Being an LP - Cup of Zhou

November 18, 2024November 18, 2024

The Case for Concentrated Portfolios | Jeff Rinvelt | Superclusters | S4E2

“The line that sits for me is you got to pick well, you got to coach well, and then you got to finance well – and the financing includes the exit.” – Jeff Rinvelt

Jeff Rinvelt is a partner at Renaissance Venture Capital an innovative venture capital fund of funds. Jeff’s diverse background in venture capital and technology and his experience working in various start-up ventures uniquely position him to advise startups. In addition, Jeff is quite active in the Michigan start-up community, volunteering his time to mentor young entrepreneurs, judge pitch competitions, and guest lecture student classes and organizations. Through Jeff’s work on the Fund, his volunteer efforts, and his role as the chair of the Michigan Venture Capital Association’s board of directors, his passion for fostering a productive environment for venture capital investment in the State of Michigan is evident.

You can find Jeff on his socials here:
Twitter: https://twitter.com/rinvelt
LinkedIn: https://www.linkedin.com/in/rinvelt/

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[02:28] When Jeff went from engineering to finance
[06:26] An introvert in an extroverted industry
[07:42] Jeff’s transition from founder to investor
[11:06] The need for a fund of funds in Michigan
[13:54] Why start a fund of funds instead of joining another fund
[15:32] The minimum viable fund size for a fund of funds
[21:46] Renaissance’s portfolio construction
[24:15] Why Renaissance measures GP performance by net IRR
[28:18] How does Jeff assess a GP’s portfolio construction model?
[31:20] Jeff’s stance on reserves
[34:39] Who is the exit manager?
[37:22] Should VCs be public market investors?
[42:43] What would Jeff do if he had evergreen capital?
[44:01] Do the best GPs in Jeff’s portfolio send the deck first or have the meeting first?
[45:11] Why is Jeff trying to break your heart?
[48:32] Thank you to Alchemist Accelerator for sponsoring!
[49:33] If you enjoyed the episode, please do share this episode with ONE other person you think would enjoy it.

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“Net IRR is the one that’s probably going to work. It takes a while for it to bake though – 5 or 6 years in.” – Jeff Rinvelt

“The line that sits for me is you got to pick well, you got to coach well, and then you got to finance well – and the financing includes the exit.” – Jeff Rinvelt

On portfolio construction models… “We are not in the Monte Carlo simulation game at all; we’re basically an excel spreadsheet.” – Jeff Rinvelt

“A lot of those skills [to be a fund manager] are already baked in. The one that wasn’t baked in for a lot of these firms was the exit manager – the ones that help you sell. […] If you don’t have it, there should be somebody that it’s their job to look at exits. ” – Jeff Rinvelt

Follow David Zhou for more Superclusters content:
For podcast show notes: https://cupofzhou.com/superclusters
Follow David Zhou’s blog: https://cupofzhou.com
Follow Superclusters on Twitter: https://twitter.com/SuperclustersLP
Follow Superclusters on TikTok: https://www.tiktok.com/@super.clusters
Follow Superclusters on Instagram: https://instagram.com/super.clusters

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.

November 15, 2024November 15, 2024

Micro(scopic) 10X Funds

I wrote both a Twitter thread (I know it’s X now, but habits die hard) and a LinkedIn post recently on student and recent graduate funds. A good friend and I have been seeing a number of small sub-$10M funds run by college students and/or recent grads. And even more since the afore-mentioned social posts came out. In a way, it was my flag in the sand moment inviting additional conversations on the topic.

Full LinkedIn post here. Truncated this to make it easier to read.

The TL;DR version of the post, although the post itself is at most a two-minute read, is that these student funds are interesting. Most will die. But a small, small few will deliver insane returns. As such, as LPs, the underwriting for these funds, where sourcing is extremely predictable (i.e. invest in their peers), needs for these funds to be 10X funds, as opposed to 5X net for the typical seed fund or 3X for the typical Series A fund. Also, we know going in that most, if not all, of these funds won’t be enduring. Most likely one and done.

