The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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
00:45:24 · Harry Stebbings, Venky Ganesan
[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 [00:45:40] S0: it's a size issue. It's just to me, like, look, lock in the gains. If you go back to the SaaS portfolio in 2021, there were valuations done at, let's say, pretty high prices. If people had taken 10%, 15% off the table, even if it's small, it locks in, allows you to go long. The other thing I tell entrepreneurs is that just like when you take some trips to the table, you're more likely to go long, so are we, right? Because we can now afford to go along with you. And so it aligns. And so to me Will you ever settle with your position? Generally, no. Not unless the company is being sold. Not interested. I think that's a different situation. I mean, the only time I think is like if you do not have a relationship with the founder and you've... Like, that's that's different. But if you... As long as you are and you're in, you're gonna ride... We'd ride [00:46:25] S1: and die with our founders. Jason Lemkin says on the show, you know, whenever a founder leaves, like, I ride it to zero. When a founder founder's is gone, gone, it's zero, zero, zero. Do you find it to be the same when the founder leaves? You're like, we're supportive, of course, and we're still here, but, like, mentally, you're like, that's a zero?
00:46:25 · Harry Stebbings, Venky Ganesan
[00:46:25] S1: and die with our founders. Jason Lemkin says on the show, you know, whenever a founder leaves, like, I ride it to zero. When a founder founder's is gone, gone, it's zero, zero, zero. Do you find it to be the same when the founder leaves? You're like, we're supportive, of course, and we're still here, but, like, mentally, you're like, that's a zero? [00:46:42] S0: I mean, my friend and your friend, Nikesh Arora, would disagree with you and say he goes on founder mode. I mean, look. There are people like Nikesh, G2 Patel at Cisco. They go on founder mode as an exec. It's sort of an insult to people like that when you say, oh, the founder leaves. Look at the situation. Who replaced them? Founder mode is a mode of working. It's not it's not tied to anyone personally. I think anyone can be a founder in terms of the founder... Working in the founder mode. And I think some people do. And I mean, Frank Slootman. Frank joined Data Domain, Snowflake, ServiceNow. In each of those places, he acted like a founder. He didn't act like an exec.