E394: How Great LPs Pick Venture Funds | Jamie Rhode

What if the biggest mistake LPs make in venture is backing the same managers over and over instead of constantly asking who they would invest in if they were starting from scratch today? In this episode, I sit down with Jamie Rhode, Partner at Screendoor, to discuss what separates the best emerging managers from the rest of the market. Jamie explains why so many venture funds look identical today, how LPs unintentionally create that dynamic, and why manager selection is really about finding GP-market fit.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Why I get so excited about emerging managers, why I believe there's so much alpha in fun one managers. When you see the interaction of high skill and high volatility in the environment that you're playing in, it creates this moment in time or this place where skill can actually show up in your terms. If you were to come into your Monday deal meeting and have this manager come across as brand new and someone that you had never met before, would you take the meeting?

• 0:37David Weisburd?

  So Jamie, you're partner at Screen Door, one of the top LPs in the world. And last time we chatted, you said that a lot of the managers today look exactly the same. What did you mean by that?

• 0:47Speaker 00

  It's funny you ask this question because I think it's the LPs fault. But you have a manager come in your inbox or come through a warm intro and you are X product manager, X operator, X, XYZ brand name firm that you're spinning out of, or you have X network. And it's all generally the same. Like if you were to blind yourself and just hear the story, a lot of it sounds the same, but I think LPs force that. Like we're looking for something that's an easy underwrite, that's fundable. So we're all looking for the same thing. Let me see your track record with your co-investor list. Do you have DPI? I mean, that's, that's a huge win. But let me see what network you have. Let me see what thesis you have, which is really just a sector play, but they call it a thesis.

• 1:32Speaker 00

  And so a lot of LPs just force a standardized way to underwrite a GP. So when you come into my inbox or you come into my network, you all sound the same. And then it's really hard to discern what that person's edge is or why they're differentiated than the 50 other X product managers that are in my inbox. And so it then falls on the LP to dig in differently and really understand that managers, what we call at Screen Door, GP market fit, which means your fund size and your strategy and your lived experiences. So what gives you the right to be the best at sourcing,

• 2:11Speaker 00

  selecting and winning all need to align to give you that high probability of an edge that turns into a win.

• 2:19David Weisburd?

  It's not just the best strategy for the best market, it's also the best person executing the best strategy for the right market.

• 2:24Speaker 00

  Exactly, because I think.

• 2:26David Weisburd?

  What's an example for that?

• 2:27Speaker 00

  Yeah, I think it's really important to ask this GP first, like, why are you doing this? Like, this is really hard. And it's not just, I am really good at networking and so I have XYZ into my arms' reach and I'm gonna go invest in my buddies. And we've seen that a lot before and that's great for today, but it's really saying, hey, I was early at XYZ firm, multiple of them. I was also early at these failures. And so I lived the zero to 10 at multiple places and then I became a venture partner

• 3:07Speaker 00

  somewhere and I started doing angel deals and I started to really see what excellence was, not just on the operating side, but on the investing side. Because I think that gives someone unique perspectives. And then they're taking a crawl, walk, run approach. I'm gonna go start my own venture fund because I have unique insights in developer tools or developer ops and I understand the investing side of the house, so I'm gonna go raise a small fund. Because that aligns with the deals that I wrote as an angel investor. And then I start to win deals because founders want me because of my unique experience and the unique skill set that I offer at that zero to one phase.

• 3:52Speaker 00

  And then that earns you the right, over time, to start writing slightly larger checks. So maybe your fund two is one and a half times what your fund one was because you've earned that right with founders to start writing larger checks. And so you're going along this journey of crawl, walk, run, but you're doing it with intention and you're doing it based off of one's lived experiences or one's journey up until today.

• 4:16David Weisburd?

  What does it take to be a good seed manager today?

• 4:20Speaker 00

  Yeah, it's a really interesting question because I don't think it's just being a good investor. Like, a lot of people can be a good investor. But I think borrowing from kind of my public markets experience is that you have to understand what it takes to build a firm. And it's not just investing in great companies, you also need to know when to exit. The market has changed so much that being a good investor is only half the job. It's being a fund manager and understanding that along that way, there may be times that you need to sell a piece off. So is that six years into this investment? Or is that 10 years into this investment? Is that 12? Is that 15? When do you exit? And so being a good manager is understanding what it takes to endure and survive and win.

