“It’s a mathematical reality that the highest performing GPs in this part of the market often also have the highest kill rates, which means some things are incredible and other things are super wonky and you have to be cool with that. You can’t be doing a six across the board.” — Caroline Toch Docal
Caroline Toch Docal backs early stage fund managers as the lead of BCV’s Emerging Manager Program. She believes in investing in funds as early as the first close, which is a rare focus in the LP landscape. She’s a lifelong early stage enthusiast from her time at Venture for America to Techstars to Chief to Dorm Room Fund to now Bain Capital Ventures, where she runs the emerging manager program there which has seen quite the evolution since 2017.
[00:00] Intro [01:33] BCV Emerge [02:30] The 13-year summer camp experience [07:46] From VC to LP [09:50] Compare/contrast early stage investing to emerging GP investing [12:51] Behind the scenes of Caroline chose to become an LP [14:36] Caroline’s first investment [16:24] What is a GP-friendly diligence process? [21:27] How Caroline pre-qualifies an investment? [24:50] Understanding if a GP REALLY believes VC is their life’s work [26:25] Examples of long-term language [31:05] The 3 Acts of BCV’s Emerging Manager program [36:44] What the hell is BGH? [38:03] Stand up comedy [39:20] Dogs vs cats
“One of the things that’s not really talked about in this part of the asset class is everything looks pretty good until you see a lot of stuff.” — Caroline Toch Docal
“Sometimes people use the referencing phase to get to know people they’d want to meet. I don’t believe that is necessarily the most GP-friendly thing to do.” — Caroline Toch Docal
“It’s a mathematical reality that the highest performing GPs in this part of the market often also have the highest kill rates, which means some things are incredible and other things are super wonky and you have to be cool with that. You can’t be doing a six across the board.” — Caroline Toch Docal
An example ‘long-term language’: “They don’t celebrate fundraising; they celebrate outcomes.” — Caroline Toch Docal
“The average anchor check for a $10-25M fund today is $4.2M. In 2017 when we started, it was less than $3M. So that’s a huge change. Related, the LP base is just concentrating. Using that same size as a benchmark, they have 25% fewer LPs than in 2020.” — Caroline Toch Docal
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
Ever since I became an LP, albeit small, but a dedicated one, when people ask me what kinds of funds I invest in, I, of course, share the usual:
Funds I and II
Pre-seed and seed managers (ideally first checks)
Both emerging investors (limited track record) and emerging managers (extensive track records, but first-time managers)
Industry-agnostic, but little overlap with my existing portfolio
Geographically-agnostic
Bias towards concentrated portfolios
Bias towards sub $50M funds
These are all boilerplate demographics. And I’m happy to qualify each one, but they’re all traits that, more or less, I seek alongside a lot of other emerging manager-focused institutions share. But one additional thing I share with others is that I look for GPs who believe venture is the last job they’re ever going to have.
The world’s best founders bet their entire lives on the success of an idea. The literal definition of all eggs in one basket. Along that journey they’ll raise capital from a variety of people, some of whom will take board seats and be their trusted partners. The last thing a founder would want is someone who “retires” 3-4 years into the job because they didn’t have the intestinal fortitude to stick with the business. They leave a vacant hole in the board. They leave their founders by the wayside. These founders need someone who has their back no matter what.
And even if not, these GPs are the folks founders can call at 3AM in the morning, and these GPs have jumped out of bed before they’ve even picked up the number. They’re primed even on the weekends. Even on vacation. It’s borderline not healthy, but the GPs love this craft as much as the founders love theirs. To them, this job and the all shit that comes with it is the utopia.
The truth is things can change. Will change. But at the time of our investment, I need to believe that every GP I back has no Plan B, that they’re going to figure it out no matter what. And more importantly, they need to believe that. That they’ve been put on this planet to do so. That they will help their portfolio companies figure it out no matter what. And the more concentrated their portfolio, the more they must help. Incentives align.
