Uncapped #34 | Mel Williams from TrueBridge

Mel Williams is a co-founder and Partner at TrueBridge Capital Partners, a fund of funds with $8 billion in AUM focused on venture capital. Since 2007, Mel’s team has backed firms like Thrive, Founders Fund, Sequoia, and Alt Capital, and powers the data behind the Forbes Midas List. Before TrueBridge, Mel co-founded UNC Management Company (UNCMC), where he worked closely with the President/CIO to manage over $2 billion of endowment capital for the University of North Carolina. We covered: Investing in frothy markets Doubling down on winners Seed vs multi-stage Picking managers --- Timestamps: (0:00) Intro (1:10) AI valuations and a frothy market (4:35) Long term market risks (7:18) Should VC funds keep getting bigger? (9:37) 10% of the market is the signal (14:08) Venture math debate (18:05) Characteristics of great investors (20:46) The case for seed stage firms (23:09) Picking managers (24:59) Big wins and big misses (30:12) It’s hard to kill a good brand (33:06) Building a concentrated portfolio (36:53) Advice to young LPs --- More on Mel: https://truebridgecapital.com/ https://truebridgecapital.com/team/mel-williams/ More on Jack: https://www.altcap.com/ https://x.com/jaltma --- https://linktr.ee/uncappedpod Email: [email protected]

• 0:00Speaker 00

  The two characteristics that we've identified that are most important for exceptional investors are number one, they approach the market from a contrarian standpoint or first principle standpoint. Number two, they have conviction. When they see it working and they see it when in their portfolio, they're willing to push their chips on the table. And that's hard to do.

• 0:21Speaker 01

  All right. I'm very excited to have Mel Williams, the co-founder of TrueBridge here. Mel, thank you very much for doing this with me.

• 0:27Speaker 00

  It's great to be here, Jack. Thanks for having me.

• 0:28Speaker 01

  So you started TrueBridge like 17 or 18 years ago.

• 0:31Speaker 00

  Yep.

• 0:32Speaker 01

  And today it's like one of the premier fund of funds in venture and you've got eight billion under management. You were very early to funds like Thrive, Founders Fund, and you also like provide the data that powers the Forbes Midas list. So like you're very in the know about top venture firms and how the ecosystem has been working. And so my goal with you today really is to understand your vantage point on venture, where we're at, what it looks like and sort of, you know, how you're, how you're seeing things. Because for us as venture investors, our job is to like pick companies. Your job is basically to figure out how to pick investors. And so that's kind of what I want to open up with you about today.

• 1:10Speaker 00

  Sure.

• 1:10Speaker 01

  The first place I'd love to start is just getting your overall pulse check on it's 2025. AI is obviously very important. Companies are growing quickly. They're valued, you know, more highly than ever. We just came out of these doldrums post Zerp. But now we've had a couple of years of like very exciting time. How are you overall feeling as somebody who allocates exclusively to venture? Like, what's your sentiment?

• 1:35Speaker 00

  I think overall our sentiment is, is excitement. You know, we think we are at the, at the leading stages of an AI wave. That will, that will power business opportunities and return generation over the next 10 to 15 years. We're in the early stages of that. There's evidence that it's working, right? And it's working at scale. And so I think all of those things are very exciting.

• 2:00Speaker 00

  I think at the same time, it feels like a very frothy investment environment. Valuations are relatively high and they're very high at the earliest stages, it feels.

• 2:09Speaker 01

  Like they're higher. The early stages and the late stages.

• 2:11Speaker 00

  I think so. I think so. I think so. I think if you look at some of the more recent growth rounds, they've been done at revenue multiples that are not peak revenue multiples.

• 2:18Speaker 01

  Yeah, and don't look that different than public multiples.

• 2:20Speaker 00

  That's right. That's right. So what's the, you know, I think Palantir is trading at a thousand times revenue. OpenAI's recent round was not done at a thousand times revenue, right? So what's the right market multiple for those assets?

• 2:34Speaker 00

  And so I think at the growth rounds of the market today, capital's being invested and rounds are being raised at relatively healthy multiples. At the earlier stages, at the formation stages, where there's less evidence of a product, less evidence of a product market fit, you do see founders with credibility, founders who could check a couple of boxes, raising large pools of capital at very high valuations.

• 2:57Speaker 01

  Yeah, I mean, one of the other tricky things is it does seem like the growth rates right now are genuinely faster than they've ever been. So like before AI, it was like if you were going one to three of ARR as a software company, you could get your A done. And now it's like one to five, one to seven, something more.

• 3:14Speaker 00

  Yeah.

• 3:14Speaker 01

  And so I do also think it's really hard to put multiples on these companies when they're growing really fast.

• 3:18Speaker 00

  I think that's right. Which makes it complicated. The pace of revenue growth is something that we haven't seen before.

• 3:22Speaker 01

  You were just mentioning, though, these like early stage rounds before there's product market fit, where founders effectively go straight to an A.

• 3:28Speaker 00

  Yeah.

• 3:28Speaker 01

  Yeah. And so you probably have a lot of that in your portfolio, of course.

• 3:31Speaker 00

  We are seeing that, yeah. We're seeing that across our portfolio, from our flagship funds and the branded firms, all the way down to the to the seed firms.

• 3:38Speaker 01

  Outside of AI, and obviously we'll come back to that, but like in other categories like hardware, defense, maybe consumer, like what other what other sentiment sort of updates have you had recently?