And so what does the underwriting look like?

I actually elaborated on this in response to a comment that asked what percent of unicorns were founded by students, but thought it made sense to expand here in this blogpost as well.

Venture, at the end of the day, is a game driven by the power law. I’m not the first to say that. And I won’t be the last. In other words, in VC, we are applauded not by our batting average (like buyouts or hedge funds), but by the magnitude of our home runs. We can miss on the vast majority, but as long as we strike one Uber or Coupang or Google or Facebook and it returns multiple times of our portfolio, then… we did it.

To quote a Midas list investor (who’ll go nameless for now, until I have his permission to share his name), who at the time was presenting on stage, “The only reason you are listening to me today is because I’m on the Midas list. And the only reason I’m on the Midas list is because of this one investment I made [redacted] years ago.”

Obviously, there was definitely some modesty there. In fact, he’s hit a number of exits in the years since. Nevertheless, when said in broad strokes, his point stands.

So to the comment that started it all. By numbers, a rather small number of unicorns were founded by active students. I don’t know the exact number (writing this on vacation, and I don’t have Pitchbook access on this small device), but I’m willing to bet that only a small percentage of unicorns are founded by students. And even less when you consider realized unicorn exits. Excluding the crazy markups of 2020-2022. It’s why the average age of a startup founder is 42 at the inception of the company.

That said, “Among the top 0.1% of startups based on growth in their first five years, [an HBR study finds] that the founders started their companies, on average, when they were 45 years old.” In fact, in the same study, they found “[r]elative to founders with no relevant experience, those with at least three years of prior work experience in the same narrow industry as their startup were 85% more likely to launch a highly successful startup.” In a separate Endeavor study, it’s also why there’s only a small sliver of founders with no work experience prior to the founding of their unicorn company.

All that to say, from Alexandr Wang to Jeff Bezos to Mark Zuckerberg to Patrick and John Collison, all were in their early twenties (or earlier) when they started their companies. Each, in their own right, an outlier.

To build a hypothetical portfolio — forgive my generalizations, but doing so for nice, even numbers…

Say one allocates a $10M fund of funds portfolio. It’ll write 10 $1M checks into $5M funds. In other words, for a 20% stake at the fund level. In a bad economy, where $200M is the median ARR to go public, and if we assume a 10x multiple on exit, a $2B unicorn exit in that $5M VC fund returns ~$2.2M in the fund of funds portfolio. 0.6% equity valued at $12M. A 2.4X on the $5M fund alone. And a little over $2.2M back to the LP, as the GP takes 20% carry. This assumes $100K checks, 2% ownership on entry and 70% dilution by the time of exit. Naturally, no reserves. needing about 10-11 unicorns to 2x. A lot to expect for a portfolio of student funds. 10 unicorns out of 400 is quite hard even for most seasoned investors.

And so one must believe that these student funds can find true outliers. And before anyone else. Additionally have enough downstream capital relationships to facilitate intros to funds who will lead current and future rounds. Which luckily for them, a lot of GPs of multi-stage funds are individual LPs in these funds. Playing a pure access approach.

And so, if there’s a $10B exit in one of the VC portfolios, under the same fund strategy assumptions as earlier, a single $10B company exit returns the whole fund of funds portfolio. Every other exit will just be cherries on top. So out of a 400 underlying startup portfolio, only one decacorn exit is needed. Instead of multiple unicorns.

Separately, and worth noting, although I’ll be honest, I haven’t had a single conversation with a young GP where any were as deliberate with their sell strategy as this, there are multiple exit paths today outside of M&A and IPO, most notably secondaries (portfolio and fund) (something that the one and only Hunter Walk wrote recently in a blogpost far more eloquently than I could have put it). And so even in a crazy AI hype right now, there are paths to liquidity in these multi billion valuations at the Series B and C, if not earlier. In the increasing availability of such options, my only hope is that these young fund managers have the wherewithal to be disciplined sellers. Perhaps, an additional reason these young VCs should have LPACs.

