Venture Unlocked: The playbook for venture capital managers

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.Our guest today is Ed Sim, founder and general partner of boldstart ventures, an NYC-based firm started in 2010 with the focus on being a day-one partner for founders. Boldstart had a modest beginning, with only a $1M fund in 2010. It has since grown to just under $500M in AUM. Some of his first check investments include Snyk, Kustomer, BigID, and Superhuman.Ed previously co-founded and was a managing partner at Dawntreader Ventures in 1998. Dawntreader grew to $290 AUM and invested in seed and early-stage software, Internet, and digital media companies.He began his career at JP Morgan, and early on in his career learned how to code. Ed did his undergrad at Harvard College and was a four-year letterman on the men’s lacrosse team. Ever insightful and candid, Ed provided so many great nuggets around building a firm, navigating markets, and tell us why exactly he’s decided to stay true to the original thesis of backing entrepreneurs at early formation. A word from our sponsor:Invest in innovation. Allocate allows investors to access top-tier private funds and co-investment opportunities within the technology sector.Despite the enormous growth of the private markets and the rapid increase of retail demand for private alternatives, investing in the highest quality private assets within the innovation sector still remains limited to institutions and ultra-connected high net worth individuals.With Allocate, wealth advisors, banks, family offices, and other qualified investors can have a streamlined way to responsibly invest with confidence.Go to allocate.co to find out more and please sign up to the waitlist to learn more and get early access to the platform.In this episode we discuss:01:22 Ed’s decision to become a fulltime investor03:06 Why Ed turned down a Harvard MBA to start his first fund04:54 The investment thesis behind boldstart and how it was informed by his time at Dawntreader.08:21 How early days of running a new firm will test resiliency 09:57 What was their major inflection point?13:18 How Ed gets comfortable with being the first check in, often pre-product, and ways to mitigate risk. 16:14 Patterns Ed has seen when looking at his successful investments20:03 How he spots “non-obvious” founders and deals27:27 How they underwrite to what can be a “fund returner”31:35 How boldstart thinks about generating alpha in such a competitive seed market36:08 Where he believes we are in the market cycle today, and what the years ahead may look like43:52 The non-obvious things a venture investor needs to think about to maintain durability over the long term47:28 What emerging managers need to think about when evaluating when to join a firm versus starting their own. 50:38 The most counterintuitive lesson Ed has learned about being a venture capitalist53:28 The founder that helped define Ed as an investor57:28 The investor that has been most influential to his careerMentioned in this episode:boldstart venturesI’d love to know what you took away from this conversation with Ed. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.This week we have the treat of hosting Peter Hébert, co-founder and managing partner of Lux Capital, a 21-year-old firm that is a pioneer of deep-tech investing. The firm has nearly $4B in AUM and has led investments in Desktop Metal, Latch, Matterport, and Auris Health which was acquired by J&J in a $6 billion transaction.Prior to Lux, Peter began his career at Lehman Brothers, where he worked in the firm’s Equity Research group. He did his undergrad at Syracuse University and was the Founding President of its first venture organization, Future Business Leaders and Entrepreneurs.I’ve known Peter for nearly a decade and have found the Lux story to be so enjoyable to follow. This episode was a real treat as Peter spoke about the 20+ year “overnight success” story of Lux, which included many difficult times in the early days. Over the years, they had many inflection points and in our episode we talk through those inflection points, how they’ve managed a bi-coastal firm, and Peter’s general thoughts on the market. A word from our sponsor:Invest in innovation. Allocate allows investors to access top-tier private funds and co-investment opportunities within the technology sector.Despite the enormous growth of the private markets and the rapid increase of retail demand for private alternatives, investing in the highest quality private assets within the innovation sector still remains limited to institutions and ultra-connected high net worth individuals.With Allocate, wealth advisors, banks, family offices, and other qualified investors can have a streamlined way to responsibly invest with confidence.Go to allocate.co to find out more and please sign up to the waitlist to learn more and get early access to the platform.In this episode we discuss:01:33 Why Peter and his co-founders started Lux towards the end of the Dot Com bubble and what they saw as the opportunity03:14 The challenge of raising under what was an esoteric thesis 06:17 The early signals that acted as signals that pointed toward success09:03 The biggest inflection points of Lux Capital’s first ten years16:00 Peter’s relationship with his co-founder and co-managing partner Josh Wolfe and how it’s evolved over time18:46 How the partnership works on a day-to-day basis to ensure firm cohesiveness 23:33 Characteristics of new partners they look for and how they integrate new members on the team 29:21 How Lux enables an ownership mentality within the firm33:37 How they became a bi-coastal firm nearly a decade ago, and managing the firm with remote partners39:05 How follow-on for deep tech was more difficult and how they managed their own portfolio construction to account for this. 44:55 Where SPACs fit in as tools for founders and investors53:18 The most transformative piece of career advice he’s ever received55:24 The photo Peter has on his office wall, and it’s meaning 58:59 The piece of advice he would give to emerging managersMentioned in this episode:Lux CapitalI’d love to know what you took away from this conversation with Peter. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.This week we have Alda Leu Dennis, General Partner at Initialized Capital. Founded in 2011, the firm has been an early backer of companies such as Coinbase and Instacart and describes itself as the “Honey Badger” of venture capital. Founded in 2012 with a sub $10MM fund I, they currently ~$1B in AUM. Prior to joining Initialized, Alda was a managing partner at 137 Ventures (a firm co-founded by past VU guest Justin Fishner-Wolfson). At 137, she led investments in Planet Labs, Wish, Coupang, CourseHero, and Work Market.  Alda also has held various operational roles including COO at Airtime, and General Counsel at Founders Fund, and at Clarium Capital. She did her undergrad at Stanford and received her Law Degree at UCLA.A word from our sponsor:Invest in innovation. Allocate allows investors to access top-tier private funds and co-investment opportunities within the technology sector.Despite the enormous growth of the private markets and the rapid increase of retail demand for private alternatives, investing in the highest quality private assets within the innovation sector still remains limited to institutions and ultra-connected high net worth individuals.With Allocate, wealth advisors, banks, family offices, and other qualified investors can have a streamlined way to responsibly invest with confidence.Go to allocate.co to find out more and please sign up to the waitlist to learn more and get early access to the platform.In this episode we discuss:01:35 Alda’s journey from being a lawyer into becoming a full-time investor03:17 Why she decided that investing was a better fit for her04:44 Why the Initialized ethos was so compelling to her06:45 Winning today as a generalist early stage investor09:00 How they have adjusted to the current market framework13:13 Most common traits she sees of successful founders14:58 How Initialized gets to ‘Yes’ on complicated and non-obvious companies16:31 Portfolio construction and follow-on decision making17:54 Why Initialized decided to move reduce portfolio size for their more recent funds19:33 Despite the growth of dollars going into VC, the disturbing trend of decreasing funding of female-led companies in 202021:00 How Alda wants to increase investments companies lead by women and underrepresented founders24:42 Navigating embedded biases in the investing community27:43 How the diversity movement is specifically changing the investing community today29:22 Alda’s experience of joining Intialized many years after it was founded and how other firms can learn from her experience of integrating new partners31:29 How a deal meeting at Initialized typically works34:09 The way Initialized promotes independent thought and decision making within the firm 34:53 The most counterintuitive things she’s learned as an investor36:31 The most challenging thing about building a durable firm37:23 The investor that has made the biggest impact on herMentioned in this episode:Initialized CapitalI’d love to know what you took away from this conversation with Alda. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.This week’s guest is Kanyi Maqubela, managing partner of seed-stage firm Kindred Ventures. Kindred has $156 AUM, and the team has previously invested in companies such as Coinbase, Blue Bottle Coffee, and Postmates. Prior to Kindred, Kanyi served as a Partner at Collaborative Fund, where he was an early advisor to Tala and Walker & Co., and a board member at Buffer, Camino Financial, Spruce, and True Link. Kanyi was also a co-founder at Heartbeat Health, and previously ran growth at One Block Off the Grid (acquired by $NRG). Kanyi has also served as a Lecturer and Adjunct at New York University Tisch School of the Arts, a curriculum adapted from his time as a student at Stanford University.A word from our sponsor:Invest in innovation. Allocate allows investors to access top-tier private funds and co-investment opportunities within the technology sector.Despite the enormous growth of the private markets and the rapid increase of retail demand for private alternatives, investing in the highest quality private assets within the innovation sector still remains limited to institutions and ultra-connected high net worth individuals.With Allocate, wealth advisors, banks, family offices, and other qualified investors can have a streamlined way to responsibly invest with confidence.Go to allocate.co to find out more and please sign up to the waitlist to learn more and get early access to the platform.In this episode we discuss:01:54 Kanyi’s view to later stage mega-firms like Sequoia, Andreesen, and Greylock getting into seed financing05:20 Vulnerabilities and issues new players should think about when entering the seed marketplace09:13 Who needs to adapt most to today’s seed environment15:55 How they underwriting ownership and target exit outcomes19:15 How Kindred mitigates risk pre-investment 23:56 The mental model for picking successful founders at seed 29:09 How Kindred is able to maintain diligence integrity with the speed of market.33:58 What exactly is value-add? 36:06 How Kanyi looks at winning in competitive situations44:52 The model of Kindred’s future growth and how they will remain competitive48:48 Non-obvious investing as key differentiator in early stage investing50:27 The most impactful advice he’s received as an investorMentioned in this episode:Kindred VenturesI’d love to know what you took away from this conversation with Kanyi. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.Our guest today is TJ Nahigian, co-founder and managing partner of Base10 Partners, a SF based early stage firm focusing on investing in companies that help automate the real economy. They currently manage over $600MM in AUM and have invested in companies such as Figma, Notion, Brex, and Plaid.Prior to Base10, TJ was the founder and CEO of Jobr, which he led to a successful acquisition by Monster in 2016. Before that, he worked in investment roles at Accel, Summit Partners, and Coatue, where helped launch the private investing efforts of the firm. A word from our sponsor:Invest in innovation. Allocate allows investors to access top-tier private funds and co-investment opportunities within the technology sector.Despite the enormous growth of the private markets and the rapid increase of retail demand for private alternatives, investing in the highest quality private assets within the innovation sector still remains limited to institutions and ultra-connected high net worth individuals.With Allocate, wealth advisors, banks, family offices, and other qualified investors can have a streamlined way to responsibly invest with confidence.Go to allocate.co to find out more and please sign up to the waitlist to learn more and get early access to the platform.In this episode we discuss:01:17 TJ’s path to VC03:16 How past experiences at Accel, Coatue, and Jobr contributed to his view on the type of firm he wanted Base10 to be. 06:47 An inside view on the early conversations he and his partner Ade had to chart a common vision. 10:07 The decision to start a new firm for the first time rather than joining another well-established firm. 11:28 What they got right and what went wrong with their first fundraise15:22 The benefits and potential risks of having large anchor LP funds as early investors18:10 The ingredients an emerging manager needs to thrive in today’s market22:37 How the firm leverages research and automation to source and win deals. 25:31 How their research helps them find non-obvious deals in lesser trafficked geographies. 29:54 Why purpose and diversity is central to Base10’s investment thesis37:47 How the long time to liquidity has changed the investing market41:46 Reflecting back when he helped start Coatue’s private investments focus43:17 The biggest myth about investing 44:11 The investor that’s had the biggest impact on his career46:07 The experience that helped define him as an investorMentioned in this episode:Base10 PartnersI’d love to know what you took away from this conversation with TJ. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:Hi, I'm Samir Kaji. And welcome back to another episode of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. Our guest today is TJ Nahigian, co-founder of Base10 Partners, a San Francisco based early stage firm focused on investing in companies that help automate the real economy. The firm currently has over 600 million in assets under management, and has invested in companies such as Figma, Notion, Brex, and Plaid.Samir Kaji:Prior to starting Base10, with his partner, Ade, TJ was the founder and CEO of Jobr. And prior to that he worked in investment roles at Accel, and Summit Partners, as well as Coatue where he helped launch the private investing efforts of the firm. Having known TJ since the early days of Base10, it was so fun to go back in time to hear the origin story of the firm, how they've evolved using automation to drive better outcomes, and how they think about navigating the current markets to drive alpha for their investors. Without further ado, let's get into the episode to hear all of that and more. TJ, it's so great to have you on the show. Thanks for being on.TJ Nahigian:Thanks so much for having me, Samir.Samir Kaji:There's so many threads I'm going to pull on during this entirety of this conversation. But let's actually start from the beginning. You've worked at a number of firms, including some iconic ones like Coatue and Summit, and others, but how did you first get into investing?TJ Nahigian:I grew up in an entrepreneurial family, which is what got me into business in the first place, and then graduated with a finance degree in the middle of the financial crisis, which many would say it was just awful timing. But it ended up being probably the luckiest thing that's ever happened to me because it actually brought me out to Summit Partners in the Bay Area in early 2009 just as the world was starting to emerge from that financial crisis, and venture led on a significant change starting then. In '09 there were 20 to 30 different venture firms all cobbled around Sand Hill Road and Palo Alto. I was at one of them. So, I was lucky. And if you look at the landscape today, it's meaningfully different. And there's a number of reasons why but platform shifts like mobile, social, etc. have enabled so many companies just to grow to be so much larger than I think anybody had ever expected.Samir Kaji:Yeah, it's interesting you started your career right after that global financial crisis, which actually turned out to be one of the best times to start investing. It also came several years after AWS redefined what it meant to develop software and certainly via the iPhone the year after. I look at your career, and you've been at firms that are both later stage and early stage. And I was thinking about when people start firms it's like a blank sheet of paper that you're staring at. And you have to figure out an ethos, an operating model, an investment thesis. If you have a partner, you have to have a shared vision of what the firm is going to be. But looking back at your experiences, whether it was Accel , Coatue, Summit, oftentimes there's things that you want to pull from those firms, and there's things that you don't want to pull for them, those firms. What exactly was that mental model for you as you were sitting with Ade in the early days of saying, "This is the type of firm we're going to build together."TJ Nahigian:First of all, I feel so lucky and fortunate to have gotten to work at Summit, Accel, Coatue, and then later actually become an entrepreneur and start a business called Jobr, because those all as you mentioned totally shaped my experience. Each of those firms is great in their own right, and will be long standing firms. When I look back on it, what we've done with Base10, is we've tried to pull the best of those places for the opportunity that we feel like we're going after. Base10 just for those in the audience that don't know, we're focused on automation for the real economy or problems for the 99%. And we started out in 2017 setup to invest the early stage and now at the late stage into some of the largest trends that are shaping the real economy, leveraging technology.TJ Nahigian:When Ade, and I sat down to start Base10, that was really the most important thing was figuring out that what. What are we going to do and what are we going to be? How was also really important and I would say that's where experience at those different investment firms, and being an entrepreneur has helped us significantly. And so, we've invested from the early days in building out a research process that we think is unique and differentiated and really helps to win both in the real economy, but also in this new venture landscape that is markedly different than the 2009 venture landscape.TJ Nahigian:The way that works is we summarize it by saying we do very much trend based research, like a hedge fund. So, very similar to what Coatue will do. We do outbound and we're proactively reaching out the best companies in a given trend. Very much like growth or private equity firm. This is very much like a Summit Partners, an Accel, or an Insight where a few of my colleagues have come from. We still invest like a venture fund. But this is where Ade and to an extent my background come in handy is we do so with software and data at our core. We use workflow automation, and data so that we can actually effectively manage that process, and pipeline. And so, that's really the how of what we do at Base10.Samir Kaji:I'm glad you brought up some of the threads that you did pull from some of these other firms in instructing how you fill out that blank sheet of paper in terms of the vision. What also struck me is that your experience you had some experience starting a company and being a founder, which Ade I know was an investor in the company. But a lot of your time, pre Base10 was actually on the investing side. I think Ade is almost reverse in that he spent time at Workday ventures, but really was a serial entrepreneur. And oftentimes, when you have those two backgrounds with such extensive experience both on the operating and investing side, it brings some really interesting ways that you can build a firm and help founders.Samir Kaji:There's the off balance sheet, also that I also think about, which is a function of looking at somebody and saying not only are they good from a complementary standpoint because they've had operating experience, but they have a shared set of values. I've seen a lot of funds get with two partners that have just met each other and you have a high risk of partner divorce over some period of time. How did you feel comfortable the two of you were the right people? And what were some of those discussions that got you to the point where you said, "hey, we have a shared vision, we can do this together?"TJ Nahigian:I was again very fortunate in the fact that I actually got to meet Ade well before starting Base10. I'd just started a business called Jobr, which actually was really informed from my time at Coatue, where I helped start our first private investment fund, and was leading a lot of our work on mobile investing. And we essentially built a mobile app in the job space called Jobr. Ade became one of our first investors in that business. So, Ade, as you mentioned Samir, is entrepreneur turned investor. I’m the opposite, I'm investor turned entrepreneur. Ade, ironically, was my VC.TJ Nahigian:He ended up being by far the most helpful VC that we had. But he also quickly realized that I had an investment background. And he was ramping up his personal investing and work at Workday Ventures, which he had started, and started pinging me with regularity around different investments. And so, that's what brought us closer and closer together. By the time we had scaled and sold Jobr, Ade and I had become quite close and thinking about starting a new venture fund and what we thought would be the most impactful mega trend over the next 20 years of automation in the real economy.TJ Nahigian:The thing that was most compelling to me about partnering up with Ade and vice versa is just how I would say unique and special he was on so many different aspects. And then how mission, values, and work ethos aligned we were. And we've had a number of amazing guests on the show, Samir. I think almost everybody will tell you starting a venture fund is no small feat. Being an investor actually doesn't really help much in starting a venture fund, ironically, being an entrepreneur does. And so, going from zero to one, honestly, the number one thing that we needed was grit and a mindset of being able to teach ourselves and learn how to do things. And I saw that with Ade massively. Ade is just so incredibly unique in so many different ways. But also, the skill set is very complementary to mine that when I was setting out on this, hopefully 50 plus year journey with Base10, the most important thing was who I was going to be doing that with. And so, that made it easy to make that decision despite a number of other very interesting opportunities to potentially pursue.Samir Kaji:I think you've pointed out something that I remember when you started Base10. And you and I met pre fund one when you were starting to get into the fundraising. We'll get into that in a second. And it really is building a company from scratch. You're writing checks versus code, certainly. So, that's a little bit different from a software company. But there are all of these elements that can be quite scary when you're starting a firm. You had historically worked at really well established firms that in many cases had been around for decades with astounding success. What was the internal calculus that got you when you decided to go back into investing to actually go down this path of starting something from scratch versus what you had done in your past, which is work at these large firms where you can spend all your time really focusing on investing?TJ Nahigian:I was fortunate and lucky to have the opportunity to go back to some of those firms. When I started there, they may not have been as large as they are today. I think Coatue has grown 10 plus times since then. And Accel has also grown dramatically. I think part of it was really a huge opportunity and the belief that there was a change coming into venture. So, I think that was one thing that we did get right, that the venture landscape would change. And two, that a new type of firm was needed. Three, and again, the most important thing was just who I was going to be doing that with, and do we have values and mission and work ethos alignment on that? And so, that was the main calculus for us. I think if I was honest with myself, I knew how hard it would be to actually get started. It would not have been as easy of a decision. But now four and a half years later, since we got started in 2017, it definitely was the right decision.Samir Kaji:Well, speaking of degrees of difficulty, oftentimes the most difficult thing to do is get that first fund off the ground getting to a first close, and at the risk of bringing back a traumatic event that you experienced in fundraising. Tell us how you engineered that first fundraise and how you approached it? What was it like? And what do you think now looking back you got right and what you get wrong?TJ Nahigian:A ton, a of ton of learnings from the early days, and Samir, you had a front row seat to this when we were working together. We were fortunate. Our first fund, our target was $100 million to do seed in series A investments in a relatively concentrated portfolio focusing on automation for the real economy. Our initial strategy was to get to a first close so that we could get started. And so, we were fortunate enough to find two groups that we ended up going deep with and really just took a bet on us. One of them, we've worked with in prior lives, and that let us get to that first close so we could actually start investing. But we knew if we wanted to build Base10 for the long term we would need a diversified LP base. And we would want an LP base that could scale with us longer. We started proving that we could actually make investments and start to build our Base10 track record different than our prior track records, and then went back out to market focusing primarily on institutional piece that we thought could scale with us.TJ Nahigian:I think we were really fortunate in those early anchors that we found that took a huge belief and leap of faith in us. I think that may have gone to our head a little bit and saying like, "Oh, this will actually be easy." But we had a rude awakening. I think we talked to hundreds of LPs really before we knew what it actually meant to raise a fully institutional fund. Honestly, the number one thing that helped us be successful was grit, was not giving up and continuing to iterate until we found this product market LP fit a year later in mid '18. We ended up closing our first fund was $137 million that came in a little over our target. Although, a lot of that happened towards the end of that fundraise after we were able to tweak the messaging and approach quite a bit.TJ Nahigian:We were incredibly lucky and fortunate to get to partner with some very helpful LPs for us. Name one of them being Cambridge Associates who ended up coming in at for a very small amount in our first fund, but has been such an incredible thought partner for us as we've built the firm and the strategy over time. And that was very impactful for us. I would say it's way too many things to list to