The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:16:26 · Rory O'Driscoll
[00:16:26] S0: Genuine comment here. It actually is one of the things that's been funny is in this cycle, we've had investments with early stage request risk require super late stage capital, which is just definitionally a strange time to be playing. But yes, I think you thought you were raising a growth fund. In fact, you're just expanding the early stage fund because it just takes bigger checks now. Good on you guys for doing it, because I thought your logic at the end is basically some version of, if this matters, it'll matter a lot. And if it doesn't matter, it won't matter at all. And there you go. I'm just pushing. I was I was... Yeah. I listened to the NOAA interview, and I'm gonna make the boring point, and then I'm gonna kinda kinda backtrack it from the boring... When you listen to the interview and you talk about monetization and travel and all that, and then you go away and you do the data on, you know, the number of Americans who fly more than one or two times a year, which is pretty small, the fees available from that, the number of Americans who book not just dining, but fine dining. It's, you know, it's like 10% or less of total dining experiences are fine dining. You don't need a reservation from McDonald's or Applebee's. So if you start thinking and he mentioned, if you think of it as travel monetization, you could get pretty angsty about market size here. I mean, you guys were smart enough to do OpenTable twenty years ago, twenty six years ago now. Jesus. You know, it's just it's a billion dollar business today. You will be pretty bummed if you're only doing a billion dollars in restaurant bookings on instinct. So does implicitly some level of, yeah, we'll get all this travel revenue, but there's something more here because you guys run the same numbers and you know what, right? Is there a part of the monetization that's just finger in the air and says, this matters, good shit will happen?
00:17:58 · Jack Altman, Harry Stebbings
[00:17:58] S1: So I mean, back to the point before, which is slightly tongue in cheek, but slightly totally true, which is like, do you think of is this a is this a growth investment because it was billions of dollars of valuation? Or is this an early stage investment because it's like nine days old? And both are kind of true. And if you think of it as a growth investment, you say, okay, how do I underwrite this relative to public companies that have 2,500,000,000 of ARR and they're worth 10,000,000,000. And so you kind of logic that out. If you're thinking of as an early stage investment, you say, gosh, this paradigm, we just have no idea. And so I think in our heads, it was close. Yeah. It was closer to that where you say, we are so early innings here where there was open claw. There's the like, you know, between now and Christmas, there's gonna be, like, three more evolutions of the whole thing. It's like you don't even try to guess all of that. [00:18:44] S3: How do you think about sizing it then when you're writing growth checks at early stage risk material?
00:18:44 · Harry Stebbings, Jack Altman, Rory O'Driscoll
[00:18:44] S3: How do you think about sizing it then when you're writing growth checks at early stage risk material? [00:18:50] S1: You still, to the extent that you can, I'm a believer that this is sort of like something I've kind of picked up from the crew, that you still still need enough investments no matter how, you know, accurately you think you can pick. At the early stage, let's define this, forget the price, but, you know, early on in a company's life, you just need enough shots on goal to get something that's gonna really matter. And so on some level, I would say the sizing is constrained by wanting the fund to have enough chances to get something great. And so that's the constraint. And then like the upper bound is these rounds are big. You need to matter in the context of the round. And if the valuation is already high, you got to put more dollars in to sort of get some ownership. And so those are kind of the boundaries. [00:19:30] S0: It was a very good, articulate, not quite answer, but exactly the right questions. Absolutely. No. I I think you're exactly right. It's that you do some kind of Kelly betting, and then you kinda, you know, how certain... What's upside and how certain are you it's gonna happen? Edge over odds. And then you say, do I have the stones to do full Kelly or do I back off?
00:19:30 · Rory O'Driscoll, Jack Altman
[00:19:30] S0: It was a very good, articulate, not quite answer, but exactly the right questions. Absolutely. No. I I think you're exactly right. It's that you do some kind of Kelly betting, and then you kinda, you know, how certain... What's upside and how certain are you it's gonna happen? Edge over odds. And then you say, do I have the stones to do full Kelly or do I back off? [00:19:49] S1: Yeah, and I think like sophisticated public markets, investors probably spend as much time thinking about their sizing as their actual positions. We obviously don't. But you know, that we try to at least give ourselves some boundaries, knowing that we're going to, know, size incorrectly almost every time. [00:20:02] S0: And it's probably actually the hardest one to size, because you're right, you have high upside, leans in super high variance, which leans out, but still a requirement for meaningful dollars. You're right, the sizing discussion must have been almost everything. Have you disclosed the dollars, total dollars in the deal? [00:20:19] S1: I don't think we did. I'll find out if we didn't. If we did, we can like stitch it back in here with some AI, but I don't think we did disclose it.
00:20:19 · Jack Altman, Rory O'Driscoll, Harry Stebbings
[00:20:19] S1: I don't think we did. I'll find out if we didn't. If we did, we can like stitch it back in here with some AI, but I don't think we did disclose it. [00:20:25] S0: Got it. Yeah. Thinking aloud in real time to make it something we all could talk about, rather than the guys in the big checks is that how would you think about that bet as a percentage of your fund? If you're typically doing 20 deals, which means 5% on average, you know, you look at the capital needs, you say, hey, maybe I need to do 10% of the fund in this. You look at the risk and you say, I need to do two and a half. Harry, you always jump on me with these kind of real time questions. What percentage of of your fund would you put in Instinct at 10,000,000,000 pre as a percentage of the fund? Because that's the way Kelly Better thinks. [00:20:57] S3: Super easy. I'd do 5%. If it's meaningful enough that it returns the fund with the upside, it's gotta be. Five percent obviously is, I think, if you can project out where it is. But then on top of that, I think you have real downside protection here. It's only raised, like, a billion and 0.5. It's clearly a really phenomenal team. The bet that Microsoft or any of the large providers would buy it, I think, is very clear. So you've basically got a 50 x upside on it being the WeChat of the West that we've all hoped for for many years. And downside protection on a one x plus, I think
00:20:57 · Harry Stebbings, Rory O'Driscoll
[00:20:57] S3: Super easy. I'd do 5%. If it's meaningful enough that it returns the fund with the upside, it's gotta be. Five percent obviously is, I think, if you can project out where it is. But then on top of that, I think you have real downside protection here. It's only raised, like, a billion and 0.5. It's clearly a really phenomenal team. The bet that Microsoft or any of the large providers would buy it, I think, is very clear. So you've basically got a 50 x upside on it being the WeChat of the West that we've all hoped for for many years. And downside protection on a one x plus, I think [00:21:26] S0: By the way, just as... And and I know I'm being a jerk, but you do it to Melton. If you really believe in that risk profile, 50 x upside, upside, one one x x downside, the Kelly bet answer was probably 30% of the fund, just to be clear. But this is what I [00:21:38] S3: think founders don't understand, which is, it's nuance. Like, for me at my stage of career, if I did a 30% of the fund bet, my LPs would shit the bet. You, Rory, respectfully, because of the incredible tenure that you have and the many, many years, you know, as you said, you've known Benchmark since 1995, a year before I was born. You have slightly longer relationships, So maybe it does differ. [00:22:00] S0: I wouldn't have the guts to do that at all. I wouldn't want to let it ride. No, I think that I can see I would come out. I mean, 5%, Tiffany 20 deals in the fund, 5% is a full whack deal.