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hello david hello ben happy 2019 happy 2019 indeed lps happy 2019 hope you had a restful and uh i don't know restful at the very least uh holiday yeah and may great things await in 2019 i think it's gonna be a good year yeah me too
Something about it can only go up. Something, something. Not to jinx us. Yeah. Well, we're going to the right. Yeah. We're definitely going to the right. Can we talk about that for a minute? How like the phrase up and to the right is stupid? Yes, because you're always going to the right. That's a time series graph. Come on. Yeah. Yeah.
Yeah. Okay. Well, LPs, today we want to talk about something that is interesting. We took the pulse of folks a few episodes ago when we started to get into the structure of VC firms a little bit, and I sort of put David back on his heels, and I was like, hey, let's not go too deep into this, even though it's like...
you know, total navel gazing for us to, uh, want to talk about that and explore it and think about it. Um, I sort of wanted a Sandy to check of, is it something that, uh, that LPs are interested in? I think we had like three or four people right in like immediately after releasing it. Like, yes, please. This would be super helpful right now. Um, so, uh,
we decided to dive in and i think uh thanks to david for putting together a good structure for this episode um i was just scrolling through it and like you uh um i'm pumped at how uh clearly you were able to break it all down it's almost like you recently started one oh my goodness almost we have a lot to talk about i think my favorite reaction uh uh when we asked for feedback on whether you guys would be interested in more you know kind of um behind the scenes vc topics was uh
You know, quoting Art of War of know yourself, know your enemy, know the situation. So we're going to talk about the enemy for most of you and the self for some of you today. What it is really like for at VC firms, how they work. We actually, we have a fair number of venture investors as LPs as well. Yeah. Yeah.
Yeah. And I wanted to say too, before we dive in from sort of the entrepreneur side of things, I think it's really helpful or it's been really helpful for me when running a company to sort of understand how to navigate the world of fundraising and understand not only how firms are structured, but what sort of their incentives are and what success looks like to them. And I think we all know that it's like,
Okay, they want to outperform the stock market and deploy their capital and hopefully get it into a unicorn. And there's lots of tropes that some things are sort of sub-investor scale and some things are...
You know, VCs only invest in things that could be, you know, $10 billion plus outcomes. I think we're excited to dive into sort of a lot of the nuance of that today and fund construction and also kind of the bare bones 101 of, you know, what even is a VC fund from a technical and legal perspective? Yeah. Well, some of that, you know, if anything, I think...
I feel like in recent years, like as VC and tech and startups have become more mainstream, like there are plenty of great places you can go to get just the basics on like what is a VC firm and, you know, Brad Feld and Fred Wilson, you know, their blogging over the years has been great about this. Prolific.
what I really want to do here is like talk about like really like what are the incentives for firms and people? And, and this is something that like I feel passionately about because even though I was a VC at Madrona for seven years before starting wave, it wasn't until I feel like until leaving, starting my own firm, going out and fundraising, setting everything up that I understood now a lot of the really behind the scenes stuff that, um,
want to get into today. So here we go. All right, let's start with what is a VC firm, both from a kind of structure and staffing standpoint. I think the first point here is that took me a little while to internalize. And I think on the outside is hard to understand. VC firms are not companies like the
both connotation and denotation of that. Like they are partnerships and they are a series of funds. They are not structured as a company. So, so what are they? There's a management company, which is a LLC partnership. Um, and then that company controls the firm, that partnership. And then they raise a series of funds, which are, are all separate vehicles, you know, fund one, fund two, fund three, um, that are controlled by that firm. Um,
So let's talk about the funds first. So funds are obviously pools of capital that, you know, a firm, Madrona, Wave, PSL, Sequoia, Benchmark, whoever, raises to go invest in startups. And worth calling out their blind pools of capital.
Meaning, uh, meaning that, uh, David, let's say I'm an LP in, in wave. Um, I'm not emailing you to say you should or should not invest in a specific opportunity. Yes. Right. The, the firm control has pretty much full discretion to control how that capital is, um, is invested and allocated. Um, but we'll get into some of the incentives around that a little bit later in some of the guardrails. Um,
Okay. So each fund is a separate pool of capital. Typically you raise it every few years. So if you hear about like, you know, benchmark fund seven or Madrona fund for whatever, um, those numbers are just like what chronologically successive number there are. Um, so like, you know, I think benchmarks on fund nine now Sequoia is on 10 or 11. Any A's on fund 16. Um,
If you're around for a while, you end up with a whole lot of funds. And what's interesting, each fund is typically a lot of the LPs will carry over a lot of the investors from fund to fund, but not necessarily. There are new investors that come in later on. Some investors drop out. So it's not like what's good for any one fund is necessarily good for the entirety of all investors necessarily.