• 3:50Speaker 00

  Yeah, I don't think the market is as frothy outside of AI. And so I think it's a very reasonable, if not attractive, market when you move outside the AI space. I think valuations are still attractive. I think founders are still talented and you're seeing good companies starting and being built. You're seeing capital staging in at relatively attractive valuations

• 4:12Speaker 00

  in response to milestones being met, revenue being generated, et cetera. So I wouldn't characterize the market outside of AI. Frosty, but within AI, which today represents, you know, fifty to sixty percent of the activity across the venture landscape, there's more demand than there is supply. And so we're seeing behaviors that are that are challenging.

• 4:34Speaker 01

  Obviously, we're hoping that everything here turns out to be good in a world where like everything's happening right now, like doesn't turn out to be so good.

• 4:40Speaker 00

  Yeah.

• 4:40Speaker 01

  What do you think are like the main risks that you see right now that would explain like the future of like, why this went wrong?

• 4:47Speaker 00

  I think we're just going to see companies that don't don't get product market fit. Right? We're going to see companies don't get product market fit that have raised a lot of capital, where capital went at a high valuation. And so I think we're at a we're at an interesting place in the venture industry where if I were to say, let's look forward over the next ten years, I think that I think the following two things can be true. We're going to see a lot of carnage over the next ten years. And we will see more value created over the next ten years than we've seen in the venture industry.

• 5:16Speaker 01

  Like in the late nineties, it's like, you know, a bunch of those companies got wiped out in dot com.

• 5:20Speaker 00

  Right.

• 5:21Speaker 01

  Bust, but then you have also like Amazon and Google.

• 5:23Speaker 00

  That's right. That's right. And venture has always been a power law driven business. It's even more so today.

• 5:28Speaker 01

  Yeah, it does seem.

• 5:29Speaker 00

  The magnitude of the winners is even greater today than it has been in prior cycles, I think.

• 5:33Speaker 01

  What do you think explains that?

• 5:34Speaker 00

  I think it's explained by the lower marginal cost of software. I think it's explained by incumbents and individuals being more willing to try new software more quickly. Right? I think in the last cycle, a lot of your incumbents were asleep asleep at the switch, right? And so we saw growth rates were slower, right? And enterprise, enterprise buyers, growth rates were slower. No one's asleep at the switch in the cycle. It doesn't feel like. And so enterprises all have budgets to go try a bunch of AI software. Consumers are signing up for chat GPT as fast as you can, as fast as you can imagine.

• 6:10Speaker 01

  Yeah.

• 6:11Speaker 00

  And so I just think there's more, society has embraced tech.

• 6:13Speaker 01

  Yeah.

• 6:14Speaker 00

  As a potential solution more. So I think we're seeing the ramp faster.

• 6:18Speaker 01

  As you know, I obviously like I work with many more companies at like the series A stage than at the later stages. And one of the things that's really interesting is when I was starting Lattice recruiting against the incumbents, like let's say like Fang roughly was was mostly not easy. But like it was if somebody didn't want to go to those companies, it was like not competitive. It was just like a different product versus now. It's like all these even very hot series A companies. It's like well, OpenAI and Anthropic and Meta and these other places are extremely compelling, even the very startup minded employees.

• 6:51Speaker 00

  Right, right.

• 6:52Speaker 01

  And so I also think the talent aggregation that's happening at these big companies at huge scale is different than it seems like it's been before.

• 6:58Speaker 00

  I think that's right.

• 7:00Speaker 01

  Or SpaceX and Anduril and all these places.

• 7:03Speaker 00

  I think the value of Signal in this market is magnified, right? And and Signal in this market seems to be attracting capital and talent and customers at a rate that we haven't seen before in the venture business.

• 7:18Speaker 01

  How do you feel about the dynamic where a lot of venture platforms, many of which are some of the best in the world, are now getting so large that, you know, a high percentage of their dollars basically are just going into these, you know, snowballs rolling down a hill that are just like runaway huge. Like, is that something where you're like, I, you know, would rather have the early stage exposure? Like, actually, those companies are going to be massive and getting into those companies at almost any price is good.

• 7:45Speaker 00

  We think a little bit of both, frankly, and we structure our portfolio that way. We do realize venture is a power law driven business and that, you know, your returns are generated by the companies you're invested in that end up being winners and less so by the valuation at which you entered those companies. And so we think kind of the growth, the venture growth stage of investing and CDE rounds, if done right, with the right firms and the right companies, is a really attractive risk adjusted return in this environment, really attractive risk adjusted return. And the platform funds have the right to win across those stages, right? At the same time, there's just.

• 8:23Speaker 00

  There are individuals who have a unique angle and or a unique approach to founders, a network of founders, who have proprietary deal flow and who have a right to win at that stage in a competitive environment. And so we like that segment of the market as well, which is really the earliest, earliest stage of the market.

• 8:46Speaker 01

  So basically, you're kind of in a mindset now of it's either the premier platforms or you try to find, you know, individuals with these edges.

• 8:54Speaker 00

  It is, it is, yeah.

• 8:55Speaker 01

  What about the rest of the market? Because obviously, most of the market is not one of those two things, I guess. And maybe just by dollars, but.

