The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:23:39 · Harry Stebbings, Venky Ganesan
[00:23:39] S1: You can ask one question that you find most revealing of a founder quality. Doug Leone's, to me, was the one I remember most, and he always says, what's your worst reference? [00:23:48] S0: So that's a great question. I generally ask your five best friends. Right? And imagine they're in a room. And if I had to ask them three words to describe you, what would that be? That's the question I normally ask people. I'll tell you, I I listened to Mike Moritz on the interview and he asked a question. And his favorite question is, if you could go back in your life and change one thing, what would that be? I think that that's a pretty interesting question. If I were to ask you what do you think about yourself, it's harder. But when you think about your friends, can sort of externalize it and then that gives you a clue about how the people around you think about you. And it also tells you your self awareness. Because usually, after I do that, I also do references, and I'm trying to see if the references match someone's self awareness. Right? It's actually okay. If you know your weaknesses, then you have a much better chance of managing them. It's the people who are blind to their weaknesses that usually have challenges. [00:24:38] S1: Don't mind my weaknesses are revealed in the comments section of every interview, so I see them glaringly. One thing that's been, I think, uniform across the industry is we've seen ownerships go down. Even the hailed benchmark now take less than 10%. [00:24:52] S0: Thought they said 20% or bust. Maybe
00:24:52 · Venky Ganesan, Harry Stebbings
[00:24:52] S0: Thought they said 20% or bust. Maybe [00:24:57] S1: that's it to that message. I love the benchmark guys. That... Absolutely. But does ownership matter as much anymore? Of course it does. Ownership always matters, but [00:25:06] S0: I think you have to think of that relative to the opportunity. Right? What what I mean by that is, yeah. Would I love to have 20% of a company? Sure. But I'd rather take 2% of a trillion dollar company than 20% of a $100,000,000 company. Right? [00:25:19] S1: So you'll do deals now for 2%, 3%? [00:25:22] S0: We do. Anthropic, we own less than 2%. My point is that I think when you think about ownership, you can't think of that in isolation. [00:25:30] S1: But I think you're either in the ownership game or you're in the money movement game. [00:25:33] S0: I disagree a little bit. I I think when you're getting your option bet, you want to have ownership because it's not clear. So let's say you know it's an outlier. If it's an outlier company, then you are in the capital invested game. Prior to being an outlier company, you have to be in the ownership game. Your best situation is you are in the ownership game, in an outlier company, and then because... Then you go into the money movement game. [00:25:57] S1: No. I thought you you... The the ownership doesn't matter pre it being an outlier because you're there for the information. When it does become known, it becomes a money concentration game.
00:25:57 · Harry Stebbings, Venky Ganesan
[00:25:57] S1: No. I thought you you... The the ownership doesn't matter pre it being an outlier because you're there for the information. When it does become known, it becomes a money concentration game. [00:26:06] S0: You wanna have enough ownership, though. I mean, you look at Hicksfield, my partner Amy, she killed it. She got 15% of the company for a $5,000,000 check. You had Alex on your podcast, incredible entrepreneur, incredible business. So in that case, we got the ownership and then we also have the opportunity to then size up. Did you? Yeah. We invested. [00:26:27] S1: Do you get my rationale though for actually it doesn't matter if you have ownership in the first place, what you're buying is the information to size up? I get that. [00:26:35] S0: If you're asking me, is it better to be in the company regardless of ownership or not be in the company? Yeah, it's better to be in the company. But it's even better to be in the company with ownership because now you actually have gotten your ownership that's going to drive real returns. Because the problem is, once there's an outlier, everybody knows about it. It's no longer a selection game. It's just, okay, can you get access and can... It's a position sizing game. There's no alpha there. And then that's the truth. In the AI greatest hits, everybody knows these companies. [00:27:05] S1: How much of your fund will you put in a single company? [00:27:08] S0: I don't think we would put more than 20% of [00:27:11] S1: Have you gone up to 20% before?