A blogpost for another day.

Photo by 🇸🇮 Janko Ferlič on Unsplash

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!

November 11, 2024November 16, 2024

The GP Data You’ve Never Collected Before | Kelli Fontaine | Superclusters | S4E1

“Neutral references are worse than negative references.” – Kelli Fontaine

From investing in great fund managers to data to investor relations, Kelli Fontaine is a partner at Cendana Capital, a fund of funds who’s solely focused on the best pre-seed and seed funds with over 2 billion under management and includes the likes of Forerunner, Founder Collective, Lerer Hippeau, Uncork, Susa Ventures and more. Kelli comes from the world of data, and has been a founder, marketing expert, and an advisor to founders since 2010.

You can find Kelli on her socials here:
X/Twitter: https://x.com/kells_bells
LinkedIn: https://www.linkedin.com/in/kellitrent/

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[02:11] How Kelli became a figure skater
[06:59] Kelli’s football fandom
[08:47] Picking schools for critical thinking for children
[10:55] The difference between likeability and founder-friendliness
[13:35] Correcting biases as LPs
[15:07] Examples of what makes GPs unique
[19:53] What kinds of data was Cendana NOT measuring when Kelli joined?
[21:58] What are datapoints that LPs should measure but aren’t?
[23:45] Startup metrics that LPs should track
[26:16] Can you trust the data out there?
[32:05] How does one start building a GP dataset from scratch?
[37:38] Why does Cendana do 40 reference checks per fund?
[39:47] Neutral references are worse than negative references
[42:28] The questions Kelli asks founders when diligencing GPs
[43:44] How Cendana does monthly calls with all their GPs and large LPs
[47:57] How often does Cendana send investor updates?
[49:13] The difference between monthly calls and taking an LPAC seat
[51:19] Kelli’s indelible sports moments to witness
[52:37] What makes Kelli laugh?
[56:14] Thank you to Alchemist Accelerator for sponsoring
[57:15] If you enjoyed this episode, it would mean a lot to me if you shared it with one other friend!

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“Neutral references are worse than negative references.” – Kelli Fontaine

“What is unique about their background that gives them a right to win today?” – Kelli Fontaine

“Everybody uses year benchmarking, but that’s not the appropriate way to measure. We have one fund manager that takes five years to commit the capital to do initial investments versus a manager that does it all in a year. You’re gonna look very, very different. Ten years from now, 15 years from now, then you can start benchmarking against each other from that vintage.” – Kelli Fontaine

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!

October 18, 2024October 17, 2024

DGQ 24: Guessing a number between 1 and 100

Eight years back, at least at the time of publishing this blogpost, Steve Ballmer, former CEO of Microsoft, shared one of his favorite interview questions.

“I’m thinking of a number between 1 and 100. You can guess. After each guess, I’ll tell you whether high or low. You get it the first guess, I give you five bucks. [Second guess], four bucks. Three. Two. One. Zero. You pay me a buck. You pay me two; you pay me three… And the question is, do you want to play or not? What’s your answer?”

While he didn’t go too much in depth on all the answers he’s gotten to it over the years, I imagine different people would have given different proposals on how the game might be played. Of course, the classic engineer is likely to approach it was as an expected value problem.

Most people will lose money. There are far more numbers to guess on which one loses than wins. The question really comes down to… do you know the odds of the game you play?

I find it interesting as an investor to hypothetically ask to founders and/or GPs. That said, I never did. But equally so, I usually spend the first conversation with an entrepreneur (whether the product be software or a fund model) trying to understand a person’s motivations. And, if they understand the rules of the game.

Those who don’t understand the rules will often jump head first in, and take care of the consequences later. Asking for forgiveness than for permission. An attitude that is more excusable in a startup founder than a fund manager.