• 5:05Speaker 00

  And then to DPI, that's always important. But understanding that part of this job is to build a firm and what that takes. And that might mean I am really good investing. Like, I have such a nose for network. I can find really good founders. I can talk shop with them. But that means I need to hire. And I need to hire someone that does other parts of the job of running a fund. And that's okay, because you should be spending as much time as you can with your superpower, which is investing or talking to engineers or playing in those networks with other people that are just as socially awkward as you. But that might mean I'm not great at running operations. Or that might mean I'm not great at interacting with LPs. So if you can hire for that part of that job, that's also really important.

• 5:50Speaker 00

  And then lastly, I would say flexibility. The market is adapting and innovating so quickly that if you raised a fund three years ago, midway through your investment period, the market shift. And the definition of seed is so much bigger or wider today. And so your investment strategy needs to be flexible and adaptable to changing market conditions. So if you are too rigid in your focus, then you're likely going to lose.

• 6:22David Weisburd?

  You said managers need to be able to endure and survive. Today, there's what some people call an extinction level event happening with emerging managers. What differentiates the emerging managers that are going to live through this extinction event and those that will not make it?

• 6:37Speaker 00

  It's interesting where you have these funds that raised in the Zerp era and some of them have taken longer to come back and fundraise intentionally because the marks just aren't there. Where if you raised a fund two years ago, you're getting some nice AI momentum marks in there. And so, does that mean they're going to win? Does that mean 10 years from now, that's going to be the 50x fund in the portfolio? That's really hard to know because it's so volatile, that journey up until the end. But I think any manager that's starting a fund right now seems to be a lot more serious and understands the implications of what it takes to run a fund.

• 7:16Speaker 00

  And I've noticed a lot of the managers coming to the table have taken advantage of the innovation that's happening today and understand that I have to know about DPI. I have to talk about secondaries or I have to go find people around the table to help me understand how to manage this firm and hiring, call it junior level talent. Where I talked to a lot of GPs three years ago that said, when I raise fund two, I'm bringing in an equal level partner. That's my plan. Benchmark is my goal. And now when they come and raise their fund two, or if it's their fund three, they've completely changed their mind. And they're bringing in more junior level talent to date them and recognize that, no, this is my firm.

• 7:59Speaker 00

  This is my superpower and I need the help, but I need to bring it in in a smarter way because

• 8:07Speaker 00

  some of the junior level talent out there has a great nose for finding talent, but also gets pulled into the FOMO. They don't really understand the full cycle and they don't necessarily know what it takes to produce excellence in venture. Because it's really, really hard to understand that exponential curve before the curve impacts.

• 8:31David Weisburd?

  And by junior talent, you mean investment talent? When is the right time to also bring non-investment talent into firm?

• 8:38Speaker 00

  It depends on the strategy, depends on the fund size. Candidly, if you're a $15 million fund, what's that budget for bringing in non-investment talent? But we've certainly seen Fund One and Fund Two managers outsource non-investment-related needs, especially around the "I'm just not really good at this operations thing," or managing "how do I get my K1s and my audited financials out in time," or "how do I deal with any of this back office stuff?" And so typically, we find that Fund One managers try to do it themselves. Some are successful and some are not. And then they realize, "I'm about to raise my Fund Two, and I've only spent half my time investing. I need to outsource that talent." And that could be someone that is very junior level, or that could be hiring an outsourced CFO

• 9:22Speaker 00

  that's able to support that stuff, because that's the unsexy thing. That's the boring stuff. That's the headache. But that's really important for LPs to get their reporting on time.

• 9:33David Weisburd?

  Outsource CFOs? Do these generally work? Are there good outsourced CFOs?

• 9:38Speaker 00

  I don't have any names to shout out there, but I've certainly seen that create a lot of success for the GPs. And even a scenario of like a Chief of Staff that can be supportive of gathering all the information, especially if you're in like a highly diversified portfolio, that's a lot of data that you need to be tracking. And so having that set you up for success is really important. I'd also be curious, too, with AI now, is there tools that you can build in-house, or if there's, you know, agents that can help support your data tracking of that, where if we have this conversation three years from now, I'd be curious if that's as much of a need as it is today.

• 10:18David Weisburd?

