A conversation with an LP reminded me of this recently. Can we trust a GP’s word that they’re a good picker if they can’t assess how likely an LP is to commit?
I’ve had multiple conversations with GPs where they tell me XXX and YYY are excited to come in the fund, and they just need more time to close their fundraise or for their process. Then the same XXX and YYY LPs ghost these GPs for months on end. For me, that’s enough for me to question their level of commitment, but not having been in those conversations firsthand, I can’t speak to the actual incentives. Sometimes, I actually know XXX and YYY LPs well enough to pick up the phone and dial them right away and ask them what’s up. Which I do. Only to hear from them and they say they had passed already.
Now I don’t know what actually goes on between those two parties. What’s said and what’s not said. There are many LPs out there who give very soft “no’s.” In hopes to not offend, they imply it’s a “no.” There are also LPs who explicitly say it’s a “yes” ONLY IF ZZZ happens. Given the current market, most of the time, ZZZ doesn’t happen, which becomes an easy out for the LP. The LP’s felt like they’ve delivered the “no.” The GP is still hanging onto the hope the LP likes them enough to break the rule. And then, there are many GPs who have selective hearing loss.
Nevertheless, there are multiple instances of this. And it’s not my job to point fingers to any party other than elucidate that this exists in our world.
That said, even if an LP doesn’t explicitly say “no”, there should be enough breadcrumbs to point to whether someone is a pass. Probably harder to know if they’re a “yes.” But there’s definitely writing on the walls if it’s a pass. And it’s almost always better to assume an LP is an out than an in if there’s hesitation.
The outstanding question for someone like me or any of my friends who I’ve had this conversation with is… is this indicative of a GP’s EQ when talking to founders? Is this GP more prone to rewriting history and facts? Is there a massive perception bias here and is the GP living through rose-tinted lens?
Richard Feynman has this great line. “The first principle is that you must not fool yourself — and you are the easiest person to fool.”
And I’ve also had this conversation with another GPs a few weeks back, and I said, “You’re either lying to me or you’re lying to yourself. One is worse than the other. But neither gives me a reason to back you.”
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.
One of the questions that seem to come up every so often, whether it’s when I’m on a podcast or a fireside chat or just in conversation, is: Between sourcing, picking, and winning, which one do you think is the most important that emerging managers have?
The cop-out answer is always: They need all three. Or, they’re all important. Which is theoretically true. One in isolation is really hard to pull off ’cause then you need to account for sheer dumb luck (hope is never a strategy). And while everyone is subject to their own answer, I’m a big believer that the lead domino between the trifecta is sourcing. If you never see it, how do you even pick or win it?
We can talk about how you’d theoretically and systematically pick the best founders or how your value-add is something that is something truly valuable to your investments, but if you never have the opportunity to interact with a generational founder, I don’t care how smart you are. Or how well-connected you are. Or how experienced you are. I don’t care if you’re the world’s greatest X if no one’s heard of you or thinks of you when they or someone close to them starts a company.
Venture is a game of outliers. (I feel like a broken record at this point writing and saying this.) And I would much rather a GP see and miss generational founders again and again (and well, learn each time they do) than to have only seen one their entire life. Obviously, both are better than not having met any ever. You don’t know what quality looks like if you’ve never seen quality before they became obvious. No amount of books you’ve read or podcasts you’ve listened to will help you with that. I would rather you have a large anti-portfolio than build one for the first time as you’re starting your first fund. And in that anti-portfolio, it’s a lot of “I didn’t pick it” or “I didn’t win it” or “I didn’t even know I wanted to be an investor yet.” Yet despite all of that, I’ve chosen to stay in touch with these generational talents and they still value my presence in their orbit.
If you’ve only met one generational founder in your life before, I need to figure out if your network and sourcing channels would allow you to see another in the next 3-4 years (or whatever your deployment period is). And that when you see it, you’ll know that that is the one. But every generational founder looks different from the rest. So if you’ve only seen one in the past, how will I know if you have both the pattern recognition and the exception recognition to pick the next?
