How I Invest with David Weisburd
00:00:45 · Brijesh Jeevarathnam, David Weisburd
[00:00:45] S0: I don't think a single person has told me it's gonna post the fifth inning. It's it's still broadly kinda first half in people's consensus. I like to sometimes go back and watch presentation or a new product release from OpenAI on Topic and see what those very smart people, Sam Altman and Dario, say. And what I find interesting is with the passage of time, even they cannot kinda quite foresee where this is all going. Right? [00:01:13] S1: I talked to USV benchmark. They're raising their growth funds for the first time. They believe that power loss still exists at the growth stage. Do you think power loss could still really exist at that late stage of a company? It depends on So, Brijesh, you've spent over twenty years evaluating the very top private equity and venture capital managers for a fund now at Adams Street. If you had to summarize what makes a great venture capital manager, what would that be?
00:01:43 · Brijesh Jeevarathnam
[00:01:43] S0: A great venture capital manager is somebody who can see around corners and kind of see and think about the world in a way that seems completely non obvious. I remember a great quote, Mike Moritz, who's obviously Sequoia, great venture capitalist. The quote was, People always said Mike was a loner. And that's because he was always so ahead of the pack. And I thought it was a pithy way to talk about how somebody like him, Mike in this case, and other great VCs like him, can appear off the reservation in a way. But really what they're doing is they're thinking about the world in ways that other people don't. Not every vision, not every thesis works out, but enough work out to build a portfolio of great companies. So that's a key aspect. The second key aspect is more maybe bottom up at the people level. These great VCs can attract and win over founders. We call them founder whisperers in a way. They kind of resonate with founders in a very fundamental way. Founders choose their money, their capital versus other sources they have. David, as we know, the best founders have many choices from where to draw their capital from to build their companies. And in that extent, capital is a commodity, right? Not generally, but in the specific case for a great founder. So these great VCs can find a way to be the board member of choice, so the early backer of choice for these founders. And that's another amazing trait, I would say.
00:03:26 · David Weisburd
[00:03:26] S1: I want to get into in a bit about what makes a VC a great founder whisper. But first you said the Michael Moritz kind of being lonely away from from the pack and being this independent thinker. One of the most underrated memes today from Marc Andreessen is this idea that there are no more diamonds in the rough, only diamonds. Does that still apply today?
00:03:49 · Brijesh Jeevarathnam
[00:03:49] S0: Mark is a much more profound thinker than I on these topics. I might have a slightly different view on what Mark said. And I did hear that whole segment. I think what he was trying to say is the diamonds in the rough are off by one. And there's a reason why they're off by one. The founder is unusual or a different geo, or the thesis has evolved, the founder is hard to work with it. We think about the world a bit differently. When we look at our portfolio, when we look at the few companies that drive returns, and we'll come back to this topic, the power law and venture, which everyone knows about. I'll share some statistics on it in a minute. What we look for is who backed these companies first, who backed them early before it became a bit more of a feeding frenzy. So, it's not enough to be in company X, this great potential winner. Who can have back the first run of company X when it was far from the breakout winner, right? So I guess in that sense, those companies are diamonds in the rough. And there are great GPs, great venture firms that have a consistent way of getting there to be the first or among the first to invest in a company that is not yet obvious to the world why it's going to be the potential winner in a category and then help build it to become the winner. So that's our view on this, like a nuance from Mark's view. And I do think there are many examples where even today in this world of potential FOMO and potential consensus thinking, if you go to the earlier stages, there is kind of non consensus thinking in the seed series A, etcetera, around backing these great founders and hoping they'll become something in the next few quarters or years.
00:05:40 · David Weisburd
[00:05:40] S1: Episode is presented by Juniper Square, the operations partner for private private markets. So another way, sure, there might be consensus at some stage, but if you keep on walking it back back further back, it's absurd to think that there's consensus when it's just two founders thinking on an idea. That... That's kind of an absurd idea. So the question is when does this consensus form?
00:06:04 · Brijesh Jeevarathnam
[00:06:04] S0: Yeah, it's hard to draw a bright line and say, this is where the consensus is. If I had to take a step back, I think we should talk about what venture is today versus what it used to be. And you started by saying, I've been in this industry now of selecting managers, both venture and buyout, for twenty years. And boy, the time has flown by. And what's also happened is the industry has really changed in that time. When you look at the venture industry today, depending on which source you look at, there are about 4,000 ish firms, 3,000 to 4,000, let's call it. I go back to when I started in the industry 2006, twenty years ago, 2006, there were about 500 firms, active firms per PitchBook and NVCA data ballpark. So that's a 8x ish increase in the number of firms between now and then, right? Not only has that gone up, the number of firms, the amount of capital going into venture backed companies has gone up. We're looking at, I think NVCA says as of third quarter, we're at 500,000,000,000 plus, which is a mind numbing number. If you think about the number of startups has gone up and it's now, I believe, at like 40,000 companies or whatever, venture backed startups, which is an eight to 10x increase from fifteen, twenty years ago. My point in saying all this is venture is no longer kind of a craft industry. It is very small compared to the public markets obviously still, but it's expanded in scope, in size, and broadly funding aperture to a point where we may have to use different terms to talk about the different parts of venture. To answer your question, to tie it back to that, it's not clear to us exactly when a company becomes consensus. In today's AI world, the letters don't mean much. Series A, B, C, D, as you know. Companies raise kind of five rounds in one year kind of thing. But there is a point when maybe the companies found product market fit, they have some marquee customers and they're seeing a high kind of net dollar retention and so on when these companies in a particular sub sector break out from the crowd, right? At that point, clearly it's consensus. Before that, you pick any category. It could be, let's say AI. It could be at the hardware part of the stack or the infrastructure part of the stack or the app part of the stack. At the very earliest stages, it's unclear who's going to break out.