00:27:11 · Harry Stebbings, Venky Ganesan
[00:27:11] S1: Have you gone up to 20% before? [00:27:13] S0: We have hit 20 on one company. Woah. What company? Anthropic. I mean... Yeah. It's [00:27:20] S1: I'll tell [00:27:20] S0: you now. Yeah. [00:27:21] S1: It's it's [00:27:22] S0: gotta be an exception. Right? [00:27:23] S1: But that was a hard conversation. We 10 x this. Yeah. We 10 x last year. Okay, Venky. Let's do it. [00:27:30] S0: But I I do feel that you have to think about the question of ownership and concentration as when. What I mean is that where was the company? What information do you have? How much conviction can you have as an outlier company? Because the the thing about position sizing is you want to position sizes when the data is there. And if you position size it ahead of the data, then you're taking a lot more risk. So the question is not, did you put 20% of the fund of the company in one check at the beginning of the fund, or did you ladder up to 20% on the basis of new data? Obviously it's much better to ladder up on the basis of new data. And I think in an era where venture capitalists are going to have ownership come down, right? I mean, I wish we could get 10. Even 10% is hard, right? Now the way you're going to win is you're going to establish a position and then size up as a company does well so that you have sized it commensurate to the outlier opportunity.
00:27:30 · Venky Ganesan, Harry Stebbings
[00:27:30] S0: But I I do feel that you have to think about the question of ownership and concentration as when. What I mean is that where was the company? What information do you have? How much conviction can you have as an outlier company? Because the the thing about position sizing is you want to position sizes when the data is there. And if you position size it ahead of the data, then you're taking a lot more risk. So the question is not, did you put 20% of the fund of the company in one check at the beginning of the fund, or did you ladder up to 20% on the basis of new data? Obviously it's much better to ladder up on the basis of new data. And I think in an era where venture capitalists are going to have ownership come down, right? I mean, I wish we could get 10. Even 10% is hard, right? Now the way you're going to win is you're going to establish a position and then size up as a company does well so that you have sized it commensurate to the outlier opportunity. [00:28:21] S1: Totally get you and get that. And everyone says, but ownership doesn't matter so much because outcome sizes are so much larger than they've ever been. And they are. That is a valid answer. My question is, are they on the whole? Like, do we just have a breadth of companies that will be much larger? Or is it really just a handful of Anthropix and SpaceX? And cursor on the small hand at 60,000,000,000, which is still enormous and amazing. But is that a good enough justification for ownerships going down?
00:28:49 · Venky Ganesan, Harry Stebbings
[00:28:49] S0: I think the problem comes down to your portfolio composition. Right? If if you are in one of those outliers, I think you can survive with low ownership. But what happens if you are not in these big outliers? Because what... Essentially, you're playing a game to use baseball analogy as you're playing a game where there's only grand slam home runs or strikeouts. There's no singles, doubles, or triples. Right? And in cricket terms, like, it's only scoring sixes and not having ones and twos. And the problem with that is that if you don't score the six and you don't have the ones and twos, that's gonna be a tough fund. And so part of getting ownership is giving some insurance for you that if you missed out on the outlier, the sort of midsize outcomes can still move the needle for you. But will you do singles and doubles? No. The goal is always to score home runs. Right? Yeah. But sometimes you strike out. And and so if you strike out all the time, that's gonna be a tough fun. So the idea is that you wanna at least say, okay, I went for the home run and I got a triple. [00:29:44] S1: But I just don't think founders are aware, and I say this... And people always get at me, I I think they kinda miss the point. Because I say it, like, lovingly for awareness of founders, that the game has changed and that, you know, going from one to 4,000,000 and then four to 8,000,000 and then eight to 16 and then banking in five years time, we're gonna hit 30. That's an amazing achievement, but it is just not enough to get Venture excited today. Do you agree with that?