  Earlier in the conversation, you referenced this concept of bringing together a team that plays to their superpowers. How do you do that practically? And what are some of the archetypes for high-performing teams that succeed at early-stage ventures?

• 10:34Speaker 00

  Because in early-stage venture, you have to be non-consensus and right. I think that's really hard, because I think it's like, once you've gotten excited about an idea, you kind of start to own it. And you start to build up a thesis and excitement around it. And then, by the time you're in the fifth inning, if you were to get all that information freshly new today, would you still be just as excited?

• 11:01Speaker 00

  Maybe not, but you've just started to own this idea and you have this natural behavioral bias in you that kind of creates that excitement. And if you've received new information that may be cautious, maybe not a red flag, but cautious enough that you probably should take that seriously enough to to continue to do more work, but it's hard because you've started to build up this idea and you started to build this excitement. Having a partner around the table that can ground you on that and say, hold on, you're crazy, or like you're missing this, or this is actually more than just a caution. This is a red flag. We need to spend a couple of hours diligencing out this potential issue. Having someone around the table that you can have that conversation with and can ground you in

• 11:45Speaker 00

  reality is crucially important. And so I think being able to disagree, but with respect is where I've seen a lot of success happen because you need to be able to pull someone out and say, you're wrong. And I think you're wrong because of XYZ supporting with evidence ideally. But if it's not done with respect, then I think you start to have cracks form and you start to see partnerships dissolve over time.

• 12:18David Weisburd?

  Disagree and respect, but you also referenced this archetype of essentially this crazy entrepreneur that tries to hit these thousand X and this level-headed partner. Is that something that you see in some of the best partnerships?

• 12:30Speaker 00

  I certainly see the yin and the yang there. And I think that with those types of partnerships, because the personalities are so different that you need to have known each other a while and you need to have kind of like figured out those differences. And even going back to my days at Bloomberg, where I would see like an engineer talk to a salesperson, that just didn't work. Like they were talking two different languages. And so being able to find a common ground and a way to communicate with the same language, even though you have very different perspectives on something, is crucially important because I think that communication can either make or break you.

• 13:13David Weisburd?

  That's why the respect is so important. Everybody talks about this concept of having a partner with complementary skill sets, which sounds so wonderful. Everybody nods their head. In reality, it's extremely difficult with no respect. Said another way, there has to be respect for this part, kind of partnership to work versus if you have two salespeople or two engineers, they kind of already speak the same language. They might have different styles, but they don't have this fundamentally different philosophical view on the world.

• 13:39Speaker 00

  Exactly. Because when you say to, if you're my partner and I say, you're crazy, or I think you're wrong, like, what are you thinking? Like, I have a completely 180 perspective on what you think. And if you're like, I'm pounding the table for this, and I'm like, you're completely missing it and you're wrong. We have to come to a resolution and I need to be able to say to you, like, I think you're wrong. This is why you're missing it. And it can get heated because sometimes you're passionate about this opportunity or whatever decision you need to make. And if the end of the day, you can't like walk away and be like, I think they're wrong, but I completely respect them. How do you come back together and not have any resentment build or cracks form, especially if one of you is

• 14:23Speaker 00

  going to be right and time's going to tell. And then you start to build up those resentment or you start to start to see those cracks form to be even wider. It's really why the respect piece is so important.

• 14:35David Weisburd?

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• 16:40David Weisburd?

  somebody could pound the table and bring through a non-consensus deal? Or do you find two very smart people should come to the right decision more than one person advocating for their own position?

• 16:49Speaker 00

  Having alignment and not necessarily agreement is really crucial. And so what does that mean in play? My favorite topic, obviously, portfolio construction. But I tell GPs in general, do enough deals to be confident that you'll be in a winner. And then grab as much ownership as you possibly can, because that's the cheapest entry point.