• 9:01Speaker 00

  Yeah. So, you know, I'm worried about the long tail of venture in this, in this market cycle, right? I think the magnitude of the winners is going to be, is outsized in this market, is likely to be outsized in this market. We're seeing evidence of that today. I think the signaling effect is so strong that the brands have, have real advantages in this market. Generally worried about kind of a long tail of venture, worried about companies that are unable to pivot, you know, prior legacy software companies that are unable to pivot into AI related opportunities. That's what scares, scares us the most.

• 9:36Speaker 01

  Yeah. There was a tweet, which I know you didn't see because you're a serious person who doesn't waste time on X. But Martin.

• 9:43Speaker 00

  I'm not on X.

• 9:44Speaker 01

  That's good. That's, you're smart. Martin from Andreessen posted something that was very thought provoking and got a lot of people stirred up. Basically, he was like, increasingly good investing is consensus investing. And you're kind of kidding yourself if you say it's something else. Basically, it's like, you know, obviously, at the later stages, like, good companies are known, but today in 2025, it's incredibly, incredibly early on, you're able to see. And it got a lot of people sort of frustrated and, you know, reacting and saying, actually, you know, the best companies of the last 10 years were not consensus. And, you know, then it flipped and it created this big debate about where's the value in investing? Is it, you know, being able to see the future that other

• 10:27Speaker 01

  people can't see and finding diamonds in the rough? Or is it, you know, winning, you know, the hearts and minds of founders that, you know, any idiot can tell is really good and just, you know, having the right to back them?

• 10:40Speaker 00

  Yeah.

• 10:41Speaker 01

  I'm curious how you think about it.

• 10:42Speaker 00

  It's an interesting quote. I didn't see it. So thank you for sharing it with me. Within the context of your interpretation of this quote, I think it's both, right? I think.

• 10:51Speaker 00

  You know, as we look at the market today, 90% of the market is chasing the heat and chasing the signal. And 10% of the market is the signal. Sequoia is the signal, right? Peter Thiel is the signal. Josh Kushner is the signal. And so whether, whether a Sequoia or a Founders Fund, or you know, these very high quality firms, Mark and Ben at Andreessen, whether they are chasing the signal, whether they are investing in contrarian opportunities with conviction, they're creating the signal that the rest of the market is really chasing. So I think, I think it's both, to be honest with you.

• 11:31Speaker 01

  Well, it's interesting that you say that because those examples have both. They both create signal and they can also win once somebody else has created signal.

• 11:37Speaker 00

  Correct, correct.

• 11:38Speaker 01

  Which is part of why they're so dominant.

• 11:40Speaker 00

  That's right. That's right.

• 11:41Speaker 01

  It seems to me like right now, sort of like companies, you know, get these power law, you know, winner dynamics. It seems like venture firms could too. Where it's like, if the signal is that powerful, why shouldn't these firms be managing double or triple or quadruple the money they're managing today?

• 11:56Speaker 00

  Yeah.

• 11:57Speaker 01

  Unless you think that like, the tech market's not big enough.

• 12:00Speaker 00

  Yeah.

• 12:00Speaker 01

  It's like, why not just give the ball to the, you know, seven foot center who can dunk it every time?

• 12:05Speaker 00

  Yeah. I think you're right. And I think that's what we've seen over the last 10 years in venture, right? I think, I think, I think brands matter. We think brands matter in venture. Good brands equal positive signal in the marketplace. And positive signal have, have, has real positive meaning for founders in terms of raising additional capital, in terms of attracting talent, acquiring customers, helping in the regulatory environment, right? And so I think if you look at founding a company, there are really three things that at play here. Number one is, not only do founders need capital, but founders want help.

• 12:43Speaker 00

  You did it, right? Starting and growing a company is not easy. And so you want capital, but you want help. Ventures, number two, venture has always been a power law driven business. And so as a founder, you really want to do things that increase the probability that you're one of those companies that are founded each year that really matter. And number three, I think we're in an environment where the magnitude of the winners is going to be greater than ever in this cycle. And so if I'm a founder, I'm going to do everything I can to increase the probability that I'm one of those power law companies, even if that means taking a lower valuation and raising capital.

• 13:22Speaker 01

  Yep.

• 13:22Speaker 00

  From a brand that has extremely positive signal, right?

• 13:25Speaker 01

  Yeah, I mean, the other thing, these big brands will invest, you know, many, many times huge amounts of money into a company. And so even if you take, you know, a lower valuation, that's now like this, you know, mega deep pocket you have.

• 13:39Speaker 00

  That's right.

• 13:39Speaker 01

  Help you, you know, have capital advantages, which are huge.

• 13:42Speaker 00

  I think, I think, I think that is important to founders, right?

• 13:45Speaker 01

  Yes.

• 13:46Speaker 00

  I don't know if you enjoy it fundraising, but I'm not sure. I know many.

• 13:49Speaker 01

  Yeah, there's parts of it that are good, there's parts of it that are bad.

• 13:51Speaker 00

  You know, I think if you talk to most founders, they would say they don't like fundraising. And they would prefer to spend as little time fundraising as possible. And so when you do raise capital from one of the large branded firms that are lifecycle investors, you have someone who can, who can fund your growth over time.

• 14:06Speaker 01

  Yeah.

• 14:06Speaker 00

  And I think that's attractive to founders.

• 14:08Speaker 01

  This plays into a debate that happened on this show, not exactly, you know, not at the same time, but Josh at First Round was talking about how there's just physics to venture math and you can't have ginormous funds and get great returns, the math just won't allow it.

