The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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.
00:53:05 · Rory O'Driscoll, Harry Stebbings
[00:53:05] S1: Agreed. Even though it's... You know, chasing with... Funny. Just for the... Stating for the record, mutual fund persistence is almost nothing. In other words, performance, chasing returns in the public markets is a total fool's errand, because the data says persistence is super low. Oddly enough, which makes sense. In venture, persistence is not infinite, but it's quite high, right? Because you get these increasing returns to success until there's some kind of discontinuity, right? So it's not crazy to partially change return, quote unquote, chase returns in venture because of the persistence in a private market. In a way, it's utter folly in the public markets, where literally the dude who bought energy last year might be totally wrong this year because the traders to buy semis. Thinking of you though, Leo. I [00:53:51] S2: much prefer the shows that when we have a little, [00:53:53] S1: what is it? Contour tone. [00:53:54] S2: You know? [00:53:55] S1: Yeah. Contra... Very good, Harry. For for an English person, that's not bad French.
00:53:55 · Rory O'Driscoll, Harry Stebbings
[00:53:55] S1: Yeah. Contra... Very good, Harry. For for an English person, that's not bad French. [00:53:59] S2: Oh, thank you so much. I I I am slightly cultured. I hide it well. Well, okay. Ding ding ding. It's Jason's IC time. We're moving into the world of private markets with factory. Triple valuation to $5,000,000,000, $200,000,000 round. For those that don't know, Factory is an enterprise coding agent provider that can primarily have a droid product, which is scaled phenomenally. I don't think I'm allowed to say their avenues, but they're chunky, and they've done an amazing job. Jason, $5,000,000,000 valuation. Are we going to be doing this round for Mo Driscoll Stebbings, Lampkin Ventures?
00:54:36 · Jason Lemkin
[00:54:36] S0: I think I think this is a good risk to take. First of all, I will caveat. I'm not as much of a factory expert as you. I know it's your your investment this one, Harry, so you're the you're the deeper expert than I am. But there's there's certainly there's certainly one obvious and and one mostly obvious trend. The second one you you got in one of your 20 BC other podcasts this week one obviously the whatever model we have for inference for coding and otherwise it's too low the demand is only going up whether Muse gets it or Factory gets it or Anthropic gets it and I don't know how each token will be monetized directly or whether it'll be FAV but the demand is going to exceed already our most wild models there's a couple things that make me excited about Factory and I just haven't gotten back from the Dreamforce which is one of the world's largest enterprise software conferences all about AI. Two things really stood out and Harry had a guest this week on is which why one of the reasons I recommend the stock. Sovereignty. I want to be able to trust where my data is, right? And I want choice of model. These things really matter. And the one thing I got talking to C level executives at Dreamforce is they don't trust Anthropic and OpenAI with their data. They don't trust it. This is not something manufactured on X or Twitter. They genuinely believe, and honestly, for what it's worth to the IC, I believe this as well. If I upload my confidential data I'm not sure it's not going to my competitors through an LLM. In fact I'm pretty sure it is on some level. I don't think these are these are malevolent companies. This is the way LLMs work. And so I think these are a lot of things that go into factory. This is a crack team. The time is right. You know, Brad Gerstner, that guy's always right from AI to the calcium CT scans. I would always back him. I think we do this round. We pair it with instinct at 10,000,000,000. We roll the dice. It's good times. And this may be one we regret with the musical chairs, but the trends are right here. We need to bet into these trends. Sovereignty, trusting my data, trusting my data at rest, not having it pooled by the big guys. I think in a year, no one is going to trust in the enterprise anthropic and AI with their data. They're solving this too, but this is something we need to bet on. I approve the investment.