E448: Gavin Ezekowitz on AI Valuations, Asymmetric Returns, and Why Great Investors Fail

How do you invest in generational companies like Anthropic, OpenAI, and SpaceX before everyone recognizes their potential? Gavin Ezekowitz is the Co-Founder and Chief Investment Officer of BFA Global Investors, an alternative investment firm providing access to private market opportunities. In this episode, Gavin explains how BFA gained exposure to Anthropic, OpenAI, and SpaceX through GP relationships, including its early Anthropic investment at a $17 billion valuation.

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

• 0:00Speaker 00

  When you're very early in a long cycle, people try to predict who the eventual winner will be. And most often, it's not that company. It's not Yahoo. There are multiple winners, or they could be different leaders. And so it has turned out with Anthropic. Our view is quite simple. They look like they've got a tremendous shot at being the other company or one of the other major companies.

• 0:21David Weisburd?

  You were recently sitting down with Top Ten Fund. He said that they look for companies that are capital magnets. Do you agree with this strategy?

• 0:28Speaker 00

  I would observe over my entire 30-year career in the investment world, there are really special people that can accumulate capital, that can generate investor confidence. They are not always honest people. They're not always good people. Occasionally, they're exceptional at all of these things, and they're wonderful entrepreneurs. But this is certainly, there is a pattern that we can observe over time, but it is not a terrible strategy.

• 0:56David Weisburd?

  So Gavin, you're one of a small group of investors that are in OpenAI, SpaceX, and Anthropic. How did you become investor in all three companies?

• 1:04Speaker 00

  It started out with Anthropic. And then we built some momentum, largely with our LPs, of saying that these are generational companies. And subsequent investments in, first of all, in SpaceX, XAI, SpaceX, OpenAI. And I think along the way, what we began to recognize was that not only were these likely to be generational companies, we didn't expect the kinds of returns that we've had, obviously. But then investors wanted to own these in their portfolio. That they didn't, and they had very few ways of accessing those companies.

• 1:47Speaker 00

  And it was really an out, it was an output of relationships that we had with GPs that gave us the confidence because, obviously, we're not on the cap table in any of those three names. They're all GP relationships.

• 2:04David Weisburd?

  I'm curious, because you mentioned Anthropic. You invested originally at a $17 billion valuation. What was your thesis there, and how has that evolved?

• 2:13Speaker 00

  Well, my thesis there was very, very simple. I'd observed Anthropic's appreciation up to, it was valued at $30 billion in the round that had just occurred. But of course, the FTX had this bankruptcy, and the bankruptcy had to sell their shares of Anthropic. And to me, it just seemed obvious that this was an amazing opportunity. We fortunately had formed a relationship with a guy who we've done a lot with. And they were bidding for, I think at that time, $10 or $15 million worth. We were there in size.

• 2:58Speaker 00

  We had to really convince people because it was not, the company didn't look anything like it does today. It was really pre-Claude. And it looked like OpenAI was just going to win everything, if you think about that period. And I think that there were a couple of views that we held at the time. One was, and it's a view I hold today, was that when you're very early in a long cycle, people try to predict who the eventual winner will be. And most often, it's not that company. It's not Yahoo, or whatever it is. There are, there are multiple winners, or they could be different leaders. And so it has turned out with Anthropic. And our view is quite simple.

• 3:42Speaker 00

  They look like they've got a tremendous shot at being the other company or one of the other major companies. This feels like a really great price. Let's give it a go.

• 3:53David Weisburd?

  Yeah, this first mover advantage, I've thought a lot about in technology because very few other companies were first movers. Google, I believe, was the 11th search engine. Facebook was maybe even further along, at the 12th or 13th search engine. But yet, this first mover advantage persists. And I think the reason for that is, first of all, the first mover advantage is quite persistent in other asset classes. So outside of venture capital, the first mover advantage tends to, tends to hold much more strongly. And secondly, of course, people invest for two reasons: fear and greed. And I think fear more than greed. And people just get afraid of losing that, that number one player.

• 4:36David Weisburd?

  And even if they passed on OpenAI for one round and two, round three, some, some people, at some point, those investors capitulate, and they, they want to go into these momentum investments.

• 4:48Speaker 00

  I think that's, that's true. I think, I don't know that it's different in, in AI, but one of the observations that I would make is that it is very evident from the early days of the AI phenomenon that this was, there was going to be multiple disruptive events. Whether you can recall even recently, the DeepSeek. You know, suddenly, we had these Chinese open source models. And you have all of these events that were going to take place. And I think my thinking from the earliest days was, this is neat, but it's very, structure suggests lots of disruption, and even lots of disruption of the disruptors.

• 5:31Speaker 00

  And you can observe a company I, I missed. I had lots of opportunity at $10 billion on Cursor. You know, it was like going once, going twice. And they were like, oh, no, I don't think so. And what I missed, and it's, it's so, so clear in that company now, is that that was a company that iterated multiple times on their journey. And in fact, even now, I was with the, the leadership team some time ago. They're iterating again within their current XAI environment. And, and I miss the fact that some of those really special companies are able to innovate, disrupt themselves, watch the new, new thing, catch on.

• 6:15Speaker 00

  They've got the quality of the team. They're not married to a singular thesis, you know, that this is the only way, and we're just going to plunge ahead. They've got a very flexible mindset. And I, I think that if you look at, at that approach, you can see that, yeah, we may see vast differences in the kinds of companies that emerge out of businesses that start very differently.

• 6:43David Weisburd?

  This episode is presented by Juniper Square, the operations partner for private markets. It's fascinating that you said team and this evolution of products. I invested Anthropic as well, $4.1 billion valuation. And I had a relatively simple thesis. One was that AI was going to be transformative. I had the benefit of actually having a few friends at OpenAI, and they were like, this is it. Because people have been talking about AI, I think going back to 50s. I can't confirm that firsthand, but they've been talking about AI for so long. And so many really smart people have been talking about AI for, for so long. It felt like it was actually going to come. Nobody could predict how quickly, or to what degree.

• 7:27David Weisburd?

  The second part of the thesis, I knew that a lot of the top OpenAI investors were, I knew that a lot of the top OpenAI employees were actually going over to Anthropic, including, of course, Dario. And that, to me, was the strongest signal.

• 7:43Speaker 00

  Yeah.

• 7:44David Weisburd?

  And then I had a relatively simple underwrite, which was, okay, if AI is going to be big, there's probably going to be a consumer version of it and an enterprise version of it. And I, I just like licked my hand, finger, put it in the, in the sky, and thought, it has to be $100 billion plus company. Although, at that point, $100 billion companies were just insane. In fact, it was the exact same time where Founder's Fund was going to their LPs and pitching this whole concept, which was very controversial at the time, which is, in order for us to get the kinds of returns that we're going to continue to get from previous vintages, we need $100 billion outcome per vintage. Every three years, we need $100 billion outcome. And I remember because LPs would, would ask me,

• 8:28David Weisburd?

  do you think they could deliver a $100 billion outcome for three years? And my answer was, A, it's Peter Thiel, so maybe. And B, it sounds absolutely crazy. There's no way they could do that. So I was kind of conflicted myself.

• 8:42Speaker 00

  Yeah.

• 8:43David Weisburd?

  But if I was to re-underwrite Anthropic today, or a new company today, I think I would actually take one of those legs of the stool. The whole idea that it would be an enterprise business, I think that's, it's so unpredictable to predict what a company will be like on evolution version number 93. I think you just go back to market, and is the team good? And I know that's not that rocket science, but I feel like in the age of AI, the team becomes so much more important because the evolution and the iterations are just so much greater. It's almost impossible for the human mind to predict where the company itself is going.