• 17:14Speaker 00

  But it's important to have 10% of your fund or your capital allocated to break the rule investments. So if that means especially, it has to be what works for the partnership. If someone has a silver bullet that they can use, that other partner needs to be comfortable with that silver bullet going into the portfolio. Because you're in it for the carry. And so is that bullet going to be the next big thing? Or is that another zero in your portfolio eight years from now where it could have gone to something else? And so making sure that the partners are comfortable with that investment strategy. But I think having 10% of that capital go to break the rule investments, whether that may be. Your pre-seed and seed fund and you have access to 125 million dollar post-money valuation

• 18:00Speaker 00

  seed. Do you actually put some capital in there because you have a network reach that gets you access to that profile of a founder and deal? If you think it's gonna potentially return your fund, don't pass on it. Or if it's some weird wonky founder that doesn't really fit your archetype, but there's just something about there that you think is super unique and it's a new network and there's a relationship there you really want to build. Does it fit into that 10% bucket? Do it because I think that it is so hard to continue to stay non-consensus in an environment where so many people are focused on like momentum style plays and you see these markups there and it gets you super excited and you're like, I want to double down.

• 18:44Speaker 00

  But are early momentum correlated to big wins 10 years from now? I think that correlation is pretty low.

• 18:52David Weisburd?

  This being able to go non-consensus, invest in things that look weird or different, so critical for early-stage venture. I had Niko Benatsas, who built a general catalyst seed practice over 15 years. And he gave a stat, they did a lot of research on this, which is 50% of all returns for entire sector are made on companies before the sector has a name, before fintech has a name, before mobile had a name. And what's crazy about that is 50%, well, you could say, well, I'll just wait for the other 50%. The problem is that the 50% comes in the first couple of years and the other 50% could take another two decades. So the extreme power laws and things that look weird, that look different, that look like, why do people have people laying on mattresses in their homes?

• 19:37David Weisburd?

  Why are people jumping into strangers' cars and paying them for that? These really weird, really uncorrelated business ideas, those tend to account for these 1000x power law.

• 19:49Speaker 00

  And I think that's why. I have a lot of reasons why I like a more diversified approach, although at Screen Door, we certainly back all profiles of portfolio construction, but I think when you tend to lean into more shots on goal, it allows you to take those few bets on the wonky and weird that like this just doesn't make sense, but if it works, it's huge. And so when you have a couple more shots on goal, it allows you to take that risk because if it doesn't work out, it's not as detrimental to the fund model math because you have other bets in there that may feel a little more safer than that allows you to really take advantage of the tails.

• 20:33David Weisburd?

  I want to double click on what you said earlier because it's a really brilliant model that solves for a couple of different things. You said 90% essentially very rules based. You have to follow these rules on all these 90% and then 10% flexibility. The reason I think that's a really good model is a lot of people, they either pretend that they never break the rules and are always breaking the rules because you need some flexibility in the model, or they do the opposite, which is they break all the rules. And then every one of their investments is at a three to four X higher valuation because valuation doesn't matter at entry. They use that mantra and then they end up having this. Sometimes even these funds have great winners, but you paid up for everything. You end up with a two X outcome.

• 21:14Speaker 00

  I've thought a lot about why I get so excited about emerging managers or like why I believe there's so much alpha in fund one managers and I've seen a lot of great returns in this space. And I think about it in like this investment framework where if you think about like two accesses and on the vertical access is manager skill. So the higher up you go, the more skill you have. And on the horizontal access, there is the volatility of the environment that you play in. So if you're on the left side of the access, it's low vol. And if you're on the right side of the horizontal access, it's high vol. And I think when you see the interaction of high skill and high volatility in the environment that you're playing in.

• 21:59Speaker 00

  It creates this moment in time or this, this place where skill can actually show up in returns. And I think that in that like top right quartile between high skill and high volatility, that's where Fun One managers naturally live because you have less constraints. You are a Fun One. There is no pre-existing LP expectations from you. There's no pre-existing expectations around your ownership targets, no pre-existing expectations from founders. Even if you've spun out, you're likely doing a different strategy than what you were doing

• 22:39Speaker 00

  at XYZ brand firm. And so it's this low constraint world that Fun One managers live in that allows them to just invest in a way that provides significant upside. And as firms mature, you naturally have pattern recognition set in. You naturally have expectations from LPs. You typically have raised a larger fund, so you naturally have ownership targets that you must hit to make your fun math work. Founders have certain expectations of you. If you've made follow-on investments, there's more expectations of you. And so that's a natural evolution and not always a bad thing. But I think that it just naturally means

• 23:22Speaker 00

  that Fun Ones play in an environment that have less constraints and allow for more upside. Whereas you mature as a firm, constraints set in that make it harder for you to take advantage of sometimes the wonky and the weird.

