How I Invest with David Weisburd
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?
01:06:36 · David Weisburd, Gavin Ezekowitz
[01:06:36] S1: What's an example? [01:06:38] S0: Let me give you an example that is not directly from venture, but to me, plays out. You've got a manager that's raised a reasonable amount of capital to manage, and he's got really good returns. Really, really good returns. He's he's stressed out because he doesn't know how to grow his capital enough to really make it into now a real business. Right? He's got a couple $100,000,000, but it's not enough. Little team. So you talk to him a little bit about it. Then you flip to the back page of his deck, and you look at all of his supporting cast, the custodian, the auditor, and all of these folks. I'm like... I said, I'm I'm looking down this list, and I said, I'm not, you know, here to judge anybody, but this is not an institutional page. You gotta have a big four auditor. Like, it's just the way. And there's a few administrators and custodians that you've gotta have [01:07:43] S1: for your fund. Of course, use Juniper Square, our sponsor. Wonderful. Is the number one sign of of an institution.