• 9:20Speaker 00

  Interesting how you sort of think about that underwrite, because I think it's maybe not dissimilar to how we think about it, that you, you take your best judgment, your best judgment of how the company will grow in their market, how those, you know, their, their opportunity set. You know, you, you try to get a few years out, maybe get three, four, five. You know, you, of course, you've got less and less like probability of, of being correct as you get into out years. But, but you kind, you kind of get this base view of where things might go. And I think that you say, well, look, if, if it went like that, you know, are we satisfied with this starting point of that, that return profile? Right? If it goes something like that.

• 10:05Speaker 00

  But then what I think you, and I do feel that this is an opportunity set. I think it's also how people will get things wrong, but that that's okay, too, is that you've got this potential for truly convex, exceptional outcomes that you can't possibly predict. That is, how large a market may become, how much of a market a company could inhabit. And currently, it would just be crazy speculation that, that a market might shift. But you cast your mind back not too far to say Uber. Right? A very intelligent way of underwriting that company may have been, here's the taxi market, here's the black car market,

• 10:48Speaker 00

  here's how big they are, and here's how much market share they can take. Well, none of us, I didn't underwrite Uber, but you didn't predict that you were actually, once you made vehicles available in this manner, you were going to grow that market massively. That reference point was irrelevant. And I think, you know, we maybe, we were seeing this with Anthropic, with their new wet labs, with their ability to innovate in, in biotech with new molecules, be more predictive of what might be more successful. And we could end up with this really incredible outcome for that company out of a part of the business that nobody really thinks that much about today.

• 11:28Speaker 00

  I think we're always hopeful that we'll get one of those outcomes. But the core underwrite has to be, you know, do we actually think if this company just delivers? Do we think we're going to, you know, does it meet, does it meet what a sensible return?

• 11:45David Weisburd?

  We were talking about before we started recording, valuations, how hard it is sometimes to invest in these companies because they always seem overvalued the best companies. How did you go about thinking about the valuation of Anthropic at the time? How do you go about underwriting such a transformational company?

• 12:02Speaker 00

  I would be, have to be completely honest that we didn't think about revenue or any metric of that, that kind, probably a little like you. We, we said, this is clearly a well-funded, well-supported, uh, very capable business that, given the scale of these businesses, this feels like a good next bet. So that in that case, it's not a good analog for our, for our process around most companies, right? That is, that was not a good, good process in that regard. It was also one of the first companies in the space that we invested in.

• 12:47Speaker 00

  And so I would say that our, our overall underwriting process was, um, I would say, uh, that we benefited from being naive, right? We benefited from being naive. When the company accrested a hundred billion, you know, I was like, oof, I'm not sure. But this seems a little crazy, right? And, um, and it took me a little while to sort of catch up in my own understanding from the 170 to the 380 to kind of go, all right, we're seeing something completely different. Have to think about it differently. Today, um, I don't underwrite quite that way.

• 13:26Speaker 00

  But what, what I try to do and what we, what we do, uh, understand, I think quite well, is that, um, the current revenue and revenue projections are so imperfect, both on the part of ourselves, other investors and the company themselves, that, that you, you have to say, you know, what, what is the circle of, of probability around the next couple of years? What are the milestones? What's the likelihood? What are the unlocks? What are the challenges we see if it's an enterprise company going after new logos? Scale of the, the new contracts? What do we see the go-to-market team look like?

• 14:11Speaker 00

  There's a company we just recently underwrote and it was quite interesting. We knew the management really well, but we actually started using the, the product within our, within our firm. And the company had arranged for their head of sales and, and one of their sales folks to get on the phone with us. And, uh, they weren't, we said, look, this has got nothing to do with us as an investor. It's our CFO making the decision, but I was on the call and I was just so impressed with their sales process. I was like, well, these guys are killers. They're amazing. They're prosecuting this call extremely well. The way they followed up was exceptional. I was like, this is a fantastic team. Like this gives me tremendous confidence in their ability to deliver, uh, in the enterprise space,

• 14:56Speaker 00

  which is where they're focused.

• 14:57David Weisburd?

  You were recently sitting down with, what would I call it? Top 10 fund with one of the partners that runs the fund. He said that they look for companies that are capital magnets.

• 15:06Speaker 00

  Mm-hmm.

• 15:08David Weisburd?

  A, what does that mean? And B, do you agree with this strategy?

• 15:11Speaker 00

  The quote from the individual was they look for founders that are capital magnets and, and those individuals that they think have, um, have that, uh, incredible fundraising power. I would observe over my entire 30-year career in the investment world, uh, there are really special people that can accumulate capital, that can generate investor confidence. They are not always honest people. They're not always good people. They're not always even good at executing. Occasionally they're, they're exceptional at all of these things and they're wonderful entrepreneurs.

• 15:55Speaker 00

  But, but this is certainly, there is a pattern that we can observe over time, that it is not a terrible strategy. The challenge, of course, is that in the private market, when we make a commitment to one of these companies, we have very few exits. In the public market, you can put a stop in if you like, or, you know, you can do all sorts of things. Most often we, we need to commit a relatively sizable amount of capital at a period of time. And then we got to play it out. Your conviction around that singular point relies on a certain capital markets dynamic persisting over the time period that the company will have to execute.

• 16:39David Weisburd?

  You're making a macro bet.

• 16:40Speaker 00

  I think you're making more of a macro bet. Now, I think if you've got that individual, those special individuals, and you talked about talent, I agree with you. They can attract talent, they can attract capital that does have a flywheel effect, particularly at the scale of capital that we require in, in the AI space. Very important. But you better make sure that those folks are able to shore up, uh, the rest of their business. And I would, I would say that as an investor, I tend to be very focused on integrity, whether it's a venture manager or a, or a founder.

• 17:18Speaker 00

  Maybe I'm a little quaint, but I like, I very much value honesty, integrity, transparency. And sometimes those folks who are exceptional are not exceptional in that regard.

• 17:32David Weisburd?

  Yeah, I don't think you're quaint at all. And just to take away the moral lens on integrity, I just think it's an efficient market. And when you're a top SpaceX engineer and you have the choice between working, continuing to work at, for Elon Musk, so obviously this great, high-integrity founder literally sleeps on his, sleeps on his factory floor, or Brian Hargis, former SpaceX guy, just like highest integrity guy, or somebody else, they're going to go, all things being equal, which they're not always equal, they're going to go with the high integrity. I think there's an efficient market. They hit up three of their friends that work there and they're going to get the truth. Even though some investors may not get the truth, the employees, the source of truth, the ones that are actually building the foundational value in these companies,

• 18:15David Weisburd?

  get to the right answer very quickly and it's an extremely efficient market.

• 18:18Speaker 00

  I think that's actually a fantastic point, David. And, and I think you make it really, really well. The market for talent at this, at the sort of at the, at the tier of talent we're talking about, these are, these are always the top folks, whether it's.

• 18:31David Weisburd?

  There's like hundreds of them. There's like hundreds or maybe low thousands.

• 18:35Speaker 00

  There are very few of these people, um, that, those folks know what's happening in those companies. I mean, they, they really know. And, and I think that there is no question that if the company in their view is not seen as, um, is presenting perhaps, um, an incorrect or overly audacious or, or potentially untrue reflection of its capabilities and timelines and so forth. I think that they will look at both their own moral compass, their own economic reality,

• 19:15Speaker 00

  and ask the question, do I really want to be here through the, the part where reality meets? Having said that, when you speak to people from SpaceX, they will tell you that Elon Musk, you know, went around for many years saying, we're going to Mars.