It’s hard to describe what that exactly looks like because different people exhibit that differently. It’s also one of those things you can’t just say, but comes out in the small things you do, over time. It’s like glitter. Deep and enduring intentions have a way of sticking with you. They’re hard to shake off. And in their darkest, character-building moments, they shine.
And by function of that, we will too. Giving up should not, cannot exist in their vocabulary. I err towards GPs who run through walls. And if they can’t, they need to believe with every fiber of their body they can and will it into existence. Even if they don’t know the answer, they will figure it out quickly. Naturally, they have an extremely high rate of iteration. Their decks, weekly updates, and even their memos will go through sweeping evolutions over the course of a few short months. And that pace will only get faster.
I like investing in people who want long careers in venture. And that will lead us towards two kinds of people:
The kind of person who wants to get rich on fees
And the person who would do this even if they didn’t get rich because they love this craft.
The first cohort will likely have all right answers. They know the jargon. The modelling. The narratives LPs want to. They know exactly how big their Fund III and IV and V looks. How big, their check size. And everything will be explained as a function of today’s dollars, today’s terms, today’s environment. A few deep references will unveil how they treat others. Why they change jobs. What did they say at the job interview every time.
The latter cohort will have a world view. The way the world will look 30-40 years from now. Not in terms of technology, but people. They don’t try to get on top of things though it’s part of their job. They get to the bottom of things. They’re laser focused during conversation. They’re not looking at the notifications on their phone. They’re looking at the small details of the conversation and their mind turns in ways that you haven’t seen others turn. And they often look at things that don’t change. They can go really deep in areas any rational person will have taken at face value. There’s a natural obsessive quality they have about them.
They notice things others do not. And they have a thoughtful reason to things people take for granted. They show evidence that their shower thoughts revolve around this. They wake up in the middle of the night thinking about this. They consume information from various sources and all roads somehow still lead to Rome. In this case, venture.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“The intuition part comes from activities of creativity that change your perspective.” — Yiwen Li
Yiwen Li is a seasoned investor with a successful track record of investing in AI, blockchain, and healthcare tech while developing global business partnerships to fast-scale the business.
Yiwen is currently Head of Venture Investments at Bayview Development Group, a global family office with diverse exposure public market, private equity, venture, and real estate. Prior, she was a Principal at Alumni Ventures, responsible for end-to-end multi-stage investments focused on blockchain and fintech. She was Director for Corporate Strategy at Masimo (Nasdaq: MASI). She built an innovation pipeline in healthcare connectivity and data analytics. She was Director for Corporate Development at NantHealth (Nasdaq: NH), where she established the international business division. Yiwen started her career at Capital Group in equity research.
Yiwen is an Advisory Board member of C-Sweet. She served on the board of Give2Asia as the chairman of the finance committee and a member of the investment committee. She was an advisory board member for the Asia Society where she co-founded the “Asian Women Empowered” initiative. She was recognized as the” Top 50 Women Leaders in San Jose 2024 and 2025”, “Top 50 Women in 2019” and the “Most Inspirational Women in Web 3”. Yiwen is also the author of one of the best sellers “Make the World Your Playground”, inspiring women to find their unique path. She is a frequent speaker on innovation and emerging technology trends.
Yiwen holds a Master from the London School of Economics and a Master from the University of Vienna. She also graduated from the Venture Capital program at UC Berkeley and the Private Equity Program at Wharton. She was selected to be one of the ” Young American Leaders” at Harvard Business School. Yiwen is a recipient of the European Union’s Erasmus Mundus scholarship. She is fluent in Mandarin and German, worked and lived in Europe, Asia, and US.
[00:00] Intro [02:07] Yiwen’s childhood [05:00] Jazz singing [06:14] The value of learning languages [09:01] How to build intuition around emerging managers [14:51] Getting to the bottom of a GP’s motivation [16:33] What percent of GPs are not in VC for the right reasons? [19:47] Does success fuel or inhibit ambition? [24:17] The cost of knowledge is cheaper [24:56] Competitive edges in the current world [27:06] Why creative activities matter [31:21] Advice to emerging LPs [32:42] Post-credit scene
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
Writing this “Dear Emerging Manager” reached more people than I thought, so people asked me to write the same version for LPs.