For those who have seen one or less generational founders in their lives, I have to bet that you somehow can “use the Force.”
That on the off-chance you do find one, can I trust your intuition to recognize it AND win it?
On the flip side, there’s this game that many of us grew up with. Whac-A-Mole. It’s an arcade game that has a series of moles hiding in holes. The goal is to whack as many moles as you can as they pop their heads up. Venture investing is similar. Each mole is a generational founder. That you may miss “whacking” many a generational founder, but as long as you keep seeing them, and as long as you keep trying to pick them, you’ll eventually hit one. And if you’re lucky, more than one. But in order to see multiple generational founders, you need the cards to be stacked in your favor. The ideal venture manager should be playing a constant game of Whac-A-Mole, as opposed to using the force. Although, damn, being a Luke Skywalker sounds a hell of a lot cooler than playing an arcade game.
To pull a line from Scale’s Rory O’Driscoll that I wrote about in a previous post, “Having to deal with the psychological burden of having an anti-portfolio is a privilege. If you never have the psychological tax of passing on multiple generational deals, you shouldn’t be in venture. Passing on 20 great companies out of 40 great companies you see is always more preferable than investing in 2 great companies after seeing 40 average companies.”
Then there’s the question of whether our definition of generational founders even match up. Does your definition lead you to find founders who will exit at $1B+ outcomes? $100B+ outcomes? Or $100M outcomes? But a topic for another day.
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.
“When small men begin to cast big shadows, it means the sun is about to set.” — Lin Yutang
It’s been 10 years since I first stepped into venture. Yet still, while I know more, have met more people, and have experienced more, and when I look back, I pity the knowledge and experience I had a decade prior… yet despite all that, I know I have still so much work to do.
This essay was born from many conversations over the years, but especially so, in the past few months, where I’ve witnessed conversation after conversation that follows the theme of:
“Have you met X?”
“I have.”
“What do you think of X?”
“X feels far smarter online than X is in reality. After meeting X, where I anticipated so much, I was only let down.”
Never meet your heroes, they say.
In venture, we live in a world where the average VC brags more about “being a part of the journey” or “excited to support” a founder they backed than actually doing the work. It’s no wonder that 70% of VCs add no value (though 15% more add “negative value”). But it is far easier to say the part, look the part, than do the part. With SpaceX and OpenAI’s IPO today, Anthropic’s tomorrow, and Databricks, Anduril, who knows what, the day after, we will find many more VCs congratulating themselves, raising larger vehicles, and casting larger shadows.
In an unreleased interview with a GP I really admire, she told me an anecdote of a founder she knows well. “All of my early stage investors made out like bandits with my huge exit, and I never got a thank you. All I saw was them talk about how they discovered me and how they had such a big role to play in my success. But no one said, thank you for returning my fund 10 times over. And here’s a token of appreciation, whatever the appreciation is.” Which echoes the growing sentiment in the ecosystem.
And here’s my own self-reflection.
I hope that I cast no greater of a shadow than my beliefs, thoughts, and remarks would allow. And I hope still that I have the humility to cast a smaller shadow than I would ever be allowed to.
People measure shadows by the potential and impact someone may have. I have a friend who turned 30 recently. And when we sat down to chat, he told me that people were no longer telling him that he has potential. And one of his greatest fears is that people only see the person he is today for who he is today, and no longer the person he will be tomorrow. That pressure, more than anything, meant he was no longer “young.” I don’t think anyone ever loses their potential as a function of age. I have friends double my age, still learning every day, faster and more studious than people half of theirs. To me, that is still potential.
And here I hope that the shadow I’m capable of casting is underestimated than overestimated. But at least to myself, I hope I never underestimate myself.
“After I’m dead, I would much rather have men ask why I have no monument than why I have one.” — Cato
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.
