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

20VC: Why VC Returns Will Get Worse, Why LP Incentive Structures are so Broken, What is the Answer to Liquidity with No M&A or IPOs, When to Sell vs Hold Your Winners & Turning $5M into $250M with The Trade Desk | Roger Ehrenberg, Eberg Capital

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Feb 19, 2024

Roger Ehrenberg, a prominent venture capitalist and founder of Eberg Capital, discusses the future of the VC industry. He argues that returns are set to worsen due to increasing commoditization and broken LP structures. Ehrenberg highlights the new entrants in the LP space, including sovereign wealth and pension funds, and their transformative influence. He also examines liquidity challenges amid a stagnant IPO market and shares insights on navigating the complexities of investing in both startups and sports franchises.

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INSIGHT

Venture Capital Landscape

Venture capital is becoming barbell-shaped, with large platforms and boutiques.
Mid and late-stage venture may become commoditized, but early-stage won't.

INSIGHT

New LPs and Venture Capital

The influx of new LP capital, like sovereign wealth funds, is changing venture capital.
This shift towards larger, more institutional investors is likely permanent.

INSIGHT

Broken LP Incentives

Traditional LP incentive structures are broken, often prioritizing job security over returns.
New LPs, especially sovereign wealth funds, focus on returns, which is healthier.

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Roger Ehrenberg is a legend of the venture industry as the Founder of IA Ventures, among the most successful seed-stage venture firms of this generation, having seeded companies including Datadog (NASDAQ: DDOG), Digital Ocean (NYSE: DOCN), The Trade Desk (NASDAQ: TTD) and Wise (LSE: WISE.L). Today Roger is the Founder and Managing Partner of Eberg Capital, a pioneer in bridging the gap among sports franchises, sports betting, media and entertainment. Roger’s current sports investments include stakes in the Miami Marlins, Real Salt Lake, Alpine Racing, Betr, Commonwealth, Kero Sports, Simplebet, SlamBall, Smarkets and WagerWire.

In Today's Episode with Roger Ehrenberg We Discuss:

1. The Commoditisation of Venture and Worsening Returns:

Why does Roger disagree with Doug Leone that "we have moved from a boutique high margin business to a commoditised low margin industry"?
Why does Roger believe we will see consistently worsening returns in venture?
Is this influx of LP capital cyclical or is it here to stay?

2. The New LPs and The Broken Existing LP World:

Why does Roger think the existing incentive structure for LPs is totally broken?
Who are the most important new LPs entering the venture market?
How do sovereigns and pension funds entering venture change the industry?
Which players have capitalised on this new LP class best?

3. Where Does the Liquidity Come From:

With the closed IPO window and lack of M&A, where will liquidity come from in the next 24 months?
Would a Trump administration open M&A markets? Does Roger agree M&A markets are shut down?
When does Roger believe IPO markets will open again? Will Databricks and Stripe go out in 2024?
If Roger were to run a continuity fund strategy, how would he structure it? What would he do?

4. When to Sell and When to Hold:

How does Roger advise managers on when to sell vs when to hold?
How important is it for a new firm to have a company go public in the first five years?
What are Roger's biggest lessons from selling The Trade Desk at a $2.5BN valuation?
How does Roger think about managers thinking they should manage the public book of their portfolio for their LPs? What are the pros and cons?

5. Relationship to Money:

Do rich investors make better investors? How does investing when you have a lot of cash already change your mindset around investing and exiting?
How does Roger analyse his relationship to money today?
What have been the single biggest needle movers in his wealth journey? How did it feel when he made a $6M bonus?

6. The Secrets to Parenthood and Marriage:

What does it mean to be a great father for Roger?
How does Roger think about bringing his children up with the same level of hunger and ambition, despite being brought up with such wealth?
What are Roger's two biggest lessons on the secret to a great marriage?