tell you what we got wrong. It's like almost everything. But we got lucky and just by sheer grit and persistence and luck landing in a really good spot. And I think really learning our audience, the market, really over rotating on being institutional from day one. There's a number of things that that actually means but getting to work with a bank like First Republic and a whole list of other providers how we actually ran and operated the firm, our investments, etc. I think was one of the factors that ended up getting folks to take that leap of faith.Samir Kaji:Yeah, you mentioned these two anchors that came in early and obviated the cold start problem, which is a luxury to have. A lot of people don't have anchors and they have to fight and scrap for the initial set of LPs to come into the first close. And while the anchors are great, I think the thing that sometimes becomes a little bit of a risk is as you go from a fund one to fund two, if those anchors do not then come into fun two. You have these big craters that you now have to fill. How did you de risk yourself between the funds? You mentioned Cambridge, which increased in terms of how much capital they brought in. You didn't know that in advance that they would do that for fund two. Or there are items in particular that you did tactically to ensure that you could actually mitigate some of the risk and that you would not have a cold start problem for fund, which is what? Almost 2X the size of fund one.TJ Nahigian:Our learning coming out of fun one was, this was an area we needed to continue to evolve. And so, I wouldn't say we had time to actually build the firm and progress a lot of the things that we had started manually by building processes around them. One of those areas we really invested into was LP relationships, and LP management. And with LPs, you're often looking at things like data room and performance and talking to your companies. And we were doing this over and over and over again with existing as well as new LPs. And so, we took a step back and thought about, "oh, how do we actually transform this experience and make it almost somewhat magical? How do you make it 10X better?" And subsequently, we ended up investing and building our own internal software after looking at in the market and not seeing much, which has now become our LP portal.TJ Nahigian:I would say, a combination of investing into that, which was an opportunity to show off how we thought and how we operated our backgrounds as entrepreneurs, as well as what we were doing. And pairing that with actually getting some fantastic advice from the folks that ended up being most helpful were people that had recently successfully started firms, not people that had started from 20 years ago, and building deep relationships with LPs over that entire time frame. So we did that really nonstop. Once we finished fundraising fund one, we maybe took a few weeks off, but that that was about it. I think we went into fund two not really knowing how it would go and expecting that it may be the same thing all over again. But it ended up turning out in a very different way. And we were really fortunate to get to work with a number of folks in fund two, almost all of which were with us in fund one, but many net new names as well that can help us take Base10 even further.Samir Kaji:This whole entrepreneurial mindset has really come through in every conversation I've had with you. Certainly, during this conversation where you're building a company, and there's these different components and pillars, which we'll get to in a minute. How have you seen the market evolve? So, you mentioned this new era of venture capital, which I would wholeheartedly agree with. In fact, if you look at the market today with over 4,000 US firms being much more fragmented by region and sector and the type of product they're offering founders. In your mind, what is it that you're offering as a product that allows a firm like yourself to win? And what are the key ingredients that if you look across the market, that if somebody is coming to market as a venture fund, they really need these ingredients to truly thrive in such a competitive and hot environment?TJ Nahigian:I think there's a host of things, Samir. Just to set the stage, when I started in VC in 2009, 12 years ago, there were, again, those 20, 30 firms, those were the only firms that were around on Sandhill Road. Ade was pitching those firms to fundraise then, and if you didn't raise capital from them you were kind of screwed. There's nowhere else to go. I think we did the math. If you were a partner at a venture firm in '09, you needed to see three to five deals a week to look at everything. That was your job. In order to do that today, you need to see 100 deals a day. It's not possible. The process has to have changed. Way more capital than ever, entrepreneurs have more and more choice. And so, how do you win?TJ Nahigian:We do that based on really two pillars. One is our research pillar, and number two is purpose. With research, it's really that process that I described to you before, which is the how, which is we do research like a hedge fund. We do outbound like a growth or private equity firm, invest like a venture fund, but we're able to do that at significant scale, but only within the swim lanes, the trends that we think are the most important trends. And that gives us significant advantage versus others. It helps from sourcing, to selecting, to selling, to supporting all those companies and entrepreneurs, which I think are the four primary roles of the individual investor at a venture firm.TJ Nahigian:More importantly I think today when capital is really becoming more and more of a commodity, purpose and really the why is actually becoming much more important. That's something that we've started to tackle. We have been big levers from the beginning that we're solving problems. Investing in companies solving problems for the 99%. This isn't by design, but those entrepreneurs that we back look like the 99%. Most of them are outside of Silicon Valley, many of them are underrepresented. And so, that's what our portfolio has done.TJ Nahigian:We've made conscious decisions to put a portion of our profits from the early days to back some of those things that we have purpose in. But more recently, and coming out of the events of George Floyd, we've launched our advancement initiative, which is a growth fund where we've partnered with historically black colleges and universities who have historically been shut out of venture for a whole host of reasons, but are really an incredible engine of growth for underrepresented folks in the United States and beyond. And we've raised a growth fund in partnership and really anchored by those HBCUs to invest in the top late stage companies of our generation. We've also raised additional capital from our existing LPs, but we donate half of the profits, half of the carry, actually, back to those HBCUs, and scholarships in the names of companies we back. And so, aligning research in our investment, philosophy, process, and approach. Combining that with purpose, we feel like gives us a significant edge to find and win some of the best opportunities and in venture today.Samir Kaji:If you don't mind, I'd like to pull on both of those a little bit, both the research and the purpose. Let's start with research for a second, and I look at today's market. And you're right, I mean, the number of deals that are being done, and the number of players that are competing for those deals are exponential step function of what they were even five years ago. And you worked at a firm that historically had done mostly public and now is doing a ton on the private side. There's a lot of crossover investors. You've seen what Tiger has done. And one of the things tiger has done, where I have not seen this level of respect is that, yeah, they are preempting a lot of deals. But they seem to be able to have figured out a way to move at scale, at a level of speed without sacrificing a ton of diligence in the sense that they often do a lot of the research on the front end before having the conversation with the entrepreneur. It seems like the research function that you're doing within the swim lanes that you've identified as right inappropriate for the type of deals you want to do. Has that manifested into faster decision making? And has that allowed you to compete more effectively in those series A deals that you're doing?TJ Nahigian:I think that is absolutely right. Those firms are some of the best at what they do. And they're showing up very much prepared, right? Tiger looks at really three trend areas to invest in. They're investing in software, and fintech, and internet. And they're different folks responsible for each, but that's really all they do. They don't stray from that too much. And when they show up, they're oftentimes showing up with 50, 100 plus page decks pre-prepared and have a really, really deep understanding of that industry. Coatue, very similar. Like you are, they're focused on just a few core trends at any given point. And they show up incredibly prepared. This was the playbook that I helped engineer and design when we got the private investing side started at Coatue.TJ Nahigian:We very much have taken that to heart at Base10. We felt like particularly an early stage venture, there wasn't that type of firm that was built before, there was not that process. And there was a huge opportunity for us to go and do that. And so, that's very much what we've taken into account as we've designed and built out our process. And we've doubled and tripled down on that building out a research team. We do weekly meetings as a team. This is very different than any other venture firm I'm aware of. But we do weekly trend meetings as a team where we do these trend-based dives, typically we have one or two going at a time led by one person, but worked on by everybody at the firm.TJ Nahigian:And so, if you've done that for a month, a month and a half. The entire firm is working on that collaboratively. If you've talked to 50 different companies in the space becomes a lot clearer. Is this trend interesting? What sub trends are interesting? Who are the most interesting entrepreneurs? What go to market opportunities are working? If I've had that conversation with 30 other entrepreneurs in the space, the first time I talked to the next person in that space they're going to come away saying, "oh man, that person actually knows their stuff." It's so much better than just a random network. Hey, this person's interesting. Check it out, which is what firms did 10, 15 years ago. Many still do it today and some still successfully, but I'm a firm believer that that is going to change.Samir Kaji:So, a lot of what you're doing within the research function is transponding and figure out a way to peer in the future to then go into your diligence of company before you meet him. And I suspect that also allows you to be a little bit more proactive in reaching out to companies versus waiting for a seed investor to send something your way. Tell us a little bit about how that works in terms of allowing you to see because you mentioned earlier, you are investing in people that often look like the 99%. They may not be in traditional Silicon Valley circles. How does the research function allow you to find those deals?TJ Nahigian:So, without giving up too much of our secret sauce at a very high level, how our research function works, and it really starts with Base11, which is a software and data platform that we built internally. Oftentimes, we're plugging in eight to 10 companies in a given trend. Let's use an example of mental health, which is one of the dives that we've done recently. We'll plug in eight to 10 of the marquee names in that space. Our Base11 software will go out and globally find 1,000 plus companies in that trend. It then splits them into sub trends, and will filter out based on 30 different data points on each of those companies, which ones actually are the top five to 10% for what we're looking for, high growth venture opportunities.TJ Nahigian:That's really the universe that we're starting with. You go from that 1,000 down to 70 or 80 different companies or so. And then we're proactively reaching out to those companies. We've done some workflow automation, so that we can do that at scale with a relatively small team. But they're highly customized, highly personalized emails that go to the entrepreneurs and those businesses that are sharing some of the insights that we've already learned from the space. After we're done with our dives, there's times midway through we'll even publish research papers on them. You can see some of this on our website. In many cases, we're quoting entrepreneurs in there and giving them a bit more visibility as well. That enables us to really build and hone in on that universe in a matter of days.TJ Nahigian:And then, by the end of call it 40, 45 days, we've had conversations with 30, 40 different entrepreneurs that we think are up and coming the best within that sector. Timing doesn't always work out. It's not necessarily going to be perfect timing for any of them. And so, there's still some work to do. Where we don't have automated decision making, which is how some of the data driven VCs really describe themselves. We don't think that is going to happen anytime soon in this industry for a number of reasons, but it really helps us to hone in on a specific area. And it helps again, with that sourcing by being proactive. Selecting because you're really pulling from the best of this one specific universe. Selling into them because there's a lot more value you can add once you have different industry insights, and then supporting shortly after.TJ Nahigian:And so, that's been a huge, huge part of our process. It does enable us to move faster if we completed a dive as a team, and we see something that's just off the charts great. It enables us to move on that much faster. So we've done our market work already. We can do our business diligence on that relatively quickly. We can get industry references on the business relatively quickly. And there's still some work to do on our end, but it's you front load a lot of that work, which ends up being better for the entrepreneur.Samir Kaji:Well, and I think the other point that is probably worth making here is that when you are able to do these deep dives, you're getting a good sense of these companies before you actually meet them. And when you do talk to the entrepreneur, you're giving them a clear sense that you really understand their markets, you understand their pain points. And your proactive outreach allows you to preempt, which I think would probably help you from overall investment standpoint and getting lower valuations perhaps where otherwise you might have been part of a competitive bidding process.Samir Kaji:You mentioned this other pillar, which, of course, we've talked a lot about diversity over the last year and including on this podcast. It's still early progress. We haven't seen a ton of capital go behind it yet, particularly with the underrepresented managers. You have taken an approach both within your team. And if I just challenge anybody to look at any website and find a more diverse team. You've built one with the advancement initiative, which is investing in these late stage companies, and really driving returns for these historically black colleges. I'd be curious on both sides of the spectrum. Do entrepreneurs care about that where when you're going out to these growth stage companies, they really care about that mission, where it allows you to have access to some really interesting companies you otherwise wouldn't? And then what is the net effect if this all works? What does this mean in terms of really driving societal growth?TJ Nahigian:This comes back to that second pillar of ours, which is purpose. Our belief is in a world with infinite capital from super angels to hedge funds, entrepreneurs want to work with capital that has meaning and purpose. Entrepreneurs can choose. And so, why are they going to choose you? And what do they want to align around? Software is really eating the world, but I think there's this broader trend within asset management that that ESG, environmental social governance is going to be bigger than software, and is going to transform assets under management faster. As of a few years ago, the percent of assets under management that were "within ESG" were low single digits.TJ Nahigian:Our belief is in the next five years, it's going to be north of 50%. And there's a reason for that. Purpose driven profit is starting to affect outcomes. D&I to your point, which is an area that we've started with, and is incredibly important for us for a number of reasons. But one of them being obvious, I think we are the largest black founded venture fund. But that has and particularly after George Floyd, that's become a top five business concern. It's affecting IPO readiness, it affects stock price, it affects employee and client retention, and overall happiness.TJ Nahigian:And so, it's not just venture companies that are paying attention to this, it's the broader world of asset management, and I think that's going to really affect long term change. With the advancement initiative, this is really, I think, the first fund that at least I'm aware of, that actually, structurally, ties profits to purpose. And it does so because we have an LP base that is highly curated. And for a number of reasons, is by far the highest ROI and in our minds to actually contribute to just a quick example, if you were to look at just endowments today of universities, which are common source of capital into venture funds. They're I think the largest LP by grouping. Stanford has a north of $30 billion endowment. If you combine all HBCUs together, endowments are a fraction of the size just of Stanford. Yet, 60% of grad students are coming out of HBCUs.TJ Nahigian:It's this huge engine for change for so many reasons. So, we feel lucky that we were able to put this fund together so that this group that had historically been shut out of investing in technology, and particularly in venture, which as you know today is actually the best performing asset class, overall. We were able to create a fund structure that actually gives them leverage. They essentially get 2X back on every dollar that they put in, and our hope is that the fund would create unique opportunities for us to invest in. We didn't know how this would go. I think we had an inclination because the reason we started this was we heard from a number of later stage entrepreneurs saying like, "hey, I look around my cap table and I need help in this area. This is actually becoming a top five business issue," which is why we got started on it.TJ Nahigian:It wasn't something we'd necessarily planned from the beginning. But when we launched it, I would say product market fit was instant. The best entrepreneurs, the best companies in the world are prioritizing working with us. They don't need capital. Their rounds are beyond oversubscribed. Some cases, they're even creating rounds to partner with us. These are entrepreneurs like W. Bellows and Nubank, like Dylan from Figma, like Zack at Plaid, who are saying, this is a huge, huge issue for us, and we need help, and we want to do more. And the way we've designed the fund, it becomes a win, win, win really for everybody involved.Samir Kaji:You're right in that I have not seen a firm take this approach. But given it is a top five business expense, which... I mean, concern, rather, which I totally agree with. Why aren't other firms doing this? Because typically, when you see something work in venture, everyone copies it, and it becomes a trend. And I haven't seen anything, and the advancement initiative I know is fairly new. The fund was raised earlier this year. But do you anticipate we're going to see more of these opportunities that are created for individuals, endowments, and others that now can have access? And actually, if things go right can benefit by actually creating more opportunities where otherwise there would be no opportunities?TJ Nahigian:I hope so. I think when we started the advancement initiative, that was honestly our goal was that more people would do this because then we know that's actually working and you're going to actually affect and create more change. I think you have seen ESG affect other areas of asset management more significantly than venture. Venture is actually a laggard. It's a very small part of asset management overall. And for structural reasons, it takes time to change etc. We are lucky in that we have a firm and a platform where we were able to move quickly on this, but I don't think we realized how large the overall opportunity was and what this actually could mean for asset management long term.TJ Nahigian:We now feel like the mission is much larger than us, and we have a huge responsibility, but the opportunity is just so incredibly large. And I think Ade actually is... I try to recite a quote from him. He's always very, very great with how he words things. But he's essentially takeaway after seeing the reception of the advancement initiative is, well, over the next five to 10 years, we're going to get to the end of the world of no sum capitalism and move into the win-win era, essentially, aligning profits with purpose because that is what the best companies, investment opportunities, etc., are going to want to align with. And in a world where capital is commoditized, that becomes incredibly important. And so, we're, I would say, one of the earlier managers to go after this and do it with a somewhat unique model. But our hope is that many more too.Samir Kaji:Yeah. And look, I mean, I think one thing that is acting as a major tailwind is the size of the innovation market. I always think about venture capital, and I think we've redefined what it means to invest in technology companies. When I started my career, technology was very much fringe. There was very little in terms of widespread adoption, there's very few funders. And today, innovation is very horizontal in nature. And that's all happened really over the last 14 or 15 years. So, I do anticipate the market is getting bigger. The redefinition of what a technology company can do, and the different industries they affect. But as you look at the private markets, because you've had experience early stage, and you've had experience actually starting and working within a firm in Coatue that understood at one point that in order to invest in innovation, you had to dip into the private markets.Samir Kaji:This year, if you read the headlines, it seems like venture is going crazy. I would make the argument that still a very small asset class. Even if 500 billion goes in, that's still 1% of the public market cap of which public market cap is about 47 trillion of which the top six companies are all tech companies valued at nine trillion. How do you foresee the private markets moving? Do you believe that they'll become larger and larger? As the trend of companies staying private longer just never really reverses. In the '90s, you did see companies like Amazon go public in three years. And now it's seven to 12 years, sometimes even longer. A company like Roblox was closer to 20 years. And so, what's your assessment of the current private markets? And how do you think this is going to play out over the next 1, 2, 3, 4, 5 years?TJ Nahigian:Yeah, so it's a great question and fun to bring up, Roblox, one of my nearest and dearest misses, and unbelievable lesson learned where at Summit Partners in 2010 we nearly led the, I guess it would have been a Series A or Series B, which today would be a Series A, and we were off on price by 20%. Goes to show you what actually matters over the long term, right? I think one thing that we were lucky and we got right when we started Base10 is that technology was going to touch every industry, essentially, the real economy. COVID was a massive accelerant to that. I think that is very much going to be true. We're still really early in seeing the penetration of this. Like eCommerce and percent of retail pre-pandemic was 15% of overall retail sales. It jumped up in the pandemic, but there's still so much more market to go out and build.TJ Nahigian:And so, I don't necessarily think of venture just as innovation. I do think it's now essentially the bridge to the new world and to all economies. In terms of will the private markets continue to grow? It's likely and I think different innovations in the financial markets like Spax, like Direct Listings, etc., will potentially help mitigate that, but probably not at the rate that companies are being built, and that they're scaling, and there is capital available in the private markets. I do think that there will be more and more growth in private companies. You can look at the numbers. They're undoubtedly getting larger and larger before going public. I do think that will continue.TJ Nahigian:I think for a number of reasons that may not be the best for the retail investor. And you could argue that there are other verticals within finance and fintech like crypto that are actually creating different opportunities for retail investors to invest earlier. But I do think that, that will continue to happen. For in some ways that is self-serving for me as a venture capitalist and private technology investor because it allows companies to get larger in the private markets and compound and that can be incredibly valuable.TJ Nahigian:If you look at the number one mistake that almost all venture funds make is you sell too early, and why? In many ways you have to write. Like it's my job for our LPs is to invest in the private markets. Once it's public, many of them are expecting me to distribute that and not hold that. They're not paying me at this point to be a public markets manager. But you look at companies like Atlassian. You look at companies like Snap where I was lucky to be involved in both. They've compounded so much in the public markets. At Accel, it's amazingly. We invested, we were the Series A lead in Atlassian. We invested $400 million valuation. That was a significant check. Guess what? We sold some of that along the way to firms like Tiger. And since then it's compounded by 40X. So, it does benefit, particularly private markets investors for companies to stay private longer. It does take a longer amount of time to create liquidity. But I do expect that that trend continues.Samir Kaji:Yeah, I do, too. And there was a time and certainly some people still say this, but they would look at some of these firms that are putting in large amounts of capital at late stage and call them tourist capital and say that they're here now, but they will ultimately vacate the area when the markets change. I don't think that's the case. In fact, the later stage of market today approximates what the post IPO market used to be 15 or 20 years ago, and I don't anticipate a Coatue or Tiger to actually come out to the private markets anytime soon. I at all, I think that private market investing is going to be continually part of their overall investment thesis given the difficulty of generating alpha in the public equities market.TJ Nahigian:Yeah. And it's funny you say that. I joined Coatue when we started our private investment business. Before I joined, we were just a $4 billion long short tech focus, public hedge fund. I joined along with another colleague and Thomas to help open our Menlo Park office and launch our first private fund. The number one thing we said, "why not let these guys in?" It's like they're tourists. Here today, gone tomorrow. Fast forward 10, not even 10 years, and Coatue has gone