Those who do understand will take a more measured approach. It’s interesting how little some people understand the game they’re playing. Be it in a two-year financial projection that encapsulates all their assumptions, or a portfolio construction model to understand the enterprise value to return the fund 3X.

For the former, it’s less so of how accurate a financial projection slide is. Hell, your guess is as good as mine. But I always ask founders to unpack it to understand how they’re thinking about the future as a function of their reality today.

For the latter, it’s to understand the true power of the power law, no pun intended. For instance, if you have a $10M fund, writing 20 checks of $500K for 5% ownership. Obviously, I’m assuming a bunch of things for the sake of keeping the math simple. No fees, no recycling, no reserves, and so on. You need to return $50M to 5X your fund. Accounting for 80% dilution, you’ll own 1% on exit. So you need $5B in enterprise value. Given the power law, one of out of the 20 companies should get to at least $3-4B in exit value.

Then again, those who understand the game too well will never take the risk necessary for serendipity to stick.

There’s an interesting blogpost an LP shared with me for my blogpost on evergreen content that VCs and LPs consume. A piece written by the legendary Graham Duncan. “The Playing Field.” A piece I highly recommend reading, even if to shape your own thinking about how the game you play evolves over time. In it, a line worth underscoring.

“[I]t’s the way you learn to play the cards you’ve been dealt, rather than the hand itself, that determines the worth of your participation in the game.”

Photo by Towfiqu barbhuiya on Unsplash

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!

October 10, 2024October 3, 2024

DGQ 23: What’s the most interesting question you’ve been asked so far?

I use this question quite often as a discovery tool. My job as an early-stage investor is to find crazy, interesting people building interesting things. By the time things look less crazy (at least at face value, without digging), I’m likely too late.

To founders who are fundraising, I often ask this question with respect to VCs. Most VCs default to the usual.

Tell me about your company.

How much revenue do you have? Growth rate?

Tell me about your 2-year plan. Your financial projections.

Tell me about your competitors.

How much are you raising?

Who else is investing?

And I’ve probably missed a plethora of usual suspects when it comes to questions VCs ask founders. But I love people who ask different sets of questions. People who think different, see different, and as such ask different. How are they slicing the cake differently? What might these people be seeing that most others are not? And then, I go back and reflect… is there alpha in that way of thinking.

But first, it’s about the questions. Some examples of such… here, here, here, and here, and also here and here.

So when I ask, “What’s the most interesting question you’ve been asked so far?” to founders, they can help me uncover new VCs I may not have noticed before. Probably investing in ways the industry has not seen before. And probably also investing in companies uncorrelated with most others. At least in the early stages. When I ask it to GPs, I can find LPs whose portfolios may look different from others. Or at the very least, will have arrived at their conclusion differently than their peers.

Photo by Nick Karvounis on Unsplash

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!

October 7, 2024October 7, 2024

When VC Funds Become Firms, Part 3 | Lisa Cawley, Ben Choi, Jaclyn Freeman Hester | Superclusters

“When you bring people in as partners, being generous around compensating them from funds they did not build can help create alignment because they’re not sitting there getting rich off of something that started five years ago and exits in ten years. So they’re kind of on an island because everybody else is in a different economic position and that can be very isolating.” – Jaclyn Freeman Hester

We’re doing a three-part series with some of our fan favorites over the last three seasons on the LP perspective of succession-planning and VC firm-building.

Lisa Cawley is the Managing Director of Screendoor, a highly respected LP of GPs, investing in firm-builders by firm-builders, with a unique model for partnering with allocators to access the emerging manager ecosystem.

Ben Choi manages over $3B investments with many of the world’s premier venture capital firms as well as directly in early stage startups. He brings to Next Legacy a distinguished track record spanning over two decades founding and investing in early-stage technology businesses.

Jaclyn Freeman Hester is a Partner at Foundry. Jaclyn helped launch Foundry’s partner fund strategy, building the portfolio to nearly 50 managers. Bringing her unique GP + LP perspective, Jaclyn has become a go-to sounding board for emerging VCs.

