The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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.
00:22:00 · Rory O'Driscoll, Jack Altman, Harry Stebbings
[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. [00:22:10] S1: I think the other thing that I was going to say, know, that sort of like in support of kind of Harry's view on this is we're in a moment in time where a lot of investments are shaped like this, where, like, relative to other times, I think it is much more dispersion on these investments. And things are both really expensive and then the upsides apparently look very high. And so one of the things that we think about, and I scratch my head about a lot, is we're in a moment in time where valuations are extraordinarily high. And then traction and outcomes and all these other things are extraordinarily high. And so people are like, do you think we're... Are we investing the right speed? And I'm like, we're definitely not investing at the right speed. We are either investing way too fast or way too slow. But when both sides of the equation are this out of whack, the odds of having it right are zero. [00:23:00] S3: I'm really sorry. Every venture investor is in a WhatsApp group right now saying the market is totally fucked, just to be super clear.
00:23:06 · Rory O'Driscoll
[00:23:06] S0: Yeah. But then then those would be the same... And to to Jack's point the and schizophrenia, those will be the same investors who get out of the WhatsApp group and then wire another check for $50,000,000 to nail that. Right? So yeah, look at what you do, not at what you say, as Harry Holderbyn said about Watergate. But to your point, Jack, funny, we actually just did an annual meet and we had Tyler Cowen, The Economist speak, and he was great. Just great. But we saw... And one of my partners who was doing the meeting asked just a tangential question on venture, what's gonna happen in venture? And he just quietly said, as economists do, you know, returns are going to be highly skewed, variance is gonna go up with AI, and many of you will fail. And then just moved on to the next question. Some of you will get rich, and many of you will fail. Well, thank you for clarifying that, Tyler. Jack, you're right. It's like the highest variance time, which which speaks to even when you're doing these bets with the upside, having enough to do 20 is key, which is why I don't get the... We've talked about this before. It's why you write about instinct being an early stage bet despite the price. It's not yet at the stage where you can have the concentration discussion. You know, the folks having the concentration discussion are really talking about OpenAI and Tropic at the last two pre IPO rounds. But you're right, even at 10,000,000,000 pre, if it's where it is today, you don't wanna put 30% in.
00:24:17 · Harry Stebbings, Rory O'Driscoll
[00:24:17] S3: I I also think, like, this is not the round that worries me. If you would look at the instinct cohorts, which I haven't seen, but I imagine incredible. I imagine the depth of usage is like we've never seen before. What worries me is when you have three rounds in three weeks with no material movement in between and no data suggests there's been anything different. That's what worries me. Like, the the people who say, oh, 10,000,000,000, 14 people, it's just like people who said, you know, a billion for what... For Instagram was stupid. It's like, yep. You don't know if that's smart today. [00:24:43] S0: 16,000,000,000 for WhatsApp. [00:24:45] S3: Exact... Exactly. But you know what [00:24:46] S0: I love? I love the [00:24:47] S3: fact that I actually had your partner, Ev Randall, on the show, and he said, oh, we're gonna look back at Andreessen and General Catalyst and Lightspeed. And he retweeted it, which is so humble and, like, non VC like. Well, he was like, maybe I was wrong to say that Andreessen won't do a five x in this vintage because mister Martin Casado is making us look bad because the man has had Openruder. Obviously, last night had Fei Fei with World Labs, and then he had Cursor. So for the new story of the day, AMD buys Fei Fei Li's World Labs for 8,200,000,000 in stock at first big neo lab exit two and a half years into the company's journey.