Yeah. And well, if you're thinking about sort of the dynamics between VCs and companies, many of those same dynamics carry over to the, uh, um,
one level away relationship from the LPs into the venture firm. So there's some things that aren't exactly the same. And we'll talk about that in sort of allocations. Those are sort of quite different. But one of the things that's exactly the same is if a firm has really, really great performance,
Everybody wants to be an LP in that firm, and many are squeezed out. And by being in and sort of the first one or an earlier one, you sort of have an opportunity to maybe get in again. Whereas, you know, many firms struggle to raise a second or third firm because they...
you know, didn't have great performance. And so those, those LPs dwindle away, they can't find new ones. Um, you know, it's, uh, that dynamic is quite similar. Yep. Uh, indeed. Um, so, okay. Within each fund, then there's a portfolio of, of investments that the fund makes, uh, series of, you know, several companies anywhere from, you know, 10 ish at the very, very low end up to some funds have a hundred companies in them. Um, and,
And this will be determined by a lot of things, which we'll get into a little later. And then for each fund, the compensation that the VCs, the firm gets is a combination of fees and management fees and interest.
carry carried interest. And a lot of people know about this. This is the, you know, the, the baseline terms is two and 22% of the size of the fund gets paid in fees to the management company every year. And then 20% of the return profits, the partners of the fund get to keep.
Yeah. And an interesting nuance, or there's a lot of interesting nuances in there, but one that I don't think I realized until I was probably a few years into this gig of sort of being in the startup world was that 2% is an annual fee. And so, you know, if there's a $300 million fund, then there's $6 million of sort of guaranteed cash flows to the management company every single year.
And if you have multiple funds that you're managing at a given time, which is very normal for firms that have been around for a while, you're getting those fee streams from multiple funds at once. So if you have two active funds that you're getting 6 million each from, you're getting 12 million a year in fees. So
So we'll get into that in a minute. Now, the carry. So the term general partner, which you hear a lot of people talking about, I'm a general partner at, you know, XYZ fund. The general partners are who the carry is split amongst. So those are the, you know, the profits that the partners are distributing to themselves of the returns on the investments.
but that is not the fees. So the fees go to this entity we mentioned earlier, the management company. So now this is what I really did not understand until starting wave. Um, the management company is like the inner circle of a firm and whoever owns the management company, whoever is a partner in that LLC entity, they are the ones that own the firm.
And everybody who is not a partner in that management company is not an owner of the firm. They're an employee, even if they're a general partner in a given fund. So like,
At some firms, especially older firms, you might have people who are general partners in the most recent fund, but not partners in the management company. Um, and that means a couple of things. Like on the one hand, it's a, um, somewhat esoteric distinction, but it has two really, really important impacts. Um,
So one most important is, is decision-making. So legally contractually, the management company controls all decisions at the firm and of the funds, including like what investments to make. So like if there's ever a knockdown drag out argument that like you're going to, you know, the legal docs to determine, say whether you're going to make an investment or not, um,
It is the voting control of the management company that's going to determine that's going to carry the day, not whether anyone is a general partner or not in a given fund. That could be for firm stuff like hiring and firing. That could be for investments. That could be for, you know, what office you're moving to anything. So that's super important to understand. Two related to that is compensation.
So if you are if you are not a part of the management company, then you are an employee of the firm. That means you get paid a salary. You know, typically you're an at will employee. Even if you're a general partner of the firm, you get paid a salary. You might get paid an annual cash bonus and then you have whatever carry you have in the funds. That's not how it works if you're a management company partner.
Once you're a management company partner, you actually own the firm. So it's like you're a small business owner. You don't pay yourself a salary. Instead, you take home whatever cash is left at the end of the year from the management fee streams, whatever dividends go into the company, exactly like you were running, you know, a restaurant or a store down the street. Or acquired media LLC. Yeah.
or acquired media LLC. And so that shows up then as sort of K one pass through income rather than a salary that you get on a W two. Exactly. So I no longer get a salary, um, nor do my partners at, at wave. Um, we, yeah, yeah. Poor soul. Nobody should feel sorry for us. Um, but what that sets up in terms of incentives and decision making is you have these streams of fees coming into the management company and
And again, anybody who's in the management company, whatever's left over, whatever you don't spend at the end of the year, that's your take home pay. So you have this oftentimes perverse situation where you don't want to spend the money. Yeah, this is a great time to talk about why VCs make bad customers. If you are considering developing a new product and because all of us are so close to this racket, we sort of think about, oh, this could be great for venture firms to have this thing. Like every incentive in a
partner and a management company's body is to not spend money. And so it's kind of a miracle that we're seeing, not a miracle, but it's taken us a long time to get to this place where firms are investing in sort of director of platform and really building out sort of significant staffs
It's really a significant change in the model from sort of the original nature of these organizations, which was really like stay as lean as possible because then we don't have to spend any of the money and we all get to make more.
Yeah, I mean, literally any money that a VC firm spends is money that the management company partners are not going to take home at the end of the year. Yeah, imagine if you... Once you know that, that explains a lot of behavior of VCs. Like if you had a job at a big company and it was like, yeah, yeah, no, you can totally buy that thing to make your team better and more productive. It will come out of your salary, though. Yeah.
So, um, yeah, it's, you know, even, even like CEOs of like fortune 500 companies, it doesn't work like this. Like they're, you know, your budget agreement and yeah. Founders as well. Um, founders as well. So, so that's a huge difference.
