How I Invest with David Weisburd
00:08:42 · Brijesh Jeevarathnam, David Weisburd
And that I think is the magic and the alchemy of venture. And our focus, we are a full spectrum investor from seed all the way through kind of growth stage. But our focus remains on the early part of the spectrum. [00:08:57] S1: Today, does what you look for in VC managers, is that dramatically different than even five years ago?
00:09:05 · Brijesh Jeevarathnam
[00:09:05] S0: Yeah, some things have changed, but I would say most things are perennial, high level. We have always looked for three attributes to be strong. Those three attributes are number one, the investment team itself in fund. The Number two, it is the investment strategy they're pursuing. Number three is the track record in venture. Of the three, as you can imagine, third, the track record is the most quantitative. It is also backward looking. So while it's good to have, it is in many ways the least important indicator of future success. So we spend a lot of time on the softer aspects, which is the team and the investment strategy. The team, people ask us, what do you look for? Many things such as intelligence, academic accomplishments, prior experience in the industry, they're all table stakes because there's so many folks who check those boxes, right? What we're looking for beyond that is we're looking for a few things. One is the chemistry and the level of complementarity between the team. There are many teams where it's like a basketball team, right? There's a version of a center and a point guard and so on and so forth. People have different skills. But combined, they make up for a force that is really hard to beat in a competitive market. They're able to once again see around corners because maybe one of the partners has a particular skill with people, the other one is more numbers oriented, one is perhaps good at thinking about markets and products, etcetera, etcetera. So we're looking for that kind of magic to happen in the combined team composition. We're looking for harmony between them. One of the bigger risks we take is that there is team, I'll call it disharmony or fallout, etcetera, etcetera, which happens in partnerships, right? We're also looking for an X factor and it's really hard to quantify what that is. It is kind of a chip on the shoulder. It can be from many things. It can be from the way somebody grew up or where they grew up or being fired from a prior job, including a venture fund or many, many things. Josh Wolfe of Lux Capital has a great quote on this. I think he says, Chips on shoulders put chips in pockets, right? And this X factor is important because the best VCs, I guess the best founders as well, of course they're driven by economics and by their net worth, but they're driven by much more than that.
00:11:37 · Brijesh Jeevarathnam, David Weisburd
They really want to do something, achieve something, show the world, you can use whatever set of words you want, but those folks are the ones who keep on going. And they will find a way to outwork, out hustle and win against folks who don't have that X factor. [00:11:54] S1: When I think about chip on shoulders, dozens of entrepreneurs come to mind, people like Palmer Luckey, people like Adam Neumann. When it comes to venture capitalists, what are some examples of great VCs that have this chip on their shoulder?
00:12:07 · Brijesh Jeevarathnam
[00:12:07] S0: I'll stay away from the names here, if you don't mind. I'll give you some archetypes perhaps. We back both franchise managers, well known names, but also we back a number of fund ones and twos. And these fun ones and twos, they're folks we've known for typically five, ten years. So it's kind of very much a relationship that is long term. So we know the folks. The archetypes of these kind of folks that we back, besides sticking all the basics, would be they had a, let's call it a not the best departure from a power venture firm for whatever reasons, of their own choosing, of the other firm's choosing, and or that firm has gone a direction in terms of scale or geography where they feel they cannot practice their craft the same way. And now the chip on the shoulder is, I guess to put it in human terms, I guess, I'll prove you wrong. I can do this without the shingle of great brand X or without the calling card of franchise Y. And that is one archetype. Another archetype would be folks who have been, let's say, operators before in a startup or maybe they had a startup that failed, etcetera. And they've had a tough time in the LP market fundraising. They have an interesting thesis. They, from our vantage point, have the right to win with entrepreneurs. They're raising usually a modest fund, but they've taken enough bruises in the LP fundraising journey, they are really motivated to kind of prove that they can belong with kind of a, let's call it a franchise set of venture managers. Now, we don't back many of these. We back some of these folks. What's great is if we can find them early and get into their fund one or two, that quality of relationship we can build with them is exceptional because they never forget, right? They might have allegiance to all LPs, but that first one or two Keystone LPs that kind of put them in business, quote unquote, that is another great archetype as well of venture firms we like to back early.
00:14:21 · David Weisburd
[00:14:21] S1: What is the second order effect of an LP having great relationship with a GP?
00:14:25 · Brijesh Jeevarathnam
[00:14:25] S0: The main thing I would say is venture is an information asymmetry business. Now that has shrunk with what's happening in the world, meaning there's much more information available out there, including about startups, right? But there is still, I would say compared to probably most other asset classes, massive information asymmetry in terms of both the venture partnerships themselves, but also about the portfolio companies. Our business as allocators of capital and direct investors and companies is to get access to as much of that information as possible, the inside baseball if you will, before we make a decision on a venture fund, a next LPV commitment or investing in a next round of a business. So what that access, that relationship gives us is a look inside the tent before we back that next manager. I'll give you a thing we talk about all the time. Our re up on a venture fund begins the day after we commit to the current one. So in other words, it's a three year process before they raise the next fund We're in continuous DD on the next fund. What do I mean by that? In the time we're talking to people in the network, we're talking to our close GPs, founders, we go to social events, we're picking up all this intel that I'd like to think we're a bit more privileged to get the extra kind of like 10%, 20%, 30% that helps us make better decisions on both the next venture fund we're investing in, but also the next venture investment directly into a company that we're considering.