• 14:24Speaker 00

  Yeah.

• 14:25Speaker 01

  Then I had Mark Andreessen on the show and he said something more of like a techno optimist view of nobody can appreciate how big these companies are going to get. Being in the winners always drives great returns. You can put a huge amount of capital into these things and we're just scratching the surface.

• 14:42Speaker 00

  Yeah.

• 14:43Speaker 01

  Of how big tech can be.

• 14:44Speaker 00

  Yeah.

• 14:44Speaker 01

  Sort of just different takes on the question. You're in the business of figuring out how to invest in these funds and make the most money. So I would ask you sort of how, if at all, do you think about this fund size question? Where does it fall in the stack rank of things you care about?

• 14:58Speaker 00

  Yeah, I think at some level, and we're invested in both Josh at First Round and Mark at Andreessen. And I think at some level, they're both right. Fund size does matter. It's hard to it's hard to overcome the math, right? Josh is right. You're less likely to turn a billion or two or three billion dollars 10 times than you are 100 million dollars, right? But at the same time, you have to be in the power law companies to generate long-term returns. And so when we look at the data over a long period of time, and we go back to the 1980s, and we look at the venture returns from the 1980s, what we conclude is that fund size does matter, but it's not the only thing that matters.

• 15:44Speaker 00

  And if you look at returns over a long period of time, what you'll find is that often the largest fund in the market is the highest returning fund in the market. And it's a self-reinforcing cycle.

• 15:58Speaker 01

  So how would you explain that?

• 15:59Speaker 00

  The highest returning firm is able to raise more capital, is able to hire better talent, is able to attract better founders, and it's just a virtuous cycle, right?

• 16:10Speaker 01

  Yeah, I also wonder if that best fund is still deploying less than they would have been capable of deploying in many cases.

• 16:16Speaker 00

  So I think that is the key question. And the calculus that we always look at is, is how does the fund size relate to the capabilities of the firm? And it's not the absolute fund size that matters most to us. It is how does that fund size relate to the capabilities of the firm? How does it relate to the size of the investment team, the strategy, the level of conviction?

• 16:39Speaker 01

  The access.

• 16:39Speaker 00

  The access to founders, to good founders, to the level of conviction they have about portfolio construction. And where we've seen-

• 16:47Speaker 01

  Level of conviction there, you're saying more concentrated is better?

• 16:51Speaker 00

  Exactly. So where we've seen firms get tripped up and-

• 16:56Speaker 00

  Joshua Leonard did some great research on this at the University of Chicago on fund sizes and venture returns. And his conclusion was it wasn't the absolute level of fund size that mattered. It was the increase from one fund to the next. And when fund sizes were more than doubling, that's when firms got into trouble. And we see evidence of that in the marketplace. We'll, we'll see a firm that is managing a $700 million fund, building a portfolio of 25 companies where an average position size is

• 17:22Speaker 01

  15 to 20 on entry?

• 17:23Speaker 00

  15, 20 million dollars, right? The market gets hot, they go from 700 million to a billion four. They need to build the same 20 to 25 company portfolio, but then average ticket size needs to be, an average investment size needs to be $40 million. And they need to have $70 million in their winners, in their winners, right? And making that shift, when you're sitting around the table within a venture firm, investing in the next round, just having the conviction to put $70 million into one company when you've historically put $20 million into your winners. It's just, it takes time to make that shift, right? And so that's where we've seen fund managers get tripped up.

• 18:05Speaker 01

  The concentration thing's really interesting. Like I, some of the, like the large firms that I really respect, like Founder's Fund, or Thrive, or Green Oaks, I feel like are pretty, like I think they have a lot of dollars into a relatively small number of companies.

• 18:19Speaker 00

  They do. You know, the two characteristics that we've identified over, over, you know, our history, our 20 year history, and just going back and looking at the data over time, the two characteristics that we've identified that are most important for exceptional investors are, number one is a combination of contrarian investing or first principles investing. And so it goes back to this comment that they are the signal, right? They're not following the signal. They're willing to invest when others aren't. They're willing to approach the market from a first principles standpoint. And Peter Thiel is a great example of that, right? I mean, he did the Airbnb round at three and a half billion dollars when no one else wanted to do that round, right? So number one, they approach the market from

• 19:01Speaker 00

  a contrarian standpoint or first principle standpoint. Number two, they have conviction.

• 19:07Speaker 00

  And when they see, when they see it working and they see it winning their portfolio, they're willing to push their chips on the table.

• 19:14Speaker 01

  Yeah.

• 19:15Speaker 00

  And that's hard to do. That's really hard to do because for a lot of people, it's hard to sleep at night when you have that level of concentration. But that's how, that's how the winners and the, that's where, that's how the highest performing funds in the venture industry have, have generated their returns.

• 19:30Speaker 01

  Concentrating into their winners.

• 19:31Speaker 00

  Concentrating into their winners.

• 19:33Speaker 01

  Just as like a, you know, vague barometer on it, like what does a really concentrated portfolio look like? Like what percent going into the top first, second and third largest positions? Would you be like, yeah, that's concentrated. Like where would you be like even for founders fund? That's a little excessive.

• 19:49Speaker 00

  Yeah.

• 19:49Speaker 01

  Or is there no number?

