gonna see a really interesting period here of transition. [01:05:30] S1: Generational transfer has been so poorly done in venture capital that people only know the cases where it's worked. [01:05:35] S0: Yeah. Yeah. It's a great place. [01:05:36] S1: It's it's like this power lab outcome. You have Sequoia, third generation Benchmark, third generation. I think Excel has done fairly well as well, but I'm probably missing somebody. But the fact that we can't rattle off a dozen cases is itself a sign. [01:05:51] S0: You can see why it's difficult. I mean, we can understand why it's difficult, but I think it does come down to something we haven't talked about, I, you know, and again, maybe my character as much as anything. I'll often spend a bunch of time with a venture manager, even if they're at the early stage, about the business of how they operate their business. So, you know, it's a business. [01:06:16] S1: The business behind [01:06:16] S0: the the Behind the, you know, other... Okay, great. That's the capital allocation and and what you do as an investor. But talk about your business. By the way, generally in the investment world, it is amazing how varied the business capabilities of people in the investment world are. It is astonishing. [01:06:36] S1: What's an example?