from four billion of AUM just on the public side to over 40 split evenly between public and private. And the returns have been stellar on both sides, and it wasn't always easy or simple. And there was a lot of zero one, and reinventing over time. But it's in some ways, almost incredible that, frankly, where I got started like the Summits, the TAs, the TCVs of the world have actually let somebody come in so quickly, and take that market from them. Those businesses are great businesses, and they haven't done poorly, but they've definitely allowed new entrants in like the Insights, like the Coatues, like the Tigers.Samir Kaji:Yeah. And the level of aggression and tenacity by some of those firms has been extraordinary to watch. So, I want to end with our heat check segment. I'm going to ask you three questions. Rapid fire in succession, the first being now that you've been an investor and largely in traditional venture capital for a decade, what's the largest myth that you think gets perpetuated that's just objectively untrue?TJ Nahigian:I don't know about today. But since I've been in venture, everything is always so expensive, and so overheated. Literally since 2009. Oh, my God, I can't believe we're paying these prices. These multiples are insane. That has not stopped any single year in the 12 or 13 years I've been in venture at this point. So I think that is untrue. I don't know about today, but I will say that definitely is the rhetoric, like I said time and time again.Samir Kaji:Things are always expensive until they're not. So, we will definitely see how the years ahead are. In all of the folks that you've worked with. I think about some of those iconic firms. It's particularly folks like Accel, which have done extraordinarily well in backing companies like Facebook in the past, you've run across a lot of investors that have likely nurtured your career or mentored you. Name the investor that's made the biggest impact on your career.TJ Nahigian:This one is really challenging because I am a venture nerd and venture and investing history nerd. So, I have three for you that I'll list. I would say probably the most impactful is a friend of mine's father, Howard Marks, who started and scaled Oaktree. I was fortunate to get to see what he was building as he was building it. And now I get to work with him as an LP and his son. And it's just incredible what they've been able to achieve over there, and has been influential and just getting me excited about investing at all.TJ Nahigian:Number two, Jim Breyer. I was at Accel when Facebook went public. I wasn't there, unfortunately, when we made the investment, but when we went public, and just opened my eyes to how large technology could be. And then Philippe Laffont who I was lucky to work for and work with at Coatue who when I joined that that was crazy because he wanted to be the largest tech investor in the world. And fast forward eight, eight years later, and he's well on his way. So, those have been the folks that have been, I would say, most impactful on my career.Samir Kaji:Yeah, amazing names. Howard is somebody that I followed, and there's a great podcast that he did recently on invest like the best, which I thought was one of the most thoughtful interviews and discussions out there. And certainly, with Jim, Facebook really made Accel nine I think it was. A lot of LPs regretted skipping that one. So, those are great names. As we talk about impacts on your career, as you take all these reps with working with companies and investing, there's always that one investment that you look back on and say this defined who I was. It forced me to think in a different way. Either it was a miss, it was actually a success, it was an entrepreneur that said something that was truly impactful to your career. Can you think back of an experience with a company where you're like, "this is when I really became an investor?"TJ Nahigian:Yeah, I would say the one that probably got me out of my comfort zone, but has really influenced how we think, or at least I think at Based10 and some of really the how of what we do was investing in Snap, which taught me so many different lessons. But this was one of our first investments on the private side at Coatue. It was pre-revenue. At the time, the investors, the largest enterprise value I'd ever invested into, which was a billion and a half enterprise value at the time. It was also the only company I'd invested in pre-revenue. We had insight from China, and particularly seeing WeChat. Both the growth and engagement and as well as the monetization in terms of how impactful mobile messaging businesses can be.TJ Nahigian:I would say Evan was also just an exceptional, exceptional entrepreneur, that you could really see from the early days. It hasn't always been a straight line up and to the right, but I think just checked, it's $120 billion business. So many different learnings on how to evaluate and analyze different investment opportunities, how to essentially act within a deal process when things go well or poorly, and there's a bunch of that, and how to play the long game. And so, I'd say that's probably the most impactful so far in my career, but number of others within the Base10 portfolio that hopefully can get there someday, too.Samir Kaji:Well, it's interesting that you bring up Snap because I do remember some of the earlier days relatively and you mentioned $120 billion market cap. I remember when the round I believe was IVP did prior to Coatue to everyone thought the valuation was crazy that they paid at the time. Of course, that in retrospect has been an extremely cheap deal.TJ Nahigian:We had a handshake deal with Evan on that round, and it went to them the next day. So, yeah, that was a rough one, but we... A lot of inside baseball, but another lesson of don't burn bridges and continue to add value to entrepreneurs because you never know what will happen.Samir Kaji:Love this story, and it certainly speaks to this belief that I think we all have, which is you have to look at these companies can really bend the arc of what the future is going to be and figure out how to underwrite the power of what is actually possible. And no one thought Snap would be $120 billion company, let alone a $10 billion company. And so, again, this aligns even with your prior comment of everything feels expensive until it's not. This has been a great interview. I really appreciate you coming on. Excited about everything you guys have done at Base10, and really tracking guys in the future.TJ Nahigian:Samir, thanks so much for having me on, and I really appreciate it.Samir Kaji:Thanks so much for listening to another episode of Venture Unlocked. We really hope you enjoyed our conversation with TJ. To learn more about him or Base10 Partners, be sure to go to ventureunlocked.substack.com for detailed notes of the show as well as my ongoing commentary about the world of venture capital. Venture Unlocked is also available on iTunes or Spotify for download. And while you're there, please leave us a rating and a review as it really helps us out, and hit the subscribe button in order to get each and every Venture Unlocked episode as soon as it's released.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.Today, we have the great pleasure of chatting with Rudina Seseri, Founder of Glasswing Ventures, an early-stage venture capital firm investing in AI-powered software companies. With over 17 years of investing and related experience, Rudina has led investments in companies such as Celtra, Crowdtwist, ChaosSearch, Plannuh, Reprise, Inrupt, and Zylotech (recently acquired by Terminus).Prior to moving into venture capital, Rudina was a Senior Manager in the Corporate Development Group at Microsoft Corporation and started her career as an investment banker at Credit Suisse. Rudina was appointed by the Dean of the Harvard Business School (HBS) for four consecutive years to serve as Entrepreneur-In-Residence for the Business School and has most recently been named to the HBS inaugural group of Rock Venture Capital Partners.A word from our sponsor:Invest in innovation. 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In this episode we discuss:01:01 What inspired Rudina to become a full-time investor and what was her early investing philosophy03:06 The firm’s structure and methodology05:42 Learnings from the first fundraise08:35 Frontier tech investing12:13 What type of frontier tech companies the firm looks for14:11 How Glasswing specifically evaluates companies 21:01 How they thoughtfully built the team at Glasswing to drive unique support to their founders25:03 Preserving ownership in companies during the current market conditions without having to substantially increase fund size28:36 Deciding on when to make an exception on valuation or ownership30:44 How the firm deals with unconscious bias and group think when evaluating investments34:50 Using diversity of thought to drive better decision making38:55 The most counterintuitive lesson Rudina has learned as a VC40:52 The investing miss that taught her a lesson42:13 The investor she most admiresMentioned in this episode:Glasswing VenturesI’d love to know what you took away from this conversation with Rudina. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:Hi, I'm Samir Kaji, welcome to another episode of Venture Unlocked, the podcast that takes you behind the scenes of the business of venture capital. Today, we have the great pleasure of chatting with Rudina Seseri, founder of Glasswing Ventures, an early stage venture firm investing in AI power technology companies. With over 17 years of investing in transactional experience, Rudina has led investments in companies such as Celtra, CrowdTwist, Talla, and Zylotech. During our discussion, we talked about her view of what frontier tech means to them, the KPIs that Glasswing uses when measuring value add services to founders, and why diversity is so central to their investing ethos. Now, let's get into the episode to hear all of them and more. Rudina, it's great to see you and thanks for being on the show.Rudina Seseri:Hello, Samir, happy summer and thank you for having me.Samir Kaji:Now, let's get into your start into venture capital. You had a myriad of other roles before you became a full-time investor. What inspired you to be a full-time investor? What was the opportunity you saw and what type of investment philosophy did you have?Rudina Seseri:I had been in investment banking as a little low analyst. Remember those? 120-hour weeks. And I was in tech investment banking. So I joke that after three years of investment banking, I was done with the banking hours, but I had permanently caught the tech bug. So and this was the early 2000s, both the bubble and the burr. So both sides of that equation, but really became hooked and was excited by the innovation and the transformation and that passion. So, I knew I wanted to do tech of some sort and VC sounded very, very sexy. Have you met an MBA that doesn't love VC? So, I went to HBS to get my MBA and there I met Rick Grinnell, who was already a VC, and not coincidentally today my co-founder and partner at Glasswing Ventures.Rudina Seseri:We launched the firm together, but Rick was already a VC. And as a student, I actually did a few projects with him, particularly one around the mobile landscape. Mobile and smartphones were going to be a big thing. This is 2003 and 2004. And then I went on to join Microsoft, always with an idea that four or five years down the road, I would come back to venture and the notion of balancing sort of the passionate for tech and the background in M&A and financing, et cetera, with operational experience at Microsoft. It happened sooner than I expected under two years because Rick and our old firm were raising a new fund and they were building the team, so they poached me, but that was sort of the genesis of my coming onto venture. Put differently, on a good day, I thank Rick. On a bad day, I blame Rick for my venturing experience.Samir Kaji:I think it can be a little bit of a roller coaster for sure. And the two of you did launch Glasswing in 2016, you're effectively a lift out. Tell us a little bit about Glasswing itself and what really catalyzed the start of that firm.Rudina Seseri:So the idea was that while we were in our old firm, we kept seeing opportunities around sort of the evolution, if you will, of frontier tech, particularly having crossed the chasm from advanced analytics to something else, which became really AI and narrow AI and applied AI these days. But we kept evolving our thesis in that regard and we're seeing the impact because we're end market investors, so we look at enterprise security platforms but with an angle around frontier tech and this is going back really to the sort of 2012 through '14 timeframe.Rudina Seseri:We were particularly seeing that emerge out of academia with deep learning. And some of the emergence of that wave and making its way into academics and, fundamentally, all our thesis and the investments we had made were telling us that it was going to become all pervasive. It may sound strange today in 2021, but there were a lot of nonbelievers. I mean, when we did the spinout to have this focus around frontier tech with their AI and applied AI being a driver, I had many, many, many questions around, was AI really a thing? Was it really a wave? So you look back and you're like, "oh, my gosh. Now, it's an entirely forgotten conclusion." But from the perspective of the time, we really thought there was a big, big market opportunity for a focused strategy. And so far, so good, knock on wood, but it has panned out quite nicely.Samir Kaji:There's a number of ways that people start their own firms. It's usually with a few backgrounds. They were an angel investor and decided to be a full-time investor. Somebody that was an entrepreneur, an operator that decided to be a full-time investor. And then sometimes, it's coming out of another shop and starting really your own firm. And the latter is kind of where you and Rick were. The two of you had worked together for almost a decade investing, started Glasswing in 2016 as a newly formed firm. But a lot of people asked me the question when I have people that are effectively spinouts, do LPs give you a lot of attribution for what you did in your old firm? And how do you navigate through some of those questions in the early days where some people may wonder, "well, your track record before was maybe not as relevant as it is now and you were part of another firm," walk us through a little bit about that first fundraise.Rudina Seseri:It's the crux of what your product is. And I joke with software founders and technologists, even when they pitch VCs, they have a demo. They have something to show. You walk into a room and you're pitching an LP on a new firm and a new fund and your track record in your strategy, those are your products. So with that as the backdrop, I'm really sort of proud of the approach we took with our spinout and how we launched Glasswing at multiple levels. One, it was probably one of the friendliest spinouts that I could have ever envisioned. With our partners in the old firm, we did not abandon them or the LPs in the funds, or most importantly, perhaps our founders. We literally did a legal spinout to where we have been seeing that portfolio through and maintained our board seats, did not orphan our founders, and got track record attribution.Rudina Seseri:The track record attribution really speaks again to the fact that prospective LPs would not have to call five different folks to get to, "did Rudina or Rick really lead that deal?" We had the legal attribution. We were on the board. They could call the founder. We had access to our track record. So from that perspective, we lowered the barrier, if you will, to diligence. And also, there weren't five partners making claims to X, Y, Z deal. It was very clear who sourced it and who led it and who was seeing it through. Fundraising is never easy. Even when it's easy, it's not easy. And it's even harder when it's a first time fund and you're just establishing and a new firm, but I will say that doing a spin out on the up and up and that dynamic helped matters a lot.Samir Kaji:The continuity aspect does help a lot when you have a team that's been together and that's one of the main risks that LPs do underwrite too. The other one is looking at the investment thesis itself and understanding why is this manager uniquely positioned to execute on a certain thesis. You're right. Five years ago, frontier tech was something that a lot of people didn't understand, or at least at worst or at best rather, skeptical of. Today, you see firms like Lux and DCVC doing Founders Fund doing a lot of it. Take us back to 2016 for a second, how did the focus on frontier tech guide your investment thesis and strategy in terms of the type of companies, the stage of companies? And what type of risk you were underwriting to with those early stage frontier tech companies?Rudina Seseri:Absolutely. So the good news, going back to 2016 and onward, is that it's not as though we were in a different focus or different space and woke up and said, "Oh, my gosh. I got to do frontier tech." It has been very, very much continuation of strategy. So we came out of a generalist tech, early stage tech fund where Rick and I had this focus. And we and the LPs that backed us fundamentally shared the view that it was a bigger enough opportunity for us to stand on our own. So in many ways, going back also to your earlier question around how did the spinout happen and what helped it, it's been a continuation of strategy. It's been an evolution. So, our focus and our strategy is very much around end markets. And then from wave of disruption to wave of disruption, what the catalyst is evolves, changes, or transforms over time.Rudina Seseri:What do I mean by that? So end markets being really enterprise platform security, okay? But I've just said to you, this is... What? Trillion dollar market opportunity, so that's not really focused. Where the focus comes in for us is that I'm not just looking at an enterprise SaaS business in X, Y, Z, I'm actually looking beyond the execution, the founder, the usual criteria you'd see. I'm looking for that frontier tech that is so disruptive that it will transform the current market either to disrupt the incumbents or to market make in a new category. And for us and where we are in the evolution, AI has been the grand majority of that. Now, that's sort of one piece of the equation. The other piece is the stage that we invest in. I am very, very nervous to even throw sort of letters or nomenclature today because I assure you if this podcast stays on for a few months, the nomenclature will have shifted.Rudina Seseri:So five, six years ago, I would've said, "oh, we're the first institutional or maybe a little longer than that, but we're the first institutional investor in, hence the series A round. And oftentimes, the first capital in." Today, the series A has taken a very, very different dynamics. So, let me articulate it differently in a way that I think has persisted time. We are early stage investors. Right now, that nomenclature is seed, but I'm not married to it, you can call it whatever you want, where we are investing in companies that are two to four quarters away from product launch or the product has been in the market for a couple of quarters. So we're not really taking any raw, if you will, tech, algorithmic, and even data risk. What we are taking is product market fit and go-to-market risk. And that's what we have done for many, many years and that's what we will continue to do. So let's focus on nomenclature, more around what stage can we come in, and how do we help the business derisk from there.Samir Kaji:You're investing in these companies that are six to 12 months away from releasing a product. And one of the things that a lot of folks think about frontier tech is high technical risk. It could be two, three, four, five years sometimes before a product goes to market. And sometimes, these companies raise tens of millions of dollars before that happens. It sounds like what you're focusing on is a very different type of company that is a little bit more conservative when it so early cash or in getting a product to market.Rudina Seseri:Not necessarily. I think maybe we alter our definition a bit. You might be equating frontier tech and deep tech. And sometimes, they are the same. Oftentimes, they are not. Frontier tech, I'm talking about really at the cutting edge of innovation, not necessarily that it is deep tech, that's going to take three to four to five years before you can commercialize it. That, in fact, would be beyond our horizon for launching. And that's why I prefaced our discussion by saying I'm in marketing. We're end market investors. So, pick DeepMind. It has its AI as much AI as you'd want. And in fact, it's probably one of the more forward sort of oriented companies if you think about it around the area of general AI.Rudina Seseri:But we would've missed it every time by design because we do not invest in companies that have tech in search of an application or a use case. Instead, I'm starting with, "okay, within enterprise, I'm a thesis-driven investor." So, we haven't talked about that. I have this five or six or seven themes or thesis. And then underneath them, I go deeper and deeper. I'm looking for this type of opportunity to apply to this problem with this budget or with this budget in the making or with this pain point and it's a must have. So when you come at it, if you will, I'm already looking for a solution to a problem, but instead of your run of the milll SaaS, I'm looking for a degree of tech that is truly cutting edge that can give you an advantage in addition to the execution play.Samir Kaji:That's helpful to further define it. I'd be curious in understanding just... If you could break down the anatomy of what you consider a successful frontier tech company and when you are looking at these companies, how do you analyze and go through that discussion within your partnership as well as in your own head?Rudina Seseri:I mean, what I consider a successful frontier tech company is what you consider a successful tech company period in the sense that, ultimately, it's capital in and returns out. Along the way and a little bit tied back to... Now, contradicting myself for a second. While it's not deep tech, along the way you want to see the progress of unprecedented growth and sort of the tripling year over year, et cetera in ARR. But what I notice about and what we sort of have a view around frontier tech is, especially if you're leveraging AI, where just for the purposes of this discussion, knowing full well that they're not the same thing, I'm going to use ML and AI interchangeably, knowing full well that they're not quite exactly the same.Rudina Seseri:But especially in the beginning, when you're training the algorithms and to take advantage of ML with the data, typically frontier tech but especially applied AI companies leveraging data, their early days, they take a little bit more time because you're training the algorithms as opposed to just starting straight up with software alone, without being informed by data. When that happens, you see a little bit of a sort of longer window of time to get to market. But then, if all goes appropriately and according to what one plans, then you should see them outperforming. And so the adoption curve once in the market should be steeper, if you will, and the time shorter.Samir Kaji:It was something that I was thinking about and alluding to earlier. And you did make the distinction between deep tech and frontier tech, which I think is an important one, but what you're highlighting also, there are situations where it takes a little bit longer to get to product to market, to really get those pure revenue metrics. But in scenarios where you see a company that you think has this high potential, it is on the cutting edge, it has these elements that are driven around AI, but could take 12 to 24 months to show real, real traction in the traditional top line perspective, how does that instruct your own investment strategy in terms of the size of the rounds that you're leading? And how much runway you want to have these companies get to really achieve those milestones necessary for the next round of capital?Rudina Seseri:I mean, this is a question of how do we valuate an opportunity and an investment in a company, right? So from that perspective, we parse it around, can we derisk our understanding and can we go in knowing full well that the product works? I mean, I know it sounds table stakes, but especially when you have the AIP. So one of our partners Vlad Sejnoha was the former CTO of Nuance and former chief scientist for Kurzweil AI, Vlad is really, especially when go deep into the DD phase, he's really owning that piece. And then beyond their... I don't know if you and I have talked about offline in the past, but we have a group of about 40 advisors that work with Glasswing on a contractually exclusive basis. So what that means is they don't work with other funds and a good subset of that group is really academics and technologies out in industry focused on frontier tech in their day jobs and in AI within that umbrella.Rudina Seseri:So there is a lot that goes on from a diligence perspective around ensuring that the technology and product piece and access or special ownership to data, we can have a whole different discussion on that, is there. Then, the other side of the equation is around go-to-market and how can we help them go-to-market faster? And I will come to answering the question one side these two pieces around how we funded, therefore. From the go-to-market piece, that's where, again, our thesis comes in and our domain expertise comes in. Humor me if you had a company that was in the leveraging AI and all the techniques that would be familiar with and have expertise in for drug discovery, we would be the wrong fit because it's not a market I know well at all. Instead, if it is a company that is, I don't know, disrupting, for example, I'm thinking of Verusen and their portfolio. Transforming and disrupting the status quo when it comes to managing inventory in the supply chain broadly defined and particularly parts, direct and indirect materials.Rudina Seseri:In that one, okay, we can wrap our head around it. We have the right domain expertise. We can actually help them close customers during the due diligence process. So we know how to shrink the go-to-market and the sales cycle and get them, in particular, those first proof points around logos and customers that matter. In turn, once we sort of have those two sides... And I mean, I'm over generalizing and there's a lot more as you know to due diligence and how you help a company. But once we have comfort around that, then we always want to make sure that they have some plenty of runway to get to that next milestone. So what that means is that we typically look for 18 plus months of runway to give to the company and over 90% of the time join forces, so we lead and co-lead with other firms. And we've done them alone as well, but we have no problem or egos in terms of co-leading deals at all. The more value added investors, the better.Samir Kaji:Yeah. And you mentioned something a second ago and embedded in your answer around the number of advisors, some of the team members you had. And I remember you and I having this conversation. I was looking at your deck and not only did I see the advisors, but I saw a team that was significantly bigger than what you normally see for a firm that has sub 200 million or 250 million, rather in AUM. One of the questions I always ask is, is this a