The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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?
00:41:28 · Harry Stebbings, Venky Ganesan
[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? [00:41:52] S0: We've historically... Our anchor tenant has historically been the Washington State Investment Board, which is a public sector pension fund of the state of Washington, from MSLP, by the way. I highly recommend them to anybody. Have been our anchor tenants since 1981. So we have never had a reason to scale out because public sector pension funds have been a part. It's a little bit of a cultural dynamic. I think the founders of Mendel came from very humble beginnings. DuBose grew up in a house with no running water or toilets. I think John was orphaned very early. He was a scholarship student at MIT. And so they loved the idea of working for public sector employees because that felt like working for their parents and less... These people look more like their parents and their children. [00:42:33] S1: Love that. So there wasn't a fund where LPs went, oh, thank you. You're getting pretty big now.
00:42:33 · Harry Stebbings, Venky Ganesan
[00:42:33] S1: Love that. So there wasn't a fund where LPs went, oh, thank you. You're getting pretty big now. [00:42:39] S0: I I think you're just scaling out of our our sweet spot. No. That wasn't the case, but we had. We raised that first billion dollar fund in venture capital. Menlo nine, which was raised in 2001, was a $1,500,000,000 fund. And Menlo 10, which was raised in 2004, was a $1,200,000,000 fund. Those funds did not perform as well as we would have liked, and many LPs did leave us. [00:43:03] S1: You manage a lot of the LP conversations today. Correct? [00:43:06] S0: I do. Matt and I do a lot of them. Yes. [00:43:09] S1: What do you hear from them? As I said, I hear deployment time is down in terms of how people are investing much faster and the funds are just getting bigger. And then I also just see mimicry, which is like, I'm calling this out because it's a to her. I never shit down on people other than your piece. That's okay. Every LP just wants Sarah Gwo's fund. And I completely agree Sarah Gwo is incredible, and you should want her fund great. But just this complete herd mentality.