• 19:50Speaker 00

  Yeah. So two thoughts. Number one, we see, we see fund managers who are launching funds today, raising funds today with the intent of building a concentrated portfolio of 11 to 13 investments. Right? And, and these are series A firms raised by experienced investors who, who believe they have good founder deal flow and good access and the right to win. And they're building concentrated portfolios from the outset. Right? It's not a 25 investment portfolio. It's a 13 investment fund portfolio. And then when you drill it down to at the end of the fund life or at the, at the max NAV of the fund life, what percentage is in the two, three, four winners? It's 60, 70%.

• 20:32Speaker 01

  In three names.

• 20:33Speaker 00

  Yeah.

• 20:33Speaker 01

  Yeah.

• 20:34Speaker 00

  Yeah.

• 20:34Speaker 01

  And that's happened.

• 20:35Speaker 00

  Because they're just driving their, you know, those, those names are the successful names and their NAV is increasing and that's driving the value of the portfolio.

• 20:41Speaker 01

  It's probably like, you should be so lucky to have names that are worth putting that much into. So it's probably a good thing.

• 20:46Speaker 00

  Yeah.

• 20:46Speaker 01

  So we've talked about like the big platforms, obviously. And I'm curious about the way you think about picking the other basket of sort of like less obvious names and less obvious managers for you to be in business with.

• 20:59Speaker 00

  Yeah.

• 20:59Speaker 01

  I guess my first question before I ask is like, why have that basket at all? Because, you know, we just talked about how great the

• 21:07Speaker 00

  Yeah.

• 21:07Speaker 01

  sort of platforms are becoming.

• 21:09Speaker 00

  Yeah.

• 21:09Speaker 01

  What's the point? I know there's an argument for it, but like, how would you say it?

• 21:12Speaker 00

  I think established managers have always struggled with investing in the seed space successfully. And we've seen it over the history of those platform firms, right? For some of them, they've been in and out of seed. They've been in seed with various strategies, either as a, you know, they hire, hire individuals to invest directly in seed. They build a portfolio. They realize all the negative signaling effects of that that hurts their downstream investing. They get rid of that individual. You know, they're out of seed and then they go back a couple of seed managers to generate deal flow. And so I think of, if you just look at the history of venture of the last 20 or 30 years, the branded platform firms have always struggled to invest effectively in seed.

• 21:58Speaker 00

  Because it's tough, right? It's difficult and it has impacts for their downstream investing. And so for us, we want to have exposure to that segment of the market with people who, who are solely focused on that segment of the market and who we think are really good at investing in that segment of the market.

• 22:15Speaker 01

  So it's about exposure above anything else?

• 22:17Speaker 00

  It is. It's about exposure, but it's also about returns. If we look at the seed returns within our portfolio, our seed returns are accretive to the overall returns within our portfolio.

• 22:29Speaker 01

  Yeah, you just can't deploy as many dollars to it.

• 22:31Speaker 00

  That's right.

• 22:32Speaker 01

  And because it has more variability or does it have not that much variability when you're diversified?

• 22:37Speaker 00

  I mean, you know, the, the seed segment of the visual market today is, is very, very large. We could, we could deploy a lot of dollars. We're not convinced that the manager quality is that deep. We believe in building concentrated portfolios. We believe concentrated portfolios are the best way to generate outsized returns for our investors. So we could build a portfolio of 50, 60 seed managers and invest a ton of money. But we consciously choose to invest a smaller pool of capital in a more concentrated portfolio of seed managers who, who we think are best in class.

• 23:09Speaker 01

  Do you care more about? Strategies or the people like the equivalent question here to a VC would be something like, are you backing like founders or markets predominantly? And I actually think like, and some people, they got both. Some people will actually take a side on that. Like, you know, like a lot of Gil, who's a phenomenal investor, had mentioned like, yeah, market driven more than most people.

• 23:30Speaker 00

  Yeah.

• 23:31Speaker 01

  Other people are like all people.

• 23:32Speaker 00

  Yeah.

• 23:32Speaker 01

  Some people are really product obsessed. Like, do you have an angle on this for yourself where you're like, there's just some managers you want to be in business with no matter what? Or there's just models that you think are going to be excellent, you know, come hell or high water?

• 23:44Speaker 00

  At the seed stage segment of the market, for us, it's more people driven. We try not to pick markets. We don't want to lock our limited partners capital up 15 years into a market that may be in or out of favor over that 15 year period. But we are very excited and interested in identifying people or groups of people who have exceptional track records, who have a unique angle to the market, whether it's a, it's a unique network of founders that they can tap into, whether it's a unique approach to connecting with founders, whether it's a unique point of view on a segment of the market. We're always excited about investing with people who have a unique angle and or approach that generates what we think is either proprietary

• 24:29Speaker 00

  deal flow for a right to win in a competitive situation. And then we're always excited about investing with people who can build a personal brand. You know, when you're at the seed stage, you're not walking through the front door with a founder's fund business card or a Sequoia business card, you got to stand out. And, and so we think that's part of the equation for us when we're looking at seed managers. It's evidence of strong investment judgment through a track record, it's unique approach and or angle that generates proprietary deal flow or a right to win, and it's ability to build a personal brand.

• 24:59Speaker 01

  If you think back to sort of, it doesn't have to be seed managers, but like first, second, third, like early in their fund life managers, can you share any stories of either like, like a couple of great decisions that were like hard to make and like how they played out? And also like a huge miss where you were just like, I read that wrong and I missed out on a lot?