• 19:31David Weisburd?

  Yeah.

• 19:33Speaker 00

  You know, people would repeat that over and over again. And, and there were plenty of times where the things that they were hearing, you know, in, in the public market didn't confirm, conform to what, where they were at. But the difference there was that I think that they genuinely believed they were going to get there. Right? They, they genuinely believed they had the skillset. They saw the talent around them and they said, well, look, even if we're not going to get there in three months, like I hear him saying, we're going to get there. We like, you know, or I will die trying kind of thing. And I think that that, that's a difference maker in that kind of company. And it is one of the things that you do hear most often from those employees about kind of why they loved it.

• 20:17Speaker 00

  Personal responsibility, um, absolute commitment to a goal. And some of that other stuff that was, you know, a little bit optimistic was sort of forgiven.

• 20:28David Weisburd?

  I've talked to some of these lifers at SpaceX and the thing that you hear over and over again is essentially they can't find a bigger mission. They can't outframe the mission of making human beings multi-planetary. So they're inevitably, on some level, they're stuck in this mission. They're mission maxed and now they can't find the, the next great, bigger mission.

• 20:47Speaker 00

  I was sitting with a, a couple of, uh, folks who've started a business, former, both formerly worked at SpaceX. I think the, the thing that's really interesting is that, um, they would observe that coming out of that experience, there's actually lots of stuff to now do that builds on the, the platform that that company built. And I, I always ask the question of like, what would you, uh, what are you doing in your business today that takes away directly from SpaceX? And what are you doing that is absolutely not, you know, what you saw at SpaceX

• 21:31Speaker 00

  and you would do completely differently? And, and I think that fundamentally that you've got it exactly right. I think you've got to be mission-driven. And in large part, when we were in the innovation world that we're in, there, there is almost an irrational alignment to your, and commitment to we will make something happen here. Like we will crack the code, figure it out, uh, build it out, get the, uh, customer. We will do what it takes. And I think that that is, um, that's something all of them take away. I think interestingly, from a people management perspective, one of the observations they, they often make is,

• 22:13Speaker 00

  it was, uh, the quote was, I think Elon cares a lot about humanity. I'm not so sure he cares that much about humans.

• 22:24Speaker 00

  I wasn't there when Elon may have said anything of that kind. So I don't know that to be true, but, but let's take it at face value. The one thing that they mention is that, you know, people could get marched out the door at any time.

• 22:38Speaker 00

  But they quickly follow that up with, but it was never confusing to us. It always seemed like that was the right thing, right? Like it was very rare that the wrong

• 22:47David Weisburd?

  It was not ego driven. It was the right decision.

• 22:49Speaker 00

  It was the right decision. And, and I think it's such a, a powerful, uh, such a powerful business. Um, and so, so difficult, but such a, a powerful business mindset to say, our mission really matters. And if these people or this person isn't of the level, isn't of the capability, it's better for both of us that you're gone today and we'll, we'll both move on with our lives. We'll both be fine, but, but we need, we need a certain thing. And if you don't have it, I'm going to go get it elsewhere. And, um, everybody understands that those are the, the rules of the game.

• 23:30David Weisburd?

  One thing I've learned from talking to hundreds of investors is that great investment firms aren't built on investment returns alone. The firms under are great at the things most people don't see their operations, their relationship with LPs and the quality of information they use to make decisions. And here's what AI has changed. Every firm now has access to the very same models. So the intelligence isn't the edge anymore. The edge is what you could feed it. A firm with its fun operations and data in one connected record can actually put AI to work. A firm running on disconnected systems simply can't. That's why thousands of GPs run their funds on Juniper Square. Juniper Square puts your fun operations, data and administration together in one connected record. That means less time managing disconnected systems and more time investing,

• 24:15David Weisburd?

  working with LPs and building your firm. This episode is brought to you by Juniper Square, the operations partner for private market GPs. Learn more at junipersquare.com/ how I invest. That's junipersquare.com/ how I invest.

• 24:31David Weisburd?

  Everyone I talked to on the show is chasing the same thing, an edge. And more and more the edge comes down to your information, not just having it, but being able to trust it when the stakes are highest. AI is doing more of that information gathering for you every day and most tools are very good at sounding right. The summary reads clean, but can you trace it back to filing the transcript, the specific passage that drove the answer? Or are you just trusting the confidence of the output? For investors, that's not a minor concern and this filing and misweighted source context that got lost somewhere in the retrieval chain. Those aren't edge cases. They're how decisions go wrong. AlphaSense is the AI market intelligence platform built specifically for this. They own the content, over 500 million curated

• 25:13David Weisburd?

  documents from broker research and expert transcripts to filings and earnings calls, and they own the retrieval layer on top of that. So every answer links back to an exact, verifiable source because the answer is only as good as what's underneath it. And with AlphaSense, you know exactly what that is. The edge goes to whoever can trust their information and prove it. See it for yourself. Start your free trial at alpha-sense.com/ how I invest. That's alpha-sense.com/ how I invest. Said another way, SpaceX is a company, not a daycare.

• 25:43Speaker 00

  Absolutely.

• 25:44David Weisburd?

  You're not, and we're not here to entertain you.

• 25:46Speaker 00

  We're not a fan.

• 25:46David Weisburd?

  I have to, I have to disclose as well. Also investor in SpaceX. I think I have something like 90% still in my position.

• 25:52Speaker 00

  Good for you.

• 25:53David Weisburd?

  And I have a crazy thesis on SpaceX and in terms of data centers, but also asteroid mining, all this. I'll spare, spare the audience.

• 26:03Speaker 00

  I love it. I love it.

• 26:04David Weisburd?

  But I do think there's still this asymmetry that's embedded in the stock. I'm not telling people to buy the stock, but it is interesting how today you have these trillion dollar plus companies that seem like they're still early.

• 26:17Speaker 00

  I would agree with you. I mean, I, I often say, again, this is not investment advice to, to our investors, many of whom are, are taking the, the SpaceX shares that they've owned a long time. We distribute cash or shares, depending on what people wish, wish to. And I've said, the three to five year view here is fantastic. The 10 year view is even better. So why, you know, what other asset are you going to replace that is going to potentially give you that kind of incredible return? Like, I don't know what else you would buy instead of that.

• 26:52David Weisburd?

  And also what is it correlates? It seems like a great asset to have in your portfolio. What is, what is SpaceX correlated to? Is it correlated to gold?

• 27:01Speaker 00

  Something different every day.

• 27:02David Weisburd?

  Something, I guess now it's correlated to AI. So if you have some AI concentration, you might be.

