The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:37:21 · Harry Stebbings, Venky Ganesan
[00:37:21] S1: You mentioned Town. I had JD on the show. Really like him. Yeah. I've known him since the plant days. I'm pissed off about that one because he started the company when he left. And I remember talking to him about it when he started, and he was doing something in some terrible space. No offense. He'll agree with me. And then he obviously pivoted. Tax. [00:37:37] S0: Think they were doing something in tax and pivot. [00:37:39] S1: Thank you. I'm too old for this shit. [00:37:42] S0: You're old, what am I? I'm eight years old. [00:37:44] S1: You're you're a spring chicken. And for anyone watching, they'll see that you look much younger than me. But my question to you is, we obviously know what happened with the Town Round in terms of competitive nature and dynamics there. I don't wanna go into that. What I wanna go into is actually, does competition matter for VCs to invest against now? It seems like Andreessen has, you know, three companies all doing the same thing and many big platforms do. Does it matter being in many players in the same space anymore?
00:37:44 · Harry Stebbings, Venky Ganesan
[00:37:44] S1: You're you're a spring chicken. And for anyone watching, they'll see that you look much younger than me. But my question to you is, we obviously know what happened with the Town Round in terms of competitive nature and dynamics there. I don't wanna go into that. What I wanna go into is actually, does competition matter for VCs to invest against now? It seems like Andreessen has, you know, three companies all doing the same thing and many big platforms do. Does it matter being in many players in the same space anymore? [00:38:09] S0: I mean, this is a personal preference. Right? I think I think culturally for Matt, Sean and I, we like to be committed to the entrepreneur. The situation is going to be specific. Look, if we take a board seat and we write a big check, then we want to be. If you invest in the seed round and you have a small check, you're a passive investor, that's a different issue, right? But when we make a commitment to the entrepreneur, we want that to feel like a two way commitment, right? We expect them to put the interest of their shareholders and commit to it. And we, as shareholders, need to commit to them. And that's why we didn't invest in OpenAI. We only stayed with Anthropic. There's no shade. Again, venture is changing in a way that multiple people are doing different things. I think you just have to figure out what is authentic to us and our values and live by those. And I think for us, when we make a big commitment to the founder, we think of it as a two way street. They commit to us, we commit to them.
00:38:09 · Venky Ganesan, Harry Stebbings
[00:38:09] S0: I mean, this is a personal preference. Right? I think I think culturally for Matt, Sean and I, we like to be committed to the entrepreneur. The situation is going to be specific. Look, if we take a board seat and we write a big check, then we want to be. If you invest in the seed round and you have a small check, you're a passive investor, that's a different issue, right? But when we make a commitment to the entrepreneur, we want that to feel like a two way commitment, right? We expect them to put the interest of their shareholders and commit to it. And we, as shareholders, need to commit to them. And that's why we didn't invest in OpenAI. We only stayed with Anthropic. There's no shade. Again, venture is changing in a way that multiple people are doing different things. I think you just have to figure out what is authentic to us and our values and live by those. And I think for us, when we make a big commitment to the founder, we think of it as a two way street. They commit to us, we commit to them. [00:39:04] S1: One thing that we see a lot today is the compression and deployment timelines. In other words, people investing much faster. All the LPs that I speak to are just saying, god, Harry, Jesus. Everyone is coming back to market so much quicker, they're bigger. Is that okay or is that a
00:39:04 · Harry Stebbings, Venky Ganesan
[00:39:04] S1: One thing that we see a lot today is the compression and deployment timelines. In other words, people investing much faster. All the LPs that I speak to are just saying, god, Harry, Jesus. Everyone is coming back to market so much quicker, they're bigger. Is that okay or is that a [00:39:18] S0: sign of peak bubble? Yeah. It's very interesting. LPs want smaller funds and then they want you to not come back quicker. The promise is, like, one of those can't be opportunity we have is real and there's AI, the biggest economic platform in lifetime, and you want smaller funds, they're going to come back quicker. Now there are also large funds that are coming back quicker, so that's a different issue. But I think that the time we are in is one in which you're seeing companies grow so fast and they need capital to grow. Like, this is not a situation where you can grow without capital. This is not Google. Google, if you go back, probably raised less than 50,000,000 in the private markets. You can't do that today in AI. You need compute, you need to scale. So to me, because you're seeing them grow so fast, their capital needs are growing and if a venture firm doesn't provide it, they're gonna get it from their competitor. [00:40:08] S1: So actually if managers are deploying a fund in eighteen months, LPs should forgive them?
00:40:08 · Harry Stebbings, Venky Ganesan
[00:40:08] S1: So actually if managers are deploying a fund in eighteen months, LPs should forgive them? [00:40:12] S0: I I think the LPs should ask questions and say, have you thought about it? How are you managing it? What's going to happen if things go? Vintage diversification does matter. People have to be conscious about that. When I look at Menlo's history, the one fund that wasn't successful at Menlo's history, 50 history, we only had one fund that's not returned capital, is Menlo eight, which was invested in a ten month period between 2000 and 2001. Yeah, that was not quite the outcome we wanted. [00:40:39] S1: Menlo eight. [00:40:39] S0: Menlo eight. But I bring that up because I do think time diversification matters. Now by the way, Menlo seven was one of the best funds in Menlo history. And [00:40:47] S1: Yeah. But you remember Excel 2005, just pre the Facebook fund, And they had massive LP churn because they went and did, like, a load of clean tech and bio, and it was not good. And then Facebook fund.
00:40:47 · Harry Stebbings, Venky Ganesan
[00:40:47] S1: Yeah. But you remember Excel 2005, just pre the Facebook fund, And they had massive LP churn because they went and did, like, a load of clean tech and bio, and it was not good. And then Facebook fund. [00:40:57] S0: So to me, I I just bring that up as, look, as GPs, you gotta take the fiduciary duty you have to help you very seriously, And you gotta balance that decision. What I do know is that you can't have like... It's not like you can't just have dogmatic rules. You have to play the game on the field. And then you gotta communicate what you're doing in a transparent way to your LPs and tell them what's happening. And some LPs are gonna be like, okay. I agree with you. I'm... I wanna play it. Some people are not, and you gotta respect that. But the point is that you might have no choice to play the game this way. [00:41:28] S1: Did you ever scale out of an LP class? And what I mean by that is, you know, the funds now reasonably sized. They're not egregiously sized. You know, you're not David George asking for the US Treasury. But you're $3,000,000,000. It's a lot of money. For some LPs, they're like, a lot. Was there a time when you scaled out of endowments, say, and suddenly you had to be pension fund invested?