The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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.
00:43:37 · Venky Ganesan, Harry Stebbings
[00:43:37] S0: And Sarah and Mike are amazing. Amazing. No no question about that. You know, I spent a lot of time with them, with LPs. And I think, first of all, a lot of them have two complaints. One, they're like, enough TV over PI. I need to get some DPI. So I think if you deliver DPI, I think you're already in the right side of the table. And I think it's easier to come back to them to ask for more capital when you deliver DPI. Right? So that's one. Second, I don't think people can afford not to be in the AI economy, and I'll tell you why. Most of them have much bigger private equity portfolios than they have venture portfolios. Like in many cases, three to four x exposure to private equity. A lot of private equity over the last few years have been software, and those positions are directly impacted by AI. If you want to hedge against your private equity portfolio, you've got to be in the AI economy. And so that's the piece that forces them to come back. So if you are someone who has given people DPI you can credibly make the case that you are gonna be a player in the AI economy, I think you can raise money from LPs. [00:44:43] S1: You gotta have given DPI. We see companies scale faster than ever. As we said, we see prices that are very high. How do you think about the internal conversation of, woah, x company is now valued at 10,000,000,000. Can we take some chips off the table? What does
00:44:43 · Harry Stebbings, Venky Ganesan
[00:44:43] S1: You gotta have given DPI. We see companies scale faster than ever. As we said, we see prices that are very high. How do you think about the internal conversation of, woah, x company is now valued at 10,000,000,000. Can we take some chips off the table? What does [00:44:58] S0: that discussion look like? And any lessons on how to sell successfully? I think you have to step back and look at any situation in which you have a 30, 40x on your dollar and ask yourself, should I take some off the table? And I think the right time to do that is when the entrepreneur is thinking about taking some right off the table. And I think if you were to work in conjunction with them... [00:45:24] S1: What if it's not material? I'm I'm... Fuck this. I'm using this as a consulting lesson. You can invoice me later. I have a company where we are like 40 x up. Yeah. And you're like, wow, wow, fantastic. Should... You got a 100 k in there. Return 4,000,000 back to a $100,000,000 fund that it's in. I don't think it's a