• 27:06Speaker 00

  But I think, you know, let's observe like some really incredible dynamics. And, and it's not like I came at this as an adherent of the AI Elon approach or that was my, my thinking. In fact, I passed on XAI in their, that $25 billion early round. I just couldn't understand it. And, um, but what I would observe in, in that business and I would observe in, in that we can take away from many others is that, um, there is, uh, an incredible capability of great

• 27:48Speaker 00

  technology entrepreneurs, some great entrepreneurs in other sectors, but great technology entrepreneurs to just figure out that there's a moment and they can swoop in. And I look at what Elon did in building out all of those data centers incredibly quickly, uh, at an incredible scale, at a time where nobody was building GPUs, 100,000 GPUs and no one was doing anything like that. And, and then he arrives at this moment where we're just massively short compute and he's able to charge a super premium to all these other companies to, to go and utilize the, utilize

• 28:30Speaker 00

  that incredible asset. I think that there is, there is a, um, and I see this, you can look at it, uh, the leadership of a number of technology companies. There is an incredible ability to understand where the world might be going and how to make some really intelligent bets on, on that future state. These folks are not, um, it's not everybody. Um, but it's also what I look for in venture managers, frankly, is that, that ability to say, I, you know, it's great. You can tell me about, you know, what might happen in the next year or whatever, what's happening now. Kind of where do you see, when you look at your portfolio, where do you see the things that are

• 29:11Speaker 00

  going to work in three to five years, five to 10 years? When the world arrives in the, with your vision or how, how does that company play in? What are the factors here? Uh, because to me, that's, it's super interesting when, when folks have that kind of mindset. That's most often where I get really excited.

• 29:31David Weisburd?

  When people ask me about what venture funds should I invest in, what startups should I invest in, I always first make sure that they have the right framework. And the way that I do my venture investing is you have to really understand the role of venture capital in your portfolio. Venture capital is not treasuries. It is not S and P 500. It is not real estate. It is not private equity. It has a singular role and that is to deliver outsized asymmetric returns once in a while. It is the most bipolar asset class is the most bipolar underlying portfolio

• 30:11David Weisburd?

  company. So the, the way that I look at venture is you have to be both paradoxically bold and have the right portfolio construction. What does that mean? You want to be bold. Every company should be this 100 or a thousand X or zero. Of course, depending on what stage you're on. But even today, I think the reason Benchmark is raised or is raising a growth fund is because they believe that there's, there's their power laws at the growth stage. I don't think Benchmark woke up and suddenly became greedy. They've been one of the most disciplined investors in the world, but regardless of stage, you want to take these highly asymmetric bets, 100 X or zero. Just think about it from, from an oversimplified, companies like Anthropic, companies like Instinct,

• 30:55David Weisburd?

  which was, uh, this, this personal AI app, which, you know, I don't know, some probability it'll go up to $500 billion and some probability it'll go to zero.

• 31:05Speaker 00

  Right.

• 31:06David Weisburd?

  And probably nothing in between. And then, and this is the thing that people get wrong. A lot of people get excited by that. A lot of people have this gambling compulsion that like, okay, great. This is great. I want to put all my, all my money on, you know, the number 31 on the roulette, roulette table. The next and most important thing is you need to have the right portfolio constructions. You need to be diversified. In our fund, we have roughly 20 positions. So you want to take these very aggressive bets and you want to be diversified across, across different verticals. If you're an LP, you want to be across multiple funds. So now you have, let's say five funds of 20, 20 companies per vintage. So now you have a hundred companies. And then, you know, you have one Anthropic and one of your 100 portfolio companies across your five managers you're doing well. What do you think about that? And how would you improve upon that model?

• 31:51Speaker 00

  It was very, very similar to the way, uh, we, we think about, uh, the world. So I, I think that the very difficult part for investors is to understand that

• 32:02Speaker 00

  Venture is a great 20 year asset class. In any given period, in any, with any given fund, you, you may have a flat spot, even the best managers. It is, it is not as perfectly predictable as, as people might like. What some folks do, you mentioned five, we use 10 in, in our strategy. But what some folks do is they will great, well, I'm going to go and buy an index of the venture of some kind. And so what you lose in that, which is the problem is because of the dispersion, you, you end up losing all the convexity.

• 32:45Speaker 00

  And the only reason to do venture is convexity. It is, you want the shot at an anthropic. You want to make sure that the, the potential is that the weight of that anthropic ideally will be great enough that even if it was in one of your funds, that it would still give you a, an exceptional return. You would still have a much better return than you would have had you'd been invested in NASDAQ or some other benchmark asset. And I think that's the first key. I think the second key that's really hard for investors, and I'm sure you've seen this in your portfolio, we see it in our own,

• 33:26Speaker 00

  is that it's always tempting to think, oh, there's a right time and a wrong time. Right? Well, I shouldn't invest in the benchmark fund. It's the top of the market, AI is in a bubble, whatever. Or, or it's a terrible time, companies are having trouble raising money. This doesn't feel like a very good time to be investing in venture, whatever you're, or I've just lost a bunch of money and now is a terrible time.

• 33:56Speaker 00

  Pacing and sizing, pacing and sizing is what Matt Cortolo, my partner and I talk about all the time. It's the great advantage the individual investor has because they can set their portfolio. So pacing, develop a program, multiple funds, multiple years. Sizing, ensure that the size is adequate, that you can continue that program over time. And then if you're sizing individual positions, you know, size them on them on a matrix that, that allows you to take sufficiently sized bets over time, such that no one bet wipes you out. You know, as I say, the dead don't compound. So you, you know, you can't get, you got to survive.

• 34:42Speaker 00

  And so I think when people think about that corner of their portfolio,

• 34:48Speaker 00

  then they can start to make probably what I would consider more appropriately aggressive allocations with the recognition that they, it's going to have a very different return profile than perhaps what they're, they're used to.

• 35:03David Weisburd?

  So, so many great points there. On the indexing point, I think the biggest myth in venture capital across the last 10, 10 or so years is that every, any manager could get lucky and to get into the greatest companies. And not only was, I think this was a myth a decade ago, today it's almost impossible. These, these companies become so consensus so quickly that unless it happened to be that you, your Stanford roommate just happened to me, you know, Evan Spiegel or something like that, like that, that's the level of luck that you need today to get into a company that you don't deserve to be in from a brand perspective. Even a decade ago, I think that was much more likely the case.

• 35:47David Weisburd?

  We just know the counter examples are just so memed. Sometimes for Uber, everyone knows that Uber was going around and, and raising in 25K checks. And a lot of people that weren't even, you know, restaurateurs and people like that got into, got into the company. But how many stories are there like that? Not that, not that many, especially in the last 10 years. And on top of that, you learn, and frankly, I was heartbroken to learn that Airbnb itself was also, you know, people love this like story of the David versus the Goliath Airbnb. Nobody loved them and, you know, they, it took 10 years for them to get all this traction. When you actually look at the facts, and I was told this by, by early investors because my, my interpretation of the story was wrong.

• 36:30David Weisburd?

  Yes, it is true Airbnb, when they went to pitch to Paul Graham at YC, he didn't really like it. And then they're like, well, what do you have there? And they had these cereal boxes and they had the Obama O's and the McCain. And he's like, holy crap, you guys are selling cereals in order just to like make, make it and kind of the snass that you need as a startup. But they were hot at their vintage, at their YC class. In fact, Sequoia, I believe invested, they didn't even go to demo day because they got that investment from Sequoia. So even these stories that are supposed to be these great counter examples, these great examples that anybody could invest in these great companies that they are on the lookout enough, even they themselves are not, are not true.

• 37:12David Weisburd?

  So I think that's the problem is when people hear indexing, sometimes they start to think, okay, let me just say yes to every manager that I get and I'll get exposure to that. And that has not been done well. And I think that's a trap that you fall into if you, if and when you start to subscribe to this indexing. If you run a business, you probably start your morning with way too many tabs open. You're checking revenue, ad performance, email, inventory, spreadsheets. And before you've made a single decision, you've already spent your morning just figuring out what happened yesterday. That's what I like about perplexity computer. Instead of jumping between every dashboard yourself, perplexity computer could connect to the tools you already use and build a command center for your business.