“We’re going into a world where there will be an increase in inequality in terms of the have’s versus have-not’s. And so if you are invested in some of the have’s, I would actually bet on their acceleration of value aggregation in the later stages of scaling which is why I, personally, think a winning strategy is to hold onto them for as long as possible.” — Charlotte Zhang
Charlotte Zhang from Inatai Foundation is back! And if you’ve tuned into her first episode on Superclusters, you’ll know exactly why. Charlotte has been one of my favorite guests on the podcast, marrying both her profound ability for deep analysis with strong framework-oriented assessments. You might remember her 4 P’s to underwriting every manager from our prior episode.
Naturally I had to have her back for an El Pack episode to answer your questions on how to build a venture capital fund. We bring on 3 GPs at VC funds to ask 3 different questions.
99VC’s Lisa Yu asks about what LPs look for in Fund I’s beyond track record.
Escape Velocity’s Mahesh Ramakrishnan asks about recycling and what happens when you have 30% of your fund size as distributions in the first few years of the fund.
Founder Embassy’s Helena Gagern asks about investing in AI frontier labs where the first round of financing already puts the company at $400M+ in valuation. And also, how do you communicate to LPs that you have an “exceptionalism” bucket to invest out of?
As the director of investments at Inatai Foundation, Charlotte Zhang oversees the selection of external investment managers, conducts portfolio research, and helps to institutionalize processes, tools, and resources. She previously served as a senior associate at ICONIQ Capital and, before that, Medley Partners. When not working, you can find her globetrotting (18 countries and counting), writing a Yelp review about the best bite in town, or cuddling up with a book and her two adorable cats.
(00:00) Intro (01:04) What’s new in Charlotte’s life? (04:06) LPs Charlotte would love to meet (05:41) Who is Lisa and 99VC? (09:31) What qualities does Charlotte look for beyond track record? (14:55) How does a GP know if they have a differentiated strategy? (15:49) Charlotte’s pet peeve (17:29) The bottoms up exercise of building a fund strategy (18:00) Consistency of execution (20:05) The highest level of signal you can get from a founder reference (22:18) The ask (22:51) Who is better at bowling: Mahesh or David? (24:44) Who is Mahesh and Escape Velocity? (25:20) Why is Escape Velocity spelled as EV^3? (27:10) What happens when you have 30% DPI in the first 2 years of your fund? (30:19) Does early DPI matter more in Fund I than Fund III? (33:26) Should you sell secondaries at the Series B as a pre-seed/seed GP? (37:34) Venture is under siege for no DPI (38:18) Would Charlotte rather have 4X in 10 years or 7X in 15 years? (39:42) Have’s and have-not’s (40:35) Who is Helena and Founder Embassy? (44:45) What is Charlotte’s reaction when a pre-seed GP invests in a $400M post valuation? (49:23) How do the best GPs communicate betting off-thesis? (50:44) How many GPs have an “exceptionalism” bucket to invest out of? (55:56) How much underwriting goes into a GP breaking the rules? (58:10) “A-players are obvious” but what isn’t? (1:00:38) Charlotte’s last piece of advice for LPs (1:03:43) Charlotte’s last piece of advice for GPs (1:07:18) Why you should talk about the anti-portfolio (1:09:33) David’s favorite moment from Charlotte’s previous episode
“In venture capital, although the top quartile of emerging managers outperforms the established funds. On average, you would actually be better off investing in established funds than in an emerging manager because the dispersion of returns is so much wider in emerging managers.” — Charlotte Zhang
“Because incumbent brands create access flywheels, the most important thing for an emerging manager is having a clearly differentiated strategy. Otherwise, it’s fighting an unwinnable war.” — Charlotte Zhang
“Investment strategies are simply financial products serving the market of what founders and management teams in businesses need.” — Charlotte Zhang
“The best founders will know who the best VCs are.” — Charlotte Zhang
“It’s all about the density of the NPS you have amongst the best talent. Of course, if they have a good experience with you, they’re more likely to refer others they think highly of to you. And that’s the reason why it becomes a leading indicator and therefore, a self-fulfilling prophecy as to who rises to the top.” — Charlotte Zhang
“It’s actually a higher signal to me if it’s someone referring you that didn’t take money from you.” — Charlotte Zhang
“When we’re conducting diligence as an LP, you should be looking under the rocks where you are more likely to find disproving evidence.” — Charlotte Zhang
“If [venture] does not produce any realized returns, how will it be self-funding? And how can you continue pacing sustainably into this asset class?” — Charlotte Zhang
“We’re going into a world where there will be an increase in inequality in terms of the have’s versus have-not’s. And so if you are invested in some of the have’s, I would actually bet on their acceleration of value aggregation in the later stages of scaling which is why I, personally, think a winning strategy is to hold onto them for as long as possible.” — Charlotte Zhang
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 wrote this piece last year on how I’ve evolved my thinking on intros. And while not my most popular post by a long margin, it is something I do forward to others who ask for intros.
