The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:31:15 · Scott Wilson, Harry Stebbings
[00:31:15] S0: Yeah. I mean, it depends on the the situation. We have stuff that we owned as private companies, and it went public five years ago, like Nubank, it's in our 13 f. We've owned that since it was a private company. It was distributed and we still own it in almost five years later. Other companies that goes public and we have the ability to hedge exposures, pre pre distribution, we'll do that if we think the valuation is frothing. So for us, it's it's kind of valuation. We we probably have some independent view on what we think the right value for the the stock is, and so we'll partially hedge or fully hedge the position. [00:31:50] S1: So you get stock. You do a, like, scheduled sell down over an eighteen month period. It's totally ad hoc, and it depends on a per name basis. I agree. I think Nubank's amazing, David is a rock star. I'm a I'm a holder too. But how do you do that? [00:32:05] S0: For something like SpaceX or a really big position that we think still has, like, a ton of potential upside over the next five, ten years, like, we'll, you know, try and be as thoughtful as we can. And it's... You know, I always say it's better to be not stupid than clever. So it'd be stupid to not take some chips off the table because we have a fiduciary obligation to the university and the mission of the university. So we'll take some chips, but if it were a much smaller position, we would just hold it for the next ten years. So we're, to some extent, just risk managing that position, but we'll gradually sell out of it over, you know, a multiyear period.
00:32:05 · Scott Wilson, Harry Stebbings
[00:32:05] S0: For something like SpaceX or a really big position that we think still has, like, a ton of potential upside over the next five, ten years, like, we'll, you know, try and be as thoughtful as we can. And it's... You know, I always say it's better to be not stupid than clever. So it'd be stupid to not take some chips off the table because we have a fiduciary obligation to the university and the mission of the university. So we'll take some chips, but if it were a much smaller position, we would just hold it for the next ten years. So we're, to some extent, just risk managing that position, but we'll gradually sell out of it over, you know, a multiyear period. [00:32:38] S1: Scott, I believe you were one... Well, the only allocator to suggest to Sequoia that maybe the eternal and evergreen funds were not optimal. How do you think about and reflect on that? And did you did you kind of sit back and go, wow. This is a bold move as you were doing it? [00:32:54] S0: I mean, it was controversial enough that we discussed it with the board. I mean, they're great investors. They're great people, And they've obviously made LPs a ton of, money over long periods of time. Like, didn't fit super well into our kind of co investment model. So they weren't great partners for us at that point in time. And, you know, it was probably detrimental to some LPs when they switched that structure. And we really haven't followed the firm as closely since then, but, hey, those guys will degrade over long periods of time.
00:32:54 · Scott Wilson, Harry Stebbings
[00:32:54] S0: I mean, it was controversial enough that we discussed it with the board. I mean, they're great investors. They're great people, And they've obviously made LPs a ton of, money over long periods of time. Like, didn't fit super well into our kind of co investment model. So they weren't great partners for us at that point in time. And, you know, it was probably detrimental to some LPs when they switched that structure. And we really haven't followed the firm as closely since then, but, hey, those guys will degrade over long periods of time. [00:33:21] S1: Scott, I'm so sorry to be so blunt. You don't freaking turn down Sequoia. Like, you just you just don't do it. I really like you because you're blunt. You're honest. You're just a good dude. But, like, what are you doing? Even even if they one x, the point is you're you're close to the green leaf, and goodness comes from being close. It's like the genie in the lantern, you know, in the cartoons. Maybe don't rub it. [00:33:47] S0: Yeah. No. I'm sure it was a mistake if you look at the returns that they've generated, but we've done just fine. [00:33:53] S1: Did every LP just come to you and be like, wow. That was so bold. [00:33:58] S0: You know, it was funny. I... There was a bunch of LPs that called, and we expressed, you know, our view. And, I think everybody complained about it, but everybody did it at the end of the day.
00:33:58 · Scott Wilson, Harry Stebbings
[00:33:58] S0: You know, it was funny. I... There was a bunch of LPs that called, and we expressed, you know, our view. And, I think everybody complained about it, but everybody did it at the end of the day. [00:34:08] S1: It is... I I have so many LPs that cool us up because we have a lot of data on the managers that we interview. And they will say, I can't believe it, and they name a big mega platform. They make me do the India fund, the China fund, the bio fund, the crypto fund, the games fund. I can't believe it. I can't believe it. And I say, so did you do them? And they go, oh, yeah. Of course, we did it. Oh, yeah. [00:34:29] S0: Yeah. And we just wanna do that. We'll just... We'll find some other place to put capital. [00:34:33] S1: Is it a big decision for you to churn? Like, do you agree with the three fund policy for fund commitments, which is traditional in venture, being LPs will commit to three to give managers enough time and room to prove themselves or not?
00:34:33 · Harry Stebbings, Scott Wilson
[00:34:33] S1: Is it a big decision for you to churn? Like, do you agree with the three fund policy for fund commitments, which is traditional in venture, being LPs will commit to three to give managers enough time and room to prove themselves or not? [00:34:46] S0: Yeah. I mean, like, we don't have a hard commitment. Like, probably, we're committing to more than three funds, but we will... As soon as, like, there's something for us to go and underwrite, you know, and we're fortunate that we don't have that many partners. So we typically know their portfolio companies relatively well, and we'll start making our own judgment calls on what we think the quality of the underlying portfolio is early on. And if we if we think there's a big disconnect on... You know, between our view of the portfolio and the partner's view of the portfolio, then, you know, we won't stick around. But that... That's super rare. I mean, typically, we have some view before we invest. [00:35:20] S1: When you review those decisions to not do a fund, what is the dominant reason? What's the number one most frequent reason why you will churn? Discipline around valuation. Wow. That's bold. But it's bold because you don't know with the greatest of respects. And so the best companies often look expensive at the time, but very cheap in hindsight. And so for you to take a snapshot decision and say that company is overpriced is bold close to it being done.
00:35:20 · Harry Stebbings, Scott Wilson
[00:35:20] S1: When you review those decisions to not do a fund, what is the dominant reason? What's the number one most frequent reason why you will churn? Discipline around valuation. Wow. That's bold. But it's bold because you don't know with the greatest of respects. And so the best companies often look expensive at the time, but very cheap in hindsight. And so for you to take a snapshot decision and say that company is overpriced is bold close to it being done. [00:35:49] S0: Yeah. I mean, it's typically... It's not just one example. Like, we we had one partner that I... I'm not sure he found a 100 times revenue deal that he was willing to turn down. Like, it just didn't exist. And, for something to trade at a 100 times revenue, it has to be, you know, an exciting company. I get that. But for us, like that's not what we want our capital to be used for. We want discipline around valuation, you know, and you mentioned LeafX L, like, you know, I think he's super pragmatic. He'll obviously, you know, pay up, and he's participated in some of these great companies that are huge winners. But he's also very pragmatic about, you know, when things get too frothy stepping away.