function of what we're seeing right now of founders want more?Samir Kaji:They need the level of support and to really have a comparative advantage as a venture firm. It's far more than capital. You have to have very clear thesis, understand the business, and really mobilize around it, both with the investing team, your extended network, and the other folks that play certain roles. Tell us a little bit about how you constructed the team in order to add the most value to these founders and what are some of the learnings in terms of the type of people that you need to bring on to really give the founders the type of experience that is necessary.Rudina Seseri:So, it's interesting because you speak of it in terms of a trend and you step back and you look at the mega firms and the mega funds, and they have the executive center. And those are actually, at this point business lines and P&L lines, not the approach we have taken at Glasswing. Honest to goodness, this was more of what Rick and my DNA was like and how could we institutionalize that. If you take a step back, how often does one in life, unless you're taking entrepreneur and you do it over and over, how often do you get to start VC firms from scratch? I assure you. I've done it once, I hope I don't have to do it again. It's the best thing I've ever done and the hardest thing I've done.Rudina Seseri:So from that perspective, when we started day one, we said, "what did we want to be when we grown up?" And from day one, it's not been about, "oh, let's have the two founding partners and maybe a junior associate and maybe an EA, and let's just go do it." That's a very viable approach, plenty of firms do it. Instead, what we wanted to do is sort of live to this mantra. This is a Monday, we're recording and I just came out of a partner meeting, and I reminded the team that the goal is before we go to a founder or CEO and ask them, "What have they done in regards to X, Y, Z related to the company? How have we earned our keep with them?" And earning our keep is not investing capital. What have we done for them to be able to expect? That's the DNA. That's the mindset. That's the culture.Rudina Seseri:So with that, we basically have a team of 13 at this point. We have two data scientists. We have an investment team of... Let's see. Two data scientists that we don't even count as part of the investment team. Three folks on the platform. A team, so that's five. To balance effectively is all the investment team. So we have two venture partners, one visiting partner, three general partners, two associates and analysts. So put differently, we have put whatever resources. We have put them into building the team and building the firm. Why? Because the companies we invest in day one, the biggest need they have is again, honing in the go-to-market, translated as they need executive talent and customers. So how are we going to set ourselves up? And the domain areas that we are in, they constantly evolve. Doing thesis require development and upgrading and continuously evolving requires thought leadership, requires real research in the market, and in the more academic sense of the world.Rudina Seseri:And fundamentally, how do we help our founders beyond what your typical run of the mill VC would do? So all of those pieces together require resources. And then, we build our own sort of analytics and ML capabilities, which are not developed enough of me to even go deep into, but they're all in the making, with the notion of, again, how will we evolve as the markets evolve, but fundamentally, do our disproportionate share of contributing, not just in lingo but in actual data. And we track it. How many people have we placed? How many customers have we closed? I mean, we tend to be meticulous about it.Samir Kaji:I'm glad you went into detail. As my next question was actually centered around KPIs and thinking through how you measure success of the value add services you offer founders, and which ones actually lead to positive business outcomes. Turning this to, internally for a second and looking at portfolio construction, given that you spend so much time with companies, I would presume that your model is fewer companies, higher ownership, which in today's world, it creates some challenges given the rising valuations. How do you combat this internally at Glasswing? And are there things that you do from an investment standpoint, be it investing in different regions or different type of founders that allow you to continue to get the ownership that you historically have done without significantly raising your fund size?Rudina Seseri:I think we sit outside the Valley. So we have a particularly heavy emphasis on the East Coast, but generally the US outside the Valley. View being that there is so much concentration of dollars in the Valley, why would you take money from a firm in Boston or New York, if you will, if you have 60% of the capital there? But it's also the case that we're operating in markets where the ecosystem of startups is developed, the exit and track record exists, and the talent exists, particularly when you look at enterprise security overlaid with AI talent. So from that perspective, we're going into markets where there is a fluffiness of investment opportunities, of startups but not as much competition. Although in general, we're all seeing the upward pressure in valuations, and it would be silly to argue otherwise, but we don't see the same level of pressure as you would in the Valley, as my colleagues are in the Valley.Rudina Seseri:We actually get a chance to do some diligence prior to issuing a term sheet. And we are thoughtful about the investments that we make an valuations that we go in. Now, we're thoughtful about the valuations that we go in shouldn't be code for we try to take advantage of our founders, the exact opposite we're in this right for a long, long time, a decade if not more. What it is, it's a balancing act between not diluting them too much, but also having enough ownership. And the way we win, honestly, it's not on, "am I the highest valuation term sheet?" The way we win is that with my term sheet, I'm already bringing two execs to the table and customers at the same time, all sort of non-dilutive capital in at least on the ladder. So, truly proving that we are value add.Rudina Seseri:In your question, you use the term that kind of caught my attention because it's something that we refer to very frequently. We view ourselves as extension to the team. So when you are an extension to the team, it's not the high on my team, VC or board member walking in, it's the additional laborer here, closing deals with you or working on pricing strategy or product roadmap, whatever the case might be. You only scale so much. So having concentrated ownership is important because we're not taking a sort of a portfolio... Well, we're taking a portfolio approach, but we're not taking an index approach. We're not doing a hundred deals and let it play out. By the same token, we better contribute in that value to justify our ownership.Samir Kaji:Early in this conversation, you brought up the concept about entry and exit prices, and both of those things have actually gone up in terms of what we've seen over the last five to 10 years, and certainly the last two or three years. But when you're looking at a company that might fall outside your parameters on entry price, be it the valuations much higher than what you're normally willing to pay. And then you look at the exit price and you've assessed a certain exit price that this company could get. The thing that sometimes strikes me is that the exit prices, largely unknown, sometimes markets evolve over time and you're underwriting to an exit that might be five to 10X less than what is really possible. When you're looking at companies like that, how do you decide to make certain exceptions and not be prescriptive around a certain valuation? Is there a certain methodology or mental model that you use?Rudina Seseri:So, I'm going to give you a bit of an unfair question because if I think about fund one, we have about 14 core investment in the portfolio. None of them fall outside of our ownership parameters, maybe because it's wide enough, but it's 10 to 20% when we first go in and we maintain our pro rata going forward. So honestly, the answer I will give you will be hypothetical one. That's where I think discipline comes in and unanimous decision making comes in if you're going to make an exception. And there's plenty of opportunity and the right opportunities where exceptions are warranted to your point. But if we are going to make an exception, there better be buying from the team.Rudina Seseri:And again, I think unanimous matters because it's very easy. Founders are exceptional. I mean, God, I just love working with them. And the risk of falling in love with your own deal, it is very, very high. It happens to me every time, but that's where discipline comes in. And that's where buying from all the partners come in so that when we do make the exception, if it works out, aren't we brilliant? If it doesn't, we're still aligned that we made this decision together and what are we learning from it, and what does it mean on a go-forward basis rather than creating dynamics around "I told you so". So, I think process matter and even process for making exceptions matters.Samir Kaji:And maybe walk us through those partnership discussions when there is an exception that's brought to the table. Sometimes, what we found with larger partnerships is you have somebody that is very passionate about the deal. As you mentioned, it's easy to fall in love with one that you're closest to. But sometimes, when you have everybody where you require consensus, you might have a lot of conscious or unconscious biases that are brought in based on past experience that may not relate to a certain deal. And it becomes tougher to get an exception done. Tell us how that works within Glasswing, where you have made exceptions.Rudina Seseri:So the way that our investment decision-making works is on every opportunity, on every deal, I hate referring startups into companies as deals. It feels very transactional, whereas we waited to them for a long time, but we'll stick with it. Just now, I have bias against the word deal, but when we're evaluating a company, the investment team, if you will, that gets quickly stood up, is... It doesn't matter who sourced it, by the way. I could be sourcing a security deal, but if my partner, Rick, who is the right guy for security, then he will take the lead. But there's always lead partner and a second partner, and then one or two associates or principals. What that means is the lead partner can fall in love with a company, but the second partner is the sanity check, is the check and balance in that deal.Rudina Seseri:So even as we're discussing them every week, and as we're making our way to the investment committee, should everything pan out from a diligence point of view, even within the investment team, we have the checks and balances. So, we're not falling in love with our own deals. And then, even when both partners are in sync, the lead and the second... And again, the second is really... Sometimes we joke and say, "It's a no person." That person's role is really to find the blind spots, even when those folks are in sync. When we go to the broader group, we all need to be in sync. And what I love... I don't know how this is going to scale. So I don't want you to think that we have all the answers, we don't. This is a firm that's growing.Rudina Seseri:I don't know, knock on wood, when we get to 10, 15 partners. This probably the unanimous bit, you have to revisit. It probably doesn't scale. Do you want to focus on what not? But today, the beauty of where we are is that it's a very flat organization. Literally, there is no high in my team Managing Partner or Managing Director. I can think of a particular deal. It got killed because an associate felt so strongly and had domain expertise in the area and it just got killed. We didn't have buy-in from everybody. So I hope I don't have the answer to long-term, but I hope we preserve that spirit because I think it's what makes us good.Rudina Seseri:The other piece is the composition of the firm. We haven't talked about it much, but the diverse composition of the firm really, really helps and diverse in backgrounds and genders in our experiences, that vantage point of the different perspective really, really matters. And honestly, from day one, I mean, this is a women-majority firm. Two out of three Managing Directors, Partners are women. And that sort of trickles not just on gender, but on other facets of diversity, but I had never appreciated that as much as do today compared to my prior experience and how different thinking really contributes. And while D&I and sort of ESG have now become hot topics in the broader ecosystem, I mean, I tell you in discussions like this, it's the beauty, that's where it manifests the most. That's we're doing both good and great business.Samir Kaji:And I'm glad you brought that up because you're right. I mean, things like DI and BIPOC, and looking at backing, diverse entrepreneurs has become... There's been a spotlight. Still lagging, and the numbers are still lagging both on the founder side as well as the VC side. But one thing that I'd just be curious to get your take on is you get diversity of that when you have people of different backgrounds, but there's still this stigma that is slowly, I think, eroding that there's a trade off between social good and returns. And simply, that isn't the case. I think investing diversity actually correlates with great returns over time. Tell us what you have seen and when you say diversity of that within the firm, how does that manifest on a day-to-day basis?Rudina Seseri:In many, many ways. And again, to the notion of we are data driven, we actually track from the firm to the underlying portfolios to their team. So from day one, like I said, this firm started with members of the team being of very different backgrounds, sexual orientations, et cetera, genders, and that was on purpose. And then as the firm evolved, we were looking at our portfolio. We were looking at our advisors. I mean, a lot of diversity in our advisor base and even more so going forward as we're continuing to sharpen the pencil. But if you look at the portfolio companies, I mean, now it's a standard diligence question for me. I go in, no offense, three white men, where is the woman? Where is the minority? What's going on?Rudina Seseri:This morning, I was joking because we have one of the portfolio companies that rents for free, so I suppose, sits with us in our space and it's a lot of background diversity and I'm staring at them, not a lot of women. So I kind of poked my head and said, "guys, where are your women?" And they're all like, "oh, we're looking we're to..." I'm like, "Come on." So it is part of the culture and I'm sharing it as very casually, but now let's get real. It's embedded in the term sheet that they will recruit sort of beyond the basic... We will put best effort. We actually expect them to recruit. And then it also manifests on some of the more binding documents around simultaneously with the closing of financing from Glasswing, there will be policies in place in discriminatory policies, nonsexual harassment. So, we put some structure that may be somewhat unusual for at least historically for early stage companies, but just to get that going. And then we track and we make it a board discussion.Rudina Seseri:I mean, I'll give you some data and make sure they'll going to pull the latest. This is the latest that we have. But 86% of our portfolio companies have a minority Director, whether it's a woman or other background. On our executives, 30% of our executives are women or BIPOC. 42% of employees across our portfolios are women or BIPOC. I mean, think about it. Tech, where not quite half, we're going to get there are women or BIPOC. And then, if you look at Glasswing itself, 67% women or BIPOC. People are women and BIPOC. And then employees, rank and file, 60% are women and BIPOC. So I shared that and we updated constantly because once you start to put number and actually track, you then know how to evolve and you know how you are doing. So a big piece to our focus is... We haven't raised our hand and said, "Where are ESG and D&I?" It's part of who we are but tracking, start tracking and measuring. Goodness follows as long as there are good efforts and genuine efforts being put there.Samir Kaji:If I could just summarize a lot of it, I mean, this has been a fun conversation and never frowns. And I do want to move to our heat check segment in a second here, but you have a very clear thesis. The DNA to me is also very clear around customer service acting as an extension of the team and embedding diversity as really core value driver for not only Glasswing but the type of founders. And so, I think that's all great. To me, all of this makes a ton of sense. I've seen how diverse teams have fared and the data is actually very, very good. And it's starting to seep out more. The secret's getting out, which is a very, very positive thing for our industry. So, I want to go to our final section where I will ask you three rapid fire questions. The first, now that you've been a full-time VC for 15 years, what is the most counterintuitive lesson you've ever learned?Rudina Seseri:It's something that I talk often about. So, this is probably just about a freebie. Ideas are great, execution is what really matters.Samir Kaji:Every time you're starting something, there's probably somebody that's already had the idea. Everyone will tell you why you shouldn't do it because it's already been thought of, but it tends to be how well can you execute on that idea consistently?Rudina Seseri:Yeah. I mean, whether the idea has been thought of or not, I mean, there is a notion of first mover, but only if substantiated. Look, if I had to pick I'd love an awesome idea with awesome execution. I want them both. I want it all. If I had to pick between the two though, in my experience, I have found teams that where they were in okay markets, big enough markets, but because of their exceptional execution, they were able to really grow and expand the market opportunity or grow with the market or ahead of the market. I've seen others where... And I shouldn't say I've been part of those. We've had our fair share of successes and failures, where the market opportunity was amazing and we missed it. And we missed it and it came down to execution. So, sort of this sharp focus on execution is something that honestly I live by every day in myself, but also look for in investing opportunities.Samir Kaji:Speaking of investment opportunities, it's invariable that every single GP in the market, if you've been around long enough, if you're going to have an anti-portfolio, for our show, I'm less focused about who the miss was and what was the reason at the time, but what was the learning from it? Is there a miss or two that you can remember through your investing career, where you look back and say, "we didn't do the deal for X, Y, and Z reasons," which seemed rational at the time and maybe they're still rational, but now I look at it and it's shaped how I think about things where I wouldn't make that same mistake on a go forward basis?Rudina Seseri:Yep. I can think, unfortunately, more than one. Some of it had to do with the partnership dynamics at the time, this predates Glasswing, and what could and could not happen and why. So very, very, very, very, very important to have alignment around vision and honestly, as much as possible avoid politics. I can think of another opportunity where we missed it in part because the team was incomplete and I knew it. And this is where you got to embed that in the process and the team was incomplete and there wasn't faith that the existing team could grow with the caliber that we expected. And the team, IPO’d, did incredibly well and they did grow. So boy, do I feel stupid?Samir Kaji:I think in hindsight, you can look at everything and deconstruct it, but it happens right for a number of different reasons. We're all going to have misses. So last question, I've always felt VC, not only is an apprenticeship game, but it's a continuous learning one. I'd be curious, is there somebody out there, an investor, whether it's a venture investor or not, whose methodologies and investment philosophy particularly inspires you, where you really resonate with their messages? If so, who is it? And what about them really gets you inspired?Rudina Seseri:One, I will say I'm as much learned, I mean 16 years into this, I'm learning as much as the next guy or gal and it never ends. And it's the beauty of this business. Having said that rather than idolize one individual, I pick on facets of what I value about different individuals. So I will not go into specific names because I mentioned some and I don't mention others, and I don't want to hurt feelings and et cetera. But let me tell you sort from a characteristic point of view, I love, love, love VCs who are incredibly successful but down to earth. The world is filled with egos. Our owns, including, and they're a constant reminder of what makes a good VC, which is connected to the founders, aligned with the founders, recognizing when we are not aligned, whether it's an economic structures and what not, but people who say what they mean and do what they say.Rudina Seseri:I mean, at the end of the day, and I have a couple people in mind specifically that I'm reflecting off of the... We love to be love. We're in the business of saying no to most opportunities that we see and yet we need to be loved. So it's very easy to fall in the trap of, "oh, you're the greatest founder," and say things that you don't necessarily mean. I think if I can have a relationship with a founder where they know where I genuinely stand, whether it's good news or bad news, and I do what I say. And then some, I love those people. I want to work with them as co-investors. I want to emulate their style and I want Glasswing to be that.Samir Kaji:Great points of feedback in retaining humility throughout whatever levels of success is an incredible trait. And it's not very often that we see that consistently because human nature is such that you evolve as you become more successful. So I think it's a great thing to note right now, the markets have been very, very good to people. So, we've seen a lot of success very quickly. Rudina, this has been a lot of fun, really appreciate you being on the show and congrats on all of the successes over the years.Rudina Seseri:Thank you so much and I really appreciate you having me over the show and for the thoughtful questions.Samir Kaji:Thanks so much for listening to another episode of Venture Unlocked. We really hope you enjoyed our conversation with Rudina. To learn more about her and Glasswing Ventures, be sure to go to ventureunlocked.substack.com for detailed notes on the show and my ongoing commentary about the world of venture capital. Venture Unlocked is also available on iTunes or Spotify for download. And while you're there, please leave us a rating and a review as it really helps us out. And hit the subscribe button in order to get each and every Venture Unlocked episode as soon as it's released.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.I’m thrilled to bring you my conversation with Hadley Harris, one of the founding partners of seed stage investor Eniac Ventures. Over their history, Eniac has invested many amazing companies including AirBnB, Cameo, Hinge, and Soundcloud. After starting with an initial $1.6M Fund I 11 years ago, they currently grown and expanded to now managing over $300MM in AUM. It was fun chatting with him on the origin story of the original partnership and how they’ve evolved over the years together, and with the introduction of new team members. Also in our conversation we spoke about portfolio construction, which I personally find fascinating given the different approaches that exist. For those that haven’t seen it, check out Hadley’s post on portfolio construction (“Seed Portfolio Construction for Dummies”) as it’s a great post. Prior to Eniac, Hadley held various operational roles including head of Business Market Strategy at Vlingo, which was acquired for $225M by Nuance Communications. He did his undergrad and MBA at the University of Pennsylvania.A word from our sponsor:Vouch Insurance is a new kind of insurance platform for startups. Built by founders for founders, Vouch’s fully digital coverage takes minutes to activate. Vouch is trusted by the biggest names in the startup economy — such as Y Combinator and Silicon Valley Bank — who partner with Vouch because everything from onboarding to claims is designed for startups by experienced founders. Because Vouch is an insurance platform, and not a broker, it works with its clients to manage, mitigate, and avoid risks. http://www.vouch.us/ventureunlockedIn this episode we discuss:01:48 What led Hadley and his partners to start Eniac Ventures03:43 Considerations they thought through when starting a firm together after being friends for so long. 04:47 How they think about conflict resolution 07:00 The KPI’s they needed to meet before raising larger funds 08:49 Experiences as operators and investors that helped Hadley and his co-founders shape Eniac10:24 Drivers that led to institutional LP backing12:16 How Hadley thinks about fund sizing and how they arrived at their last fund size15:26 How the current market has shaped Hadley’s thoughts on portfolio construction and deployment18:08 How they balance optimizing for speed while maintaining integrity of due diligence processes. 22:01 How to build a strong succession plan to ensure firm durability24:13 What Eniac looks for when hiring and onboarding25:32 Breaking down his “Seed Portfolio Construction for Dummies” blog post34:34 Why more portfolio companies is often a better bet for smaller funds37:41 His market predictions40:06 The most counter-intuitive lesson he’s learned as an investor40:42 The thing he got most wrong about investing41:53 Who is an investor he really respects and why?Mentioned in this episode:Eniac VenturesSeed Fund Portfolio Construction For DummiesI’d love to know what you took away from this conversation with Hadley. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:Hadley, it's so great to have you on the show.Hadley Harris:Thanks, Samir. I appreciate you having me on.Samir Kaji:Maybe where we could start is the beginning of Eniac back in 2010. And what I'm really curious to hear is the backstory of what brought you all together, the four of you, and what was that shared vision that you seized the opportunity that really led to starting the firm together.Hadley Harris:So, my three partners and I, Nihal, Vic, Tim and I all went to undergrad together. We're all engineering students at Penn. So, we actually graduated way back in '99. So, now have known each other for 25 years or so, which is crazy, makes you feel really old. The seed of Eniac started about 2007 timeframe. Vic and I, he was working at RRE Ventures, I spent a short period of time at Charles River Ventures before joining a seed stage company that they invested in and we were talking about, eventually, getting into venture. And honestly, the catalyst of why we wanted to start our own firm was, mainly, we just couldn't see ourselves, especially at that time, spending 10, 12 years kissing a bunch of guys asses to become a real GP. And it seemed like an easier path, which is probably not correct, to start our own firm.Hadley Harris:We recruited Tim who had a background in venture law as well as had been a founder and the three of us started planning together. And one of the most successful founders I knew was Nihal who was a close friend, also, from school. I reached out asking for some intros to folks who could fund us, some angels and he replied that he was in, meaning he wanted to join. So, we, after a couple of conversations, decided to do that. And that was the very beginning. Started working on 2008, started investing in 2010 and that was the origin story.Samir Kaji:One thing I'm always curious about is, in situations where partnerships come together and there's these pre-existing relationships, that I think are great because they do bring along an embedded level of trust that's hard to replicate. At the same time, we've seen situations where friends have come together and those personal synergies don't necessarily translate into a professional context. What were some of the conversations you had in the early days to ensure that, from a professional standpoint, you would have those synergies and alignment?Hadley Harris:It was a long evolution, honestly. We went from friends and it took time to really get a working relationship. We were pretty thoughtful, I think, about that. We started working a couple years in with a professional coach and have now been working with the coach pretty consistently over the last eight years or so. Because it's one thing to be friends, it's others to have that working relationship and, in some ways, being close friends, while it has its advantages around trust and shared values, it has its, I think you were alluding to it, its disadvantages and that things can get personal a lot quicker. I imagine you'd see that we're a family business as well. So, for us, it was really about being intentional and understanding that we still had a lot of work to do even though we knew each other really well.Samir Kaji:Take us into those conversations. You guys are talking, were there particular considerations or a particular set of values you've all agreed on and said, "hey, this is how we're going to operate together. These are the protocols and let's ensure that, as we go along, things like conflict resolution are done in the right ways."?Hadley Harris:Yeah. If I were starting again, I think we would make sure to have those conversations. To be honest, it was more of a natural progression. I think everything for us, and I'm sure we'll talk about other areas of the business, has been constant iteration over these 11 years or even before we started investing. And this is definitely one of them where, I think, we jumped in and started working together and then handled the different challenges as it came over time.Samir Kaji:So, you mentioned 2008 and then really starting the firm in 2010. And 2009, of course, was this barren wasteland of anybody allocating capital. How did you guys get comfortable doing this with four people with a really small fund?Hadley Harris:Yeah, the fund was tiny. It was $1.6 million, our own savings and some friends from Penn who were silly or naive enough to give us money when we didn't know what we're doing. And yeah, I'm very happy that they actually did quite well because that would really bothered me. We were still doing our own thing, so we're running our companies. So, in a lot of ways, we looked like more angel investors and almost like an angel group in terms of how we operated. So, our partner meetings were Wednesday night and Sunday night. We were meeting founders during the day, but pretty fluidly.Hadley Harris:And then, as our companies got acquired, I was the first one to go full time in our second fund. When my second company got acquired, then we started focusing on it full time. So, it was really our third fund where I'd say we were quote unquote, institutional and that happens also [inaudible 00:06:16] we had institutional investors. Those first two funds, I think, allowed us to pick up a lot of experience but in a relatively unstructured environment.Samir Kaji:I love the story of starting off with a million and six as, really, your proof of concept. And I remember, even back then, we used to actually refer to a lot of folks as super angels that were writing more significant checks and, often, managing other people's money but still in the early days. What did you guys see as the inflection point where you decided, "hey, we are now wanting to do this as a full-time gig, it's not going to be a franchise." It sounds like it was really the jump to fund three, which I think was about $55 million or so. What did you have to do to get to that point?Hadley Harris:Yeah, I think a big event for us was we had an early investment, a company called Tap Commerce, that had a pretty quick exit for about $100 million in about, I think, about two years. And that, even though it seems very small, returned a big portion of our first fund and we had a couple other smaller exits. So, interestingly, we had really solid DPI going into our third fund. Again, these were small funds, so you're not returning huge amounts of money and for us, that was really important. Because when we raised our third fund in 2014, that was the very beginning of, I think, where most of the LP community were starting to notice and see, they weren't really investing.Hadley Harris:We were fortunate, our lead investor, a major university endowment, had a program they had put together, invested in us and a couple of other seed funds like Homebrew and Freestyle that were around our vintage. So, we were in a good place, at the right time and had somewhat of a track record, even though, again, it was in this relatively unstructured manner. So, those things came together and we had, also, rolled off our own founding companies and those companies have been acquired so we could focus on full time. That became a nice inflection point for us.Samir Kaji:There's two type of emerging managers that are formed in terms of what their prior, most recent experiences. One is, there are former founders that decided full time investing is what I want to do. The other is somebody that worked at a big firm and then rolled out. You did both. Your partners, actually, somebody did work in RRE and they also worked at a company. How did those experience shape how you wanted to build a firm and the type of firm?Hadley Harris:So, Vic had spent two years at RRE, I had spent just a summer at CRV. So, my experience is pretty thin. We really came at it very much from the founder angle and a lot of what we were doing in the early days, I think was, what we saw, it's bringing more of a founder mentality to seed. I think that you can be successful in both. I think that people are coming from more investing backgrounds can be great pickers of companies. I find, and I'm obviously biased, that folks with operational and founding backgrounds tend to have a little bit more to add in terms of their background and experience, but also a certain empathy for the founder experience, which is extremely difficult, that is really hard to learn from afar.Samir Kaji:That certainly makes sense. And I agree with the empathy variable which, of course, there's so many parallels to what you guys have done both as operators and founders but, also, founding a firm together and that you have to build brand and you have to raise money and all those things are hard. Eventually, you did hit that inflection point of becoming more institutional. I think that was around fund three when you raised your fund size and you started to talk to some of the institutional investors be it the university endowments and foundations and things like that, you had some DPI at the time. But I'm curious, if you look back at some of those conversations, what type of factors were they really evaluating in deciding whether to invest in a fledgling firm? Was it the DPI or was it something else?Hadley Harris:Yeah, it's interesting. I think you see that a lot more now where the seed ecosystem is a lot more developed, where LPs are looking for more of those institutional signs. I'm sure that that was a factor. It was just so early and there were so few LPs that are even considering seed that, in some ways, I almost feel like, maybe, the bar was lower from an institutional point of view because I don't think we were very institutional. I think there was an interest in this space because it was clearly becoming a thing. To your point, when we started in 2010, people would call it super angels, people didn't even consider it venture. It was definitely looked down upon by the venture community as a whole in terms of its level of sophistication.Hadley Harris:By then, I think it was clear that this was a thing and LPs are trying to figure out how they're going to play with it. I don't know that they expected the level of institution that we have now and folks like us. I think, surprisingly, the DPI was a big factor because it's like, "The bar is low and these guys actually can return money and they seem to be in some good companies and they got in at these crazy low valuations compared to the rest of our portfolio." So, I think that was more of it, surprisingly.Samir Kaji:One of the things I often see with institutions that are investing at the early stages, be it a fund two or three or even a fund one, is once they deem a firm is investable, the thought is, not only invest in that fund but multiple funds and, over time, scaling their check amounts. And, in your case, you haven't materially increased your fund size relative to your peers and, certainly, not tripling or quadrupling even though the seed environment and the average seed grants have increased so much. Can you walk us through how you think about fund sizing and how did you arrive at the fund target of your last fund?Hadley Harris:You're asking about shared vision that we all had and things that we all felt strongly about when we were going into it. I think one of those things was that we'd rather be really good at one thing and doing that well. And we'd rather be the best seed fund or strive to be the best seed fund in the world rather than trying to be yet another multistage fund. So, for us, it's often come down to focus and this is certainly one of those areas. I think we're at a place right now, where our fifth fund that we started investing in six months ago is $125 million. I personally think, especially for a more concentrated approach, that that's as big as you can be and be a pure seed player. That number may change in the future where we can have a larger fund, I doubt that it was going to happen, but if you did see some contraction to the smaller fund, that makes sense. And I think you'll always of see us focus on that so that we can do what we do well.Hadley Harris:Every time we raise a new fund, we can take a step back and consider, "Hey, let's pretend we hadn't done anything and what would we do." And there's a lot of interesting strategies out there. I think there's an interesting strategy for a smaller A fund, call it a traditional series As, that there's a little bit of a, I think, a soft spot, especially in New York and the East Coast. So, we certainly can serve stuff like that but we always come back to seed. Because one, I think we've build up a strong confidence and we've been iterating now for 11 years.Hadley Harris:So, I think this is the evolution of all that iteration, especially around processes and, to a certain extent, brand. And the second thing is we just really enjoy it. It's a different type of investing. We really like to roll up our sleeves and spend time with founders. And at the end of the day, you're investing before product market fit and you're doing your best to get them through product market fit. And that, to me, is the most exciting part of venture and, certainly, that some people are very successful at later stages of investing, but I don't think it would be for us. More on a personal thought.Samir Kaji:We've had a few guests on the show and we've talked about there's different muscles that you have to exercise at different stages. And I don't mean Series C versus Series A, I mean, really, from where a company is from a development standpoint and the different inflection points. The thing that I do wonder sometimes is, the markets actually evolved dramatically since you guys started and, certainly, even more in the last three years. Where the seed rounds, now, it's not unusual to see a seed round done at $3 to $5 million pre product market fit. Valuations have shifted from, what used to be, single digits to, now, 15 to 30 million in certain cases.Samir Kaji:And then, there is an acceleration to when the Series A happens in terms of the Series A players now coming upstream. Has this, in any way, evolved your strategy with fund five in terms of your ownership, how you think about how much capital you put up front versus reserves? Talk to us a little bit about it. And just for full disclosure, I'm a portfolio construction nerd. I want to dig into your blog in a second, but let's first talk about fund five and the evolution of it.Hadley Harris:It really hasn't changed much of our portfolio construction from a strategy perspective, it just changes the inputs. The way that we constructed our model and strategy, the conversion rates and the size of the allocations and things like that are all inputs to the model and then, it flows from there. We are doing bigger rounds, they are at higher valuations, I don't think we've moved as much as the market. And then, the conversion rates and the allocations in the Series As have gone up quite a bit. So, we try and account for all that. But from a strategy perspective, we're still doing the same number of deals, we think about overall number of investments per fund in the exact same way. We're targeting 36 in this new fund which is what we did last time.Hadley Harris:Where we've seen the big change from a strategy perspective is in our diligence process and we've, basically, rebuilt our entire process and team in the last six months from when we launched our new fund around moving much faster. So, we've hired quite a few people, we went from 6 to 12 people in the last six months. Most of those folks are on the investment team, most of them have investment backgrounds. We're headquartered in New York, so there's amazing talent from hedge funds and private equity and folks that want to get into venture. And that's also good because it's a good yin and yang for our backgrounds, we're more founders operators, we don't have finance background. So, it's nice to have folks like that on the team and this allows us to move a lot quicker.Hadley Harris:And then, we've done our actual voting process to give more autonomy to the individual partners. Not necessarily because we think it makes better decisions, I'd be happy to talk more about how we vote and make decisions and that's changed a lot over time, but more so that we can move a lot quicker. Because in this environment, it's really important that you can make strong decisions fast to get into the best companies. So, we really optimized for that.Samir Kaji:I do agree with that completely. And especially in today's world where it seems financings are moving at warp speed and some firms have done exceptionally well in optimizing for speed. Somebody like Tiger, of course, is a great example. Now they've done it, at least from an outsider's perspective, in a way where they're not sacrificing diligence. They do a ton of work up front before actually meeting with these companies. How do you think about optimizing for speed without sacrificing the appropriate level of diligence or making sure that you have integrity of decision making that continues to ensure that you're making the right investments that fit within thesis and have the best probability of outlier performance?Hadley Harris:It's always a tough balance. Over our history, we've been more consensus driven, I'd say, than most. There are a lot of folks that are very individual conviction driven funds and then some that are more consensus. We've generally been more consensus, but we've always had a system that allowed for dissent because, I think, that's very important. You could have up to two partners actually not think that we should do a deal and we'd still do it. They do have a veto so, certainly, if they felt strongly enough, anyone in this [inaudible 00:18:36] can kill a deal. In that case, you need a lot of conviction from the two partners. And I'd say the most common scenario for us is that three partners think we should do it, at least one with pounding the table level and one who, mildly, doesn't think it's going to work out.Hadley Harris:And I think for outsized returns, that's a fine place to be. We have, in the last six months, just responded to the market giving the lead partner, that table pounder even more ability to move quickly. They still need to get everyone up to speed, every founder that we invest in does meet with all the partners, often individually, we don't generally do a partner meeting. And then, of course, we have these other five or six investment professionals who are in the loop and are helping drive diligence around the market, around backgrounds on the team, around competition and whatnot so that we can move quicker. So, that's how we've been thinking about it in terms of that balance that you mentioned, which is difficult to, I think, get right. And it's interesting, when you talk to even firms that are around 30-40 years, they have very different approaches to that question.Samir Kaji:And always think the culture is great when independent partners can be advocates and take the swing on behalf of the partnership. And maybe that's not for every deal but a variable. There is that deal and that deal could be the outlier. But in the past, we've seen firms that create a weird culture because there's attribution and, if some partners done a deal that went badly, now all the other partners were thinking about voting them off the island and we've seen that. And this was really during the '90s and 2000s. Not as much as now, although it's still early. How do you ensure that that culture where you really keep the oxygen for a single partner to be an advocate, feel comfortable with taking a swing when it's non-consensus but, at the same time, have some level of accountability?Hadley Harris:So, we don't have any attribution and we're pretty staunchly against it. Both internally or externally, certainly, one partner needs to run point with that company just for efficiency. So, we don't share externally who drove each investment. We've had LPs ask for it and we kindly refuse and you'll probably notice even publicly, we never assign deals to partners. So, that's one thing. I think the reason we're able to do that is because we're all founders in the firm and we have a shared history.Hadley Harris:I think that gets very difficult when you're Sequoia or any long-standing firm and you have folks coming in at different times and you need to be able to rate them. So, I think we're really fortunate there and I think that's a very important part of our ethos. And as we evolve over time, my hope is what I'd like to see is Eniac live on beyond me being a General Partner. I think that's something we definitely want to keep, but it will be much more challenging than it is when we all came in at the same time.Samir Kaji:I'm so glad you alluded to succession planning because it is something that so many firms struggle with. While I know it's really early in your firm's life and all of you have plenty of runway, what are the things that you do to ensure that you're starting to build the foundation for proper succession planning? And specifically, when you integrate new team members, how do you foster a culture of inclusion to let them understand that they, not only have a voice, but are part of a long-term plan?Hadley Harris:It was a big concern for us. So, it was the four of us and then we started hiring bill employees, probably, about four years ago. And then, we've always had one or two non-partners and, again, just added six. So, now, we have 12 with eight non-partners. It's gone better than I expected, to be honest, because I was really worried. We're very close knit and we have our own old jokes and all this s**t that can be hard for someone new. And we had an honest conversation before we started this recent hiring spree with our two, with Kristin and Anna, who have been with us a couple years and they, surprisingly, felt that we were pretty open.Hadley Harris:So, it's one of those few things where, actually, we were doing better than I thought. I think we all recognize the danger of being this tight knit group so, I think, we all independently, not in a way that was probably too thoughtful as a strategy point of view, put a lot of emphasis on being more welcoming and making sure that they didn't feel outside of the loop. And we'll see with these new folks, some of them are just going to come on in next couple of months.Hadley Harris:But it's something we're definitely going to keep an eye on it. I think it's definitely a danger to the business as we think about things going forward. And, to your question about succession, it's something we're already thinking about. I think we do have a long ways. We're all 44, so I'd like to think we have a good run left in us and we're still loving it. But these things, at least from seeing other firms, I think it's never too early to start thinking about what that looks like. And I think we all want the firm to live on beyond us. Certainly, beyond our day-to-day involvement and we know that that's not going to be easy and it's going to take time to figure it out.Samir Kaji:Are there things in particular that you'd look for when you're adding people to the team to ensure that there is true diversity of thought? Understanding that, in many cases, when you have partnerships that have been around for so long together, you build your own echo chamber. Can you, maybe, just walk us through the types of things that you really focus on when onboarding somebody?Hadley Harris:Yeah. With our recent hires, we've really tried to hire people that are pretty different from us in terms of experience. I think all of them have finance and investing experience coming in. I think majority of them did some time in investment banking and then worked at either a hedge fund or private equity firms. So, non-venture and that's certainly something that they're learning. But they all have investment frameworks that I think helps especially a lot of their job is spent around doing diligence, as I mentioned very quickly, to try and get up to speed on stuff.Hadley Harris:So, it's really good for that. And honestly, we learn a lot from them. None of us have finance backgrounds. Vic and I did MBAs but I don't know if we learned anything and we never practiced any of the finance. So, from a modeling perspective and market sizing, I think they're even better than us. So, it's been nice having junior investment professionals that actually bring a lot of new thought and skills to the table.Samir Kaji:And what you're describing to me sounds like a two-way apprenticeship. You learn from them, they learn from you particularly as it relates to investing, running a firm and all those type of things. Speaking of investing, we've touched on it through different points of this podcast. But you wrote this great post along with one of your colleagues, I think it was called Portfolio Construction for Dummies. Give us the cliff notes version of that.Hadley Harris:Yeah, it was really interesting because we've struggled and iterated in portfolio construction throughout our history. And a few years ago, we went out and went to all the OGs of seed folks that had been doing it longer than us that, I think, have tons of experience and talked to them about some of the issues we're having with portfolio construction, especially around allocating funds over time and recycling. And basically, they all said, "we're trying to figure this out."Hadley Harris:Folks that have been doing it 15 years were like, "well, we just raised an opportunity fund which is find the answer." So, it came to the realization it's like, no one knows this s**t and seed is different from Series A and beyond in a couple different ways. You need a broader portfolio for the same level of winners and, in the time horizon, you're adding one or two years average full time over A. And seed itself started 14 years ago, so no one had really dealt with this.Hadley Harris:So, we took it upon ourselves to really put an emphasis on building our own core abilities internally, both from a modeling perspective and a strategy perspective. And I guess, the three things that I tell folks that are starting off and I love spending time with new seed managers on stuff like this and these may all seem obvious to a lot of folks, for some reason. One is just aligning for the power law. Make sure you have enough shots on goal. I meet a lot of founders starting a pre-seed fund that maybe looks a little like our first one with 15, 20 portfolio companies. It may do incredibly well, but you're taking a crazy risk.Hadley Harris:The second is, when you lay out your strategy in terms of allocations, number of portfolio companies, that needs to be a starting point and you need to constantly iterate. And that's why, back to your question around how our portfolio construction has changed in this environment with rounds getting bigger and faster and conversion rates being higher, those are all just inputs to the model and the model adjusts. You know what I mean? Not just the model, but the thinking. And so, you could start off with I'm going to do X number of investments and I'm going to assume this type of conversion rate, but you need to feed in the real data and you should be able to then spit out the best strategy for that environment and for the results that you're seeing.Hadley Harris:And then the last one is, recycling is extremely difficult. And we're big believers in recycling, almost all institutional LPs want to see it. You can argue about whether that's the right thing for everyone or not but, I think, if you want to be an institutional investor, you really need to do that. And you need to build a model, and I think we've made this available online, that ties in both time as well as the construction itself. And that was the thing that was always missing when we talked to other players in the space. They always had two models. One is this is how I'm laying out my construction and this is my use of funds over time. But you need them to tie together or else you can't predict what is needed to properly recycle.Samir Kaji:This is really tough and I don't know that there's a single way that's perfect for every single fund size or strategy. I think it does range. But let's go into a couple of things that you noted. So, number one is having enough shots to goal. So, not having too concentrated a portfolio because, ultimately, you don't want to get to a point where your conversion rates are so low that, by the time your portfolio matures, you only have four or five companies that are at the Series B, Series C level. Today, the conversion rates seem to be much higher than they were a couple years ago and, a lot of times, those rounds are happening quicker and quicker. So, it's not uncommon to see a Series B happening, in some cases, maybe two years after that seed round, which we would have never seen before.Samir Kaji:And recycling, you mentioned, is something that is really tough. And if you look at some of the small funds, let's say, 20% of their total investable capital will be reserved for management fees. And then, you have 3 or 4% additional which is related to legal fees and fund admin and all of the other fund expenses that are generated. And because you don't know timing of those exits, of