Overwhelming and Underwhelming — When to Know You Are Just “Whelming”

fireworks, light, night

One of my favorite sections in Danny Meyer’s Setting the Table (H/T to Rishi and Arpan from Garuda who not only gifted me that book, but also one of the nicest bookmarks I own today) is when he talks about whelmers.

“I ask our managers to weigh one other critical factor as they handicap the prospect. Do they believe the candidate has the capacity to become one of the top three performers on our team in his or her job category? If people cannot ever develop into one of our top three cooks, servers, managers, or maître d’s, why would we hire them? How will they help us improve and become champions? It’s pretty easy to spot an overwhelmingly strong candidate or even an underwhelmingly weak candidate. It’s the ‘whelming’ candidate you must avoid at all costs, because that’s the one who can and will do your organization the most long-lasting harm. Overwhelmers earn you ravers. Underwhelmers either leave on their own or are terminated. Whelmers, sadly, are like a stubborn stain you can’t get out of the carpet. They infuse an organization and its with mediocrity; they’re comfortable, and so they never leave; and, frustratingly, they never do anything that rises to the level of getting them promoted or sinks to the level of getting them fired. And because you either can’t or don’t fire them, you and they conspire to send a dangerous message to your staff and guests and ‘average’ is acceptable.”

In an industry where everyone is incredible — in many ways, you can’t, or at least it’s really hard to, be a GP without being overwhelming in your past in one way or another… INcredible becomes credible. So, it’s quite hard when you have a limited sample size to know who is incredible among the already incredible.

Almost everyone today is overqualified for the job, compared to the 1970s, 80s, and 90s, when most were underqualified.

So, unless you’ve been an LP, how do you know if you’re overwhelming versus just whelming?

  1. LPs who have seen at least 200 funds in the last 2-4 years tell you you’re the “only” one who is pursuing this strategy
    • They have large enough of a sample size to make an assessment. While not perfect, it’s enough to be in rarified air.
  2. You’ve been to the major LP/GP conferences (i.e. RAISE, Bridge, All Raise, SuperReturn / SuperVenture, Upfront Summit, Milken, EMC Summit, etc.) and have seen how other GPs pitch where you personally have a sample size of at least 100.
    • Even better, if you’ve been to the Demo Days or showcases for Coolwater, Recast, VC Lab, just to name a few, and you’ve seen other GP’s pitches
    • Do note what GPs say on podcasts are usually (in my experience) what they pitch to LPs.
  3. You can cold email LPs and they’ll respond.
    • LPs are notoriously closed off to cold emails. As an institution that makes only 1-3 new investments per year in an asset class, it doesn’t make sense for them to keep the doors open as much as venture investors do for founders. And even then, a lot of VCs are also averse to cold emails. That said, if you’re a GP that consistently gets meetings booked from cold emails, you might have something special.
    • More often than not, admittedly, this is due to a strong brand, either via media, personal brand, strong returns, or word of mouth.
    • Important to note that you’re never as good as they say you are, but you’re also never as bad as they say you are.
  4. When you are THE first call exited founders ($100M+ exits) make when they’re brainstorming their next company
    • Them needing a sparring partner on their next career move also counts.
    • You getting invited to whatever large event they host next does not. Including birthday parties, weddings, etc. As much as it feels good to me, you’re not overwhelming. If it puts things into perspective, I get invited to these, and I know I’m not an “overwhelming” venture investor.
    • Also if you’re the fifth person they call, you’re just “whelming.”
  5. You are cited by other investors and founders alike as the source material of an ideology or a framework.
  6. Different founders (or people in general) reach out to you consistently on topics that is not fundraising/them pitching you. In fact, they may never reach out to you on fundraising because you’re known for excellence in other areas.
  7. The best talent in the world want to work with you and they’ll find any way to do so. They’ll say things like, “What if we worked together on a small project first together?” or “How about this together?” The same world-class talent will not only prioritize your goals but also not forsake their own. ‘Cause frankly, the world’s best have their own pursuits and they are transparent and honest about it. Beware of people whose goal you don’t know and those that “give up” their dreams for yours.
  8. You have a memory like a steel trap. You quote books, passages, movies, lessons, anecdotes, stories, history, podcasts, presidential speeches from back in the day, and music in ways most people cannot fathom but make complete sense. You quote in ways where people wonder if you have photographic memory or a chip in your brain, but you actually don’t.
    • This is more or less intellectually “overwhelming”, although overwhelming may not be the right terminology. But someone who is profusely well-read and cultured in a diverse amount of material. Think Da Vinci. Or maybe a modern-day equivalent, Patrick Collison, David Senra, or Ben and David on Acquired.

The one thing I won’t include on this list, while undeniably “overwhelming,” is intuition. People with phenomenal intuition are just different. Overwhelmingly different. But in the world of venture, the word intuition is often overused and has lost its true meaning. Many investors who bet well in hindsight attribute luck to intuition. And hell, the reason I’m not including it in the above list, is that many investors think they’re heavily intuitive, which in my experience usually means:

  1. They hate math. Spreadsheets and the like. In fact, they’re likely just to be bad at it.
  2. They hate diligence. The homework that’s actually required to be a great investor.
  3. If they’re pre-economic success, they’re often spinning a tale to us. Or worse, lying to themselves.
  4. If they’re post-economic success, there’s a good chance they have hindsight bias.

That said, there are a rare few number of times where I meet someone (often not an investor) and they’re able to deduce the person I am with a glance with very little other context. To me, that feels like magic. Something that very few have. But at the same time, I do believe can be trained.

Photo by Jeffrey Hamilton 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!


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 Case for Concentrated Portfolios | Jeff Rinvelt | Superclusters | S4E2

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

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
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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.

Micro(scopic) 10X Funds

young, kids, students

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!


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

kelli fontaine

“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


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
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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.

DGQ 24: Guessing a number between 1 and 100

lock, numbers

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!


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.

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

cactus, different, unique

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


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.

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 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

“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


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
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Starting from Yes versus No

stoplight, green, red, yes, 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


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

lisa cawley, ben choi, jaclyn freeman hester

“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.

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 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


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
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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.

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.

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


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