• 25:18Speaker 00

  Sure. So we've been lucky enough to make a number of affirmative decisions at TrueBridge that have worked out well over time, that have had positive impacts for our portfolios and our returns. You know, investing with Sunil Dollywall when he left Battery to form Amplify Partners was not an obvious decision.

• 25:39Speaker 00

  We had known Sunil while he was at Battery. He was running their seed portfolio. We liked him as an investor. When he left Battery, his seed track record was a little unproven, but we liked the portfolio he had put together at Battery. We liked his approach to the marketplace. He had a very, once again, going back to an approach, he was focused on internet infrastructure at the time, which we thought gave him both a chance of proprietary deal flow and a right to win in a competitive situation. So we backed him in his first fund. It was a $45 million fund. It was not obvious, and that's turned out to be a double-digit returner for us. You know, backing Jason Green at Emergence early was not obvious. An individual with a great track record, partners with good track records, once again,

• 26:24Speaker 00

  a unique approach in terms of SaaS software specialization, but it was not obvious.

• 26:31Speaker 00

  You know, their second and third funds have turned out to be both double-digit returning funds. So those were both, you know, not obvious or not conventional decisions. When we made them, they turned out very well. Perhaps our best decision in the history of our firm that was largely unconventional was the decision to back Peter Thiel and his partners at Founders Fund when they raised their first institutional fund back in 2007. Peter, at the time, was recognized as a good investor. He was recognized, probably had more credits being their first investor in Facebook than he did anything else. He was running his hedge fund Clarium. He had put two partners, you know, Ken Howery and Sean Parker beside him, who had backgrounds as good operators. Peter's first fund was largely his own personal capital.

• 27:13Speaker 00

  He went to market in '07 to raise an institutional fund. We met Peter and Sean and Ken at that point in time. There were as many reasons not to invest in Founders Fund II as there were to invest in Founders Fund II, but we made the decision to invest. You know, we did. Know at the time that Peter would become one of the singularly exceptionally best or singular exceptional best investors in the history of the venture industry.

• 27:39Speaker 01

  Yeah.

• 27:40Speaker 00

  He has built a firm at Founders Fund at a track record that is second to none in the venture industry. And today, we're one of the largest investors in Founders Fund. So that's probably the best investment we've made.

• 27:52Speaker 01

  I guess also when you go that early, it gives you the right to put huge amounts of dollars into the platform later.

• 27:57Speaker 00

  And we've been very lucky to establish a very good relationship with them. That's been mutually beneficial for both sides. So.

• 28:03Speaker 01

  Are there any situations where you where it went the other way?

• 28:05Speaker 00

  Yeah.

• 28:06Speaker 01

  Where you like turned out somebody was phenomenal or just it went great and you didn't see it?

• 28:11Speaker 00

  Yeah. So I'm proud to say that today, we're, we're, we've been longstanding investors with Josh Copelman and his partners at First Round. But when Josh was raising his first fund, we were just getting started and we had known Josh in his prior life and he offered us the opportunity to invest in his first fund.

• 28:27Speaker 01

  That was a good fund out here.

• 28:29Speaker 00

  That was a really good fund, really, really good fund. But at the time, you know, we were trying to build a concentrated portfolio. We thought that was the best way to generate outside returns. We had promised our limited partners to build a concentrated portfolio. And the opportunity to invest with Josh was wonderful, but it didn't fit our portfolio construction.

• 28:48Speaker 01

  Have you mostly?

• 28:49Speaker 00

  So we passed.

• 28:49Speaker 01

  Have you mostly found the ability to correct the mistakes after missing it?

• 28:54Speaker 00

  We think we have. We think we have.

• 28:55Speaker 01

  One of the things that actually is really nice in, you know, being an LP versus a venture investor is when you miss in venture with a company, it's like you missed by like a big multiple, even if you come in to a late round.

• 29:08Speaker 00

  Yeah, yeah, yeah.

• 29:08Speaker 01

  You just get to invest in a new fund.

• 29:10Speaker 00

  You don't have the same cost. You don't have the same cost as a limited partner, right?

• 29:13Speaker 01

  As long as the relationship was strong, which is, you know, but for everybody, I think, you know, relationships along Silicon Valley is a small world. And so it's like passing graciously on everything is really important.

• 29:24Speaker 00

  That's right. We're very careful about how we, how we say no.

• 29:26Speaker 01

  Yeah.

• 29:27Speaker 00

  But you know, I think you're exactly right. So, you know, we met Mark and Ben when they were raising Fund One, exceptional individuals, exceptional investors, had a vision to build a firm that was going to disrupt. At least they believe would disrupt the venture industry. We chose not to make that bet at that time because they hadn't built that platform. They hadn't built that operating platform. We stayed in close touch with Mark and Ben. And when they came back to market to raise Fund Two, you know, they had built more of that operating platform that was their vision. Right? They had a good track record for Fund One, and so we engaged with them in Fund Two, and that's where we became an investor. And today, we're one of the larger investors in Anderson Horace as well. But that goes back to your point of there's no cost to us

• 30:08Speaker 01

  Yeah.

• 30:10Speaker 00

  of waiting that fund, waiting that one fund.