those original deals you do, which are probably in the first couple years, recycling is really tough and you often have to be creative.Samir Kaji:And there's a few ways that people have done it. One is looking at the future fees that you're going to collect and effectively deploy that banking on the fact that there are going to be some exits in year four and five that, ultimately, can be used for those management fees. What advice would you give to somebody that's running, let's say, a $20 to $50 million fund that's struggling in today's environment because the conversion rates are higher, the amount of reserves that need to be deployed in a very quick timeline is higher and the exits from those initial investments just aren't happening? How do you get up to 100% deployed?Hadley Harris:At least what we've ended up having to do and it's probably the best option we've done, is what you’ve alluded to and that is taking a calculated risk, which is understanding when you need to get what back to be able to cover your management fees and plotting that out. So, we tend to plot out high, medium, low scenarios on when we'll get cash back. We're fortunate to have some historicals that we can lean on. Industry, other historicals, generally things moving faster. So, that makes that portfolio a little conservative. But we almost always dip into future management fees. And at the end of the day, we always have the same conversation which is like, "If we don't have any exits in year 9 or 10, then we won't deserve to be taking these. We really should just move on to greener pastures. Get a new job or whatever."Hadley Harris:So, we almost always end up borrowing against that and, honestly, we've come really close. We've had some exits that saved our asses because we were about to just not be able to pay ourselves and we definitely cannot forego a quarter or so on certain costs. But yeah, that's the best thing to do. Understand what is needed and, really, to a granular level. But then, at the end of the day, it's got to be some [inaudible 00:32:02].Samir Kaji:You absolutely can't. And the other point that you just talked about, about borrowing against your future managed fees, which could create a situation where you have to defer in the future is that the conversion rates are higher today. I remember, the past, it's modeled at 50 to 60% and, now, maybe it's 60 to 80%, given the manager. How does that affect how people should think about reserve ratios because, now, a mortar company is going to graduate to that Series A meaning that you have to, potentially, deploy more and follow-on capital? What's the calculus that people should use in today's world and are there situations where people just don't follow on in the A because the price point's too high and, therefore, should just revert back to a normal 50% of the company's that I’m going to do a follow-on on.Hadley Harris:Yeah. In general, if we think that the conversion rates are going to be higher than what we initially thought, we will do less in new investments. With the idea being that we can put more of our effort into a smaller number of investments, we can make the bar higher and still get what we think is the needed distribution to have a really strong fund. Where you bring up a good point is, in that case, you would actually follow-on more into each investment.Hadley Harris:If you feel that those follow-on investments are irrational, then that should question that calculus. Generally, and maybe under some optimists, there certainly is some irrational behavior. But at least at the Series A level, we have felt that the companies on the margin maybe a little bit high but that they're actually growing really quickly and that we're getting into relatively unprecedented times in terms of the end result of these companies and just the part of the GDP that we're covering with venture.Hadley Harris:So, we've continued to invest in our companies in those earlier stages. Once you start to get into growth rounds, as a seed manager, I don't think it makes sense. Call your Series C and B on. As a seed manager, to be investing, it's certainly out of your core fund. But of those early funds, we've continued. So, long-winded response. I think, in general, you should cut down in terms of the number of investments you’d be looking in.Samir Kaji:And maybe that's an answer for a lot of the seed funds that are in that $50 to $150 million size. Maybe the answer is different for a lot of the nano funds that are 15 million, which might want to index heavily toward that initial check versus reserving a lot for follow-ons. Would you say that's true?Hadley Harris:Totally. I think in general, if you're a very small fund, most likely you should not do much following on at all. I think you're better off having more shots on goal. I should add, there's a lot of ways to be successful in this game. We tend to be more concentrated. There's also folks that do three times as many investments than us that are very successful. And I think that is a fine answer. If we do 36 and you want to do a hundred investments, that's fine.Hadley Harris:And you're not going to be very involved with each company, but your chances of getting a winner are higher. Best to outlead and that has all these other ramifications. Where I have trouble understanding is when you're just too low and I just think you're taking too big of a risk. And that's what I see, to your point, with a lot of first-time micro funds and would be much better off. Just do your 25, 30, at least, preferably even more, investments and have no follow-on. Don't try and constrain that because you want to save some follows.Samir Kaji:I agree and there's a number of people that actually have the same belief, including some of the LPs who have actually done the math and have seen some of the returns. Now, let's go global for a second and talk about where we are in the market. So, it's interesting, you started Eniac at a time where we were coming out of recession, now we've been in this long bull market. And in today's world, technology has become a bigger and bigger influence on our everyday lives and it's very clear that technology and innovation is this immutable force that is going to continue to exponentially increase. The market, though, in terms of capitalizing these companies, has evolved from funds looking fairly monolithic to really mass fragmentation.Samir Kaji:And I look at venture or investing in tech companies as a barbell. You have the seed in ecosystem, lot of firms, early, early stage. Not a lot of raised by seed funds, I think it's a small piece of the market. And then you have the behemoths, which I've referred to as aircraft carriers that do multi stage, multi geography and are going bigger and bigger. And they're now being joined by crossover investors being the hedge funds and the like. There was a great article that came out yesterday in The Information and it was by Sam Lessin. And his point was that seed managers, some are somewhat insulated because they're boutique, their early stage.Samir Kaji:But in terms of larger check writers, what we used to call tourists are really not tourists anymore. They're just capital that is going into software companies and that firms like Andreessen will get bigger and bigger and they'll approximate the next generation BlackRock or KKR. And where things get murky are the folks that are in the middle that quite aren't Andreessen or Sequoia but are series A and series B firms that are, let's say, $250M to a billion. And his view is that that's a really hard place. And I think Marc Andreessen has said that in the past, too, that barbell investing makes the most sense.Samir Kaji:What's your reaction to that? And then, more importantly, how do you see the market today and how it may evolve over the next coming few years?Hadley Harris:Yeah, I generally agree. Predicting the future is very difficult, so we'll see what happens. But my gut is that something like that will happen. That you're going to see consolidation at the later stages with much bigger firms. People talk s**t about Tiger but I have a lot of respect for what they're doing and we've worked pretty closely with them in a lot of our portfolio companies. They don't make sense for every situation, but there are certainly situations where having someone who will move very quickly and isn't very price sensitive and isn't going to get involved that does make sense.Hadley Harris:And I think a lot of the later stage VCs that hate on Tiger should really think about themselves and the value that they're adding. It's clearly not that valuable if people were taking Tiger over you. I'm obviously biased but I do think that it's hard for those aircraft carriers to address seed. There are people who market and, certainly, even when you're raising your last fund had conversations with folks that thought that even they would do seed.Hadley Harris:And I guess the thought exercise I always have with that is, if they were to do seed, how would they do it? And if you're a $10 billion, Andreessen of the future or whatever, how are you going to seed fund? Certainly, Marc Andreessen is not going to be leading them. You're going to have to hire a ton of junior investment professionals that are going to have to be guarding those firm because it's just not worth your time for a GP to do that. And then, are the best founders or, at least, the majority of founders that would want to work with the junior investment professionals, I don't think so. There certainly, maybe, are some who have done it before and really just want to be left alone, and that's fine and, maybe, it does make sense for them. But the vast majority of market are going to want to work with folks that can add a lot of value, that have seen this show before, hopefully, both as an investor and operator.Hadley Harris:So, I just don't see that happening. And I think that's why, despite a lot of downward pressure, especially in crossover rounds and in our Series A, we still feel very secure about where we are.Samir Kaji:Those are all great points and it does speak to this notion that seed in itself, at least seed managers, operate in their own sub asset category within venture capital. So, I want to end it with our heat check section. And starting off, the first question I have is, the most counterintuitive lesson you've learned as an investor in your 11 years at Eniac?Hadley Harris:Find that, sometimes, you can do too much work or too much diligence. Or, if you do a lot of diligence, which we tend to do, at the end of the day, you have to forget about some of it when you make your decision, because you can get into the weeds. And, at the end of the day, it's all about the quality of the founders and the size of what they're trying to do and the fit between the two of those and don't get too caught in the weeds.Samir Kaji:That's definitely good advice. It's something that you have to go through to actually experience. Second question I have is really related, too. Now that you've run a firm for 11 years, what is the thing that you look back and say you got the most wrong?Hadley Harris:In our early days, we thought we were hacking venture with a lot of stuff. And some of that stuff worked and, a lot of it, we realize why that's the case. I think in our very first fund, 2010 investments, we made a bunch of investments that were really inexpensive when we thought we could bargain hunt and I just don't think you can bargain hunt in venture. Part of the calculus of time was, "hey, this company can sell for $40 million and we're going to do really well." The problem is, no one's going to lead that next round. So, it sounds obvious in hindsight. But yeah, yeah, I think that's probably the most obvious one.Samir Kaji:Those type of outcomes could be great for the founders, but it's never really going to move the needle for a managed fund. So, the last question, I was actually tempted to and I'm not going to do this. I was going to ask you who your favorite partner at Eniac is. I won't do that and, instead, what I'll ask you is, you've run across so many great investors, both as co-investors, follow-ons and people you've spent time with. Is there a particular investor out there that most inspires you where what they say most resonates with you and you've modeled yourself to a certain degree around what they do?Hadley Harris:I tend to focus and spend the most time following investors that also started their firm. I feel like it's a little bit of a different skill set starting a firm and joining a VC. And for me, and I think my partner's in the same boat, that's what gives us the balance to scratch our own founder itch and VCs. I think if we had all joined a firm, we may have left by now to start something new. So, there's the classic guys like Don Valentine that we like to be the things that he said in the past and find that really helpful. And then, there's some guys who I consider the seed OGs that started a few years before us like Mike Maples and Jeff Clavier that have been very generous with their time with us over the years that I just think we've learned a ton from. So, it's folks like that, I think, that are most impactful for me.Samir Kaji:Yeah. And I would say that it has been amazing within the seed universe of how helpful GPs are to one another, especially as you go to first generation, second gen. You're part of the early days of the second generation. I know you guys have done a lot to help other GPs which is great. Hadley, this has been a lot of fun. Thank you so much for being on the show and congrats on everything you guys have done at Eniac and excited to see what you guys do in the future.Hadley Harris:Thanks, Samir. I really appreciate it and great questions, really enjoyed it.Samir Kaji:Thanks so much for listening to another episode of Venture Unlocked. We really hope you enjoyed our conversation with Hadley. To learn more about him and Eniac Ventures, be sure to go to ventureunlocked.substack.com for detailed notes on the show and my ongoing commentary about the world of venture capital. Venture Unlocked is also available on iTunes or Spotify for download. And while you're there, please leave us a rating and a review as it really helps us out and hit the subscribe button in order to get each and every Venture Unlocked episode as soon as it's released.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.As we move towards the end of 2021, we wanted to record an episode that focused on the LP perspective on current capital and ventures. To that end, this week we are joined by joined by Chris Douvos, founder of Ahoy Capital, Elizabeth “Beezer” Clarkson, Managing Director of Sapphire Partners, and Guy Perelmuter, founder of GRIDS Capital.The three of them have spent decades investing in venture funds and companies across multiple cycles. While we didn’t come into the discussion with any set agenda, we ended up covering everything from emerging manager views to global capital trends. This was a fun one to record, so hope you enjoy. A word from our sponsor:Vouch Insurance is a new kind of insurance platform for startups. Built by founders for founders, Vouch’s fully digital coverage takes minutes to activate. Vouch is trusted by the biggest names in the startup economy — such as Y Combinator and Silicon Valley Bank — who partner with Vouch because everything from onboarding to claims is designed for startups by experienced founders. Because Vouch is an insurance platform, and not a broker, it works with its clients to manage, mitigate, and avoid risks. http://www.vouch.us/ventureunlockedIn this episode we discuss:02:22 Complete this sentence: Venture today is "[Blank]04:51 How are they as LPs navigating the seed and early-stage market for manager selection15:39 View of the late stage boom and potential for returns24:40 Perspective of Opportunity Funds and whether they represent a good product for LPs34:29 Returns Beezer is writing to on a multiple cash on cash basis on different types of managers40:05 Things they look for beyond track record in emerging managers44:41 Common mistakes and red flags for emerging managers that can scare off LPs47:15 Tangible characteristics that they look for in emerging managers53:15 How non-traditional and non-mainstream managers can attract institutional LPs56:08 What emerging managers should lead with when they don’t have a track record beyond the last few years60:22 The investment category each are most excited aboutMentioned in this episode:Episode 013 Chris DouvosEpisode 021 Beezer Clarkson(Guy’s episode will drop in early 2022)I’d love to know what you took away from this conversation with Chris, Beezer, and Guy. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Transcript:Samir Kaji:All right. So I'm super excited about bringing the first LP roundtable to Venture Unlocked, where we dive into a number of different topics that relate to venture. And we'll look to dive deep. This will be an unscripted conversation, so we'll let it go where it goes. I want to first introduce three of the best LPs in the business, Chris Douvos from Ahoy Capital, Beezer Clarkson from Sapphire Ventures and Guy Perelmuter from GRIDS Capital. One of the things we were talking about before this podcast started was how fascinating a time we live in right now. And within venture, it certainly seems A Tale of Two Cities where it's the best of times, and it's the worst of times. And we'll get into that during the scope of this discussion over the next hour or so. But let me first start with an icebreaker for the group here. If you were to complete this sentence, how would you complete it? Venture today is X. Chris, why don't you start? What is X today?Chris Douvos:To get hype for this is discussion I watched some TikTok so I'm feeling like I've been around a long enough time that I got to stay current and stay youthful to be relevant in venture. So if I had one word based on what I've been hearing from the kiddos it's "lit," this market is lit. And that's both a good thing and a bad thing. I mean, we can go into that, but hey, for the moment, we're lit.Samir Kaji:All right, Gee, are you going to top that? What's your description of the market today?Guy Perelmuter:Top Douvos? Never, sir. That's impossible. I will say that, for me, the current venture market is extraordinary. And I mean it literally, right. I mean, it's beyond ordinary. We're now a few standard deviations from everything we've seen before. And again, as Chris said, this could be good and could be bad. So for me, in one word, it's extraordinary.Samir Kaji:That's a great word. Beezer?Beezer Clarkson:I think I'm going to go with "spicy," "spicy."Chris Douvos:Oh, caliente.Samir Kaji:I like it.Beezer Clarkson:Caliente.Samir Kaji:I like this.Beezer Clarkson:I was going to say fuego, but I'll say "spicy."Samir Kaji:So between spicy, lit and extraordinary, it's very clear that all of you think this is a very heated marker with a ton of momentum. And I would agree with that. And I was looking at the Q1, Q2 numbers and roughly $300 billion went into venture-backed startups, two-thirds of that, as you can imagine, was late-stage. And it seems like the venture market has, or at least the capital market for tech companies, has moved into a barbell where on the right side, you have large aircraft carrier type of firms that are investing across stages, have the ability to pump a lot of dollars in at those late stages, let's say series B and later and series C and later. And then on the left side of the market, you have a ton of seed funds, which by number, are quite high, by dollar amount, are still pretty low.Samir Kaji:I feel like from an LPs perspective, it's harder to navigate than ever before to figure out where can you place capital to get the best risk-return? And we've all talked about this, it, feels like managers are coming back really quickly. There's not always that much differentiation that matters, and it makes it really tough. And so, I'd like to start with, maybe, Chris on this question, how are you navigating in today's world?Chris Douvos:I'm old enough to remember, as we all are, but I started at Princeton's endowment back in '01. And I remember I became a venture guy because our then venture guy left. And at a Monday meeting, somebody was like, "So who wants to do venture?" And it was like that nose game where everybody touches their nose and last person not touching their nose gets stuck with whatever task. And that was me, and I became a venture guy. And I remember like 2002, 2003, 2004, the wreckage. And those were years were like $5 billion, I think, in 2003, went into startups and like 20 billion... I remember Bill Helman at Greylock was like, "What is the rational size of the benchmark? Is it $20 billion a year?" It's like those numbers seem quain. But in fairness, the scale of exits has made those numbers seem reasonably quain. It's not like this is an outrage and people are just spending like drunken sailors.Chris Douvos:But what I'll say is, there are a lot of risks that have been taken off the table, and like a main risk is financing risk, right. And it's because there's so much like plentiful capital out there. I come from like a classically trained institutional investor standpoint, you're always thinking about risk-adjusted return. Well, how do you adjust return when there's like actually no risk and it's been like such a one-way market for so long? And I think people have forgotten that actually the trees don't all grow to the sky.Chris Douvos:And that's something that for the last, maybe, year and a half, has really influenced my own thinking, which is why, maybe to my great detriment, I've doubled down on what I call the "grownups" in my portfolio. So we're doubling down on firms where the investors are really kind of seasoned. Maybe seasoned is a fancy word for geriatric. Whether they're established groups that we've backed for a long time like First Round, or True, or newer groups like Neil and Trae over at Defy that have a long kind of history of investing. But I want people who have kind of seen what actually happens when risk exists again, because I think too many people have grown up in a world where the only answer is buy, and if you can't if you can't buy yesterday, buy today.Beezer Clarkson:I think I went through a bit of like... What is that called? ... the trough of despair, and then there's like the arc of euphoria, whatever those like sine curve is. I think right now I'm finding it actually really fun, which I know it's a little bit of the... If you don't need to sleep, it's actually a really fun time to be doing venture, because it's unbundling in a way that I love. I think the options now for where an entrepreneur can get money is awesome, for an entrepreneur.Beezer Clarkson:It's interesting questions for an LP and where to put your dollars. But there's so many more alternatives now, you can do the classic funds, you can do what Chris is talking about. We've been trying to keep some dollars available for newer managers and trying some newer methodologies, not just... We've done some sort of new but classic kind of structured funds. We're trying to look at, are there other alternatives? The rise of the solo GPs, there are syndicate structures, there are some service for equity structures out there. We haven't done a rolling fund, but I find them fascinating.Beezer Clarkson:So I think right now, I actually feel really greedy because I'm like, there's so many different things I'd like to invest in. And it's just a question of, no LP has unlimited capital, there has to be the constraint, because nobody has all the money in the world, and you wouldn't want to index venture anyway. But I just find that hard time picking because there's so many awesome things I'd like to do. So I find it right now, a fun but challenging market from that perspective.Guy Perelmuter:Yeah, one thing that comes to mind when I look at this market right now, it reminds me a little bit of what happened in 2000, 2001, in the hedge fund industry, because that was a time where a lot of prop desk folks were leaving their jobs at investment banks to start their own hedge funds. And you could see like on a weekly basis, there was a new long-short equity fund sprouting from nowhere. And it was not really long-short per se, if the manager had like 40 longs and two shorts, he would call himself or herself a long and short fund, right.Guy Perelmuter:And something that really catches my eye in this environment is the sheer amount of new funds coming to market by people, by "portfolio managers." And again, that's fair for people to try their hand at running other people's money. But to get your stripes and to be called a portfolio manager, that's a process, right. I feel like this title is misused a lot. We had to have some sort of standard process to make sure that someone can put that in their resume.Guy Perelmuter:So right now, the venture environment, and I agree with what both Chris and Beezer said before, the options are incredible and we are living in a world where the opportunity costs, to Chris' point, is zero, right. Interest rates have been almost zero for longer than any one of us have ever experienced, paradoxically, the pandemic has accelerated so many trends in the minds of so many different people from different walks of life. And it seems like, at this point, all roads point to venture, right. Everybody has their own reason to think of, "Okay, I should expand my venture portfolio. I should add more chips to this particular asset class." And it doesn't feel like this is going to necessarily end badly. And I'm sure we're going to go into that over the course of this conversation.Guy Perelmuter:But one thing that I think it's inevitable is that some of the GPs out there who have already earned their stripes, I think they're going to be at the premium in this market because, inevitably, we're going to see failures over time, it just takes a little longer in venture, but they'll be there. And these GPs I expect them to continue to do well. And I think there's a list of probably 20 to 30 names out there that are going to be in great shape in another three to five years. And for those newcomers, I think the environment is going to be increasingly challenging for raising money and for being able to be in the cap table of really interesting deals.Chris Douvos:And by the way, that's a great point because, in venture, all of our train wrecks happen in slow motion, right. And what's actually has always been kind of acute to me is, in the public markets, if an idea goes sour, the capital is destroyed and the managers who were pursuing that strategy get kind of lit up and exit the business. In venture, we're surrounded by melting ice cubes, right. And all it takes is one great deal to get that melted ice cube back in like kind of solid ice condition.Chris Douvos:I was having lunch with a good friend of mine the other at the Creamery here in Palo Alto and a GP walked by, and this is somebody who like literally had been an incinerator of capital. And this person leaned into me and said, "Oh my God, can you believe that guy's in company X and they put in like a million dollars and it's now worth like a billion and a half dollars and it's going to like rescue this fund, which has been on life support for years?"Chris Douvos:So in addition to like these funds that like kind of never die, you got what Beezer talked about is like all these, not only all these new managers, but new modalities of investing. And for somebody like myself who tries to do like one new investment a year, it's crazy. It's like we always used to when I was at Princeton's endowments, "It's harder to get into our portfolio than it is to get in our college." And that dilemmas only been kind of magnified by an order of