You’re not special. No matter what GPs say, you’re not. I’m sorry. Refer to Danny Meyer’s line in Setting the Table: “You’re never as good as the best things they’ll say, and never as bad as the negative ones. Just keep centered, know what you stand for, strive for new goals, and always be decent.”
If you don’t believe me, imagine if you were broke, but you got to keep everything else you have. Knowledge. Network. Would the best GPs still give you carry if you had no money?
You’re likely not going to win the best co-investment. There’s very little incentive for a GP to. An experienced later-stage investor will do better than you. Will likely be more helpful than you. Even if by brand association alone. Will likely be better connected than you.
Even worse is if you can have the full pro-rata amount. Worse still, you get the “opportunity” to lead. If you do, you’re just telling everyone your child is the smartest kid on the planet. If no one else says that, it’s just you. Don’t believe your own bullshit. See Richard Feynman‘s line: “The first principle is that you must not fool yourself and you are the easiest person to fool.” Do note, it’s different if you get access to a Series D deal through your manager.
As of now, we’re investing in “innovation” when we should be investing in innovation. Let me lay down the incentives. You want liquidity, so you look at deals that generate such. The lowest hanging fruit here is companies who IPO. So you start looking for funds, and sometimes deals, that are in the same sector. And because you are, because you’re looking for that story, large organizations are pitching you that narrative. They restructure and hire teams so that it feeds that narrative. Because the multi-stage funds are doing so, early stage funds and “smart” first checks are pitching strategies and picking companies where they know the multi-stage funds will follow. The co-investor (much less the follow-on investor) slide in the deck gets the most attention these days. The established early stage programs are telling me, in confidence, that they invested in X deal because Big Firm Y will do so. And they’re optimizing for that. The larger platforms are telling me they’re hiring team members around which types of companies are getting late-stage funding and/or going public. Fintech became interesting because of Chime. Prosumer became interesting because of Figma. (Circa 2025). AI is interesting because of large secondary opportunities into OpenAI and Anthropic. Yes, these industries are all transforming the world, but note the incentives. These are the IBMs.
Because of all the above, funds really only have a 10-20% allowance to make venture bets. Any more than that, GPs risk career suicide, at least from the perspective of LPs. These GPs are “unbackable.”
I don’t want you to stake your careers on it. I’m just a stranger on the internet whom you shouldn’t take advice from. But this same stranger is frustrated at the collective risk appetite of an industry that’s supposed to be known for eating risk for breakfast, lunch, and dinner.
Venture has become too big of an asset class if you can describe emerging managers, established firms, growth equity, secondaries all within the same umbrella. The decision-making and the underwriting is different from each. Some see normal distributions. Others do not. Do not conflate a normally-distributed asset with a power-law-driven one.
A slow ‘no’ is worse than a fast ‘no.’ Some will thank you for a fast ‘no.’ Most won’t. But most will talk behind your back if you give them a slow ‘no.’ Time is the only resource we cannot win back. Yours and theirs.
Marks before Year 5 mean very little. You’re welcome to use them as directional headings, but never rely on them. Even if you do, do your own adjusted TVPI and IRR measurements outside of what GPs tell you and keep that methodology consistent across all investors you come across.
Lemons ripen early in venture. Early losses are not always a clear sign of a bad portfolio.
Another LP passing is not always a bad sign. Find out why. Find out how many other similar funds they saw.
It’s okay to pass on a deal if you don’t have the network to diligence the deal. Not having the network means you don’t have people who’ll tell you the cold truth. These are the people who’ll tell you that you have spinach in your teeth.
Don’t ask for data rooms in the first meeting. Or worse, before the first meeting. You’re likely not going to do anything with the data. In the words of my friend, “it’s like asking someone’s net worth on the first date.” Too early. The deck and a conversation is all you need to figure out if the juice is worth the squeeze.
Be transparent with your timing and decision-making process.