• 37:54David Weisburd?

  It could pull together things like revenue, ad spend, margins, inventory and email performance, then show you what changed, where you might be losing money and what you should look at next. But what makes perplexity computer really interesting is that it could actually work on projects. It could help rewrite an email flow, build an ad campaign or draft outbound outreach. And unlike most AI tools, you're not locked in into one model. Perplexity computer orchestrates leading AI models behind the scenes and automatically chooses the right one for each step. For a limited time only, you could try perplexity computer for free. Head to pplx.ai/invest. That's pplx.ai/invest to try perplexity computer today. Most AI tools are still answering questions while perplexity computer is completing full projects.

• 38:39David Weisburd?

  Support for today's episode comes from Square, the all in one way for business owners to take payments, book appointments, manage staff and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique or managing a service business, Square helps you run your business without running yourself into the ground. I was actually thinking about this the other day when I stopped by a local cafe here. They use Square and everything just works. Check out is fast, receipts are instant, and sometimes I even get loyalty rewards automatically. There's something about businesses that use Square. They just feel more put together. The experience is smoother for them and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are, in store, online, on your phone, or even at pop ups and everything stays synced in real time.

• 39:22David Weisburd?

  You could track sales, manage inventory, book appointments and see reports instantly, whether you're in your shop or on the go. And when you make a sale, you don't have to wait days to get paid. Square gives you fast access to your earnings through Square checking. They also have built in tools like loyalty and marketing so your best customers keep coming back. And right now you could get up to $200 off Square hardware when you sign up at square.com/go/howIinvest. That's S Q U A R E dot com slash go slash how I invest. With Square, you get all the tools to run your business with none of the contracts or complexity. Run your business smarter with Square. Get started today. Support for today's episode comes from Square, the all in one way for business owners to take payments, book appointments, manage staff and keep everything running in one place.

• 40:06David Weisburd?

  Whether you're selling lattes, cutting hair, running a boutique or managing a service business, Square helps you run your business without running yourself into the ground. I was actually thinking about this the other day when I stopped by a local cafe here. They use Square and everything just works. Check out is fast, receipts are instant, and sometimes I even get loyalty rewards automatically. There's something about businesses that use Square. They just feel more put together. The experience is smoother for them and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are, in store, online, on your phone, or even at pop ups and everything stays synced in real time. You could track sales, manage inventory, book appointments and see reports instantly, whether you're in your shop or on the go. And when you make a sale, you don't have to wait days to get paid.

• 40:50David Weisburd?

  Square gives you fast access to your earnings through Square checking. They also have built in tools like loyalty and marketing so your best customers keep coming back. And right now you could get up to $200 off Square hardware when you sign up at square.com/go/howIinvest. That's S Q U A R E dot com slash go slash how I invest. With Square, you get all the tools to run your business with none of the contracts or complexity. Run your business smarter with Square. Get started today.

• 41:17Speaker 00

  I think it's true. I, you know, you bring up a lot of, a lot of things that are really curious and, and in that conversation, because I think one of the pieces of that puzzle that is super interesting is certainly in, in Silicon Valley is there are these amazing super angels. And they are, they are real tastemakers at, at the seed and pre-seed level. Now we're in a very crowded time in the market. And I think it's always, we need to be really careful that we're not just sort of judging that it will always be thus and so forth. But I think that there is no question that, well,

• 42:02Speaker 00

  connected, folks with really a good sense of what makes for good companies can at the pre-seed and seed level still do important things. And small funds, early funds.

• 42:16Speaker 00

  Well, managers with a very clear network can do, can produce really incredible outcomes by being close to founders. And I think one of the, one of the myths that is also goes around is that, you know, well, Sequoia is going to see all the best companies and recent Horowitz is going to see all the best companies. And I'm like, well, let's imagine they do. And let's imagine that they in fact even invest in them, which they don't. Neither is true. But given the scale of the funds, the scale of the investment, what it would require in order for them to carry that through and so forth. It may not even be the case that that really great or good company

• 43:00Speaker 00

  delivers the kinds of returns that you might like at a fund level, unless they really prosecuted it well. Whereas in a manager with really great taste and network, precision of process,

• 43:16Speaker 00

  maybe network to some angels, maybe network to some communities that can be, the communities can be varied, can find these really interesting companies at an early stage. And I think that there's, there is a bit of a myth that, look, if you're, you know, a third time founder, you know, the market, you've got, you know, you've got lots of, you got a team, you got access to all the pieces, and you get called by one of the big firms, you're just going to go with them. It's just simply, it's just simply not, I don't, it doesn't bear out. Founders choose VCs for all

• 43:56Speaker 00

  kinds of reasons that we, we make choices. Relationship, the help they need, the kind of person that they want at that time of their firm, their knowledge that perhaps some of these larger firms made very early checks are not as helpful as they may advertise, or differently helpful. There are plenty of reasons that different kinds of founders choose different kinds of, kinds of managers. And so I think for us, it's always about what is the likelihood

• 44:34Speaker 00

  in this environment that the network and the process of a manager will lead them to very likely find the quality of company that can be that, you know, outstanding returner. And that, you know, I think that that is a very interesting, a very interesting assessment process. And because there's so much qualitative that goes in there, there's so much about understanding the meaningfulness of that network, about how they, how they build out those

• 45:13Speaker 00

  relationships, how much of that network needs to stay current. You know, I think if you, let's use SpaceX as an example, if you left SpaceX today, I'm not sure what the half-life of your relationship, your, your network might be. Might it be a few years? It could be shorter, it could be longer, but it's probably not forever. Right? Parts of it might be, but right now, it's very meaningful. So if you left today, and you start a fund, and you're well networked to all these people who might also be leaving, starting companies, or whatever, that can be really powerful. Is it really wonderful today? Well, where are you three funds down the line? Like, how have you may have evolved that?

• 45:57David Weisburd?

  Is your advantage sustainable?

• 45:59Speaker 00

  Is your process and that advantage sustainable? Are the things that you did to generate, because, you know, if you get to a fund two, you've probably done okay in your fund one, most often. And fund ones are wonderful, because there's always these two or three companies that folks have in that fund one that are like, they're profound observations.

• 46:21David Weisburd?

  They do empirically perform really well.

• 46:22Speaker 00

  They do. Yeah. And, and it's interesting, because it's the most difficult thing to, to find and to underwrite those funds. And there are some exceptional allocators out there that-

• 46:33David Weisburd?

  And they're all, almost by definition, unbranded.

• 46:35Speaker 00

  Yeah.

• 46:36David Weisburd?

  It's the first, first server they've been to.

• 46:37Speaker 00

  Yeah. And often, you know, it's a single individual. And it's more difficult than people might perceive, not only to find these folks, but to, to correctly judge that they can do the job properly. Because it's not, it's not a simple job. And it's, you know, it's often quite interesting, I'm sure you find it yourself, you'll meet someone that's fund two or three, and you'll ask them about fund one, and they may have done, had some amazing returners, and they'll tell you all the things they did wrong.

• 47:07David Weisburd?

  Yeah.

