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E455: Hunter Walk on Why Venture is Getting Harder, Picking Great Founders, and Investing Against Consensus

How I Invest with David Weisburd

Hosted by David Weisburd

1h 16m
Transcript

Original podcast

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Summary

Written by a model from the transcript; not yet reviewed.

This episode explores how venture capital has fundamentally shifted as fund sizes balloon into the billions, altering investor incentives, patience, and startup outcomes. The guest and the host examine why traditional venture models increasingly prioritize momentum and fund-raising over actual company-building, and discuss the speaker's decision to shift Homebrew to an evergreen, self-funded vehicle. They also unpack the mechanics of backing emerging managers through Screen Door, the structural challenges of venture spinouts, and why smaller, more flexible fund models are best positioned for early-stage alpha.

  • Align your fund size with your strategy because multi-billion-dollar funds inherently force investors to prioritize capital deployment over patient company building. 4:48
  • Focus on being pre-consensus rather than non-consensus when identifying early-stage investment opportunities before market maps crowd the space. 1:37
  • Recognize that your fund size directly dictates your underwriting targets and exit requirements, altering how you advise founders. 23:35
  • Build proper infrastructure and data tracking early so you capture dark deal flow from trusted networks before it becomes public. 1:18:13

Chapters

  1. 0:00
    Introduction and Incentive Model

    David Weisburd explains how large firm incentives create a white spot for new investors and sets the stage for the episode.

  2. 1:04
    Homebrew’s Early Success and Seed Investing

    Weisburd recounts Homebrew’s early investments in Chime, Cruise, and Shield AI, highlighting the importance of pre‑market seed investing.

  3. 1:46
    Changing Funding Environment and Pre‑Consensus Investing

    He discusses the shift from non‑consensus to pre‑consensus investing amid AI‑driven crowding and the impact on startup funding.

  4. 3:11
    Incentives of GPs and LPs

    The conversation dives into how GP and LP incentives shape venture decisions, leading to a focus on hot names and larger check sizes.

  5. 9:40
    Homebrew’s Transition to Own Capital

    Weisburd explains the move from traditional LP‑backed funds to an evergreen, self‑funded model and the motivations behind it.

  6. 13:50
    Impact of Fund Size on Strategy and Patience

    He explores how larger fund sizes reduce patience, increase pressure to deploy capital quickly, and alter the venture ecosystem.

  7. 15:59
    Team and Culture Creep in Large Funds

    Weisburd warns about the risk of expanding teams and culture dilution when chasing larger returns and staying competitive.

  8. 30:23
    Strategic Focus on Early‑Stage and Founder Partnership

    He outlines Homebrew’s commitment to early‑stage investing, flexible check sizes, and deep partnership with founders.

  9. 33:08
    The Evolving Definition of Seed and Pre‑Seed

    Weisburd reflects on how the seed stage has blurred, with larger pre‑seed rounds and the need to adapt terminology.

  10. 36:14
    Thesis Checks and Post‑Seed Investing

    He discusses the use of thesis checks to support high‑valuation companies post‑seed, maintaining upside while staying true to early‑stage focus.

  11. 42:22
    Closing Thoughts on Incentives and Future Strategy

    Weisburd concludes by emphasizing the importance of aligning incentives with founder success and maintaining a flexible, founder‑centric approach.

  12. 43:08
    Hunter’s Investment Philosophy and Portfolio Concentration

    Hunter explains his preference for concentrated, high‑ownership stakes and his approach to building value.

Highlights

  • 0:41

    Scaling Up Versus Returning Capitalstory

    The guest explains how checking the math on spreadsheet ownership targets revealed that their successful third fund would need to balloon to a $300 million fourth fund, prompting a shift in strategy.

  • 1:18

    Seed Investing Before Market Mapsinsight

    The guest argues that the true job of a seed investor is to back companies before the market map is coined, citing early bets on Chime and Shield AI.

  • 11:52

    Fund Size Changes Underwriting Targetsdata

    The guest explains the counterintuitive financial reality that as venture fund sizes go up, the required underwriting target per deal actually goes down.

  • 16:51

    Darwin Runs at Half-Speedinsight

    The guest observes that due to long time cycles and entrenched relationship dynamics, mediocrity in the venture capital ecosystem takes far too long to flush out.

  • 23:14

    The Danger of Insidious Mindsetsinsight

    The guest warns that larger funds create immense pressure to chase massive exits, which leads investors to give impatient, unnatural advice to founders.

  • 42:10

    Ownership Percentage as a Vanity Metricinsight

    The host notes that ownership percentage is often just a vanity metric, with multiple on invested capital being the true measure of success.

  • 1:06:28

    Adverse Selection in Fund Spinoutsdebate

    The guest argues that there is significant adverse selection among partners leaving top multi-stage firms, as many lack the skills to build a new firm from scratch.

Quotes

  • “The incentive model of the large firms has created a huge white spot for new investors.”
    Unnamed speaker · 0:00
  • “When we started in 2012 for $750,000, a million and a half, we could get that 10% to 15% ownership.”
    Unnamed speaker · 0:35
  • “I think a lot of people would pick the first. Because as a GP, you have an incentive to become a star within your firm.”
    Unnamed speaker · 4:14
  • “Doesn't mean that I might have broader targets of ownership.”
    Unnamed speaker · 43:30
  • “Have they spent time in the markets that they believe that they have figured out and want to invest in?”
    Unnamed speaker · 46:09
  • “How can we help write bigger checks than we were currently doing at the time?”
    Unnamed speaker · 49:30
  • “Now you're like, what institutional value are we creating? It's like, I don't know.”
    Unnamed speaker · 58:34
  • “Because the diamonds in the rough are a $35 million Fund One that's going to deliver 10x.”
    Unnamed speaker · 1:11:01
  • Juniper Square 7:49–8:01
  • Juniper Square 25:16–25:43
  • Square 38:14–42:04

About this episode

What if the biggest threat to venture capital returns isn't picking the wrong startups, but building funds that are too big to succeed? In this episode, I sit down with Hunter Walk, Partner and Co-Founder of Homebrew, to discuss why the venture capital industry's obsession with larger funds, higher valuations, and hot deals may be working against investors and founders. Hunter explains why he and his partner walked away from the traditional institutional fundraising model to invest their own capital, how fund size changes the incentives behind investment decisions, and why the next generation of emerging managers could outperform established firms.

Transcript

0:00
1:16:59

16,639 words · 2 speakers

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

Topics

  • Homebrew
  • Screen Door
  • Sequoia
  • Sunflower
  • Kleiner Perkins
  • Andreessen Horowitz
  • Zerp
  • New York
  • Google Docs
  • Notion Sheets

Page updated · transcript and summary are machine-generated