magnitude.Samir Kaji:I sort of look at where the market is today, and I remember starting my career back in '99 actually, and it was like the height of the tech bubble. And remember, I forget if it was '99 or 2000, like a hundred billion was raised by venture funds. And it was at a time where the public market cap was like $13 trillion. Venture was still very much a vertical industry on the fringe. And technology, in particular, right, we were still internet 1.0, less than 350 million people were online. And you sort of look at the maturation of technology in '06. What happened was AWS came out and it made software development cheaper than ever before. In '07 was the iPhone. And that made, not only you had the development cheaper, but now you had the distribution channels. And today, of course, over 5 billion people have smartphones. So part of me thinks this is just a continued evolution of the technology market and now capital is starting to catch up.Samir Kaji:The 14-year bull run has certainly helped. But the size and scale of these companies now are at points we've never seen before, right. If you look at the top five public companies, they're all technology companies, total market cap of 9 trillion. But look at what their revenues are, look at what their profits are. And then you see some companies, even like a Canva, for example, if you look at their revenues, we would've never seen companies hit those type of revenues, but now you have the distribution and tech being truly horizontal.Samir Kaji:Now, I do have a question though, which is related to one side of the barbell, which is late stage, which most of the capital goes into. And again, that's two-thirds of the capital. It seems like investing at that stage, the risk levels are more aligned with what we have seen with traditional middle market, with maybe a slight higher alpha potential given the size and scale of technology companies. But in many ways it does seem that companies as they achieve scale, even at 10 or $20 billion are still private in nature. And we've seen that on many different occasions with some of the best companies. From my perspective, there's some parallels to investing at that stage as we might have seen maybe 20 years ago in the markets right after public offering, let's say, the 12th to 24 months after in terms of risk-return. Do you agree with that? And how should we be thinking about the late stage markets?Chris Douvos:It's really interesting because about 10 or 12 years ago, Josh Kopelman from First Round did a blog post where he looked at the market caps at IPO of a bunch of different kind of tech stalwarts from kind of Microsoft through like the early 2000s, like getting Salesforces and their Netflix. And he figured out that of the eventual appreciation in the public markets, 97% was available to the public investors. Whereas, since then, we've seen radical shift into the late stage private market. So I think, the late stage venture market certainly looks like the IPO market of old. And there are a lot of reasons for that, but partially, what it's... I mean, I look at my own portfolio in my funds and it looks like the S&P MidCap 400. And I think that's really unhealthy for market structure, and I think it's really important for investors to be able to access emerging growth.Chris Douvos:But the thing that worries me about all that is that I always think about Buffet's equation, which is opportunity equals value minus perception. And what happens is the private markets like really feed on themselves and create these like fire storms almost where the temperature gets hotter because the fire's burning, which makes the fire burn more, which makes the temperature hotter, and it's this big recursive circle. And there's not as much discipline with respect to price and the sale prices and all this stuff. And so, you get these like crazy valuations. And I think, Samir, you alluded to this earlier, we've seen some companies really struggle in the public markets, and I think it's because there's so much exuberance in the late stage private market that's disconnected from Buffet's equation.Chris Douvos:And so, that's something that worries me. But running an early stage portfolio, I'm actually kind of delighted because it kind of really minimizes financing risk and gives the portfolio companies that we're backing much more optionality and much more survivability and anti-fragility. So as long as that capital is there, it's great. The problem that I worry about is, what happens when that rug gets pulled out?Samir Kaji:One comment on that. I just want to read out off a few things. So percentage of first 20 billion in market cap captured pre-IPO, so Airbnb, first 20 billion, 100%, Snowflake, 100%, Slack, 100%, Twitter, 82.5%, Facebook, 100%, Salesforce, 8%, Amazon, 3.2%, Cisco, 2.4%, and Dell, 1%. So it does go to show how much scale of valuation happens in the private markets. But yeah, I mean, I think your point in terms of what happens if the public markets retract, what does that mean for all those late stage rounds that are done, where you're buying basically at almost a peak? And oftentimes, even right after the IPO, it drops below what the last private market valuation is. Again, I think that's a real risk, but Beezer, I know you were going to maybe take a different position, perhaps.Beezer Clarkson:So one of my colleagues wrote a paper literally like last week on this topic, which is why it's just top of mind, basically, Long Live The Tech IPO and Steve Abbott did it if people want to Google for it. And it looked at this question of how much money gets captured privately versus publicly. And the answer is, in a bull market, there is still a lot of room to run in the public market. So, just going to shout out, people can read that because it's all very data driven.Beezer Clarkson:But it is predicated to the point Chris was making, is that, yes, it's worked out well historically. If you look over the last 10 years, because even if there was a high valuation privately, there was still so much more publicly in the strong companies. But you have to have this bull market to make it happen, and if not, we all know it happens, companies go out, they flounder, either they get recapped or sometimes they get taken private by a private equity tech company and repackaged. So if they're there, things can continue.Beezer Clarkson:I also just think there's been a much healthier IPO market in the last 18 months than there's been before if you look at the number of companies that are going out. And I do think from a venture perspective, that is very healthy. The venture market wasn't predicated on people staying private forever. The circle of life of capital flow is critical. No one wants to work at a startup if they're never going to have their options worth anything, that's the whole premise of why you join a startup, right. And the same thing for an LP, the premise is that you invest money into a fund that goes into a company that comes back around so the dollars can be redistributed again back into venture. So, we're positive on the signals that are happening right now. But yes, everyone worries about retraction, and my crystal ball does not have a date for when that's going to happen. I'm very sorry. Maybe Chris' out of the shop, and he knows when the market will dropChris Douvos:My crystal ball is still in the shop. I mean, I want to get by your repair person because mine's still busted.Guy Perelmuter:So, here's something that I believe we can kind of expect... right. Because if history has shown us anything is that markets will correct, markets will fluctuate, we'll see those prices going up and down. But here's what is unusual about or unique about the environment that we're living in right now... And I think your point about the barbell approach has a lot to do with it. If you think about each round or each series that a privately owned company raises and you stack them on top of each other, and you think about the IPO or the listed company at the very top of that stack... I'm not talking about capital structure, I'm just illustrating the path of a specific company right.Guy Perelmuter:Whenever things happen in public markets and they're there for everybody to see, right, and the results and the actions and the volatility is abrupt, it's intense, it does capture headlines, that's what people are going to read about in the evening news or hear about in the evening news. So what happens is that the shock waves they get from the public markets, they will start going down the structure of the stack, right. So they'll hit head on the late stage, the mega rounds of still privately owned companies. And it'll go all the way down. But now, there's this gap between the late stage and the very early stage, so there's no dampening of this effect.Guy Perelmuter:So my concern here is that this eventual correction in the public markets, that may or may not have anything to do with the private markets, will create a ripple effect that could make capital scarce, which basically is what fuels this industry, right? Capital people are interested in financing new companies and new ideas and new technologies. And I think that this is probably one of the most important aspects of this market that we should keep a close eye on because when the dampening effect of those intermediary rounds, if you will, are not there, then that's something quite unique to this specific moment in time and we should be on the lookout for the first signs of trouble.Samir Kaji:Yeah. And it's hard to really understand if there is truly a canary right now in that coal mine that can be actually identified. I can't seem to find anything that would suggest there's going to be a near-term retraction in the economic cycle. But historically, you're right. When you see drops in the public markets, it affects capital flow, which then... Usually, it starts with the late stage and then goes to the mid stage and then goes to the early stage in terms of capital and of course, valuation.Samir Kaji:But even if you plan the early stage today where, yes, valuations have gone up, but if you redefine what the outcomes could be, it really doesn't matter too much. At least it's not as sensitive and fragile relative to late stage markets. A lot of the early stage funds are playing both, because they raise a core fund and then they raise an opportunity fund. And I think over the last two years in particular, I've seen more opportunity funds than maybe the 10 years prior to that.Samir Kaji:The historic LP view on opportunity funds was actually very negative. And I think I've talked to everybody about at this. And now, it seems to be thawing either as a function of being forced to do it or viewing it as the late stage market where a manager has an asymmetric view into a company could be a really interesting place to put capital and still get a nice risk-return. How has your thinking either stayed the same or modified as it relates to opportunity funds today?Chris Douvos:This calls to mind my favorite quote from Keyser Söze, which is, "The greatest trick that devil ever pulled was convincing the world he didn't exist." And what I mean by that is that there was a time, not too long ago, and people believed that kind of modest fun-size actually was a creative to positive returns. Then if you raise too much capital, it was tough to compound that capital. And so, I think a lot of funds started raising... A lot of people were consciously small. And I think that then they saw that they had all these kind of pro rata rights. And so, you'd see this kind of people go through this process of where they had a modestly sized fund and then they were in hot companies. And companies are kind of more hot than they normally would be because there's no risk in the economy right now or risk isn't getting priced, I should say.Chris Douvos:And so, people start offering SPVs and they're like, "Oh, too many SPVs, that's a pain in the butt. Let's raise an opportunity fund." And before you know it, your friendly neighborhood $200 million fund is now raising $600 million between the two vehicles. And it's like, "Wait a second, you guys used to say fun-size matters and now it doesn't matter." So I've done my fair share of these because I think the risk-adjusted return is actually okay, but it just makes me think that people aren't being kind of terrifically, intellectually honest with themselves about keeping their fun sizes small.Chris Douvos:And I think we're kind of whistling past the graveyard in some of this stuff, because what happens when you got different securities in the two funds, and if there's a downturn and the securities find themselves in conflict with each other? Somebody's going to get crammed down and somebody isn't, or both people are, and someone doesn't have capital to do a pay-to-play. It's symptomatic of the world of live in. I think, if you're in the full send economy, if you're going to send it, send it. But this is something that I think has worked really well to date, but makes me really nervous about the future and hope that we don't step in any holes in the bottom of the airplane.Samir Kaji:Chris, can you maybe explain just for a second, when you say "conflict of a certain security," what does that actually mean for people that don't know what that actually relates to?Chris Douvos:I remember in like ‘99 and '00, a lot of funds were raising, actually, like, "Our VCs have raised two funds in a single year." Like a lot of people had 2 ‘99 funds, and sometimes, they do crossover investments in those funds, so similar to what you'd see in an opportunity fund and a core fund. And then, when the downturn hit, you might see like fund nine is in the A of a security and fund 10 was in the B. And you might have like a pay-to-play where if you don't come into the round, you're going to get kicked to common. And fund B might have reserves and fund A might not. Or fund B has some kind of preferences and fund A doesn't and fund A gets buried behind the preference stack. And the fund B investors make out and make out well, and the fund A investors don't.Chris Douvos:And that kind of stuff created a lot of drama, I call it the Great LP Wars of 2002, where you'd see like some GPs, who are today, kind of top five GPs, spent like half the year dealing with the crankiness of the different constituencies of their LPs.Beezer Clarkson:The opportunity fund discussion has so many different implications, right, because there is the one that Chris was talking about, like what swim lane is a fund in anymore? And there was this beautiful time in venture when everyone had a swim lane and we don't have swim lanes anymore. And I think, it'd be lovely if it was that way, and it's just not. And LPs are going to have to deal with it. You can't crush people back into the old ways of working, it's just not going to happen. You can assess each opportunity fund for it's still return potential, to Chris' point about the risk-return. And we treat them all very individually, that way, we have return targets for our dollars. And the question is, will this opportunity fund deliver it? Some can, some can't. Right. It's each one's its own specific little, beautiful snowflake.Beezer Clarkson:But the complications of the business exist no matter what. Right. Like, is it the same team? Is it a different team? The security questions Chris is raising... We have a fund who has successfully invested in multiple times in the same company in different vehicles. Actually, the company's doing well, but the question about when you sell is still different for each different fund, because if you're investing at series D, they might want to hold that for longer. But you're at the series A and your fund is smaller and you want to start creating some DPI for your LPs, who do you sell to because they're not the same LPs in these funds anymore? And the business complication has just gone up so astronomically and I don't think until you've lived it, to Chris's point, it's as clear to a GP, but to LPs who are looking at the paper, you're like, "Oh, this is going to be an awesomely difficult question to answer." And there's not as many of those conversations.Guy Perelmuter:I absolutely agree. And actually, this is an interesting segue into something that I have learned over 20-plus years of allocating capital and investing, which is, there's only one thing that LPs hate more than losing money, in my opinion, it's surprises. An LP will understand the rules of a game if you explain them in advance and say, "This is how this game works. This is how this project works. This is how this fund is going to work."Guy Perelmuter:But to Beezer's point, after four and a half years or five and a half years, you got to start going deep into the weeds to start talking about specifics because of cross-investments in different vehicles and different timings and downturns. Those are the bombshells, those are the hits that LPs take and that will ripple throughout the industry, because that's when you start getting the domino effect, because then there's a credibility issue, then that GP is going to have to spend 95% of his or her time explaining himself or herself to his LPs or to her LPs.Guy Perelmuter:So I think that the whole opportunity fund versus individual SPVs versus what is your core competency, those are questions and issues that have to be thoroughly understood prior to writing a check. Because again, Beezer is right, this is not like a hundred meters race, right, that's it. "I only run a hundred meters." "No, no, I only run a hundred meters, but on occasion, I'll do a long jump, and eventually, I can do a 400 meter race as well." And you can mix it up and do everything as long as you are in agreement with your client base. Surprises are very, very unwelcome to LP, that has been my experience time and time again.Samir Kaji:As you were all talking about opportunity funds, we actually had looked at 25 very successful seed funds that have been around anywhere between five and seven years, on fund 3, 4, 5. Out of those 25 that we looked at 22 raised an opportunity fund along with their last fund. And I remember in the past, and this again, dates me a little bit, but we used to talk about swim lanes and we used to always say there's different muscles that you have to exercise to be successful at early stage versus late stage. And some of that has been just eschewed by the fact that there is capital chasing these and the pro ratas are there. And candidly, a lot of the institutional investors, be it the endowments or foundations, are actually not set up for doing SPVs. And so, the opportunity fund has offered them, no pun intended, an opportunity to place more money behind a seed stage manager than they otherwise would. And so, it also fits into a little bit of the demand of the LP market and what they're looking to do per manager.Guy Perelmuter:I agree. There's a market. And if you are a successful seed stage venture capital fund and you're seeing your companies go off the charts time and time again, and you have a limited pro rata and you see a clear opportunity where you can do more and you can bring more of that, to your LPs, why wouldn't you do it? Right? That's just markets being efficient and trying to... The old adage that says, "Nature abhors the vacuum, right. There's no room for vacuum in this industry. So people are going to feel that in as fast as they possibly can.Guy Perelmuter:I'm not against the opportunity funds because I think the reason behind them is very, very in line with the LPs best interests. And it's been my experience that out of a lineup of LPs, maybe 15% will be interested in doing directs, in doing SPVs. Most of them are, "Okay, I'm paying you to take care of my money. I'm not here to start cherry picking on company A, B, C, or D, that's your job. So don't bring five SPVs per year to my attention because I don't have the bandwidth, the interest, the knowledge to analyze them." So I think it's the market being the market in adjusting itself.Samir Kaji:Beezer, you mentioned something earlier about risk-adjusted returns on opportunity funds and core funds. As you underwrite to the different stages, what are those returns that you're actually underwriting to on a multiple cash-on-cash basis?Beezer Clarkson:Sure. Well, historically, and I say it this way because I we're in the process of reconsidering this given the performance recently, we said if you're series A investing, right, the bulk of your dollars are going at series A and whatever, however the vehicle is being structured, we need to see a 3X net potential performance, that's our bar. And so, seed therefore should be greater because there's higher risk, so that's 5X. And this is why the seed fund's doing a series A opportunity fund, it can still work. It gets harder if you're... And sometimes, this is like a shout out to GPs, if your opportunity fund's going to out on your early fund, your math isn't working or your opportunity fund is a lot smaller, which is also fine. And sometimes that is true. But if an LP is doing the math and saying it doesn't stack up, get ahead of that and make sure you understand your return profile, because we can talk about things that turn off LPs, but if we have to do your return profile math for you, that's not a positive sign.Beezer Clarkson:But what we're seeing in the market right now is because there's been so much strong performance, we see growth funds. We don't tend to do these, but they pitch us and they have 3X net performance, legit, or more, in which case, the series A funds, we have high single digits, we have double digits, we have seed funds doing double digits. And again, in this bull market, it's hard to then say, should this be the new norm for forever? But it's certainly the standard today. So when looking at adding new managers to the program, you have to believe someone's going to outperform pretty incredible existing performance right.Chris Douvos:This is so top of mind for me right now because... I call this syndrome Syndrome. So if anybody remembers the Pixar movie, the Incredibles, right, the bad guy is named Syndrome. And he always said his aim was to bring superpowers to everybody because when everybody's incredible, nobody will be. And I feel like, literally, every single fund that comes across, my transom is like sporting numbers that would, in different times, make me drool. But performance is a lagging indicator, not a leading indicator. And then, we don't even need to get into like, "Okay, who's going to put moolah in the coolah." Because I always remember when I was at Princeton at the endowment, we had a big conference table filled with tombstones from Wall Street deals, whether they were acquisitions or IPOs. And all of the tombstones on that "Graveyard of Broken Dreams" were companies from which the only distribution we got was that tombstone right. They literally went public and we got zero because they went to zero. So, I've always been kind of super sensitized to that so this is why this is top of mind.Chris Douvos:I was just talking to one of my biggest investors and when this guy invested in my fund, in my first independent fund in 2012, I told him like, "Look, our return target, the baseline is at 2.5X net, and hopefully we can get up into threes net at the fund level." And today, that fund sits with a lot of public companies, and some about to go public, in the mid threes. That's not even a humble brag because I don't even think that's good anymore. I don't know it's good anymore because I look at other things and I hear about people putting up five, 7X funds and I'm like, "Holy smokes, how can I get me some of that?"Chris Douvos:To extend the metaphor of like the Olympics and events, I feel like we're all doing kind of pole vault on the moon, right, where there's no gravity. And at some point, gravity's going to kick back in, and I think there's going to be a fine line between who was lucky and was able to get out of stuff. It's inevitable that the markets will come back to earth, it's just a question of when and how, and will people have been able to generate enough liquidity in the interim to kind of sustain these kinds of returns?Samir Kaji:I think there's probably something in the middle that's directionally true in the sense that, yes, there's going to be some gravity at some point. Some of these companies are never going to live up to the valuations that they've been given in the private markets. At the same time, a lot of these funds are investing at a stage of these companies where the exits that do happen, that are successful are going to be a step function far bigger than they ever have. And so, do we redefine what a successful seed fund is? I mean, I remember a few years ago, we said 3X, if you can get to a 3X that's great. Most people would say today it's at least a 5X. And I've seen multiple 10X type of funds. And then, we'll see if the DPI gets to 10X, but this kind of reminds me of like the '80s and your early '90s, when you saw a lot of that when there was very little capital, very few firms.Samir Kaji:But moving to sort of the emerging bucket for a second, if we are looking at 5, 7, 10X, I find with track records, track records can be very, very lacking in indicators. And sometimes, there are indicators that are just far too old to matter. Oftentimes, you're looking at a track record that's like eight years old when they had this great return and it's too long ago, too many variables have changed, the teams changed. And the track records that are more recent, there just hasn't been enough maturation or any sort of resiliency that portfolios had to show.Samir Kaji:So, if you're not looking at just track record, which again, has a lot of false positives and negatives, what are the things that you evaluate when you're looking at a manager and saying, is there a potential for this early stage manager to be a five to 7X? What are some of those things that are non-obvious?Guy Perelmuter:Charlie and the Chocolate Factory, which is, basically, everybody's looking for that golden ticket in their chocolate bar. And I'm talking, Gene Wilder Willie Wonka, not Johnny Depp Willy Wonka, because all of us, we know that's the legit Willie Wonka. And I think that emerging manager, at this point in time, the equation is a little bit flipped and I think that's going to be something that we'll see for a long time, which means there are far more managers out there, then talented and really awesome entrepreneurs, meaning that entrepreneurs, ultimately, I think, have their pick on who they want to work with, specifically at the fringes and specific niches and sectors. But I think we can paint with broad strokes this picture. And that means that when you look at the manager, you have to figure out why would this particular manager be able to attract, have enough gravitas to attract extraordinary founders and entrepreneurs and have the audacity to back ideas that are going to be 5, 8, 10, 12... Pick a number, any number, I don't care.Guy Perelmuter:The fact of the matter is that right now, I think that's the key question that one has to ask oneself. What's his or her background? What's the edge they're bringing to the table? We don't need to look at their track record because more often than not, there isn't one or there's one that they use at their old firm and now they're starting something new. So, I mean, there's so many variables in there. So I think the core question one has to ask himself or herself is why would this person be able to attract great talent and build a fantastic portfolio? And that's why I use the golden ticket metaphor, because I think it's a little bit like, you can buy all the chocolate bars in the world and you eventually get to your golden ticket, but you'll run