• 47:08Speaker 00

  Because invariably, they've done a ton of things wrong. And the things that they've evolved and processes and so forth. One of my favorite stories in that regard is a, is a fund who had an exceptional performance in Cursor. And the manager only afterwards realized that the part of the challenge of their allocation process was that mathematically, if they didn't get enough of the company in that pre-seed seed stage, because of the nature of how they were investing, their returns just got so diluted, even when you got these massive winners at a fund level. Like, if it was your individual investment, it'd be great. But at a fund level, and, and they had to adjust their whole allocation

• 47:53Speaker 00

  methodology, say, look, we've got to rethink this, because we need more capital weight slightly later. We don't want to put it all super early, their approach is different, but we need to be able to rebalance some capital slightly later and to follow on. Because otherwise, when we do have these asymmetric returners, it's just not meaningful enough.

• 48:17David Weisburd?

  That's almost a mark of all the top venture funds is they've evolved now into their follow-on capital is it's much more concentrated. Founder Fund is famous for doing it to the extreme, putting like, half of their fund into one company, like a SpaceX or Airbnb. But on a, on a lesser scale, they'll take a third of their follow-on capital and put it in one of three companies. And they'll, instead of, they might have 20 first, first checks and, you know, three, three follow-on checks. We land closer to that, which is like, okay, you try to get 20 really good asymmetric, some of them take off, and you put it in kind of those, those rockets.

• 48:53Speaker 00

  We pay as allocators for conviction. Right? I mean, we're, we're buying conviction. And I think that that's fantastic. I often say to our venture managers that the real magic is that you're willing to bet, you know, your business, your reputation on, on like, meaningful portfolio returners. Like, it's a big deal. Like, it's a really big deal. I mean, getting them wrong is very painful. And, but, but for that, you, you deserve an excellent return for yourselves. And when you get it right, I think there's nothing wrong

• 49:35Speaker 00

  with that at all. But I'd rather have that outcome, the outcome where you have conviction, you have a big winner, you, you make a monstrous return out of, out of the carry, than have folks who are, who are trying to sort of cut the middle ground, not get it too wrong. Can I, if we do it this way, can we then go and raise another fund? I am seeing, you know, it's a good process, I'm not sure about it, over time, where with the focus of DPI, folks are selling more positions in the secondary market a little earlier. Some of that I really

• 50:14Speaker 00

  like, some of it sort of concerns me that we're effectively cutting off the potential in our portfolio. You know, you did all the work to get your, this incredible thing to here. Now you're going to go sell half of it. Yes, we appreciate getting the capital back, but we can't necessarily go, you know, replicate that position ourselves. How do I feel about it? I mean, I get torn. I get torn. Because of course, we want DPI to do other things and so forth.

• 50:45David Weisburd?

  That goes back to what I was talking about, like, venture being the singular asset class. You have to know how to use it. And it's on the GP level, it's on the LP level.

• 50:55David Weisburd?

  There's this concept I've been talking about LP capture, which is an otherwise good manager, if you have the worst LPs in the world, they could end up making you sell your anthropic position at the, you know, at a 5X or sell your SpaceX at a 3X. And you would have, all you had to do was not sell, but because you had these LPs that are pressuring you because they're misusing the asset class, either they're overly concentrated, we haven't talked about this, but you shouldn't have too much money in venture because lo and behold, if you're having a bad vintage, you might do, you might do the dumb thing because you know, your other part of a portfolio is struggling and you need that capital. So to be very careful on how you look at venture and how you use venture at a portfolio.

• 51:36David Weisburd?

  And then on a GP level, in many ways, the GPs should be encouraged to take more risk because they have this N of one, they have this one fund. In many ways, you should want them to be more risk on because they're doing all this career managing. They're trying to get to at least a 2X, ideally 3X return, so that they could raise another fund, get more management fees, and they're kind of managing their career. But oftentimes you have the GP that's trying to be more bullish than LPs that are kind of asking them to cut back and that could be highly counterproductive.

• 52:07Speaker 00

  I was on a call early this morning with a very significant LP and she, she asked a really great question. She said, well, look, given the macro environment and so forth, and we know a little bit about that, but given the macro environment, like how are you, you know, how are you thinking about allocating capital in your fund and so forth? And I said, you know, this is a really, it's a really big question, right? And I think, because I think what LPs want is you to perfectly predict the future and sort of not buy the overvalued stuff, you know, wait six months and buy it all cheaper and so forth. And oh, wonderful if we could get it so perfect.

• 52:52Speaker 00

  I said, the real, whether or not I've got a, an absolutely precise and, and perfect view of, of the cycle. If I am taking too big a macro leg view, too big a macro view on allocating capital, I'm doing you a disservice because you've given us capital to invest with a, with a very specific agenda. And if, if we are not delivering on, on that capital allocation,

• 53:32Speaker 00

  to the extent that I'm completely wrong, let's say I'm bearish and the market continues to travel, I haven't done the job for you. And I'd say on the flip side, your, your sizing should be sufficient such that I know that Gavin is going to go and allocate capital to these kinds of companies with this kind of underwrite, and not in a sloppy way, but the, he's allocating in this environment, in this current environment. And I need to size accordingly. I need to size because I think it might be a toppy market. So maybe my check will be half as large as it might have otherwise been.

• 54:12Speaker 00

  And if it turns out that there's a downturn and, you know, there's a, maybe that'll be a chance to re-up and do other things and so forth, and I can take advantage of that. But I think that it's very tempting to get overly manufactured around macro views, to become very embedded in, in having a conviction that certain things absolutely won't work or, or this is going to be the way. And I think one of the things of being in the investment industry for a long time has taught me is that we are wrong a lot. As, as investment manager, we are wrong a lot, at least half the time.

• 54:55Speaker 00

  In venture, 70% of the time, we're wrong, even when we have conviction. And so we need to have an open-minded view about what the paths may be. I think all that we really need to lean on is, you know, digging deep and saying, do I really have conviction here? Or am I just afraid that I'm going to miss this name? That, you know, I won't be able to face my family because I didn't invest in the cursor $10 billion round, you know?

• 55:27David Weisburd?

  You have a tough family.

• 55:28Speaker 00

  My brother's an LP. But, you know, it's, it's that reality, right? But, but I think, you know, where is your real conviction? Do you really believe it? We know we're going to get them wrong. And then we, we invest in this market. As a very wise investor said to me the other day, he said, you know, there's going to be a cycle. The kinds of companies I buy are going to get, he buys hypergrowth companies, are going to get sold off and even in the private market, they're going to get sold off. And my playbook has been to know those companies well enough to go and be happy to buy, increase my position at a discount

• 56:11Speaker 00

  and, and wait it out because I, I believe in the fundamentals of the business, right? That is, you know, you've, you've just got to be willing to do it. So you've got to have the dry powder to do it. You've got to have the knowledge of the company, the relationship with the company in order to be able to deliver on that.

• 56:30David Weisburd?

  I'm always so impressed when I meet people that have a read on the market and they're drinking their coffee. I'm always thinking about what's in this coffee? I need to put this in the coffee because I'm meeting with top people at Sequoia, at Andreessen Horowitz, at Thrive, on or off camera. And I'm like, what inning are we in? Are we in the second inning? Like I have absolutely no clue. I can't even tell you whether we're in the second inning or the seventh inning, let alone the second or the second half. And then I talked to macro investors in the public markets and they're like, they could beat the market by 1% a year on like thousands of trades. And yet these people are sitting down and telling me directionally exactly where the market is going. I'm like, how do you have, you're obviously a smart person. You've been around for, for 30 years.

• 57:15David Weisburd?

  When I'm sitting with, down with someone, I'm like, how do you have so much confidence still? You've gotten beaten down so much by the market, but you still have this level of confidence. So it's incredible.