• 23:39David Weisburd?

  Said another way, Fun Ones are oftentimes best ideas for the GPs. Fun Twos are kind of what you went out in the market 18 months ago. You're almost constrained to that strategy.

• 23:49Speaker 00

  Exactly. And so I've certainly seen Fun Four and Fun Five managers do really well and keep those constraints loose and lean and flexible and adaptable. But it becomes harder because you just have these expectations set from LPs and founders around what you are in the market. And when you think about kind of high scale and a high volatility environment, if you throw a little randomness in there or a little luck in there, when you get a lucky bounce, like it can really make a difference in your return and really drive.

• 24:27David Weisburd?

  And you mentioned you've seen some Fund Fours and Fund Fives that have more loose mandates. How do they pull that off and what's upstream of that?

• 24:35Speaker 00

  I think the most consistent thing that I've seen across all LASSA classes in success is staying humble and kind. Because the sourcing strategy that you had at Fund One is very different than your Fund Four strategy. And if you've backed really great companies before, hopefully that founder flywheel effect is showing up and that has a positive network effect to your sourcing, but it's very different. You may have started this fund based off of some unique insights, some unique opportunity. Maybe you did have an edge in your network access, but by the time you're at Fund Two or Fund Three, it's probably arbitrage'd away and everyone else figured it out. So if you're humble enough to know that you need a refresh,

• 25:20Speaker 00

  or it's maybe the reason you do hire someone more junior, because they're able to hang out at those hackathons and they're able to get into those parties, or they're able to get into those networking events where they fit in a lot more. It's able to refresh your network edge. And candidly, it's why a lot of the GP advisors are part of Screen Door today, because a lot of them are able to stay close to the new managers coming to market and ensure that their game is just as good as their emerging managers.

• 25:53David Weisburd?

  It's massively an underreported topic in that managers' networks decay over time. Oftentimes, you mentioned earlier, there'll be operators, they'll be within an ecosystem. It might have been in the PayPal mafia and then the Palantir and the ex-Uber. But at some point, these networks decay. How did GPs avoid that?

• 26:14Speaker 00

  That comes through first backing really good founders, because if you back someone that spun out of PayPal mafia and now you backed a company that created its own mafia, that's a great way to build a direct network effect.

• 26:29David Weisburd?

  Founders introducing other founders.

• 26:31Speaker 00

  Exactly.

• 26:32David Weisburd?

  Is that what you found as the best source of introduction for portfolio companies?

• 26:37Speaker 00

  I have, and it's sometimes a little wonky though, because like I've seen scenarios where you were early into a great company and they introduced you to this company and they introduced you to this company. But what happens when that founder introduced you to a network? And then you get a bunch of deals out of that network. From a mapping perspective, it's a network check. You were well networked in YC, for example, and you got a bunch of deals out of YC eight years ago. Great. But the reason you got into that network is because you backed some founder that introduced you to everybody. And so I think that the founder flywheel effect is really, really helpful and really accretive to an underlying manager's portfolio.

• 27:21Speaker 00

  Because it also allows you to not have to be the content machine. Because if you don't have a good sourcing network by backing good founders, you need to find another way to get the introductions. You need to find another way to get to these founders. And so there's nothing wrong with content. It's a great way to find managers. I found wonderful managers from being on your podcast, NLPs. But, you know, I think that the founder flywheel effect ends up showing up in a lot of the returns.

• 27:52David Weisburd?

  We were talking about this earlier before we started recording. Alex Ramosi calls this choose your heart. It's fund management, just like any type of business. For some reason, fund managers don't think about their business like a business, but it is fundamentally a business. And the best businesses have some competitive advantage.

• 28:09Speaker 00

  Yeah.

• 28:10David Weisburd?

  I've seen so many different variations. Some people have founder dinners. Obviously, for me, I have podcasting. Some people have writing. Other people speak at conferences. None of these are wrong answers to this distribution challenge. What's most important is that you have to pick a lane and go deeper and just be the world-class person at that.

