The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:19:11 · Harry Stebbings, Nick Shalek
[00:19:11] S0: I do want to ask on the reinvestment decision making side, how do you process that? What does that structure look like? I mean, I know a lot of funds have the automatic pro rata that they kind of guarantee. How do you feel about that? And then also, how do you structure your reinvestment decision making process? [00:19:25] S1: I think if I were to criticize it, know, arguably, we spend too much time on it. But our principle from the beginning is we re underwrite every deal, including follow on decisions. In follow on decisions, we certainly take into account the importance of the relationship and the fact that we've been that it's our default posture to be supportive of companies. And then going back to what I was sort of alluding to before, Harry, I think if a follow on decision happens within a short period of time, and you're struggling with it, a lot of times, it's because you haven't done the right work up front. So I always think like, try to do the right work up front so that we can be supportive of the company over time. And then you take everything on a case by case basis. So what we do is we assign, you know, a few people on the team, and we do the same sort of underwriting, maybe it takes us a little bit less time that we would have done in in any other scenario. And we try to let that guide us in terms of what to do. [00:20:15] S0: Can I ask, is it consensus decision making? Or is it like partner led, one person can do it?
00:20:15 · Harry Stebbings, Nick Shalek
[00:20:15] S0: Can I ask, is it consensus decision making? Or is it like partner led, one person can do it? [00:20:20] S1: Neither consensus nor partner led, I would say we have a process that's intentionally conviction driven, meaning somebody on the team needs to pound the table. But we try not to attach that investment decision to a person because I think that often leads to people thinking about investments in the wrong way, rather than just being, you know, very straightforward about analyzing the investment or the opportunity. They get hung up in, you know, the kind of politics of the internal process, anathema to the way we're trying to manage the firm. [00:20:46] S0: Well, I do want to touch on that because attribution is so cool to a lot of how LPs think, and obviously, LPs love it. Most venture firms do actually have pretty clear and granular attribution. Given that you don't, by going a little bit deeper, why do you not? And what are the benefits of not having attribution?
00:21:01 · Nick Shalek
[00:21:01] S1: Yeah. It's just always seemed right to us for Ribbit not to have attribution. Like, deals almost always have advocates. This is what I'm saying. Like, in fact, we sort of have this loose rule that if someone's not pounding the table, there's no point in considering an opportunity. A little different than the the follow ons where we we have to consider it or, you know, we have to think about it. But we never label something Nick's deal or Nikolai's deal or Ray's deal. The biggest reason is we we just think it's more fun to live and die as a team. And once we've decided to do a deal, there's no credit claiming or finger pointing in it. It does get rid of a lot of the pathologies of venture. It's it just becomes a Ribbit deal. You know, from an investment perspective, we try to depersonalize it like it can be easier. And This is what I was alluding to before. It can be easier to bring the wrong biases when it's a deal attached to a person. We need brutal honesty as a firm a no holds barred debates. But you might think about supporting the person behind the deal, which is a nice sentiment, but it's not very productive. When something's going in the portfolio, like our promise to founders, the way we structure is that everyone on the team is available to them. This all rings a lot truer internally and externally, like if everyone feels like they're contributing to a joint body of work. But I don't want to be pollyannish. There's a cost to looking at the world this way. Like deal attribution makes the whole venture industry go around. Like when Forbes puts together the Midas list, they want to know what investments you've made. So attribution clearly motivates people. I think what we're asking of ourselves as a team is to be motivated by something else, like the desire for Ribbit to win and the joy in feeling like we did it together. And at the end of the day, that's not only a choice about what makes the firm perform best, but about what makes it worth doing.
00:22:29 · Harry Stebbings
[00:22:29] S0: I totally agree. And I'm with you on the non model. I think it removes so much of the politics. You mentioned that the kind of Swiss Army Knife team and the expansion of the team. And this one was actually from Frank Rotman at QED. But he said, you know, you've had the most incredible journey professionalizing from small early stage specialists to now stage agnostic powerhouse bluntly. And he asked, what were the biggest challenges in making the transition and the professionalization of the firm as you have done?
00:22:54 · Nick Shalek
[00:22:54] S1: You know, I'll take anything from Frank. You know him and Nigel and QED and they're just actually awesome. To be honest, I don't think we've changed the core parts of Ribbit. We always define ourselves by our thesis and by wanting to work with the best people who are changing finance, not really by a particular stage or a kind of deal. Know, just for example, in the first fund, we had early companies and mature companies across several geos. We had fun surprises like Bitcoin. And that same thing is true in the current fund. Like, we'd love to invest as early as we can. Ownership matters. Be thesis driven, you know, rather than reactive, and do it with a scrappy team with a lot of data and not much process. And all that has stayed very consistent. That said, what's definitely changed is the market. Like fintech's gone from being this sort of ignored backwater to one of the hottest sectors in tech. Last year, you probably know this, but you've heard some of these stats that PayPal became more valuable than Bank of America, Square became more valuable than Goldman. And the speed of that happening is shocked even us. If you take the top seven, eight fintechs and the top seven, eight banks last year, something like $800,000,000,000 in market cap swap hands between them. You know, at the same time, the number of companies identifying as fintech is actually going down, while the number of software commerce businesses that consider fintech core to what they're doing skyrocketing. And crypto has gone from approximately nothing to nearly a couple trillion dollars depending on the day. So value is moving. And if we wanna work with the best and be relevant, we have to keep evolving tactics while staying true to that core.
00:24:14 · Harry Stebbings
[00:24:14] S0: When you think about engaging with founders at the earliest and earliest of stages, when you think about the decentralization of entrepreneurship, you have to be the first thought for fintech founders in LatAm or in New Zealand, you name it. How do you think about Ribbit's brand? Because you've done so well despite not being out there. How do you think about that? And do you think it will change as you move forward?