• 57:23Speaker 00

  We are to a great extent in the predicting the future business.

• 57:27David Weisburd?

  You get paid for having this confidence.

• 57:29Speaker 00

  Yeah, you, you have to have a measure of conviction. And I think, and I think what you've got to balance that with, you know, I don't know. I think it's the Kendrick Lamar song and it's like, you know, sit down, be humble.

• 57:42David Weisburd?

  Yeah.

• 57:42Speaker 00

  Right? You've got to be humble. You, you've got to have great humility and that what is your ability to, to predict the future across any set of parameters, including our own lives often, right? We, it is very limited. And so in that environment, with that limited information, that limited window, how do we do it the very best we can? How are we great fiduciaries and people entrust us with their capital? They entrust us to, to make a good, solid, well-founded decisions. And that's, you know, that's what we do. And to be careful, right? And if you're thinking about, you've got your 20 positions equally weighted and you know, you've, you've invested in 18 companies, you got the last two.

• 58:28Speaker 00

  And you're sitting down, getting ready to write that check for number 18. I think if you're not sweating, if you're not going, do I have the, like, am I convinced that this one is the deal I should do? You know, I kind of wonder kind of about what sort of investor you are. I think we need to be, we need to feel the weight of that, of that decision.

• 58:53Speaker 00

  You know, and I also think we need to be aware that we're always going to have limited information. And the, the hard challenge for us is how do we, to the best we can,

• 59:10Speaker 00

  give ourselves an unfair advantage? What can we do to give ourselves more conviction to believe that we've got a more precise view, which, which underpins the underwrite and, and so forth? And then are we willing to say no? One of the hard things, you've done all this work, spent all this time, and you've got to be able to come to a no. You've got to be able to say no. And it's not the easy no, the, you know, one call, you know, like, that doesn't work. It's the no where you've put in tons of hours. And that's what we talked a lot about a lot on our team is,

• 59:50Speaker 00

  what level of conviction do we have? We can't be afraid to say no regardless of how much work we've done.

• 59:53David Weisburd?

  I realize we started the podcast, I didn't, I didn't even credentialize the BFA, one of the top advisors. I think you just won an award in private equity. So congrats, congrats on that. If you had to really sum up to what you're looking for in the best venture capital managers, how would you stack rank those characteristics?

• 1:00:12Speaker 00

  There is our line, which is people and process. I think I fundamentally believe that the investment management world is driven by, and returns are driven by exceptional individuals. Sometimes they're in collections, the teams. Sometimes it's just simply a person. Sometimes that person is in a leadership role. Sometimes they're deep in the team and you've got to figure it out. But I think it is all about people. Those people tend to have a process that,

• 1:00:51Speaker 00

  whether it's a very refined process that they can write down almost like a script, or it's a little looser. It is a process for creating the opportunities, for spotting them, for working them through and diligencing them.

• 1:01:15Speaker 00

  How they start, some people start thematically. Some people just take every meeting. A manager told me the other day, he said, the meetings I like are when somebody says to me, that they come up, they're talking about their new idea. And he says, I've never thought of that. I never thought that was a business. I never even thought that was possible or whatever. He said, I get excited. Why? Well, because with those other businesses, if I've thought about it, there's probably 30 other people that are already doing it anyway. And I'm just meeting one of them. But this thing, I'm pretty sure there's not going to be many other people. Right? And that gets me excited. I start to work. I think, oh, that's interesting.

• 1:01:56Speaker 00

  There are a million ways to assess, but I think it is people and then in that process. And then you've got to see some evidence of how that process is played out. And I think that there's an over reliance on it playing out with amazing returns. I mean, wonderful if it does. But sometimes returns occur because of market events. Maybe you had a bunch of companies that were ready to SPAC during that SPAC period in 2021. Wonderful, you got the returns. I mean, I think that's spectacular. And but is that, are those conditions repeatable? Like with those, can you go find businesses like that? And does that environment exist in that way?

• 1:02:41Speaker 00

  Yeah, maybe you've got a narrative, but maybe it's okay to get lucky. But maybe that was a bit lucky and we need to look for something else other than just those.

• 1:02:49David Weisburd?

  It goes back to how do you repeat that?

• 1:02:51Speaker 00

  I think the repeatability comes in a bunch of different areas. One of them is can you create a team so that you can scale the breadth of your activities with your capital? Which is quite hard in venture because of course, often you have to invest ahead of the fund closing and so forth. And we talked about the quality of teams in founding businesses. You know, with founders and so forth.

• 1:03:22Speaker 00

  The quality of teams in venture businesses, very interesting, very interesting. It is so often the case that you have one or two, particularly in smaller, earlier firms, one or two really exceptional individuals in their own way. They don't all look the same. And then you'll meet the rest of the team. You've got a pretty ordinary group of folks, right? Pretty ordinary. They're not seeing a lot that's interesting here. Now, that's fine if people are junior analysts and tasked with doing things like. But if that's your next level, in the same way as you would assess SpaceX or a founding company of the quality of people that they can recruit.

• 1:04:06Speaker 00

  I look at that and I go, oh, that's interesting. Is it they couldn't recruit someone who wanted to believe in the journey? Wouldn't we all love to be joining a rapidly growing venture firm?

• 1:04:18Speaker 00

  Is this what they think good looks like? What if the founder gets ill? Would any of these people be people that I'd want allocating capital? And so you do see wide variety.

• 1:04:30Speaker 00

  And as an aside, I think we're going to go through the most interesting period here over the next three to five years. As we see, hopefully, all these IPOs that come to pass with tremendous returns. A number of firms have got senior partners who are between 40 and 60, 65, who are going to have made more money than they've ever made in their lives. They may already be affluent, but they're now going to be uber affluent. And the nature of these firms is that it is often hard to bring new blood in to share the carry and so forth. And we could see some vacuums.

• 1:05:12Speaker 00

  And I think it's going to be really interesting to see how firms deal with that, that dynamic.

• 1:05:20Speaker 00

  Yeah. And again, you know, I think like any industry,

• 1:05:27Speaker 00

  it's, there's often that really weird spot mid-career for folks where it's quite hard, it's quite hard to find people that would fit that slot. They're either happy where they are, they've started their own firm, or you've got to give up a lot of economics. And sometimes folks who are in the VC space are willing to do it and sometimes not. So I think we're going to see a really interesting period here of transition.

• 1:05:54David Weisburd?

  Generational transfer has been so poorly done in venture capital that people only know the cases where it's worked.

• 1:05:58Speaker 00

  Yeah, that's a great point.

• 1:06:00David Weisburd?

  It's like this parallel outcome. You have Sequoia, third generation, benchmark, third generation. I think Excel has done fairly well as well, but I'm probably missing somebody. But the fact that we can't rattle off a dozen cases is itself a sign.

• 1:06:15Speaker 00

  You can see why it's difficult. I mean, we can understand why it's difficult. But I think it does come down to something we haven't talked about, which I, again, maybe my character as much as anything. I'll often spend a bunch of time with a venture manager, even if they're at the early stage, about the business of how they operate their business. So, you know, it's a business.

• 1:06:39David Weisburd?

  The business behind the firm.

• 1:06:41Speaker 00

  Behind the firm, behind the, you know, okay, great. That's the capital allocation and what you do as an investor. But talk about your business. By the way, generally in the investment world, it is amazing how varied the business capabilities of people in the investment world are. It is astonishing.

• 1:07:00David Weisburd?

  What's an example?