You can find Lisa on her socials here:
LinkedIn: https://www.linkedin.com/in/31mml/
Screendoor: https://www.screendoor.co/contact

You can find Ben on his socials here:
Twitter: https://twitter.com/benjichoi
LinkedIn: https://www.linkedin.com/in/bchoi/

You can find Jaclyn on her socials here:
Twitter: https://twitter.com/jfreester
LinkedIn: https://www.linkedin.com/in/jaclyn-freeman-hester-70621126/

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

You can also find Part 1 and Part 2 of this 3-part mini series.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[01:55] Lisa on documenting the how and why behind decisions
[05:52] Ben on leadership transitions at VC firms
[08:08] GP commits by young GPs at established firms
[11:56] What makes Kauffman Fellows special
[14:33] Should Kauffman sponsor Superclusters?
[15:34] A rising tide raises all ships
[16:41] Partnerships that choose to stay together
[18:21] Jaclyn on leadership transitions at VC firms
[25:48] The economics of succession planning
[31:28] Lisa on succession planning vs wind-down planning
[33:10] Jaclyn on pros & cons of succession planning & committee decisions
[41:50] Thank you to Alchemist Accelerator for sponsoring!
[42:51] If you liked this 3-part series, do let us know with a like or a comment below!

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“If it’s not documented, it’s not done.” – Lisa Cawley

“If somebody is so good that they can raise their own fund, that’s exactly who you want in your partnership. You want your partnership of equals that decide to get together, not just are so grateful to have a chance to be here, but they’re not that great.” – Ben Choi

“When you think about succession planning, you actually have to take a step back and think: Is that even going to be my approach? Do I need to think about succession planning or am I really talking about wind-down planning? And when I stop raising a subsequent fund.” – Lisa Cawley

October 4, 2024October 3, 2024

Starting from Yes versus No

Last week, I was chatting with an LP about decision-making processes at institutional LPs, whether a large family office or a pension or an endowment. And I asked her:

“When you come across a new investment opportunity, do you often find yourself starting from a yes and working to find ways to disprove yourself to get to a no? Or do you start from a no, then spend the next few years working your way to get to a yes?”

(To be honest, I could have phrased the question. But alas, you get the gist.)

She gave a light chuckle. Thought for a moment. And said, “In the first conversation I have with a GP, I either get to a quick no or a tentative yes. And in the next few months, I try to find signs of why this investment could be a no. But if I don’t find any strong disproving evidence in that exploration, that’s when we choose to invest.”

Of course, she’s not alone. I haven’t actively gone out to measure the distribution. But out of 20 or so LPs I’ve asked, I’d say anecdotally, it’s about half who start from a yes, and half who start from a no.

There’s no hard and fast rule here. But what I seemed to notice is that it depends heavily on how easily people get to conviction.

Some people are more prone to saying yes. They get easily excited about new opportunities. The feeling of love at first sight. As such, their investment process accounts for that by delaying gratification and impulse purchases. The discipline of their investment process allows to take time to find clues that may either prove or disprove their intuition.

Among thousands, if not tens of thousands of opportunities, for others, it’s easier to say no. Most LPs don’t have a time horizon they have to commit capital before, barring fund of funds, and potentially some large institutions who act as fiduciaries for others’ capital. Unlike a GP whose mandate is potentially stage-specific, to most LPs, a Fund I commitment versus a Fund II or a Fund III is virtually the same to them. If a pre-see-only fund says no at the pre-seed, they lose that window of opportunity because they’re not allowed to invest net new checks at seed or Series A.

For LPs, this takes the possibility of a near-term transactional relationship out. Then as the relationship matures over time, one might stumble across something about a GP that gets them over the activation energy to dig deeper. And eventually, when enough evidence is collected, they’ll pull the trigger. More often than not, it’s not “enough evidence,” but rather enough time to realize the one or two brilliant things about a GP.

Photo by Diane Picchiottino on Unsplash

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!

