The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:52:51 · Harry Stebbings, David Morehead
[00:52:51] S1: Kind of get that given that example. I think venture's more nuanced. It... It's kinda close-up. [00:52:55] S0: It always is. Right? I'm not talking about like lines in the sand around artificially generated category limitations, right? Like that's just an artifact that people made up. I'm talking about like, hey, we're gonna invest with a manager who is investing in companies where product market fit has already been determined. And then that manager is like, yeah, that doesn't work anymore. We're just gonna like invest in two guys in the garage and we don't know if they'll come up with something or not, right? Those are two very different approaches. So, yeah, the switch between those, yeah, that's a no. If you wanna go from b to late a, like, who cares? Right? That's the same thing.
00:52:55 · David Morehead, Harry Stebbings
[00:52:55] S0: It always is. Right? I'm not talking about like lines in the sand around artificially generated category limitations, right? Like that's just an artifact that people made up. I'm talking about like, hey, we're gonna invest with a manager who is investing in companies where product market fit has already been determined. And then that manager is like, yeah, that doesn't work anymore. We're just gonna like invest in two guys in the garage and we don't know if they'll come up with something or not, right? Those are two very different approaches. So, yeah, the switch between those, yeah, that's a no. If you wanna go from b to late a, like, who cares? Right? That's the same thing. [00:53:33] S1: So we're actually aligned completely, actually. It's interesting. I thought we were misaligned. I 100% agree. I think your example there, it's kinda like, I would say pre and post data, which is like, you either have nothing and we're selling Walt Disney. Tell me a story. Some people are great at that, and you should bet on them for being great at that. Or you're Jerry Maguire, show me the money, which is the post data. And some people are great at that. And so I totally get that, and I think you're absolutely aligned there. Can I ask you a tough one, which is in venture, it's kind of assumed, and it's the unwritten rule that you commit for three funds? And you should do because that's the duration required to determine quality in a manager. Do you think that's kind of bullshit coming from a more macro perspective where you see different asset classes?
00:53:33 · Harry Stebbings, David Morehead
[00:53:33] S1: So we're actually aligned completely, actually. It's interesting. I thought we were misaligned. I 100% agree. I think your example there, it's kinda like, I would say pre and post data, which is like, you either have nothing and we're selling Walt Disney. Tell me a story. Some people are great at that, and you should bet on them for being great at that. Or you're Jerry Maguire, show me the money, which is the post data. And some people are great at that. And so I totally get that, and I think you're absolutely aligned there. Can I ask you a tough one, which is in venture, it's kind of assumed, and it's the unwritten rule that you commit for three funds? And you should do because that's the duration required to determine quality in a manager. Do you think that's kind of bullshit coming from a more macro perspective where you see different asset classes? [00:54:16] S0: I don't know. I think we've kind of done that. The issue with one fund, even two funds is like, you almost don't have enough data to make a decision, right? You don't. And so, yeah, that kind of makes sense because you don't have data to prove it otherwise. Analyzed. And we tend to be less good at, you guys have a vision, I got a dog, like give us some money. Like, that's really hard for us. So, yeah, people are good at different things. [00:54:44] S1: If I would say you had unlimited money today, unlimited constraints, and you had the Harvard balance sheet, what would you do differently?
00:54:44 · Harry Stebbings, David Morehead
[00:54:44] S1: If I would say you had unlimited money today, unlimited constraints, and you had the Harvard balance sheet, what would you do differently? [00:54:52] S0: I don't know that I would do anything differently. I think it gets a lot harder for sure at that size and scope. So, you know, hats off to Narv and, like, what his team is trying to do. And that's, like, really, really hard. And I've actually talked to other CIOs about this because I wanna be prepared for, like, down the road. At what point do you have to change how you invest? That's very top of mind for us, and that's something that a lot of allocators, you know, work on, think through, struggle with. [00:55:19] S1: How do you want that? [00:55:20] S0: Yeah. I mean, like, I've talked to the Notre Dame folks and they're at 20,000,000,000 and they're kinda like, we actually thought that we would run into this at 10,000,000,000, at 15,000,000,000. We actually haven't. I wonder if there's a place between where Notre Dame is at and where Harvard or UTIMCO is at, where you actually do have to change how you invest or you can't invest in the same manner. Because at some point, and I think that some of the Ivy Leagues are running into this, it kinda doesn't matter how good benchmarks returns are. When you have 40,000,000,000 or $60,000,000,000 and you can allocate $20,000,000 to a fund, even if you're up, like, a real lot, doesn't move the needle as much as it used to.
00:55:20 · David Morehead, Harry Stebbings
[00:55:20] S0: Yeah. I mean, like, I've talked to the Notre Dame folks and they're at 20,000,000,000 and they're kinda like, we actually thought that we would run into this at 10,000,000,000, at 15,000,000,000. We actually haven't. I wonder if there's a place between where Notre Dame is at and where Harvard or UTIMCO is at, where you actually do have to change how you invest or you can't invest in the same manner. Because at some point, and I think that some of the Ivy Leagues are running into this, it kinda doesn't matter how good benchmarks returns are. When you have 40,000,000,000 or $60,000,000,000 and you can allocate $20,000,000 to a fund, even if you're up, like, a real lot, doesn't move the needle as much as it used to. [00:56:04] S1: I mean, when you put that into perspective, if you have a $20,000,000 check-in a fund, and I'm sure a benchmark because we can use that with a multiple here, $20,000,000, and you do a 50 x, say it's another eBay fund, which would be amazing. I mean, Jesus, amazing, 50 x a fund, that would return a billion dollars. And so to your point of like materiality to a fund, yeah, if you're a $4,050,000,000,000 dollar endowment. [00:56:25] S0: There's 2%. [00:56:27] S1: You gonna send me a Christmas card thanking me? Like, come on, give me... [00:56:30] S0: I mean, a billion dollars is great, but like, you see the point. Yeah, I think that that's a little bit of what like the A16Z kinda thing is like tapping into. Right? [00:56:43] S1: Yeah. The platforms win, like, don't do those checks. Just give me $300,000,000.
00:56:43 · Harry Stebbings, David Morehead
[00:56:43] S1: Yeah. The platforms win, like, don't do those checks. Just give me $300,000,000. [00:56:48] S0: Exactly. And so that's what I mean is like at certain sizes, maybe you have to play the game a little bit differently. [00:56:54] S1: Do you like the large venture platforms? Or are you like, nah, I don't like the post a billion dollar funds. We like small. [00:57:00] S0: I think it just gets harder. I think it gets harder to have a return figure over the requisite period of time that actually pays you for the risks that you're taking. I get how they do it, I get why they do it, but I think it is still a law of large numbers, right? It's just harder. [00:57:17] S1: I've loved this conversation, they're very unusual. [00:57:22] S0: It's true. Maybe it's because it's... We're we're in Central Texas. I don't know. [00:57:26] S1: Still No. Like, normally, everyone in my... And this is like... It's just like the most, like, idealistic AI pilled venture investor who's just like, everything's just like, we're not gonna have jobs in a year. [00:57:35] S0: Yeah. That's clearly not true. Mean, like, you are seeing the pushback on AI at the data center level, because where the data centers are being built is in my neck of the woods, not in Silicon Valley. [00:57:49] S1: And you don't want it.