Now, despite that, people still ask for intros. And so at the risk of sounding like an a-hole, I’m going to say something that may offend a lot of people who know me.
Just because you make an intro between someone and me doesn’t mean I will automatically make an intro for you.
Few things to clarify:
1/ First off, I’m genuinely grateful for all intros. Whether it’s to someone you’ve known for a long time, or someone you just met yesterday, or someone you deeply respect, I’m honored that someone else is thinking of me when the intros are made. I will never take that for granted.
2/ I get the “you scratch my back, I scratch yours” mentality. But:
Not all intros are created equal. Not all relationships are created equal. Introing me to someone you met yesterday does not give you the equivalent political capital for me to intro you to someone who, whether I know them well or not, is someone most people seek to meet. Just because a friend made an intro between a stranger they met at the bar last night doesn’t mean they’re allowed to ask an intro to your sister to date her. Obviously, I’m exaggerating a bit, but I wanted to drive the point home.
People are not commodities. I don’t trade people like I trade my stocks. I will naturally make an intro if I know both parties are looking for each other, or at least topics, skillsets, or experiences that the other party has.
If you make a great intro, I will of course: (a) Report back to you and thank you for the intro. (b) Find other ways to thank you beyond words.
The whole reason I’m writing this post in the first place is that a few bad eggs recently spoiled the entire carton. I had a few exchanges recently where certain individuals felt justified to ask for, and hell, take it a step further and demand, intros to certain reputable individuals I know because they made “that intro for you last year.” Which I admittedly felt it wasn’t worth continuing the conversation with the person they made an intro to within 15 minutes of our chat.
Most of you are not the above character. I get it. But I also felt the need to get the above off my chest and use it as a future artifact when the situation arises again.
Thanks for reading my ramble. Truly.
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.
“How you modulate a good story is by inserting dopamine, oxytocin, serotonin, and endorphins at the right times to be able to deliver that story so that the person listening to that story can form an opinion.” — Asher Siddiqui
Asher Siddiqui from the Song Family Office joins me on El Pack to answer your questions on how to build a venture capital fund. We bring on 3 GPs at VC funds to ask 3 different questions.
Inuka Capital’s Gautam Shewakramani asks about what GPs typically overshare and under-share when they’re pitching an LP. As well as how an LP identifies if a GP has great sourcing if they’re a generalist fund.
Unshackled Venture’s Manan Mehta asks if VC is still only one asset class. Is early stage now a combination of discovery and validation capital?
Keymaker VC’s Tim Wang asks what do most LPs overvalue in GPs.
Asher Siddiqui is a global tech investor, M&A dealmaker, and venture fund builder with over 25 years of hands-on experience across venture capital, entrepreneurship, and more than $15B in executed M&A transactions.
He began his career as a software engineer and entrepreneur in the US and UK before spending a decade leading M&A and corporate venture at Etisalat Group (now e& Group), one of the world’s largest listed TMT investment groups. There, he led acquisitions, exits, and strategic transactions across multiple continents.
In 2016, Asher joined the global leadership team at 500 Startups in San Francisco, helping scale the platform to $2B+ AUM, with a portfolio that includes 35+ unicorns and 160+ centaurs.
Since then, he has helped launch and scale several institutional VC firms—including Race Capital, Lumikai, Sukna Ventures, Zayn VC, and Humanrace Capital—and serves on the advisory boards of funds such as FootPrint Coalition Ventures, Merus Capital, and The Treasury.
To date, Asher has made 100+ venture investments (both direct and LP), raised hundreds of millions in LP commitments, mentored hundreds of emerging VC managers globally, and advised countless founders.
(00:00) Intro (02:09) The DOSE framework for underwriting pitches (04:19) Asher’s new role (05:38) Who is Gautam and Inuka Capital? (09:19) What do most GPs overshare and undershare on? (15:19) How does Asher differentiate sourcing ability in generalist funds? (20:01) The first date analogy (22:38) What emotions do each of DOSE represent? (27:23) Too much dopamine, not enough endorphins (30:02) Who is Manan and Unshackled Ventures? (31:33) Unshackled’s most recent big win (32:46) Discovery capital vs validation capital (33:31) Is venture still only one asset class? (43:29) The Song Family Office portfolio construction (51:41) Asher’s stance on reserves (55:00) Why it makes sense to go to zero AGMs (56:23) The ask (57:27) Who is Tim and Keymaker VC? (58:45) What do most LPs overvalue in GPs? (1:04:40) A new way to share the team’s personality on the deck? (1:08:09) Asher’s last piece of advice (1:14:57) David’s favorite moment of Asher in S5
““Happiness is amazing. It’s so amazing it doesn’t matter if it’s yours or not. A society grows great when old men plant trees the shade of which they know they will never sit in.” — from Ricky Gervais’ After Life
“How you modulate [a good story] is by inserting dopamine, oxytocin, serotonin, and endorphins at the right times to be able to deliver that story so that the person listening to that story can form an opinion.” — Asher Siddiqui
“There’s no point of perfect information, especially in venture, where you say ‘I have enough information’, this is the thesis, the timing is now—… No, there’s a lot of belief involved.” — Asher Siddiqui
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 just shared this verbally on a podcast and a talk recently, and realized while I’ve shared this friends, I’ve never shared it publicly explicitly or made a graphic for it.
What is it? And this was helpful when I was in IR, but also hopefully helpful as a GP pitching LPs, what are the types of LPs that exist?
I never really liked the line, “If you know one family office, you only know one.” Or if you know 1 LP, you only know one.” Probably true in a lot of circumstances, but feels odd that there are 100,000+ types of family offices or LPs.
Short blogpost, but I’ll probably elaborate on each in a future one, but sometimes a picture speaks a thousand words.
This is not all-inclusive, just like Myers-Briggs or OCEAN/Big 5 or the enneagram isn’t. But hopefully a good orienting framework in the first few meetings with LPs.
I borrowed a little bit of the nomenclature my buddy Matt Curtolo used as my original segmentation of LP archetypes was not as well-worded.
X-axis is if they own / create the wealth or not. Y-axis is Maslow’s Hierarchy of Needs.
P.S. This is not a framework you brag about to your LPs. You don’t tell any LPs how they’re bucketed. Just like you as the GP don’t like to get bucketed, no LP wants to. But in this case, when fundraising, you need to eat your ego.
P.P.S. Honestly, you should probably eat your ego while investing, but no one usually listens to this latter comment.
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 question at Fund IV is, ‘Okay, you’ve proved that you’re a great firm builder. Congratulations, you’re raising Fund IV. Are you still a great investor?’” — Zach Ruchman
Zach Ruchman joined HB Wealth in 2025 as a Shareholder after working with WMS Partners since 2023. In his role as Managing Director, Private Markets, Zach leads the team responsible for research and due diligence of private market investment opportunities across a variety of asset classes, including private equity, growth equity, venture capital, private credit, infrastructure, and real assets.