• 30:12Speaker 01

  So there's these buckets of big platforms that dominate. There's, you know, smaller firms, you know, whether they're emerging or established. There's also then, obviously, this long tail of venture firms that you mentioned that wouldn't fit into either of those, but keep getting funded and seem to be on a path to keep growing their funds even. And I'm curious what the dynamics are of, from your seat as an LP, why is it so durable? Why are venture firms so durable?

• 30:44Speaker 00

  It's hard to kill a good brand in venture.

• 30:46Speaker 01

  Even a regular brand.

• 30:47Speaker 00

  It's hard to kill a regular brand in venture.

• 30:49Speaker 01

  Just a firm.

• 30:49Speaker 00

  Yeah. I think it has to do with the structural makeup of the venture industry and the kind of the supply and demand of capital in the venture industry. And so venture capitalists are raising capital from a highly diversified supply base. I mean, there, I don't know how many institutional LPs or individual LPs there are in the world, but there are tens of thousands of supply sources to, or supply of capital to venture firms where they're raising from a highly diversified supply base.

• 31:21Speaker 01

  And probably growing.

• 31:22Speaker 00

  And growing.

• 31:23Speaker 01

  Yeah.

• 31:24Speaker 00

  It's really difficult for LPs to distinguish between luck and skill.

• 31:30Speaker 01

  And the managers.

• 31:31Speaker 00

  Really difficult, right? Because by the time a venture capitalist gets to our doorstep, they've got a good story for every winner in their portfolio. We're lucky in that we have a good network and so we can go figure out the difference between luck and skill, but I'd say 90% of institutional limited partners can't figure out or can't distinguish between luck and skill.

• 31:55Speaker 01

  How do you figure it out? I mean, like, I'm sure you're not saying you figured it out perfectly, but you figured it out to some extent. When you're saying we go figure it out, what does that mean? Because I think it's so hard to tell.

• 32:04Speaker 00

  What that means is that we have one of the best networks in the venture industry. And so when we're trying to figure out the role that a GP played in a company or a winner in their portfolio, we have a, we have a large network of people we can go call to figure out.

• 32:21Speaker 01

  What really happens?

• 32:21Speaker 00

  Was it luck or was it skill?

• 32:23Speaker 01

  Yeah.

• 32:23Speaker 00

  Right?

• 32:23Speaker 01

  Right.

• 32:24Speaker 00

  And so I think that's the other component is it's hard for investors to distinguish between luck and skill. And so they see a positive track record and they attribute, they misattribute it to skill when it may have just been luck.

• 32:35Speaker 01

  Mm hmm.

• 32:35Speaker 00

  Right? And if it's just luck, it's not repeatable.

• 32:37Speaker 01

  Yep.

• 32:38Speaker 00

  And then I think the third thing is that is at play is that just the feedback loop in ventures so long. Right? I mean, it takes seven, eight, nine, 10 years to see strong evidence of performance in a venture fund. It takes 10, 11, 12, 13 years for these companies to exit and dollars to come back. And by that time, you know, a firm has raised two or three additional funds.

• 32:57Speaker 01

  Yeah.

• 32:58Speaker 00

  So I think those are the structural elements that allow third and fourth quartile firms to continue to raise capital.

• 33:06Speaker 01

  You talked about how for venture firms, concentration, you know, you believe is paralegal with success. Have you felt your own desire to concentrate your own book with managers over time? You know, as we talk about these power law companies and power law managers to an extent, does it make you, relative to say five or 10 or 15 years ago, change your own thinking about how you want to allocate your own funds?

• 33:32Speaker 00

  It has, and we do. You know, we started our business in 07, thinking that, that building a concentrated portfolio of the best performing managers in the business was the best way to generate outsized returns for investors. Our first fund was invested across 18 core managers. We are investing fund eight today. Eighteen years later, and our our eighth fund will be invested across eleven or twelve core managers. So we've consistently concentrated our portfolio over time. And we think of our jobs as simply investing as much of our limited partners' capital as we can with the best performing managers in the business. And we force rank our portfolio every year. Managers

• 34:17Speaker 00

  that are at slots ten, eleven, and twelve are always at risk of leaving our portfolio. And the reasons why managers leave our portfolio are, number one, we can put more of our limited partners' capital to work with managers that we rank numbers one through six, and that happens a lot. We've been very successful at increasing our allocations to the Sequoias and the YCs and the founders' funds of the world. We see new entrants come into the marketplace that we think can perform at a very high level. And if we think a new entrant can perform better than the tenth, or eleventh, or twelfth manager in our portfolio, we make the tough decision to put the new entrant into the portfolio.

• 34:51Speaker 01

  Yeah.

• 34:52Speaker 00

  So Founder's Fund was a new entrant into our portfolio. Andreessen Horowitz was a new entrance into our portfolio. YC was a new entrance into our portfolio when they started to raise outside capital. And then the third thing, third reason why managers exit our portfolio is a result of something specific to the manager. So it's either a team change, good investors leaving, strategy drift, changes in fund size that we think exceed the capabilities of the firm. And so those are the three reasons why managers leave our portfolio.

• 35:23Speaker 01

  That makes sense.

• 35:23Speaker 00

  But we've concentrated over time.

• 35:25Speaker 01

  Yeah, makes sense. And I'm sure there are very hard calls to make, but it's probably very important for the ecosystem. And also, just like to to the point before, there's a lot of money out there and people can, there's a lot of sources of capital for all these firms.