• 1:07:01Speaker 00

  Let me give you an example that is not directly from venture, but to me it plays out. You've got a manager that's raised a reasonable amount of capital to manage. And he's got really good returns, really, really good returns. He's stressed out because he doesn't know how to grow his capital enough to really make it into now a real business. Right? He's got a couple hundred million bucks, but it's not enough. Little team. And so you talk to him a little bit about it. And then you flip to the back page of his deck

• 1:07:39Speaker 00

  and you look at all of his supporting cast, the custodian, the auditor and all of these folks. I'm like, I said, I'm looking down this list. And I said, I'm not here to judge anybody. But this is not an institutional page. You've got to have a big four auditor, like it's just the way. And there's a few administrators and custodians that you've got to have for your firm.

• 1:08:07David Weisburd?

  Of course, use Juniper Square, our sponsor.

• 1:08:09Speaker 00

  Okay.

• 1:08:10David Weisburd?

  That is the number one sign of an institutional.

• 1:08:13Speaker 00

  There would be a wonderful choice for this individual. Text me later and I'll give you their name. You need to have that caliber, not to say these aren't fine. They probably are fine. And that was his argument, but they're really great. I've been with them forever. They do a great job. The cost of all, like, all that may be true, it's just not going to work. So, so let's think about your business, right? What is your business? When you go to a large family office or allocator, these are the factors that matter to them. So if you're going to be in business selling to them, that might matter.

• 1:08:48David Weisburd?

  That's your customer.

• 1:08:49Speaker 00

  That's your customer. That's what they, so there would be an example.

• 1:08:56Speaker 00

  The other, the other challenge I think we all face, investor communications. You know, at the end of the day.

• 1:09:05David Weisburd?

  Our lack, our lack of.

• 1:09:06Speaker 00

  Lack of, I mean, we are all to some extent in the marketing and sales business. We are building up our cohort of LPs. We're hopefully getting some referrals from them. We're all doing the same thing. So how do you think about your communications? How do you write it? What do you write? What do your current LPs think of it? How do you think about it? It's incredibly, incredibly important. The, the challenge, of course, if you've got a small team is how to do that. And then of course, how do you apportion your time between capital raising for a new fund?

• 1:09:49Speaker 00

  Particularly if you've got a very small fund allocating to your current fund. You can very quickly see the people are quite stressed by, by that.

• 1:09:57David Weisburd?

  There's a famous founder of a $200 billion plus private equity firm that is known to, told many people that asset management is about generating average returns with exceptional customer service.

• 1:10:10Speaker 00

  So, yes.

• 1:10:11David Weisburd?

  And that has worked $200 billion. So it's hard to argue with that kind of strategy.

• 1:10:16Speaker 00

  I think investors deserve, they deserve good communication. Right? I mean, there's.

• 1:10:25David Weisburd?

  Especially when there's bad news.

• 1:10:27Speaker 00

  The ability to deliver authentically and honestly, your case study from your worst decisions is, is something that I really, you know, again, we talked about integrity and so forth. That's something that I see as a, that I hold dear. You know, any investor who does a call with us, and not all of them ask, but anyone who asks, you know, can you give me your, you know, your worst decisions, worst fund, worst company, learnings, observations, you know? I will give them a thorough run through. And, and I'll be honest with you, there are many things in there that I'm, would say are,

• 1:11:10Speaker 00

  it's not like it shines some beautiful, it's not sort of recasting it as, that it's all wonderful characteristics, just sort of slightly misaligned.

• 1:11:21David Weisburd?

  It's not about you having no career, life balance and working 70 hours a week. There are some genuine mistakes.

• 1:11:27Speaker 00

  There are genuine mistakes, absolutely.

• 1:11:29David Weisburd?

  When I sat down with Jonathan Gray, President of Blackstone, I asked him, how do you manage LP relationships in a downturn? And he said, he goes on a plane and he went out, and specifically I asked him on 2008, how did he manage that? And he said, got on a plane and he went and met with every major LP in person. And his peers were sitting and hiding behind their desk and he went and did the thing. And in retrospect, it's obvious that was the hard thing. That was the quote unquote right thing. That was extremely painful and probably painful for at least a year. Just brutal. It's just like going, going, visiting someone, getting yelled at, going, jumping back, staying at, staying at a hotel.

• 1:12:10David Weisburd?

  I'm sure his hotel was fine even then, waking up in the morning, flying to the next place, getting yelled at and doing this over and over and over and over and over again. And that is what it takes to build an excellent organization. And the truth, truth of the matter is, most people just don't have that level of discipline, that level of conviction. They don't take their business to that level of seriousness in order to execute.

• 1:12:30Speaker 00

  It goes back to something that we talked about earlier, which is integrity and, and taking seriously being a fiduciary. People have entrusted you with their capital and while no one's expecting perfection, they're expecting candor. They deserve it. And I think when you've made a mistake or we've made a mistake, you've got to own it. You, you know, and it's a, just, it's the human thing to blame someone or blame the market or whatever it may be. But, but we make mistakes. We, we miss things.

• 1:13:11Speaker 00

  We, no organization, no individual that doesn't. But, but I think you win, you win trust when you are candid about those things. And then when you are clear about what actions you've taken and, and what you're going to do to make it right. If you don't come into the business that way, I'm not, I'm not sure how, how you're going to handle what is inevitably going to be some pretty rocky spots. And I would say that my worst investment outcomes and, and situations have come out

• 1:13:54Speaker 00

  of a manager making a mistake. It was a genuine mistake, not owning up to the mistake. I discovered the mistake sometime later, but they'd, they'd made a genuine mistake, never really owned up to it. And it was the end of that relationship. It was, I mean, the mistake was, was what it was, right? They may, they, they had conviction and they did a thing and thing didn't work. I mean, that, okay, that's part of life. But even at the time when it clearly didn't work, they weren't clear saying, look, here are the three things we really just missed. Like we just got it wrong and we're going to have to figure out how to, you know, go from here.

• 1:14:39Speaker 00

  But this was not, this was on us, right? We, we got to own some of that. And, and I think if you can't do that with me, in that situation, I look down through the rest of the portfolio and I look out over time and I say, you know, life's too short. Don't, don't need, don't need to be, don't need to be wondering about that.

• 1:15:01David Weisburd?

  Gavin, if you could go back to the beginning of your career and you could give yourself one timeless piece of advice to a younger Gavin, what would that be?

• 1:15:07Speaker 00

  Listen more, find great mentors. It's the advice I give young people today that they're, and I see so many great young founders particularly, who, who really take this on board, that there is so much value early in your career to working for, or if you don't work for, finding in your world, great mentors, people who will give it to you straight, people who you can ask, who don't have an impact on your direct career. It's rarely, you get to work for great people, but that person often isn't the only mentor.

• 1:15:51Speaker 00

  You need other folks to give you perspectives, help you understand yourself better, help you evolve, push you to invest in, in parts of your toolkit that may be underdeveloped. And, you know, I think it's, fortunately, I see it so often in really great venture managers and founders that they inhabit this today. And maybe it's a time where people understand that better. But it is, it is the thing that I, I, there was, you know, probably a good decade in

• 1:16:30Speaker 00

  there where, boy, I, I could have really used some really good, honest feedback.

• 1:16:38David Weisburd?

  Well, Gavin, this podcast is my way to get mentored by some of the greatest minds in the world. So I really value you spending time and thanks so much for sitting down.

• 1:16:46Speaker 00

  It's wonderful. I love the questions and really appreciate you having me on.