• 28:28Speaker 00

  Absolutely. And I think about it in terms of when I look at these early-stage managers, I'm like, you're likely in one of three buckets. You're the largest check, you're the first check, or you're the most helpful check. Typically, you fall into one of those. Sometimes you're two of the three, but there has to be a lane that you play in and you need to be the best at it. And it's okay to start as like, I am the smallest check and I'm, you know, the most helpful there. But by the time you get to fund three, your goal is to be the largest check. That's okay. There's nothing wrong with that type of strategy, but there needs to be a version of a lane that you play in and you have to be the best at it.

• 29:07David Weisburd?

  And the worst thing is kind of being in between these lines. Being too big to be small for a round, but too small to be the lead check. So you're not getting that first look.

• 29:19Speaker 00

  Yeah.

• 29:21David Weisburd?

  Even though you hang out with mostly GPs, you're also an LP and you also have LP friends. Your LP friends, what is a systematic error that they're making on venture today?

• 29:32Speaker 00

  I think it's overlooking the opportunity costs to invest in emerging managers. It's really hard to, I talked about this earlier, where you get really excited about the opportunity. You really like this GP, you have a relationship there, they remind you of so and so. So you've made this investment and I'm just going to re-up them and then I'm going to re-up. And I'm going to re-up because they've been good to me. I see early marks, it's positive. Like it's a feel-good thing, but if you were to come into your Monday deal meeting and have this manager come across as brand new and someone that you had never met before, would you take the meeting? And I think a lot of times people would say no.

• 30:18Speaker 00

  But because you have that existing relationship, because you have information and things that you see that are not necessarily on the marketing materials and they're a really good person and like it's a feel-good thing. It's so hard to remove that bias of if you got all this information coming through today, are you a buyer or a seller? It's what we talk about a lot at Screen Door and we talked about this with Satya and Hunter from Homebrew. Are you a buyer or a seller? That's the conversation.

• 30:49David Weisburd?

  There is no hold.

• 30:50Speaker 00

  There is no hold because it could just mean that you need to forego and go buy another fun one.

• 30:57David Weisburd?

  A test of that is, are you adding more money to the manager? No, why not?

• 31:01Speaker 00

  Exactly.

• 31:02David Weisburd?

  If you're so bullish on your manager, why aren't you increasing your check size? Now, you might have portfolio constraints, but that's kind of the tell. It reminds me of this zero-based thinking in terms of employees. Would you hire that employee again? If not, why are they still at the firm?

• 31:17Speaker 00

  Yeah. And if it's a perfect role and you have more money to deploy. Add more money. But I also think that if you're so good at your job that you would just end up doing five managers and call it a day because you could pick the five best. And so there's the balance there of hence my love for diversification. But you know, portfolio construction is very important, but if you're not willing to buy this fresh today, then you shouldn't be re-upping and you should put your money to work elsewhere.

• 31:45David Weisburd?

  Mel Williams said this from TrueBridge, also runs the Midas List, which is every new manager must compete with more of our existing portfolio.

• 31:54Speaker 00

  Absolutely.

• 31:54David Weisburd?

  And when you're in the top funds, sometimes the smartest thing for an LP to do is just to put more money behind those top funds.

• 32:01Speaker 00

  I think sometimes as LPs, you have really hard decisions to make because venture has such long feedback loops, but it's also being mindful, as we talked about before, are the networks refreshed? Is this, have they aged out? Is it relevant? And it's doing a fair underwrite of the existing relationship you have today with the potential of a new relationship. And also thinking about, does a new GP get me into these deals earlier? Because when I backed this ABC Venture Fund at Fund One and Fund Two, they were true pre-seed and seed. Some managers choose to stay, plan to stay grounded in true pre-seed

• 32:44Speaker 00

  and seed investing, but by the time you get to Fund Four or Fund Five, they may have strategy drift and they could be great. But is that Fund Four, the same fund and strategy as Fund One and Fund Two? Or is it actually a brand new strategy? And so you have to be mindful of that strategy drift when you compare it to new opportunities.

• 33:03David Weisburd?

  I make two really interesting distinctions. One is you might have been right to back them in their Fund One, Fund Two, and you might be wrong to back them in the Fund Three, Fund Four, which is same with startups. Sometimes you made the right seed investment, the wrong Series A investment, the right Series B investment. All these need to be rethought from first principles. And the second part of that is a lot of times I'll hear LPs say, well, they're now Fund Four and Fund Five, they give us more late-stage exposure. Well, weren't you already exposed to late-stage? So either your portfolio construction before was wrong, or now it's wrong. But sometimes you use this almost lazy thinking or passive thinking in order to justify your current portfolio construction.