• 35:39Speaker 00

  Yeah, it's it's been very important to the returns of our fund.

• 35:42Speaker 01

  Yeah.

• 35:42Speaker 00

  Our returns are best in class, and I think it's a result of.

• 35:45Speaker 01

  It's the same as a venture firm concentrating.

• 35:47Speaker 00

  That's right. That's right. And we've always invested from a capital constrained. Position, I mean, we've always, we could put to work much more capital than we actually raise in our funds.

• 35:57Speaker 01

  I'm sure.

• 35:58Speaker 00

  But we actually like investing from a capital constrained position because it forces us to make these tough choices and it forces us to only invest in the best performing opportunities.

• 36:07Speaker 01

  To push on that, let's say that you could just get 50% more allocation in your existing managers and have a 50% bigger fund, would you be totally neutral slash happy to do that?

• 36:18Speaker 00

  That's how we've grown our business over time, right? So, you know, we've grown our flagship fund from 500 million to 700 million to 900 million. We'll go to market to raise, you know, 900 to a billion dollars, but we're delivering exactly the same portfolio and exactly the same exposure to our limited partners across all of those funds. We're delivering exactly the same portfolio construction today as we delivered in Fund Five. And it's a result of our ability to increase our allocations to managers. It's a result of our ability to put more capital with the best performing managers in business.

• 36:52Speaker 01

  As a final question, for, I don't know how big my audience of LPs is, but you know, for any young LPs out there, could you share any like advice to somebody because you've obviously had an amazing career doing this? What would your advice be to like a young LP, whether it's here's how to be great at it, here's how to carve your own path, here's how to make it sustainable, here's what you should spend your time on, here it was a waste of your time? Like what, what do you wish you knew?

• 37:14Speaker 00

  You know, what's become clear to me over 25 years as a limited partner in the venture industry is that you're only as good as your network. It's often said that investing in ventures like walking into a dark room, the longer you're there, the more you see. And so my advice to individuals entering the institutional LP world within the venture segment is really focus on building, building your network. You know, really focus on connecting with the people that you think are important. Work really hard to make those relationships authentic. Work to make them personal when you can. Be aggressive about building your network because that's what's going to generate deal

• 37:54Speaker 00

  flow, that's what's going to generate insight, that's what's, that's what's going to enhance your decision-making capabilities. So that would be my number one piece of advice is, is really focus on building your network and building authentic personal relationships with people in the industry. And I think my second piece of advice would be follow the signal, try not to be the signal.

• 38:16Speaker 01

  Interesting, why?

• 38:17Speaker 00

  I think it's really hard. I think it's, I think it's really hard to be the signal. I think, I think you have to be exceptional to be the signal.

• 38:24Speaker 01

  Do you think you should aspire to become the signal over time? Or do you think that you should just?

• 38:27Speaker 00

  I think, I think if you have, if you have that mindset and you have, you think you have that ability, then yes, try to be the signal. But if you're not sure, be very comfortable following the signal. Because I think that's the way the, the business works.

• 38:42Speaker 01

  And I guess maybe to the prior point in, as a VC, you get paid a lot more to see something early than as an LP. Because to that point, you miss the first fund.

• 38:53Speaker 00

  Yeah.

• 38:53Speaker 01

  They're going to be great for a long time.

• 38:55Speaker 00

  Yeah, there's, there's, there's not no cost, but the costs are low to missing the first fund.

• 39:00Speaker 01

  Yeah.

• 39:00Speaker 00

  And I've always said, I would rather, I would rather cry over the, over the investments I, I didn't do than the ones I did put in the portfolio.

• 39:06Speaker 01

  It's such an interesting point because you know, when I think about a lot of my, you know, like favorite LPs, I feel like I've learned a lot from, including you, I think of, you know, the LPs who I think we, we would probably consider to be more the signal that other LPs look to and say, oh, if they're doing that, you know, I should do it.

• 39:21Speaker 00

  Right.

• 39:21Speaker 01

  Logically speaking.

• 39:23Speaker 00

  Right.

• 39:23Speaker 01

  As a career decision, it's probably better to just follow the good stuff.

• 39:27Speaker 00

  I think it takes time to be the signal, right? I think it takes time. You have to be in the industry for a long time. You have to build that network. You have to, you have to see a lot. You have to develop that pattern recognition in order to be able to put a stake in the ground and be the signal. Right? We're lucky that the principals of our firm have been in the venture industry for, individually for 35 plus years. You know, I started my career as a venture backed founder back in 1995. I've seen all the cycles in venture over the last 30 years. To the extent that we can be the signal in the market today, it's a result of 35 plus years of experience personally and over 150 years cumulative experience at our firm. For someone entering the industry today.

• 40:10Speaker 01

  Yeah.

• 40:11Speaker 00

  There's risk in being the signal, right?

• 40:13Speaker 01

  I had Dan Fader on the show too, and he obviously, I think.

• 40:17Speaker 00

  He is in the industry. He's wonderful.

• 40:19Speaker 01

  And I think of him as signal. And I'm sure though, that earlier in his career, you know, I'm sure those adjustments happen as you go through your careers.

• 40:25Speaker 00

  That's right.

• 40:25Speaker 01

  All right. Well, that's good advice. Well, Mel, this is really fun. Thanks for making time for it.

• 40:28Speaker 00

  Absolutely. Thanks for having me.