The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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.
00:57:49 · Harry Stebbings, David Morehead
[00:57:49] S1: And you don't want it. [00:57:50] S0: I do, because we're invested in it, right? But like, you're seeing this sort of nationally, you're seeing it actually internationally, is that the most valuable thing for a data center used to be power. If we go back like five, six years, it used to just be land, and then it was powered land, and now it's actually permitted powered land. And the reason is because people are like kind of fed up with it, and they're just like, not in my backyard. And so you are getting sort of this pushback on... [00:58:22] S1: I'm sorry, I don't understand this, like why? Like they're utilizing land, they're bringing jobs, they're bringing construction. [00:58:29] S0: And power prices go up and water prices, particularly in arid regions like Texas or Arizona, that's a big issue. So yeah, if the hyperscalers solve the water thing, that would go a long way towards the average person being more accepting of it, but then the power thing still exists. And so we know that power dispatch is still supply constrained, and so people's power prices are gonna go up until that gets solved over the next five, six, seven years. [00:58:59] S1: David, what do you think happens here? As you said, you're an investor in it, and it's a fascinating perspective you have. What happens here? I'm very naive. [00:59:05] S0: What happens with data centers? [00:59:07] S1: Yeah. Like, do we see a continued protestation pushback from, yeah
00:59:07 · Harry Stebbings, David Morehead
[00:59:07] S1: Yeah. Like, do we see a continued protestation pushback from, yeah [00:59:12] S0: Yeah. I think we do. I mean, we're seeing it in real time in our book. The data centers that have power and that have permits are becoming more valuable. So, like, literally, we have this situation in our book where our data center sites are up 50% from where they were like six months ago. [00:59:31] S1: Can I ask what percent of data centers do you think will fail to get up and running despite having been built? And this could be permitting, it could be power, it could be whatever you think. [00:59:41] S0: Yeah. I am not an expert in this in terms of like total number that have power, total number that have permits, etcetera. So I'm not gonna be able to give you an answer that is gonna sort of satisfy the question, but I will say that enough are not happening that the power companies are coming to those who do have permits and saying, we can get you power sooner than we thought. That's literally happening. [01:00:07] S1: And just so I understand the bottleneck on those that aren't is permitting. It pushed back from locals. What's the one thing? [01:00:15] S0: Yeah. It's permitting. [01:00:16] S1: Permitting. [01:00:17] S0: Yeah. It is now. And that's something that didn't exist six months ago. [01:00:20] S1: And just so I understand, again, I'm dumb as rocks. Why is it so difficult to get permits for these?
01:00:20 · Harry Stebbings, David Morehead
[01:00:20] S1: And just so I understand, again, I'm dumb as rocks. Why is it so difficult to get permits for these? [01:00:25] S0: Because the permitting boards are governed by the citizenry, and the citizenry is putting signs up in everybody's front lawn saying, we don't want this. Right? So if those people wanna get reelected, then they've gotta say no. [01:00:39] S1: Do you not worry that this doesn't happen in China? It's just a free for all. [01:00:42] S0: Well, I don't think that it does happen in China because they don't particularly care. They just build it where they need it. But, I mean, it's a bigger issue. Honestly, it's a huge, massive issue in The UK. It's like by far a much bigger issue in The UK than it is in The US on the permitting front. [01:01:00] S1: What are you talking about? We're not allowed to go outside or move a bin, let alone build a data center. [01:01:06] S0: That's my point. That's my point. So we have a permitted data center site in The UK, and it's worth a lot of money simply because we have a permit. [01:01:16] S1: Are you bullish on Europe, given what you just said there? [01:01:19] S0: No. Because [01:01:20] S1: of the permitting, because of... [01:01:22] S0: Yeah, Because of all of it, because the defense structure of it, because of Russia, because of behind on AI, because because because... Yeah. [01:01:32] S1: Would that prevent you allocating towards European managers?
01:01:32 · Harry Stebbings, David Morehead
[01:01:32] S1: Would that prevent you allocating towards European managers? [01:01:35] S0: No. We have allocated to long short managers in Europe precisely because I think there are gonna be some companies that win and some companies that lose. But I will also say that some of our bigger macro hedges are on European indices. [01:01:49] S1: So David, I could talk to you all day. I'd love to do a quick fire round. So I say a short statement. You give me your immediate thoughts. [01:01:55] S0: This could be, like, highly dangerous for me. [01:01:57] S1: Oh, don't worry. We've we've we've got... We've gone to Chinese permits. So trust me. The quick fire will be like a piece of cake. What have you changed your mind on in the last twelve months? [01:02:06] S0: Software was one. So software, we kinda leaned into pretty hard. We also took energy off at around the same time, sort of with the advent of the US Iran war, the Strait Of Hormuz bit. When crude kinda went north of a 100, we took a lot of our energy length off. We did add to private equity sponsors in sort of like March, April ish. So we don't really like private credit, but we do like the private equity sponsors. And so we've allocated more in that direction. [01:02:39] S1: What asset class do you think is overhyped today? [01:02:43] S0: Private credit because it's easy. [01:02:45] S1: Why do you not like private credit? I'm I'm not in it. I don't understand. [01:02:48] S0: I... I'm not in it, and I don't understand either.