The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:15:35 · David Morehead
[00:15:35] S0: Let's just do it for example, right? You know, it's historically they were like ten, twelve year funds. Now they're like fifteen, eighteen year funds, right? So much to the chagrin of like all LPs. But the issue that you run into is that, okay, so you get your money back in fifteen or eighteen years and let's just say it was like phenomenal experience in Europe, like fifteen X. You're like, that's fantastic. But the issue is that it happened over fifteen to eighteen years. And what, you know, simple math would suggest is that like if you were in a like growth equity fund that was six years and weighted average life and you were up three X and then you redeployed into another growth equity fund that was up three x in six years and then you did it again. And over the course of eighteen years, you'd be up 27 x, which is better than 15 x by like a factor of two. So I understand why people want to hang on to their winners. But the compounding of capital, and I'm trying to create the largest pile of money for students, students can't pay their tuition with returns. They have to pay with dollars. So I'm expressly interested in creating the largest pile of money. And the largest pile of money is governed by like simple compounding math. And so what we're really after is the velocity of capital, not just returns on cap. Whenever the velocity of capital is going to start to asymptotically approach like wherever it's going to be, then we want to be out and move on to the next thing. In other words, like it's really, really hard to do like three x in six years, right? It's easier. You have winners now. The company's going okay. It's actually looks better on your marketing if you're up six x instead of three x. So like if people held on to it for another five years and got like a double, then they'd be up six x instead of three x that suggests that the next fund will be raised, etcetera, etcetera. But I actually don't care about any of that. Like, that's a business decision. That's related to the business. And I'm not optimizing for the best business for the GP. I'm trying to optimize for the biggest pile of money for our students. And so I get that there's a little bit of a disconnect there, but the math issue does kinda drive me nuts.
00:17:53 · Harry Stebbings, David Morehead
[00:17:53] S1: Can I ask you a blunt question then? Yeah. And I love this interview because it's completely not in my interest as a venture investor and as someone who interviews No. Venture No. This is why I love it. This I have the best job in the world. But given the requirements on velocity of cash and the value of compounding, which I very clearly see, do you not have a question internally of, well, why do VC at all? If we can do growth equity or mid market and get the three x in six years. I get you, David. I'm not doing that for you and and neither is the best firms. [00:18:24] S0: Yeah. And that is a question that gets batted around a lot in our office. And so, you know, there is something to be said about sort of laddering returns. Right? So it's okay to go allocate money to some manager and say, like those returns are going to show up like six, seven, ten years from now. These other returns are going to show up three to five years from now. And then like kind of on my side, the returns are going to show up one to three years from now. So we do think about it that way. But I would say that there's a rule in our office that you're not allowed to talk about returns without also talking about time. Because it's it's very common on the private side to just say everything like, well, you're up two x, three x, five x, whatever. But that tells you nothing. If you're up five x over thirty years, that's horrible. And if you're up five x in five months, that's amazing. I guess that's SpaceX.
00:18:24 · David Morehead, Harry Stebbings
[00:18:24] S0: Yeah. And that is a question that gets batted around a lot in our office. And so, you know, there is something to be said about sort of laddering returns. Right? So it's okay to go allocate money to some manager and say, like those returns are going to show up like six, seven, ten years from now. These other returns are going to show up three to five years from now. And then like kind of on my side, the returns are going to show up one to three years from now. So we do think about it that way. But I would say that there's a rule in our office that you're not allowed to talk about returns without also talking about time. Because it's it's very common on the private side to just say everything like, well, you're up two x, three x, five x, whatever. But that tells you nothing. If you're up five x over thirty years, that's horrible. And if you're up five x in five months, that's amazing. I guess that's SpaceX. [00:19:11] S1: Is Venture then just a pure diversification play for you, which is like [00:19:15] S0: It is for us. Yeah. It is. It could be the case that somebody allocates to something that really takes off and goes quite well. Like, for example, we happen to have about two and a half percent of the endowment in anthropic. We have no exposure to SpaceX. We've had no exposure to OpenAI, but about two and a half percent of the endowment is in anthropic. [00:19:38] S1: Well done. [00:19:39] S0: I mean, that's not us. Right? Like, that's managers.
00:19:39 · David Morehead, Harry Stebbings
[00:19:39] S0: I mean, that's not us. Right? Like, that's managers. [00:19:42] S1: David, for goodness sake, will you please learn from your managers? Okay? Lesson number one of Wench Capital. Even if it was not you, you take credit and say thank you so much. I remember that one. Yes. [00:19:54] S0: That's not really how we roll at Baylor, but understood. [00:19:58] S1: Can I ask you? It's a really different... And I'm not saying with Anthropic here, but I'm saying with positions that go public, Anthropic obviously will be one. But with positions that go public in the past, how do you think about the I'm gonna actively manage it as now the holder versus a common one that I hear, which is that's not our job. We just liquidate the minute that we get it because we don't know about this asset. How do you think about it? [00:20:21] S0: It'll depend on what we think about the name, and it'll also depend about the size of the position once it is public. So we've sold, you know, shares before. We've also had shares before. We've also let shares run before. So it kind of depends to us what we're expecting, what the profile of the portfolio looks like, and the position and the risk associated with it. [00:20:46] S1: I was talking to Sean before this show, who you mentioned we should chat to. He's brilliant, Sean Barris. And he said that you think more like Charlie Munger than anyone he's ever met. Now was that... I had it written [00:20:57] S0: Because we're in the middle of the country, I think. And
00:20:57 · David Morehead, Harry Stebbings
[00:20:57] S0: Because we're in the middle of the country, I think. And [00:21:03] S1: he said that when software was getting killed early in 2026, you went deep on the situation, wanting to understand every bit of research and then piled in. Can you talk to me about that, your process there, what you saw that others didn't, and how you thought about that? I'm just fascinated given that.
00:21:19 · David Morehead
[00:21:19] S0: I would say, like, if we had an edge, I would say that we're pretty good on human behavior. And so a lot of these things, you know, I don't dispute at all. Like I'm not an engineer. Much of the stuff that comes out of Silicon Valley is over my head. But I do know how people think and I do know how people make decisions. And so it was pretty easy in this case of, you know, like software is dead, it's all going to zero. Somebody's gonna vibe code this and whatever. And like, have friends that run three, 500 person private family businesses. And it's easy enough to pick up the phone and call them. We're like, hey, say your son-in-law vibe code something and you're gonna like tear out your CRM. And they're like, not in a million years. It's not their job. Like I have a good friend who runs like a vertically integrated like potpourri business. He knows everything that there is to know about that, but he is not going to tear out key important parts of what makes his business run behind the scenes on some unproven thing that I think it was the CEO of Salesforce, like, I don't know, six or eight months ago said that like the best that AI was gonna be is like 93%, right? Which is like phenomenal, and that might be like better than like a lot of people, but the issue is software is a 100% right. So if you need your books to like match up and whatever, like, yeah, that's not gonna happen. So I actually think as we've kind of like thought about it more, I actually think that in some of these vertical industries, that software is actually gonna be the delivery mechanism for AI. That in other words, for my friend who's in like a niche business, very, very good at what they do, I think they're the only vertically integrated potpourri maker in the world. I think that what's going to happen is that the trust that's been built up with the software providers is going to translate into, hey, could you add AI bits for me on the back of this software? And of course, like the SaaS companies aren't stupid. It's not like they're sitting there like, hey, we're worth 20 or $50,000,000,000 We should let this go to zero.