out of money before you do that. So you have to make that golden ticket get to you in the first place.Chris Douvos:See, I always say we use lottery slogans of Ivy League veneer, it's things like, optionality is the same as saying, "Hey, you never know." You got to be in it to win it is the same as asymmetric payoff, right. We've co-opted some of this stuff, it's like, "Some days I think I'm not an investor, I'm just heading down to the bodega to buy a couple of Lotto tickets along with my diet coke."Chris Douvos:It's really interesting because one thing I think a lot about is, I don't know how you underwrite to kind of 10X returns, because the portfolio math on that is such that you have to underwrite to one outcome that's just so extraordinary that you can't underwrite to it. I remember when First Round invested with Uber, I was spending a lot of time hanging out with Rob Hayes. And nobody knew that that was going to become Uber. In that same fund, they had Roblox, which ended up actually distributing more to First Round than Uber did. And Roblox was like the 10-year overnight success story you just didn't know. Who knew that that was going to be the company that it is today distributing literally billions of dollars to that fund.Chris Douvos:And so, what I kind of underwrite to is I want managers that can demonstrate sustainable competitive advantage, which drives repeatability. And I've got some kind of short hands for what I think about that in terms of people who are leveraging specific ecosystems, and that manifests in a couple of different ways. And I feel like that kind of thinking can get me to like a 3X, but the gap between 3X and 10X is filled with just being really f-ing lucky.Samir Kaji:Another thing I've been really curious about is just the common mistakes that managers make that, over time, atrophy returns. One of the obvious things for me is when managers move out of the swim lane too quickly, to suddenly, and whatever comparative advantage they had dissipates because they're playing a completely different game. And an example would be somebody that's raised a $10 million fund writing small frictionless checks, non-lead. And then, all of a sudden, jump into 75 and being forced to really lead every single round. And those things can come at the expense of returns. Are there any common mistakes that you see or red flags that you think come at the expense of returns?Beezer Clarkson:When you're in a meeting and sort of like the magic happens, there's all sorts of like structural things, to Chris's point, like they have a team and they have a vision for market and there's all this stuff that everybody has. But there's something about an investor who's playing in a space. And it's just so true to how they think. The stupid phrase is they can see around corners. But the reality is that's the experience you have sometimes with an LP when someone's talking about something, you're like, "I have now understood D to C crypto enterprise software." You pick it in a different way because this investor is thinking about it in a different way, or is able to sort of capture something about their investing scheme that other people just are sort of more like paycheck venture capitalist.Beezer Clarkson:This sounds derogatory and I don't mean it that way, but people kind of go to work to be a VC versus someone who's like, "No, I'm compelled to do this because this is like what's going to be true in the world and I have to be there." And they can be emerging managers, they can be established. There's just something about their presence. And they don't have to be an extroverted charismatic, they can be super quiet about it. But when you're in the presence of one of those folks, be it brand new or established, it's just as different. And it doesn't mean to say they're not going to make some mistakes in investing because venture is a risk business, and that's fine, we sign up for that. But that's just really different.Beezer Clarkson:And I think when people don't have that and you have too many people that just want to write a check, you can kind of feel that too and it just feels very middling. Or if someone's super special because they work really well to your point, Samir, at seed, and all of a sudden, they're doing growth at seed. And somehow they're magic intuition. Some people can stretch both ways. It's hard, not everybody can and that can just sort of diffuse it. And then, you're also competing with a different set of folks. It's a really different game and people have different tactics and understand different things about companies.Samir Kaji:Is there anything from a behavioral characteristics standpoint that you can point to that's actually tangible? Because what we're talking about here is you feel something, right, you're across something, which by the way, I think the risks that all LPs have, including all of us, is we form biases about what somebody should feel like because we've seen certain type of people be successful and we've sat across people. What are some of the tangible things from a behavior or the way somebody thinks that is actually a good sort of heuristic or at least a heuristic that you all use? Is it hustle? Is it hungry? Is there self-awareness? What is it that you're looking for?Chris Douvos:This is a flummoxing topic for me because a lot of the stuff that I've, in my career, been kind of trained as like really important actually hasn't been in the last few years, and one is portfolio construction. If you look at the great funds of a lot of different eras, when they've been successful, they've owned a lot of their big winners, they've been thoughtful, they've been disciplined, all these things that we think of as asset management.Chris Douvos:And Beezer and I are in a fund together where we literally like kind of were yelling at this GP across the table because he was kind of just spraying and praying, and he his response was, "Look, you got to understand this isn't 1999, it's 1996. And the more investments you make the better because the rising tide's going to lift all boats." And I said, "Well, you don't know what the tide is going to be like at some undetermined time in the future." And of course, and so I'd sit here and I'd be like, "Oh, those guys really suck at portfolio construction and here they've got a big public company that's going to return somewhere between four and 6X their fund on its own." Right. That's one that historically has been really important to me, people are thoughtful about the craft of investing as opposed to just throwing money around.Chris Douvos:And a second one, which actually, I struggle with a lot and this is like the Swanson training in me is like alignment of interest is really important, right. And it can be financial, but more important, it's psychic. And you can tell when somebody's really all in. And I think what we've seen in the last like 4, 5 years is like the delantatification of venture capital. And we're seeing a lot of people who are just like, "Hey, I'll start a rolling fund and I'll do this for like six months and then I'll be onto the next thing."Chris Douvos:And I remember Swanson used to talk about like, "You want to manager like lash to the mast where like it's not that they own a free option, but rather that they need this to do well for them to be fulfilled both financially and psychically." And we just see a lot of people just kind of spraying and praying. And we as the LPs are short their optionality. And that's actually a super uncomfortable situation. But at the same time, a lot of those people have actually been successful. And some of the people who run what I'd call lifestyle funds have crushed it. And so, I sit here and go like, "Maybe everything I know is wrong."Beezer Clarkson:Yes, we always worry that everything we've been trained on is wrong because you do get these, to Chris' point, you get one kind that does so well and you're like, "Oh, well, guess, none of that other stuff mattered." And that's the glory a venture. [inaudible 00:48:34] to me like, what is it? Because I do agree with you, I think one of the challenges that has kept LPs from taking... There's a lot of reasons why LPs don't invest in net new managers to their funds, but one of them is there are a lot of classic training on what a venture capitalist looks like down to demographics. And that's really stifled the industry. It's just wrong. There's no one person who's genetically better at being an investor. If that was true, would know it, right. And it'd be seen throughout history. It's just more about who's been given opportunities.Beezer Clarkson:So I think when we listen to people when they talk, I'm not sure if it's quantifiable, but we ask a lot of questions because we want to understand their strategy like, how are they going after what they're going after? What is the opportunity set that they're seeing? How are they understanding the businesses they're going after? And for some people, it's very quantifiable. And some people, it's about margins. For some people, it's about consumer behavior. So the metric that's being used isn't as relevant as the fact that they're using something to help drive their decisions and they can explain it. And if they can't explain it, there has to be some other way of presenting it. Somebody literally asked me this question today, they're like how important is communication to being a great investor? And I was like, "I think it's probably really critical because if you can't explain what you're doing to somebody else, it's going to be really hard to fundraise.Beezer Clarkson:In the beginning, you're going to have capital from somewhere. And if you don't have your own capital, you can do it yourself until your track record grows, and people will invest in you even if you never say a word. Otherwise, you have to be able to articulate, in some form, maybe it's a TikTok video, maybe it's an Excel spreadsheet... I guess my point is we ask a lot of questions and try to take in a lot of different data to understand who these people are and where they're going to invest.Beezer Clarkson:So you can see what they see and where the puck's going and where we fall off with a lot of people is, to Chris' point, a lot of people haven't thought through it that much. It looks fun. You can start with nothing these days, which is awesome. And it does help create more entry rounds for folks to come in. But it doesn't mean they have thought through the whole entire business of where they're going and what they're doing. And if you want to raise institutional capital, the bar does get set somewhere around there, right. It's not just, "Hey, I want to invest." Well, everybody does, so it has to be more than that.Samir Kaji:As you were all talking, it reminded me of a question from Twitter that I saw, and it really spoke to thinking about how do you differentiate? So all of us have seen hundreds, if not thousands of decks, and they all follow a similar pattern around team, and what's your asymmetric differentiation, your value add? And over time, people become a little bit immune to decks themselves and the stories because everything looks the same. And the question was really centered around, if you don't come from a place that has unique points that LPs look like, or at least the points that LPs tend to weight heavily, i.e., coming from a big firm like NEA, living within certain Silicon Valley circles for a long time, having built a network. How do you actually stand out from the crowd when you may not have any of those things? How do you all think about that? And are there things that managers that aren't part of the mainstream Silicon Valley circles and haven't been for a long time do to really stand out with LPs that are institutional.Guy Perelmuter:Well, I think one of the key aspects of investing... You asked before for concrete, palpable pointers, to be able to answer those kinds of questions and effect of the matter is that investment is a blend of art and science, right. There is a technical aspect to it where you run the numbers, you look at the correlations, you try to do your back testing, you try to do forward thinking... I mean, all of that stuff, it's fine. But there's a lot, to Beezer's point of communication skills of being able to kind of get into the other person's head to make sure they can articulate an idea or a thesis that makes sense to you, that fits with your view of the world.Guy Perelmuter:So for me, one of the things that we consistently do is we look for whatever is inevitable, right. What trends are being now accelerated and that are inevitable? And when there's a manager, to your question, Samir, that is able to articulate the inevitability, why it's inevitable, how they are able to explore that particular trend, and why they are in a unique, or in a privileged position to be able to do that. That's something for you to start paying attention, and picking that particular deck and say, "Okay, that's a conversation I want to have." It doesn't mean you're going to follow through, but that's, I think, a great start. It's when someone is competent enough, they have clarity of thought, they have a reasoning that has a beginning, a middle and the end. And it's not just trying to take some buzz words from whatever and trying to pitch phenomenal numbers, because...Guy Perelmuter:Guess what? Now, phenomenal numbers are the norm right. That became almost jaded at this point, with the numbers. You want to see something that is sustainable, because this is not something you can get rid of in another month or two, you're stuck with that position for a decade or so. So you have to be very, very confident on your evaluation process, on your analysis, and on that specific thesis that is being presented to you.Samir Kaji:You made a point there that I think is really important about track record, because everyone has track record. And I actually sent a tweet that, if your fund isn't at least three years old, no one gives a s**t about your track record over the last three years. It really doesn't matter. It's immaterial, there's too much gamification that can happen. But if somebody is approaching you, what should they lead with if it's not track record because a lot of people that are coming out to market don't have a track record that's more than three or four years.Chris Douvos:One thing I think a lot about is... I've been doing emerging manager since 2004. And not withstanding what we've seen in the last year, the vast, vast majority of these have been completely unfulfilling in terms of returns. And everybody's got their different heuristics for what might work. For me, it really comes back to, what is your unfair advantage and how can you articulate your own repeatability? This is actually Andy Weissman at USV who really kind of hammered into me the, "We're not investor's advice." The time I spend with him, he's always talking about repeatability and process driving repeatability.Chris Douvos:And for me, one of the things, and I tell this to all the managers that approach me, I'm looking for people who are leveraging ecosystems. So like, what are you part of? I've been doing a lot of university investing of late and so I love people who are really leveraging innovation on campus, particularly in hard tech. Are you leveraging some sort of community like Ross Fubini, a manager of ours kind has a couple of communities that he's very kind of embedded in and see some stuff through there? Or kind nontraditional managers. Do you have some sort of kind of position of authenticity in some sort kind of new and emerging area that has a lot of upside? And how do you maintain that authenticity?Chris Douvos:One fund that we didn't do, which I regret, although I haven't seen the numbers, but I'm sure they're crushing it, is somebody like Cross Culture. I thought they had an extremely nice kind of footprint and a lot of upside potential there. So, that's kind of my watch word because looking at each thing and saying like, "Huh, what are there? 4,000 managers out there, Samir? I don't even have time to meet with 400 of them," which is why I almost use this like, "What is your leverageable ecosystem?" That's my first screen.Beezer Clarkson:Don't know if we have something as specific as that, maybe we should. Chris Douvos:Well, you're smarter than I am so...Beezer Clarkson:We don't meet with 4,000, but we do... One of the processes that we have used is when we start getting interested in the space, we do try to meet with as many as possible. And it's certainly easier if this space is like... Seed generalist is not the great way to do that. But for example, when we started looking at a certain category in enterprise or in big data, or in consumer, we might meet with a range of investors or funds to try to get a sense for what's existing and then you also then hear different voices. And again, it can be the established manager, this isn't just the emerging managers, but it's easier, at least for me as an investor to understand what's going on.Beezer Clarkson:COVID makes it really difficult to do that geographically, but to Chris' point LA. If you can go walk the streets and see what's going on while people are talking about they're investing, we love to do that too. We've done that very extensively in Europe and Israel to understand ecosystems. And then, when you bump into somebody who just brings something different to the game, even if it isn't obvious from the outside, when they talk about something, it can land, because you're like, "Oh, I see your world that you're playing in and I see who you're playing with, and this lands for us." But it's really time intensive. We consider ourselves venture specialists, but it's a lot, it's a lot of work. You can't just meet with one fund a year and do that.Samir Kaji:I feel like we can... I mean, we've only covered a small subsection of the topics that we could probably cover, especially within the emerging manager ecosystem. We haven't gotten into nano funds or solo GPs, and really the shift in that. I do feel like we need a part two for that because there's so much meat on that bone. But I do want to end, in the interest of time, with maybe a question on where there might be opportunities. We've talked about established managers, we've talked about growth funds, we've talked about series A, seed, I just alluded to nano funds and seed funds. Going around the table here, what is one area that you feel currently has the best risk-adjusted rated return of all of those things that I just mentioned?Chris Douvos:I've had a several years long kind of deep tech hypothesis going. Part of that is I'm really nervous about weaponized balance sheets and there's actually still financing risk in deep tech. Maybe there's capital intensity, but I think that keeps the company's honest. Then again, back to Buffet's equation, opportunity equals value minus perception, right, the perception of so many things is so high that I think it kind of constrains the opportunity and I think there's a lot of good value to be had in deep tech. But the reality is a lot of your deep tech has gotten mainstream a lot faster than I imagined it would so maybe that's going to constrain my hypothesis. But that's probably the area where I'm most focused in. And one articulation of that is a lot of the college related funds, I'm doing like House Fund at Berkeley, E14 at MIT, Freeflow down at Caltech, Rhapsody that does a bunch of material science stuff across a bunch of campuses and other research institutions. That's a lot of fun.Samir Kaji:So I never thought I'd hear the day where the guy that told me LP should invest courageously would say he's scared. But I think that it is a unique time and certainly deep tech is highly interesting for a lot of us. And Guy, I know this is core to your investment thesis. Let's move over to you and tell us a little bit about what you're most excited about.Guy Perelmuter:There's this quote that comes to my mind on a regular basis, and I think Chris is going to love it because it's a maritime quote, so I think it's right up his alley, it says, "There's no favorable wind for those who don't know where they're going to." And I think that's on us as investors, right. You have to have a plan, you have to chart your course and say, "This is where I'm going," because otherwise, how do you even know that something is of interest? Right?Guy Perelmuter:And to your point, Samir, we basically started GRIDS as a niche shop, deep tech only, that's the only thing we do. And hence, within that world of deep tech, and I fully agree with Chris, I think it has become relatively mainstream very quickly. And again, I think COVID plays a big part on that trend. But I think that within deep tech there are a few, and again, inevitabilities that we are clearly seeing now with climate tech, right, after the disaster of the 2000s, where climate tech was basically solar and that ended in a blood bath. But right now there's so much stuff going on in climate tech, the supply chain optimizations, the whole food tech revolution, because we're going to be 10 billion people in 2050, there's no more real estate for us to do more crops, we'll have to come up with inventive, innovative solutions. There's synthetic bio, which again, I think now everybody's pretty familiarized with. So these are areas where I think there are hu... aerospace in general, space, and so on, so forth.Guy Perelmuter:So in deep tech, there are those clusters of opportunity that are almost like brand new markets that, thanks to the history of technology, are now available for private investors to kind of dip their toes on the water. And I continuously, I've been excited about this particular market ever since I did my first angel check back in late 2000 and I still feel that there's a lot of room for that trend to unravel. So yeah, I absolutely am with Chris on that one, I think deep tech is going to be a phenomenal run for the next two decades if you know where to look and who to choose.Samir Kaji:So we got too deep tech and I'm not surprised. And it's something that I've spoken to a lot of both GPs and LPs about. And I do think, to your points both, it has become mainstream, but it's still very early stage in many different applications. So I'm excited about that. So last but definitely not least, Beezer, where are you excited? Let's go to the smartest person in the room here.Beezer Clarkson:Oh, I hope this answer doesn't disappoint you. I was thinking more generally. We're looking for the best early stage investors. We launched our business around... I don't have a specific area because one of the things that I've just discovered is I can't say, "I only want to do X" in advance, it doesn't work for me. I have to go meet the people. And we have a portfolio where we're just looking for great seed and a series A investors, and it can come in any shape and form.Beezer Clarkson:And there certainly are times when we find a trend that we're really interested in. We've been spending a bunch of time in FinTech recently. But that doesn't mean we're only going to do FinTech in the future, it just means we're trying to understand it right now. We have been spending a bunch of time with nano funds and some of these other structures to understand that we may or may not do anything. We just solve for the best early estate investors in whatever form they come in. I still think it's an incredibly exciting space, and all of the innovations that are happening are awesome. And yeah, I just think there's a ton going on and think it's a great place to play. I love where we invest.Samir Kaji:Yeah. Well, I'm glad you brought up nano funds because I was going to say that's an area that I'm extremely excited about. And the nano funds where somebody has something really programmatic on how they go about their business, having an incredible amount of self-awareness of what swim line they should be in, and when they factor in things like network effects, I mean, the returns have been through the roof. And I know many that are just starting that I have a lot of excitement about. And so, I hope more people do nano funds. I think right now it's still family offices and individuals. I know there's a couple funds that are now starting to do it, but that's my answer. I mean, this has been such a fun jam session. I know it's Friday, late, and we don't have a glass of wine, next time, we'll do part two with a glass of wine. But thanks everybody for being on the show here.Beezer Clarkson:Thank you for having us.Chris Douvos:Thanks guys. This is awesome.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com

Heather Hartnett, founder of Human Ventures, discusses their unique startup model combining fund investing with a business creation platform. Topics include creating a platform in venture capital, unique structure of Human Ventures, shift to human-centered businesses, current trends in valuations, lessons learned from missed opportunities, and the value of continuous learning and mentorship.

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.On this week’s Venture Unlocked episode, we had the pleasure of hosting Donald Stalter, Partner at Global Founders Capital, a global multi-stage venture firm that has raised $1.6B across two funds and has backed companies such as Kalshi (led by Don), Deel, Headway, Slack, Away, Hellofresh, and Brex. The firm has a very unique model that employs capital across geographies, stages, and industry sectors, and Don provided insight on how the firm executes on this strategy so effectively. Previously Donald co-founded CityDeal, which he later sold to Groupon where he built Groupon's international offices in Europe and Asia. He subsequently led BD at Airbnb global. A word from our sponsor:Vouch Insurance is a new kind of insurance platform for startups. Built by founders for founders, Vouch’s fully digital coverage takes minutes to activate. Vouch is trusted by the biggest names in the startup economy — such as Y Combinator and Silicon Valley Bank — who partner with Vouch because everything from onboarding to claims is designed for startups by experienced founders. Because Vouch is an insurance platform, and not a broker, it works with its clients to manage, mitigate, and avoid risks. http://www.vouch.us/ventureunlockedIn this episode we discuss:01:36 Don’s journey into Venture Capital03:18 How being an operator influenced Don’s path as an investor06:30 What is Global Founders Capital mission and focus?09:08 The fund construction model for Global Founders Capital10:27 How they balance growth vs. early stage and how location factors into their investments12:50 How Don and his team add value at scale across his portfolio14:45 How their operations team and investments team work together17:20 The risk/return Global Founders Capital underwrites to and their return targets20:32 How the frothiness of the market in growth-stage investments affects how they approach growth investing. 22:52 The non-obvious opportunities for global investments25:03 How the firm manages global investing out of a single fund26:20 The benefit of bringing a strong operations background to global investing28:30 Global Founders Capital’s pitch to LP30:13 Differences between US LPs and international LPs31:28 Recapping the recent market conditions and what the future looks like33:38 What is the most counterintuitive lesson he’s learned as an investor34:37 The investor he admires35:32 The firm he feels is the best in the worldMentioned in this episode:Global Founders CapitalFelicis VenturesI’d love to know what you took away from this conversation with Donald. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.Podcast Production support provided by Agent Bee Agency This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ventureunlocked.substack.com