• 33:42Speaker 00

  Exactly.

• 33:44David Weisburd?

  Right now, DPI is a big topic for limited partners. You referenced it, secondaries, now emerging managers are putting secondaries as part of their strategy. If you were advising an LP today, would you advise them to sell their best managers, their worst managers? How should I think about getting liquidity in their venture portfolio?

• 34:03Speaker 00

  I think it comes back to what the goal is first of their venture portfolio and how diversified you are and where you're looking to deploy capital going forward. And I also think that you have to think about the relationship piece there. So if you're going to sell out of your best managers, what's the reason for it? And is it because you're not planning to re-up into them? And then again, what's the opportunity cost of a dollar? What can you get for selling today? And can you go put your money to work in something that's compounding at a higher rate? I would probably advocate for yes on that piece of it, but it also comes down to that individual LP because the worst thing you can do is sit out. Like, it's going to cost you more to miss out on outliers than to just kind of

• 34:49Speaker 00

  stay on the sidelines. And so I think it's really important for LPs to be allocating consistently to venture through multiple vintage years, time and time and time again. And so if not choosing to sell out of a manager means that you're going to sit out a vintage year, that's the biggest costly mistake.

• 35:09David Weisburd?

  Reminds me of the Warren Buffett principle, which is the number one factor on investment is this opportunity cost. Even today, DPI, everybody wants DPI. Great. What are you going to do with the DPI? Some endowments have to pay operating costs, obviously extremely important. Some endowments have really good opportunities to invest more into their top managers like we talked about.

• 35:28Speaker 00

  Yeah.

• 35:29David Weisburd?

  But some people just want DPIs for DPI's sake, just to feel better about their investing in their portfolio. And sometimes that has significant negative opportunity costs as well.

• 35:40Speaker 00

  Definitely. And especially if you're a taxable LP, then when you get that DPI, you have to go pay taxes and then you're going to go reinvest it and hopefully find a high IRR investment available for you. And so I think it's really being thoughtful about like your network access and what you can deploy that DPI into. But of course, if you have liabilities that need to be paid or you know, have a payout ratio that you need to meet, then at some point, you know, things need to DPI and exit. But it's also why I think the earliest stages are so interesting now because you don't have to wait till IPO. You can sell out via a secondary in a series C or D round and that's not

• 36:20Speaker 00

  negative anymore. It used to be, it used to be, you know, something that was not necessarily looked upon as positive. And so because you can exit via a secondary in that primary round, it's a great way to provide DPI to your early-stage LPs.

• 36:35David Weisburd?

  You started the conversation talking about venture turning into this consensus asset class. You now have a handful of funds raising more than half of all venture capital. And this has happened now for several years. What are the second order effects of that for emerging managers?

• 36:53Speaker 00

  It really means that early-stage or emerging managers today need to pick a lane and focus on it. You have a lot of these larger firms creeping down into seed. What is even seed today? It's changed so much and has such a wide definition. There's 150 million post-money valuation, truly a seed-stage company. I think it's managers needing to identify what the proper fund size and strategy is for themselves to win. And so does that mean they go earlier? They go true pre- pre-seed or super angel style? Or do they want to go bigger and start to compete to get into those rounds?

• 37:34Speaker 00

  Do they need to be writing a two and a half, three million dollar check out the gate to win those types of rounds? Or is it trying to play somewhere in the middle where you're going to be slower to deploy? And more thoughtful to deploy, but ensure that you can find these profile of rounds being raised where you write that one, one and a half million dollar check. And I think it's really understanding that GP's superpower and how they're going to adapt to win in this market environment. And it's why a lot of these emerging managers that have come through, I'm super excited about because you can't just have a good network and invest in some great angel checks. Like you have to pick a lane and be good at that lane and be able to win because it's gotten so competitive.

• 38:20David Weisburd?

  Well, Jamie, you're the second ever guest to come on the podcast for a third time. You and Alex Edelson from Slipstream. You guys are two, three time guests. But I looked it up this morning. You were originally episode 12. So thanks so much for, for being a friend of the podcast, personal friend, and looking forward to doing this again.

• 38:37Speaker 00

  Thank you for having me. Can't wait to come back.