E8: Apurva Mehta of Summit Peak on Why Fee Sensitivity Leads to Adverse Selection in Venture
Sep 5, 2023
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Apurva Mehta, Managing Partner of Summit Peak Investment, discusses the power laws in portfolios, alpha in early stage investing, differentiating a great LP, and asset classes in the investor base. They explore the challenges faced by founders, the role of venture capitalists, and the value of working with family offices as partners in the VC ecosystem.
Having access to the right networks and ecosystems is crucial for successful venture capital investments.
The power law principle holds true in venture capital, with a small number of investments accounting for a significant portion of the returns.
Deep dives
The importance of a network and ecosystem for venture capital investments
Having access to the right networks and ecosystems is crucial for successful venture capital investments. This includes tapping into valuable networks like Y Combinator (YC) and building relationships with influential individuals like Max Levchin. These connections provide access to high-potential startups and help GPs provide valuable support to founders.
The value of solo GPs and their ability to provide hands-on support
Solo GPs, like Ray Tonsing, can offer unique advantages to founders. Their nimbleness and ability to provide dedicated attention and support to portfolio companies can be invaluable. Solo GPs often build strong relationships with founders, acting as a trusted advisor and offering guidance through challenges. Their network-driven approach and commitment to the success of their portfolio companies make them successful in the early-stage venture capital space.
Differentiating factors in selecting venture capital managers
When selecting venture capital managers, it is important to consider factors like portfolio construction, valuation discipline, and ownership discipline. Managers who construct well-thought-out portfolios, exercise discipline in valuations and ownership, and have a clear investment thesis are more likely to succeed. Additionally, prioritizing managers with expertise and networks in specific sectors or industries can be advantageous for targeted investments.
The power law and the importance of shots on goal in venture capital
The power law principle holds true in venture capital, with a small number of investments accounting for a significant portion of the returns. Diversification alone does not guarantee success in venture capital investments. Instead, having more shots on goal through a well-constructed portfolio increases the chances of capturing the outliers that generate high returns. It is important for LPs to understand the power law and consider it when evaluating their venture capital investments.
David Weisburd sits down with Apurva Mehta, the co-founder of an early stage fund of funds at Summit Peak and formerly an institutional investor at endowments (Juilliard, Cook Children’s Hospital) to discuss power laws in portfolios, alpha in early stage investing, and what differentiates a great LP. If you’re ready to level-up your startup or fund with AngelList, visit https://www.angellist.com/tlp to get started.
(1:00) Episode Preview
(1:44) Why Apurva went from the institutional world to co founding Summit Peak Partners
(2:57) How can early stage funds compete with Andreessens and Sequoias
(3:28) How do you separate alpha in early stage investing?
(8:06) Inefficiencies in the early stage market
(16:24) Sponsor: AngelList
(14:06) Generalist vs Specialist firms in portfolio construction
(19:39) What is Apurva looking for in reference calls when doing diligence on emerging managers?
(24:29) What differentiates a great LP?
(29:14) Asset classes from most to least desirable
(31:20) What fees and carry is Apurva seeing from the top quartile managers
(34:13) What will happen to new firms?
(36:18) Founders Fund’s strategy
(36:45) Power law returns in Fund one portfolio
(38:43) Apurva’s preferred ownership model
(41:00) Summit Peak’s niche
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