September 30, 2024September 30, 2024

When VC Funds Become Firms, Part 2 | Lisa Cawley, Ben Choi, Jaclyn Freeman Hester | Superclusters

“We overcomplicate almost nothing as LPs. And this is a criticism of myself. And I think we oversimplify almost everything. Because by definition, we’re the customer of the end product. […] LPs watch the movie, but don’t read the book.” – Ben Choi

We’re doing a three-part series with some of our fan favorites over the last three seasons on the LP perspective of succession-planning and VC firm-building.

You can find Lisa on her socials here:
LinkedIn: https://www.linkedin.com/in/31mml/
Screendoor: https://www.screendoor.co/contact

You can find Ben on his socials here:
Twitter: https://twitter.com/benjichoi
LinkedIn: https://www.linkedin.com/in/bchoi/

You can find Jaclyn on her socials here:
Twitter: https://twitter.com/jfreester
LinkedIn: https://www.linkedin.com/in/jaclyn-freeman-hester-70621126/

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

You can also find Part 1 of this 3-part mini series here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[02:00] Questions Ben asks GPs to see if they’re thinking long-term
[06:50] Questions Jaclyn asks GPs to assess long-term thinking
[09:45] What does leverage look like for a GP?
[20:13] The role of AI internally at a firm
[21:06] Advice to people looking to take junior VC roles
[25:33] Questions Lisa asks GPs to assess long-term thinking
[29:19] When does a fund turn into a firm?
[31:26] Lisa: What do LPs often oversimplify vs overcomplicate about firm-building?
[35:31] Ben’s answer to oversimplification vs overcomplication
[41:00] What do emerging and established GPs oversimplify and overcomplicate?
[45:06] Thank you to Alchemist Accelerator for sponsoring!
[46:07] If you can’t wait for Part 3 of this conversation, leave us a like or comment!

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“How do you get the most out of the least amount of people? […] I don’t think getting more bodies solves it. I think getting high leverage from a smaller set of resources is better.” – Jaclyn Freeman Hester

“If I hire someone, I don’t really want to hire right out of school. I want to hire someone with a little bit of professional experience. And I want someone who’s been yelled at. […] I don’t want to have to triple check work. I want to be able to build trust. Going and getting that professional experience somewhere, even if it’s at a startup or venture firm. Having someone have oversight on you and [push] you to do excellent work and [help] you understand why it matters… High quality output can help you gain so much trust.” – Jaclyn Freeman Hester

“What’s your right to win? Why are you going to be a founder and talent magnet? Why does the world need you as a firm? Why does the world need you as a VC? And how do you define success?” – Lisa Cawley

“We overcomplicate almost nothing as LPs [about the firm building process]. And this is a criticism of myself. And I think we oversimplify almost everything. Because by definition, we’re the customer of the end product.” – Ben Choi

“LPs watch the movie, but don’t read the book.” – Ben Choi

“Ultimately, Job #1 as an emerging GP is to be a great investor. We want you to be a great investor that lasts the test of time. But if you’re a mediocre investor that lasts the test of time or a great investor that doesn’t last the test of time, we prefer the second.” – Ben Choi

September 23, 2024September 23, 2024

When VC Funds Become Firms, Part 1 | Lisa Cawley, Ben Choi, Jaclyn Freeman Hester | Superclusters

“There’s this amazing, amazing commercial that Michael Phelps did, […] and the tagline behind it was ‘It’s what you do in the dark that puts you in the light.’” – Lisa Cawley

We’re doing a three-part series with some of our fan favorites over the last three seasons on the LP perspective of succession-planning and VC firm-building.

You can find Lisa on her socials here:
LinkedIn: https://www.linkedin.com/in/31mml/
Screendoor: https://www.screendoor.co/contact

You can find Ben on his socials here:
Twitter: https://twitter.com/benjichoi
LinkedIn: https://www.linkedin.com/in/bchoi/

You can find Jaclyn on her socials here:
Twitter: https://twitter.com/jfreester
LinkedIn: https://www.linkedin.com/in/jaclyn-freeman-hester-70621126/

And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

Brought to you by Alchemist Accelerator.