Before joining HB Wealth, Zach was a Senior Vice President at RockCreek and a Vice President at BlackRock, where he led direct co-investment transactions as well as manager research for both primary and secondary commitments in the Americas, Europe, and Asia on behalf of both institutional and family office clients. He began his career as a consultant with Alvarez & Marsal. In this episode, we also talk about how he worked out of the National Democratic Institute’s DC office writing grants and tracking political regimes in the Middle East, including the Arab Spring.
In the community, Zach serves as a member of the finance committee for the Howard and Geraldine Polinger Family Foundation.
I’m also including my reactions to Zach’s comments here.
OUTLINE:
(00:00) Intro (03:04) When 9/11 entered Zach’s life (12:20) Interest in the Middle East (15:00) Returning to the US (17:49) What’s in the foreign service exam? (22:29) From pursuing the state department to consulting (25:39) Consulting to allocating (32:20) Business school and mentors (36:34) The ask (37:07) How Zach makes re-up decisions? (40:15) The difference between a Fund I and Fund IV (43:26) Alignment between senior and mid-level investors (45:33) Deal attribution at big VCs (46:40) Questions to ask to references to find deal attribution (49:12) Avoiding a reference’s scripted answer (52:14) Top 1% performers leaving organizations (53:45) The hardest Fund I to underwrite (1:00:57) Does radical transparency work? (1:06:15) “Private assets work best when they’re inefficient.” (1:09:20) Does AI change VC investing? (1:11:33) Sourcing that AI cannot do (1:14:26) Can AI write good memos? (1:19:11) Pattern vs exception recognition (1:25:03) An example of how a GP proved he worked hard (1:28:00) Best advice for action photography
“Consulting is almost like the liberal arts degree for the beginning of your career. You get to see a tremendous number of different business problems in a tremendous of different geographies. It’s like you have distribution requirements for your career.” — Zach Ruchman
“There are plenty of great investors that are not great firm builders.” — Zach Ruchman
“The question at Fund IV is, ‘Okay, you’ve proved that you’re a great firm builder. Congratulations, you’re raising Fund IV. Are you still a great investor?’” — Zach Ruchman
“If it was as easy as, ‘Hey GP, send your attribution spreadsheet,’ and I say, ‘Ok, great, that’s the attribution,’ my job would be so easy.” — Zach Ruchman
“If that person is an on-sheet reference for a spinout firm, the question then is, ‘Ok, you have a great relationship with this person, did you really do the deal with the person because you liked the person so much and you thought they were bringing something of value to you and that their money was a little greener than everyone else’s because there was a value-add or was it you really liked the name on the back side of the business card—the name of the firm?” — Zach Ruchman
“The hardest Fund I to underwrite is a brand new team. The easiest thing to underwrite is a team that lifts up together.” — Zach Ruchman
“Private assets work best when they’re inefficient.” — Zach Ruchman
“The more money you have going at a limited opportunity set, the more the perfectly priced that opportunity set will be.” — Zach Ruchman
“AI is only going to write what you tell it to write. So an AI memo is only going to be as thoughtful as the reasoning that you put into it, at least here in 2026.” — Zach Ruchman
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 at an annual general meeting (AGM) the other week, and during one of the fireside chats, Scale’s Rory O’Driscoll said, “Having to deal with the psychological burden of having an anti-portfolio is a privilege. If you never have the psychological tax of passing on multiple generational deals, you shouldn’t be in venture. Passing on 20 great companies out of 40 great companies you see is always more preferable than investing in 2 great companies after seeing 40 average companies.”
“We have a 90%+ win rate.” Personally, I don’t care. Some LPs do. But I know of a lot of institutions who have a dedicated venture team do not as well. Win rate can be engineered. There are funds that only offer verbal commitments with no term sheet that claim a very high win rate, so only the ones they offered a term sheet “count.” Also, no one will ever say they have a 50% win rate (even if they do, I don’t care as much as the other metrics that you could optimize for). No one will also say 100% win rate. And if they do, THAT is the thing you need to double click on and be wary of.
This past weekend, a friend heard a comment. “100% win rate means you’re not targeting the right founders.” Which is…… true. Many of the best founders, and especially true if they’re serial founders, are picky. They know exactly what they want, who they want. I give some grace to first-time founders who eventually become mainstay names because their early days are still full of rejections.
If you’re a VC with a specific thesis who has a stake in the ground, you’re probably not the VC that every founder wants. Only a very specific founder. But every so often you’ll come across a founder who you think will make it big, but they don’t see you as someone who can help or has the know-how to help them get to the next stage. And that’s okay. As Rory said, “the psychological burden of having an anti-portfolio is a privilege.” At least you’re in the right rooms. And as a VC, that’s the first half of the battle.
To come full circle, if you have a 90%+ win rate writing $500K or less checks, that’s to be expected. Assuming you know a founder beyond an acquaintance and you’re not an asshole, it’s hard to lose out on these opportunities, especially if you’re betting in non-obvious, illegible founders in the early days.
The larger your check, the more your win rate should technically decrease, and at some point, quite dramatically, where it no longer becomes a metric worth optimizing for.
And, if you ever have a 100% win rate, I dare say you have never had the privilege of the psychological tax of seeing multiple outlier founders and companies.
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.
“Our best GPs are talking to their founders all the time. And our best GP relationships, we talk to all the time.” — Apurva Mehta
“If you can’t handle something going to zero, then you shouldn’t do one.” — JD Montgomery
Apurva Mehta is the co-founding Managing Partner of Summit Peak Investments, a fund-of-funds that boasts a portfolio of both venture fund investments and direct investments, including the likes of Affirm, Anduril, Airtable, Opendoor, and Wish, just to name a few.
Prior to starting Summit Peak in 2018 with his co-founder, Patrick O’Connor, he previously served as Vice President and Deputy Chief Investment Officer for the Children’s Hospital Endowment Portfolio in Fort Worth, Texa. From 2008 to 2011, he was the Director of Portfolio Investments at The Juilliard School in New York City. Apurva began his career in investment consulting and investment banking at Citigroup and Lehman Brothers. He was recognized for his expertise when he was named to aiCIO Magazine’s Top Forty Under Forty in 2012 and 2013 and honored as a Rising Star by Institutional Investor. He holds a BBA in Finance from The George Washington University.
JD Montgomery leads the Family Office division at Canterbury Consulting and is a seasoned advisor with nearly four decades of experience serving prominent families with a focus on strategy, organization and measurement. Based in Newport Beach, he serves a select group of multi-generational families and helps them navigate the complexities of wealth, purpose, and legacy. Mr. Montgomery partners with his clients to help them optimize the allocation of their resources across generations. Over the years, Mr. Montgomery has developed a deep network of relationships in the venture capital industry. He has helped his clients gain meaningful exposure to venture funds and direct investments and develop relationships with leading innovators and investors globally. He is a Managing Director, shareholder, and board member at Canterbury Consulting. He graduated from Stanford University and holds the Chartered Alternative Investment Analyst (CAIA) designation.
(00:00) Intro (01:53) How did this episode come to be? (06:56) What do LPs get right/wrong with co-invests? (12:06) GP best practices for co-investments (14:35) How do you know a GP is capable of pre-empting a round? (16:37) How often should GPs be talking to their portfolio founders? (17:52) Why Apurva goes to AGMs (18:17) How Apurva/JD stays in touch with GPs (23:33) The ask (24:01) Solo GPs (31:42) Types of solo GPs who join multi-stage firms later (34:32) What’s the skew in the benchmarking data? (39:22) What lawyers don’t tell you about carveout capital in LPAs (44:46) LPA terms that LPs redline (45:44) Carry ratchets that LPs hate (48:15) How higher fees impact IRR (49:39) Outlandish fees on SPVs (50:49) How much should a GP’s salary be? (52:56) Cashless GP contributions (53:59) Do $1T outcomes change venture math? (59:17) Should private market investors be public market investors? (1:04:30) What made Apurva nervous? What does he love? (1:07:57) What does JD love?
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.
