The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch

20VC: Founders Fund's Trae Stephens on Why The Most Competitive Deals are the Worst, Why No Company is Successful Because of their VC, Why We are Making ZIRP Mistakes Again Today, Why Loss Ratio is BS and Upside Maximisation is Everything

Apr 3, 2024

Trae Stephens, Partner at Founders Fund, discusses the unconventional deals and decision-making process at the VC firm. He highlights the importance of avoiding competitive deals, prioritizing upside maximization, and focusing on strong founders over markets. The conversation also touches on the impact of billionaire co-founders in tech success and reflections on Western political mediocrity.

01:12:52

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Episode guests

Trae Stephens

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Quick takeaways

Successful VC deals require avoiding herd mentality, focusing on upside maximization.

Investing in exceptional founders trumps predicting market trends for success in venture capital.

Defense technology's shift emphasizes software-defined systems and national security modernization.

Deep dives

Investment Strategy and Process

Founders Fund adopts a hands-on approach with a unique investment strategy focusing on high conviction deals. The podcast reveals how excessive processes can hinder the ability to identify exceptional opportunities, emphasizing the need for a $10 billion plus winner in each fund. The team's deliberate avoidance of typical partnership meetings enables individual accountability, pushing for strong conviction in investments.

Wisdom from operators and the value of saying no

01:22

Choose Strong Markets for Success

01:27

Timing is Everything in Investment Theses

01:26

The Trap of Growth and Dilution in Venture Capital

01:52

Introduction

4min

Unconventional Path to Georgetown

6min

Transition to Venture Capital and Early Experiences

6min

Unconventional Deal-Making at Founder's Fund

17min

Prioritizing Founders Over Markets in Venture Capital Investments

17min

The Role of Billionaire Co-Founders in Tech Success

4min

Reflections on Western Political Mediocrity and the Call for Talented Leaders

2min

Government Sector Success Factors and Moral Dilemmas

14min

Conclusion, Webflow, Secureframe, and Remote Ads

3min

Trae Stephens is a Partner at Founders Fund, one of the world's leading funds where he has worked with some of the best and backed the likes of Palmer Luckey with Oculus and Ryan Peterson @ Flexport since the very early days. Trae is also Co-founder and Executive Chairman of Anduril Industries, a defense technology company focused on autonomous systems, and Co-founder of Sol, a next-generation wearable e-reader. Previously, Trae was an early employee at Palantir Technologies, where he was also an integral part of the product team, leading the design and strategy for new product offerings.

In Today's Episode with Trae Stephens We Discuss:

1. From Hustling into Georgetown to Peter Thiel Ushering You into VC:

What is Trae's story of how he got into Georgetown University, despite being rejected the first time?
How did Trae make his way into the world of VC? How did Peter Thiel recruit him to Founders Fund?
What advice did Brian Singerman give Trae in his first week in VC? Why is it so important?

2. How the Best Venture Firm in the World Invests:

Decision-Making Process: Why do Founders Fund not have partner meetings? What is the investment decision-making process? Why does more process lead to mediocre outcomes?
Competitive Deals: Why does Trae believe the most competitive deals are always the worst? What do Founders Fund do to specifically avoid the "herd mentality"?
Upside Maximisation: Why does no one at Founders Fund care about "downside protection"? How do the team approach scenario planning and upside maximisation?

3. Do VCs Really Add Value:

Why does Trae think putting VCs on a board for "value add" is total BS?
Are there any cases in which Trae believes the VC can really move the needle for a company?
Why does Trae believe venture would be better if it were just operator investors?
Why does Trae believe platform approaches to VC value add is BS?

4. The Future of VC: Who and How to Win:

How did being an operator at the same time as investing, make Trae a better investor?
Why does Trae believe that vertical investing is BS and generalised is better?
How does Trae favour; market, product and people? Will Trae back a founder when he hates the idea?
What have been Trae's biggest lessons from his biggest hits and biggest misses in 10 years?

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