OUTLINE:

[00:00] Intro
[02:03] The job that goes unseen by others at a VC firm
[09:01] The psychology of curiosity
[11:12] The story of Charlie Munger and Robert Cialdini
[14:17] Lisa’s perspective on the intangibles of firm-building
[17:41] Heidi Roizen and why glassblowing builds relationships
[21:09] The people you surround yourself with
[23:06] Jaclyn’s perspective on the intangibles
[26:23] Examples of how to communicate strategy drift
[27:34] Ben’s perspective on the intangibles
[33:19] The metric many LPs don’t use but should use to evaluate GPs
[36:16] Thank you to Alchemist Accelerator for sponsoring!
[37:17] If you enjoyed Part 1, and want to see Part 2 and 3 sooner, leave a like or a comment!

SELECT LINKS FROM THIS EPISODE:

SELECT QUOTES FROM THIS EPISODE:

“The job and the role that goes most unseen by LPs and everybody outside of the firm is the role of the culture keeper.” – Ben Choi

“You can map out what your ideal process is, but it’s actually the depth of discussion that the internal team has with one another. […] You have to define what your vision for the firm is years out, in order to make sure that you’re setting those people up for success and that they have a runway and a growth path and that they feel empowered and they feel like they’re learning and they’re contributing as part of the brand. And so much of what happens there, it does tie back to culture […] There’s this amazing, amazing commercial that Michael Phelps did, […] and the tagline behind it was ‘It’s what you do in the dark that puts you in the light.’” – Lisa Cawley

“At the end of the day, the job is to take a pile of money from your LPs and give them a bigger pile. And giving them back a really big pile is the legacy thing. […] And consistently insane returns are hard. That, to me, are the firms that go down in history.” – Jaclyn Freeman Hester

“In venture, LPs are looking for GPs with loaded dice.” – Ben Choi

September 6, 2024September 11, 2024

Timeless Content for the Weary Investor

“If you don’t read the newspaper, you’re uninformed. If you do read it, you’re misinformed. […] What is the long term effect of too much information? One of the effects is the need to be first, not even to be true anymore. So whatever responsibility you all have… to tell the truth, not just to be first.” — Denzel Washington

Since I’ve first started this blog, I’ve always had a bias towards sharing evergreen content. Lessons that can be applied to any era. Of course, not all my thoughts withstood, nor will withstand the test of time, but the goal was to be intentional with what I was putting out there. The bias was also due to the fact that I didn’t think I was best in class in being first to news updates (although opportunistically I could be).

And while not SEO-optimized, I find peace in delivering content that is hopefully as useful today as it will be tomorrow. In that regard, this blog will forever stay a blog, as opposed to any semblance of the traditional definition of media, which at the end of the day is the acquisition and monetization of attention. The latter of which I don’t plan to do for this blog, ever.

That said, the consumption of information is often just as if not more important than the production of information. In the words of my friend, one’s information diet. And if you’ve been around this blog long enough, you’ll be no stranger to that term. Of which about 50% of my information intake is ephemeral and 50% evergreen. But for the purpose of this blogpost, this one is less about me, but about the information diet of friends and colleagues. Where do many of the VCs and LPs I respect consume their evergreen content?

So I went around and asked the simple question:

Do you have 1-2 examples of evergreen content you love revisiting or stays in your mind rent-free?

In other words, what do you read when you need to get to the bottom of things, not just to stay on top of things?

By nature of being friends with everyone I asked, and to reduce the noise in the below list, I’ve excluded every mention of a specific blog whose first word is a synonym to ‘mug’ and a specific podcast whose name is inspired by astrophysical concepts. I asked about 20 VCs and LPs each. Whose fund sizes ranged from 7-figures to 10-figures. Whose tenures in investing ranged from five years to thirty years. Geographically, all except two I asked reside in North America, but many also invest into geographies external to the star-spangled banner and the home of the maple leaf.