If you do not have the time, energy, budget, or network to do the work in true venture, hire someone to do it. Usually that means an oCIO, fund-of-funds, MFO, or a consultant. Make it their job. But make sure it is their ONLY job. The infamous fictional philosopher Ron Swanson once said, “Never half ass two things. Whole ass one thing.”
Your institution will thank you more for whole-assing one job. So, will your GPs.
In the words of Thomas Laffont, “Focus is a luxury.” You sit on more privilege than the vast majority of the world. More privilege than your childhood friends. It’d be a shame to not use the luxury that comes with that privilege.
Don’t torture the data. “If you torture the data long enough, it will confess to anything.” Let the data guide you to questions. Then form your own hypotheses. Understand you cannot grill any hypothesis until it dry ages for at least 7 years. Any sooner and it’s not worth the premium you paid for it.
Trust your intuition enough that you don’t regret in 30 years that you didn’t take the bet of the lifetime, but not enough that you live to regret a lifetime of (undisciplined) bets.
This letter is as much of a reminder for you as it is for me.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“Once you hit a billion dollars, you should probably consider some sort of internal team. Just to mitigate risk. There’s audit risk involved when you have such a small number of people managing a huge pool of capital. It’s going to differ for everyone. That’s probably a good benchmark.” — Trish Spurlin
Trish Spurlin is the Investment Director at Babson’s $800M endowment, covering private markets investing with a large focus on venture. In fact 70% of their private equity portfolio is venture capital. Quite a unique strategy for an endowment to take. Why? An endowment is required to provide, in this case, the university money every single year, anywhere from 5% to 60% of a university’s annual budget. And to invest in an illiquid asset class aka venture capital that doesn’t return capital till a decade later, if not longer, takes courage.
[00:00] Intro [01:45] Sports in Trish’s life [05:10] How does success fuel inhibit ambition? How does it inhibit ambition? [07:35] How do you underwrite long term motivation? [13:21] How fast you order something might matter [16:04] Can Trish angel invest outside of Babson? [17:08] Endowment with a $80M budget [19:54] Should you hire an outsourced CIO? [24:18] Endowment with a $8B budget [27:47] Babson’s liquidity requirements [30:33] How to ask about a senior partner leaving [34:05] How does Trish build trust with her GPs? [37:48] Trish’s interests vs Babson’s interests [45:24] Hank Sauce [47:26] Why is Ocean City Boardwalk special? [48:51] What serves as a reminder to Trish we’re still in the good ol’ days?
“What have [ambitious people’s] transition periods looked like? A lot of times when people do really cool things, there are 2-3 years after where they just don’t know what to do with themselves. That’s very normal. You see that with Olympians. You see that with astronauts.” — Trish Spurlin
“Once you hit a billion dollars, you should probably consider some sort of internal team. Just to mitigate risk. There’s audit risk involved when you have such a small number of people managing a huge pool of capital. It’s going to differ for everyone. That’s probably a good benchmark.” — Trish Spurlin
“If you want to be told things when they aren’t going well, you can’t freak out when somebody tells you something that’s not going well. No emails in caps. No yelling. Take a moment to digest what you’re being told. You’re collecting information. You can discuss that information when the time is appropriate.” — Trish Spurlin
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
I was chatting with a GP last week about the highlights and lowlights of having a multi-stage fund or just a VC fund as an LP via their fund-of-funds. The obvious synergies of access to downstream capital and branding, especially if the individual running the fund-of-funds is known for their institutional track record as an LP. As well as access to the GPs at those funds for mentorship reasons.
But the downsides also exist. You’re one of many of other GPs who have access to the same team. More often than not, there’s no institutional diligence. And the investment happens largely for strategic purposes. Same is true for multi-stage GPs investing through their own family office. But you also have to think through the tough conversations you need to have when you take checks from more than one of these funds. Assuming all else equal, and they write the same check size, when your portfolio companies are outperforming, do you pass them to Big Fund A or Big Fund B? Equally as true for any LP who wants co-investment opportunities. Family offices. Fund-of-funds. The classic question of: Do you like Mom or Dad more?
And there’s one more. Consider a multi-stage fund who’s an LP in your fund. You share one of your stellar portfolio companies with them, and they loved the deal so much they also invested. Not only invested, but led the following round at a much, much higher valuation. For the sake of this thought experiment, let’s say the Series A valuation is a solid nine figures. As such, they take a board seat. A year later, your portfolio company has the opportunity to exit for $800M. A phenomenal exit for everyone on the cap table, including yourself, your other co-investors, the founders, and the employees. And for you in particular, this would return meaningful multiples of your fund. But not your Series A lead, who is also your LP. The math isn’t inspiring for them. $800M would only be a shy 4-8X on their initial investment.
So, the Series A lead/your LP blocks the acquisition deal and pushes the founders to go for more. You push back on the motion as everyone else’s incentive, including the founders, is the same as yours. Whether the deal happens or not at this point is irrelevant. This Series A lead, who’s also your LP, ends up telling a number of other LPs that you’re difficult to work with. To the effect that they would also no longer re-up in your next vintage. And that makes your fundraise for the next fund even harder than you expected.
You’ve not only lost a $500-2M check (on average), but worse, you’re likely to have a tarnished reputation with prospective LPs. If they like you already, they may look beneath the surface. If they haven’t gotten to know you, they’ll likely surmise on limited information that the juice isn’t worth the squeeze.
Before you dismiss this as just a hypothetical case study, note that this is a true story.
As my buddy Thoronce told me, “Capital formation is a design principle. Fundraising is a sales process. Without true design around a customer base and a product, you will fail eventually.”
Capital formation is thinking through the types of conversations you want to have when you’re in Fund n+1 and n+2, 5-6 years from now. As Adam Marchickonce said, “The bulk of your conversations with an LP happen negative 6 months to time of investment. The most important conversations you have with an LP are Year 2 through 6 of your investment.” These are the conversations about extending recycling periods, early distributions, fund extensions, and so on. Many of which revolve around the return incentives of your LP base (if decisions are made by majority approval) or by LPAC approval. A family office who has no immediate liquidity needs might not want early distributions and wants you to hold out. Another who’s starting a new business line or pulling completely out of venture (because they were misinformed or set the wrong expectations initially) will want early liquidity and/or someone to buy their stake. An institution with a high leadership turnover rate will likely have a new CIO who’ll want to redo the whole portfolio. So what used to be obvious re-up decisions will need to be re-underwritten altogether.
So I’m not here to say, “Don’t take LP checks from fund-of-funds whose core business is being a VC.” I just want to remind you to consider the incentives of each LP you have on your cap table. Ideally, your LP base’s incentives are homogenous. Not only to themselves, but also to yours. Realistically, for the average emerging manager, it won’t be. But if you know it won’t be, prepare guardrails for future conversations. Don’t walk in blind.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“There’s this thing called alpha, which is returns driven by skill not market return. And when you start to think about what does that mean, skill means you’re doing something that other people aren’t. You have to be different from the average. What can drive that? How are you going to have that be positive expected value? You need to have unique information, unique insight, unique access, or get uniquely lucky.” — Jacob Miller
Jacob Miller is the Co-Founder and Opto’s Chief Solutions Officer, a key figure in its leadership team and central to its growth strategy. He spearheads initiatives for Opto’s fiduciary partnerships and the systemization of institutional-quality private markets investment techniques and programs.
Before co-founding Opto, Miller spent nearly five years as an investor at Bridgewater Associates. Miller has a passion for sensible long-term investing, systematizing investment processes, and distilling complex market dynamics into clear, logical linkages that help people better understand their investments. Having managed money for family and friends since he was 16, Miller is a certified market junkie. While he has a background in macroeconomics and high-yield debt, he finds the challenges and opportunities in the private markets space far more interesting and important, both for investors and society.
[00:00] Intro [01:49] Why did Jacob start investing at 8 years old? [07:20] The fallacies of storytelling [08:49] Inputs, framework, and outputs [09:21] Jake’s mental framework for alpha [12:31] Pete Soderling’s unique access [13:49] Jacob on defense tech VCs [14:57] How does Jacob underwrite relationships in defense? [16:30] How do you know if someone’s been preaching a story before it became a story? [20:16] The difference b/w an opinion and an insight [23:07] Why does Jacob write? [25:42] Running with Joe Lonsdale at 8:30AM [29:12] 2 wildly different billionaires [31:48] What does Jacob want for the world? [36:23] What keeps Jacob humble?
“A jack of all trades is a master of none, but oftentimes better than a master of one. — William Shakespeare
“If you didn’t have stories or branding, it would take you four hours to choose which cereal to get based on solely merit — if you did cost comparison versus ingredients, nutrition, et cetera. You need the story to make a decision in two seconds rather than six hours.” — Jacob Miller
“You need to know what are the assumptions that underpin those stories so you can know if and when they’ve been invalidated.” — Jacob Miller
“You have inputs; you have a framework; you have outputs. The story is the output. You can be wrong on your inputs. You can be wrong on your framework. Better to be wrong on your inputs than your framework. Because if you were wrong on your framework—and it’s garbage— it’s garbage in, and garbage out.” — Jacob Miller
“There’s this thing called alpha, which is returns driven by skill not market return. And when you start to think about what does that mean, skill means you’re doing something that other people aren’t. You have to be different from the average. What can drive that? How are you going to have that be positive expected value? You need to have unique information, unique insight, unique access, or get uniquely lucky.
“As investors, we probably don’t want to bet on getting uniquely lucky. And access and information counts as insider trading in public markets. And so if you’re going to a public market asset manager who claims to have alpha, you need to be defending why you have unique insight. Why can you take information that everyone else has and derive conclusions that other people won’t, which is a very high bar. […]
“But in private markets, we can look to what are unique sources of access and information. Are you in founder networks that other people are not in? How can you show me you see deals before other people do? Do you have benefits as an LP or GP that you can bring to founders that might lead to preferential pricing that would lead to them choosing you first? Do you have a reputation that will attract the right kind of talent? And then on top of that, do you have really insightful frameworks about what makes a great founder, about how to assess TAM, about how to help a company scale through product-market fit to expansion and et cetera? I always start a private market analysis with: ‘Let’s talk about access and information. What do you see that others don’t? What do you know that others don’t?” — Jacob Miller
“Too much source-citing is honestly a red flag for me. This should be stuff you’re learning in the market that’s evidence of your unique access to information.” — Jacob Miller
“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.” — Alvin Toffler
“That which Fortune has not given, she cannot take away.” — Seneca
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
You are not all top quartile. Only 25% of you are.
You are not all top decile. Only 10% of you are.
I refuse to believe that I’m somehow seeing only the best in market. I’m not famous or lucky enough to have that fortune. Even the best known LPs I know are not so.
If your marks include companies held at last round valuation (LRV) for longer than two years, please consider proactive re-marks. This includes your angel portfolio.
SAFE rounds are not mark-ups. Do not conflate real marks with hypothetical marks.
If the founder doesn’t know who you are AND if you don’t know the company’s updates in the last two quarters, you don’t know the founder. Do not pretend you do. Your investment is not accretive to your future network. I dare say if I went to those founders right now, and asked them who their top five favorite investors are, you won’t come up. You’re forgettable. And that’s a cardinal sin of firm-building.
Let me caveat that firm-building means you plan to grow the firm. That where you are today is not where you want to stay forever as a GP. This matters far less if this is a one-and-done fund. That is okay. You don’t have to love venture forever. You don’t have to pretend you do.
Do not believe you are that special if you have a multi-stage GP as an LP. Many of the notable multi-stage GPs have invested in many. Some have invested in multiple dozens. Others hundreds. A handful we see in almost every deck. It is their job to see everything Or at least attempt to. The cardinal sin for a multi-stage GP is to not see the deal, worse than not picking or winning it.
Assume all your LPs will be passive LPs. I don’t care about their profile, how referenceable they are, how much they love you, how much they want to help. Give it a few months, a year at best, they will become passive. Human interest is fleeting. Especially since venture is the smallest bucket in our allocation (excluding funds-of-funds). And yes, they have day jobs. There are exceptions. For instance, someone who wants to start their own VC fund or someone who wants to be a VC themselves. That is not everyone.
When modeling, it is bold of you to assume that more than 10% of your portfolio will be outliers. It is bold of you to assume that more than 5% of your portfolio will be outliers. We are in a power law industry.
You will get diluted. More than you think. With how much longer companies are staying private, and how much capital is available in the later growth stages, you will get diluted. 80% is safe to assume if you have no reserves. Down to 65% depending on how much you have. There are very, very few cases you only have 50% dilution. Yet I see many GPs model their portfolio that way.
Pro rata is a legal right no successful capital will grant without a fight. If you get it without a fight down the road on a great company, ask yourself why you’re so lucky. And never forget to ask yourself that question.
In a market of exceptions, you are all more normal than you think. It sucks. In any other industry, most of you will have fairly little competition for greatness, but you chose one of the few industries where your competition is all exceptions.
How you react to a ‘no’ from an LP is a sobering fact and a great telltale sign of the strength of your relationships. I love chatting with other LPs who’ve passed on you. Not because I need to hear their why—most of our interests and mandates are different, but because I almost always ask how you react to their ‘no.’ And I am not alone here. Usually, LPs volunteer that information up quite readily. Of note, different LPs say ‘no’ differently. Most don’t. A fact I am aware of.
Many of us who do this as our primary job love you. We love venture. We love the romanticism that comes with this space. Do not play the hopeless romantic back. We need the truth.
There’s a great line that Elizabeth Gilbert credits her wife Rayya Elias. “The truth has legs. It always stands. When everything else in the room has blown up or dissolved away, the only thing left standing will always be the truth. Since that’s where you’re gonna end up anyway, you might as well just start there.”
The best time to share the truth is in person. And immediately. The second best is a 1:1 call. If it’s not urgent, save it for the AGM. If it is, call us.
We should not learn about you or your portfolio for the first time via the news. If we are, you’ve lost our trust. Shit happens. We get it. How you respond and communicate shit is what makes or breaks a relationship.
Many of my colleagues try to be helpful even if they can’t invest. Understand because they’re human they can’t be so for everyone. So when they are, don’t take it for granted.
If you conflate any of the above, you’re either lying to yourself or you’re lying to us. The former means you’re never going to make it in this industry. The latter means we’re just not going to be good partners for you.
This is not a Bible. Do not swear by it. Do not pray to it by the bedside every night.
This is just a morning wake-up call. Some of you have already woken up. Many of you may not have.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
“I hate checklists. I like outlines. I don’t like checklists. A checklist says ‘I have to have this, and then I’m good. An outline is ‘This is my starting point. These are the kinds of things I want to talk about or kinds of things I need to look at.” — Eric Sippel
Eric Sippel currently runs his family office and is an active investor in and adviser to many venture capital, private equity, hedge and real estate funds. He is a member of the RAISE Global selection and steering committees (the premier emerging VC manager conference) and often speaks to emerging venture manager groups. Previously, Eric was the COO of Eastbourne Capital Management, a multi-billion dollar hedge fund firm, and a Partner at Shartsis, Friese & Ginsburg, where he was a nationally recognized hedge fund and venture capital lawyer. Eric serves on more than a dozen LPACs and has served on many for profit and non-profit boards.
[00:00] Intro [02:13] Why Eric’s name on LinkedIn is lowercase? [02:44] Oceanside [04:18] Eric’s grandfather and education in the family [07:06] Basketball [07:58] Eric’s first venture fund investment in 1996 [12:05] How does Eric invest below the minimum check size requirement? [14:51] How to decide your LP check size [17:47] Today, when does Eric invest in a new GP? [21:14] Time x capital 2×2 matrix [24:32] Tough conversations with Eric [27:00] The minimum viable value-add for LPs who write small checks [32:02] Eric’s most impactful mistakes [35:11] How do you know if a GP is GOOD at adding value? [43:42] How many other funds in the same space does Eric look at before investing? [46:36] Breaking down Eric’s deal flow [49:35] How many references does Eric do? [50:27] Who does Eric trust for LP references? [52:34] Other references for diligence [55:23] How does Eric approach a founder reference? [59:09] Biggest lessons from CIA training [1:05:16] Mike’s Pizza [1:06:18] If everything were to change tomorrow, what would Eric photograph?
“The best way for an LP to construct a venture portfolio is to be diversified across a large enough number of firms and funds. And in particular, those funds should be concentrated. 20-30 companies per portfolio, maybe less in some cases. And they should be diversified across sectors, geographies, vintages, and firms/GPs. You need to have a minimum of 15, but 25-40 feels right to me.” — Eric Sippel
“When I’m thinking about who am I going to say yes to, I’m comparing that to the people I’m cutting out who I think are great and I’m comparing it to the other people who would love to have my capital who I think are great. One of things that drives me is the relationship I have with a GP.” — Eric Sippel
“Never follow your investor’s advice and you might fail. Always follow your investor’s advice and you’ll definitely fail.” — Hunter Walk
“My advice to GPs is to do what they believe is right for maximizing performance and not to listen to their LPs.” — Eric Sippel
“The best way to make money in any asset class is to think differently.” — Eric Sippel
On references… “I’ll talk to as many founders as I can get my hands on that are not on-list. I do not want GPs to introduce me to founders.” — Eric Sippel
“I hate checklists. I like outlines. I don’t like checklists. A checklist says ‘I have to have this, and then I’m good. An outline is ‘This is my starting point. These are the kinds of things I want to talk about or kinds of things I need to look at.” — Eric Sippel
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
I would highly recommend watching the full video. Only two and a half minutes. But in case you choose not to, the story goes… there was a former Under Secretary of Defense giving a speech at a large conference who interrupts his own remarks while drinking out of Styrofoam cup. He smiles as he looks down and he shares an anecdote.
Last year, when he was still the Under Secretary, they flew him there business class, picked him up in a car from the airport, checked him into his hotel for him, escorted him to his room. And the next morning, there was another car waiting to pick him up from the hotel that drove him to the venue, showed him through the back entrance, then green room. In the green room, there was someone waiting for him with a hot cup of coffee in a ceramic mug.
The following year he went (the year he was giving the above speech), he was no longer the Under Secretary. He flew to the city on coach, took a taxi from the airport to the hotel, checked himself in, took another taxi to the venue the next morning, found his own way backstage after arriving at the front door. When he asked where he could get coffee, someone pointed him towards the coffee machine in the back corner and told him to serve himself in a Styrofoam cup.
The intended lesson here is that the ceramic cup was never meant for him, but the position in which he holds. He deserved the Styrofoam cups, everyone does. And that no matter how far you go in life with all the perks that come with promotions and status and power, never forget that that will last only for as long as you hold that position.
There are obviously rare exceptions. But that is also the question that us as LPs ask. Hell, I’m sure it’s what a lot of VCs ask themselves about the founders they could back. Were you successful because or in spite of your last firm/company?
For founders and founding GPs, the attribution and causation is clearer than if you were an operator or other team member at a VC firm. We begin to peel the onion with questions like: What did you do in your last job title that no one else with that job title has ever done? For operators, did you create something and meaningfully lead something that created mass societal value and/or independently change the course of the company? For non-founding GPs at VC firms, did you individually drive disproportionate returns for the overall fund at your last firm? Attribution is often harder than one would think at prior institutions since many institutions succeed as teams, as opposed to individuals. So if success came as being a core member of the team, how much of your last team are you bringing with you? If not, how can you ramp up quickly to be a top performer?
The DGQ series is a series dedicated to my process of question discovery and execution. When curiosity is the why, DGQ is the how. It’s an inside scoop of what goes on in my noggin’. My hope is that it offers some illumination to you, my readers, so you can tackle the world and build relationships with my best tools at your disposal. It also happens to stand for damn good questions, or dumb and garbled questions. I’ll let you decide which it falls under.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.
