The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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.
00:35:49 · Scott Wilson, Harry Stebbings
[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. [00:36:26] S1: Do you think we should give managers forgiveness patience for deploying funds much faster than they said they would? Scott, me and you are both old enough to know that every manager says three years, and every manager right now is coming back twelve to eighteen months later saying, Scott, I'm so sorry. I'm so sorry, but investing. It's the best time ever. New intelligence intelligence. Should we give them forgiveness?
00:36:26 · Harry Stebbings, Scott Wilson
[00:36:26] S1: Do you think we should give managers forgiveness patience for deploying funds much faster than they said they would? Scott, me and you are both old enough to know that every manager says three years, and every manager right now is coming back twelve to eighteen months later saying, Scott, I'm so sorry. I'm so sorry, but investing. It's the best time ever. New intelligence intelligence. Should we give them forgiveness? [00:36:48] S0: You know, if we think that they're deploying capital at really high returns, like, we have no problem with really fast deployment. And if we think if they're deploying capital at poor returns or poor expected value, then we don't care how fast it's deployed is what I would say. We have a bias for smaller funds. Like we'd much rather have someone who raises, you know, a billion dollar fund when they could raise 4,000,000,000 and, and comes back every eighteen months than, than someone who raises 10,000,000,000 and comes back every three years. We, we just think like the ability to write like a small check-in a venture portfolio and have that be a super meaningful outcome for the whole portfolio, you know, a fund returner is is much easier in a billion dollar or less fund than it is in a $10,000,000,000 fund.
00:36:48 · Scott Wilson, Harry Stebbings
[00:36:48] S0: You know, if we think that they're deploying capital at really high returns, like, we have no problem with really fast deployment. And if we think if they're deploying capital at poor returns or poor expected value, then we don't care how fast it's deployed is what I would say. We have a bias for smaller funds. Like we'd much rather have someone who raises, you know, a billion dollar fund when they could raise 4,000,000,000 and, and comes back every eighteen months than, than someone who raises 10,000,000,000 and comes back every three years. We, we just think like the ability to write like a small check-in a venture portfolio and have that be a super meaningful outcome for the whole portfolio, you know, a fund returner is is much easier in a billion dollar or less fund than it is in a $10,000,000,000 fund. [00:37:33] S1: Do you look at it through the look through perspective? Being if I have a billion dollar fund and I get 10% in every company that I invest in and you say, well, we're a $100,000,000 check of your billion dollar fund, I'll look through. Obviously, I'm just explaining it for everyone listening. You've got this already, is 1% in every underlying company. Is that how you think about it? [00:37:54] S0: That's exactly how we think about it. We hardly ever talk about, like, fund performance. We we only really talk about the underlying exposures in the portfolio. So we aggregate everything up, and we know that we have x dollars of SpaceX or Cerebras or Anthropic in the portfolio, and that's that's how we think about it.
00:37:54 · Scott Wilson, Harry Stebbings
[00:37:54] S0: That's exactly how we think about it. We hardly ever talk about, like, fund performance. We we only really talk about the underlying exposures in the portfolio. So we aggregate everything up, and we know that we have x dollars of SpaceX or Cerebras or Anthropic in the portfolio, and that's that's how we think about it. [00:38:12] S1: Can I ask you, on your, like, Cerebras, how do you think about performance being challenged? And I'm not saying to comment on Cerebras at at all. But when you have a company that is hit by bad tailwinds in the public markets, how do you think about whether the stick and hold or actually a fiduciary duty to just cash your chips in? [00:38:30] S0: Yeah. I mean, Cerebras specifically of... Like, for us, that, that was a really big position at the IPO. And so we took some chips off the table and put some hedges on even pre distribution, but we like Andrew and the team. So we'll continue to hold some of that. And I think, you know, it's, if you look at the current kind of KPIs of the business relative to expectations going out the next four or five years, it's tough to justify the valuation, even at $2,530,000,000,000, wherever it's at today, based on what they've done the last twelve months, you're, you're betting on the, the come, so to speak. So that that company has a lot to prove, but it's clearly a great company, and we have lots of confidence in in Andrew and his team to produce good results over the next decade.