There was no particular reason as to why I sampled as such, other than an availability bias. All of whom I could text or ping pretty quickly and get a response. After all, I incubated the idea for this post earlier this week. Also, by default, all recommendations were kept anonymous.

But without further ado, I’ve compartmentalized the below content into:

What VCs consume
And, what LPs consume

You’ll notice some do overlap, which goes to show how timeless some things are.

What VCs consume

Blogs:

Books:

Thinking, Fast and Slow by Daniel Kahneman
Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones by James Clear
The Power Law: Venture Capital and the Making of the New Future by Sebastian Mallaby
Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, edited by Peter Kaufman
When Breath Becomes Air by Paul Kalanithi
Setting the Table: The Transforming Power of Hospitality in Business by Danny Meyer
Meditations by Marcus Aurelius
The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change by Stephen Covey
Charlie Munger: The Complete Investor by Tren Griffin
Competition Demystified: A Radically Simplified Approach to Business Strategy by Bruce Greenwald
Principles by Ray Dalio
Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Perez
The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks
Tuesdays with Morrie: An Old Man, a Young Man, and Life’s Greatest Lesson by Mitch Albom

Papers:

Measuring the Moat: Assessing the Magnitude and Sustainability of Value Creation by Michael Mauboussin
10 Practical Ways to Increase Conviction While Simultaneously Saving Time by Coburn Ventures (see below)

increasing conviction while saving time Download

Podcasts:

The Startup Solution with Heidi Roizen
- “The Case for a Relationship-Driven Life”

People to follow:

Ho Nam

Manifestos:

What LPs consume

Blogs:

Books:

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel
The Power Law: Venture Capital and the Making of the New Future by Sebastian Mallaby
The Big Picture: On the Origins of Life, Meaning, and the Universe Itself by Sean Carroll
Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts by Annie Duke
- The amazing Jamie shared the below bullets as to why Annie Duke’s book is just that good, and Jamie’s words were too good not to include:
  - Embrace Uncertainty: I can make more rational and less emotionally driven decisions
  - Resulting: People judge the quality of a decision based on its outcome rather than on the decision-making process. THIS HAPPENS ALL THE TIME IN VC!!!! Annie argues that a good decision can lead to a bad outcome and vice versa, so it’s crucial to focus on the process rather than just the results.
  - Probabilistic Thinking: Think in probabilities rather than absolutes. By estimating the likelihood of different outcomes, individuals can make more informed decisions. This approach helps in managing risks and setting realistic expectations.
  - Learning from Feedback: Learning from both wins and losses is crucial, instead of attributing success solely to skill or failure to bad luck, understand what contributed to the outcome
  - Decision Groups: Forming decision groups where members can share insights and challenge each other’s thinking- this can help identify biases and improve the quality of decisions, I would say a key part of what happens at Screendoor
  - Importance of process: Developing and following a structured approach, individuals can make better decisions even in the face of uncertainty.

Lectures:

Podcasts:

People to follow:

Additionally, one LP shared their more comprehensive list of content they revisit often. One that’s well-worth bookmarking.

I don’t know about you, but I know what I’m doing this weekend.

Big thanks to all the LPs and VCs I reached out to for recommendations, including Jamie Rhode, Eric Bahn, John Rikhtegar, and everyone else who shared their thoughts on short notice before we had a chance to get the compliance’s blessing.

P.S. John had probably the most unique pieces of evergreen content he regularly revisited. While I won’t spoil which, you can probably guess based on which of the above seem like recommendations off the beaten path.

Photo by Anthony Rosset on Unsplash

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!

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

What VCs consume

Blogs:

Books:

Papers:

Podcasts:

People to follow:

Manifestos:

What LPs consume

Blogs:

Books:

Lectures:

Podcasts:

People to follow:

Share this: