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 and co-founder of defense tech company Anduril Industries, shares his unique journey into venture capital. He discusses why competitive deals can be detrimental and emphasizes the importance of avoiding herd mentality in investments. Trae critiques common VC practices, arguing that true success comes from upside maximization rather than downside protection. He also highlights the critical role of innovative strategies and exceptional founding teams in navigating the tech landscape.

01:12:52

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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.

Scalability, children, life - Lessons Learned Through Experience

01:24

Underestimating Winners and Accountability in Investments

01:07

Investing in Future-Themed Companies

01:29

Securing Dealflow and Maintaining Founder-Friendly Approach

01:26

Intro

3min

Reflections on Childhood: From Log Cabins to Philosophical Insights

2min

From Rejection to Opportunity: A Persistence Journey

16min

Navigating Investment Strategies and Founder Dynamics

18min

Momentum and Market Timing in Startups

15min

The Call for Higher Standards in Leadership

2min

Navigating Hard Tech Success and Ethics

5min

Navigating Roles and Responsibilities

9min

Wrapping Up Insights and Business Solutions

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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