The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:46:45 · Jason Lemkin
[00:46:45] S0: But, know, Harry, here's here's the thing. Of... Here's my my view. I think you're right. Having said that, I think Gokul's model is to do that and no matter what you call that model, you still have to achieve IRRs north of 30. So you have to pick very well and they have to compound properly. Okay. Some of your like the average LP, average top LP. I remember writing this up in Sasson '21 in 2021 had 90% IRR. Like the top quartile of LPs had 90% IRR. It did not last. 2026 will look like that. I bet the top LPs will have 90% IRR this year. Okay. Some LPs will only invest in those managers and that's great. Others will take the pen longer. But at and so you can do these other deals or or to his point, I think you can do both. Like the answer might be to do both. And the real truth is you should do every great deal you should see if you have enough capital. Okay. Every great deal. Okay. So if he sees five instincts and Harvey's a year and he sees five triple triple double doubles that he can own 20% of and can achieve the requisite IRR. This is why I worry about the exits. You should do both. Right. It's okay. You'll blend a 60% IRR. But I do think I think you're going to lose LPs to your point. But I do think many LPs that have been around will still back repeat managers that deliver north of 30% IRR. It's if you look at all the numbers, that's pretty rare, man. It's pretty rare to have 30% IRR no matter what anybody claims in a given year, 2021, 2026. If you can compound... What is compounding 90% IRR over a decade, Rory? Help me. It's pretty good. It's mathematically impossible, right?
00:48:18 · Rory O'Driscoll, Jason Lemkin, Harry Stebbings
[00:48:18] S1: Because it doesn't happen. [00:48:20] S0: It could happen. So the low 30s is as good as it gets, right, in in the real world. Right? It's as good as it gets. [00:48:26] S2: I think Gockel is a rare exception who will likely be able to pick very well. I think the idea that you can do the triple triple double double to say, pick well.
00:48:34 · Rory O'Driscoll
[00:48:34] S1: I agree. That's why he said very clever. I mean, it was a very clever stat. I've really admired for things like this is what I do if you're a capital efficient. So basically, everyone's going to find him. He solved his search problem brilliantly by saying if you've got this correct, and then he's going to pick carefully. You're exactly right. It turns out no matter what you do, picking matters. Again, going back to the thing, I think what I'm listening to the conversation and I do it, look, you want to do the most exciting deals possible. And those are almost entirely AI forward deals at this point in time, no dispute. I think all the point I'm making, I think the point Venky was making is at some level... And I like what he said, actually, some of at 10 x, the price matters. Because what's happened is Andreessen about ten or fifteen years ago had the very simple but profound insight that other people have had, but they they claim it, so let's go with it. That, you know, it really doesn't matter about price. You just gotta get the best deals. And it's true. But what Venkatesh, if you're wrong by 10 x, then it's not true. And it may well be we're at that point in the cycle where you are in fact wrong. And some deals you are wrong by so much that in other words, the momentum trade has worked so well and for so long, that you might be at that one point in the cycle where you just overreach your skis and it has to unwind. That's the point you're making, right? And I think, you know, will every one of the 100 odd neo labs become the next on Tropic? Maybe not. Maybe most, some of them will return capital because they get acquired. But that's the only point, Harry.
00:49:55 · Harry Stebbings, Rory O'Driscoll
[00:49:55] S2: Can I ask you, we have a lot of LPs that listen, huge amount? If you are an LP that has traditionally allocated to seed and series a in venture, like we know many of, what would you advise them today looking at what you see every day in the trenches? [00:50:10] S1: That's easy because you said seed and series a. Right? And you're not listening, but that's okay. I'll answer the question. I would do managers who are doing the very best seed and series a investments in new massively exciting high growth opportunities like the genius who did, you know, like, as I say, gives her credit for doing Instinct. I would do those managers all day every day because you Do [00:50:31] S2: you mind low ownership?
00:50:33 · Rory O'Driscoll
[00:50:33] S1: No. I mean, do mind it, you prefer high ownership, but that... Look, especially the seed and a fund where you have relative small dollars, relative to the kind of dollars we're dealing with later on, you want to be in the best deals. I like, we target 10% ownership at the ARB stage. So at a seed or A, you'd like 15 to 20, but I don't think you discriminate in or out on that. Because the truth is this, a seed investor who consistently shows up, as Jason will attest, with smaller ownership, but in the best deals will get more ownership over time, because they'll get more capital and get more opportunities. So I wouldn't solve on that. So to your question, on an LP, for seed and series a, you should be looking at people doing the very best deals in the very newest spaces where you really believe they have an edge. My point, and I think Vane's point, as the rounds get later and larger, the the dollars get bigger and the multiple return gets smaller. So it's in much the same way as growth was an amazing place to play in '23, '24, '25, it might be more like '21 now. That's the only point. So going back to your, what should you do? You should do the seed instinct all day every day, but you should think long and hard at 10,000,000,000 four months later. I don't think that's an unreasonable position. Now, maybe that particular deal will work at 10,000,000,000 because as we just said, OpenAI might buy it at 50. But you have to admit, you know, if you use the buffet margin of safety comment, your margin of safety at 50 pre is infinite. You've got a world class exec technologist with a great idea. Your margin of safety at 10,000,000,000, yeah, maybe you get a one x, but you know, there's risk is my point in a downside scenario.
00:52:06 · Harry Stebbings, Jason Lemkin
[00:52:06] S2: And I completely agree with you and get that, to be clear. [00:52:09] S0: I think the tough question we could... We should break. I think the tough LP question is... It's hard to be an... I think it's hard to be an LP. Right? Is chasing returns is tough? Because it's very hard, especially at the seed. Everyone wants to chase returns. Right? Everyone wants to be in Sarah's next fund. It's the easiest investment there is. Right? We all, I'm sure it was 50x oversubscribed in one email. Right? And so do you believe and most LPs believe returns decay like we peak at some point in our careers as investors and they and they decay maybe you build a team or whatever. But so do you chase returns or do you take risks that the returns are coming? It's very hard to be to invest in seed manager like And a lot of the best ones have weird strategies. It's complicated. So you have to go pre inception. You have to look for precursors. I think it's actually, in some ways, harder as an LP today than it is in more normal times. Because you're so tempted to chase returns, and you won't get into the next one, because you will you will screen it out. Right? You will screen it out.