Yeah.
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A lot of people have talked about this and probably know about it. You have a range of things from, you know, you have the fully equal partnership. And what that really means, if you really are a fully equal partnership, you're a fully equal management company partnership. So that means everybody at the firm is a full partner in the management company owns the firm.
So that's benchmark. That's how they work. They're very open and public about that. Foundries like that. That's what we're like at wave. A lot of new firms, you know, newer and smaller firms are like that because that would that's what, you know, often makes sense when you're when you're starting out. There are a couple little wrinkles on this that you sometimes see. You have the.
firms that are mostly equal partnerships, but they have a few kind of non-career track, quote unquote, junior people that help with investment support. So I would say Union Square Ventures is the most prolific example of that. Like the partners at USV, I believe are all equal partners in the management company, I believe. But they always have a few analysts, a few general managers that are
part of the firm, but they're explicit that those are not like people who are in those positions will not become, uh, partners at the firm. They're there for a few years and then they move on. And many of them have done great things at other firms. Um,
Yeah. It's a, it's sort of a weird, it's another thing to sort of take a pause on like career development at, at a venture firm is such a strange notion because it is, uh, you know, at a, let's say you work at Microsoft at a college, for example, like some, some people do, um, you,
you do well, you get promoted. And there's always jobs above you. And if it's not directly above you, then it's sort of like you can go diagonal and join a nearby team and sort of get your boss's role next to your boss. Well, one, venture firms are small. But two, there are lots of jobs that need to be done that have nothing above them. Because really, most venture firms kind of have like
one, maybe two layers of management. There's the general partners and then there's kind of everybody else and maybe there's a level there. But unless you're actually in the investment profession, you're not going up. And then even if you're in the investment profession, then...
you're not, you know, you're not guaranteed to be going up. Like you're pointing out, David, there's, there's sort of non non-partner track, um, investing folks and the good firms are very clear about this and it's well understood and everybody still feels like it's a really great opportunity, but, um, um, you know, it's, it's, it's an odd, uh, uh, uh, an odd thing in that way too.
Right. Cause they go, well, let's do one more wrinkle on the fully equal partnership. And that's the, the solo GP. Um, and this has really emerged in the last 10 years or so people used to think this didn't work, but this is, these are firms who are just one person. Um,
And there are some fantastic ones out there. So Steve Anderson at Baseline, Michael Deering at Harrison Metal, Tim Connors at Pivot North. They tend to be small firms, as you would imagine, very small people wise, but also small in terms of fund size and typically focus on seed as all of those firms do. That's interesting.
Everything is all in one person, one brain, no partners. It's just a solo, a high solo member. High key man risk. Yeah, exactly. Exactly. Um, so, but what you were saying a minute ago, Ben, about the career path of junior people, that's the perfect transition to, um,
probably the most common type of VC firm, which is the tiered partnership. Um, so it's either a partnership with tiers or you could think of it as there are junior people in the firm at various levels, junior, junior, just meaning not partners in the management company, but they have a career track. Like there is the, the sort of carrot at the end of the stick for them is that they could eventually become part of a full partner, part of the management company. Um,
So this is like... And David, what are some of these titles that are sort of a junior investment person at a VC firm?
Well, it used to be pretty clear, you know, it used to be kind of borrowed from, um, finance, the rest of the finance industry, you know, investment banking and private equity, you'd have analyst associate, maybe senior associate, and then kind of principal and then partner. Um, there's been a lot of title inflation in the VC industry in the last few years. Uh, and what people realized is that, you know, a lot of entrepreneurs would say, well, if you're not a partner, I don't want to talk to you. Um,
And people realize titles are cheap. So a lot of firms just made everybody a quote unquote partner. Which we also talked about how that was a dumb mentality on previous episodes. Well, it worked for a little while, but I feel like it's pretty common knowledge. No, no, I mean, I don't want to talk to anybody that's not a partner. Oh, yeah, yeah, exactly. There are really great reasons why you should want to talk to people who are not full partners at firms. But anyway, so I think this is really the most common
common model that a lot of firms like that people know of, um, have. So Madrona had this model. Um, Sequoia is us business, uh, has this Excel is this way index spark, you know, most of the major kind of brand name Sandhill road type VC firms, um,
you know, of operate this way. Um, so there's a few people in the management company at the top. There are people, you know, who may be general partners in funds, but are not in the management company below them. Then maybe there's some principals or partners who aren't general partners. And then the principals associates on down below that, that, um, there's also been an interesting kind of brand of firm that's
in the last couple of years as well. I think Andreessen was really the first one of this, and this is what I'd call the mega firm. Um, so this is sort of one step above this, which is you have a firm in this case, Andreessen Horowitz, or I would say soft bank is in this category. Uh,
And I would also say Sequoia Sequoia's entire global business is in this category. Now we have one firm that's managing multiple strategies or multiple concurrent funds. So like Sequoia has their U S fund, which is operated as structured as a tiered partnership. They also have their China fund. They also have their India fund. And now they also have the global growth fund that they just raised.
Andreessen has multiple funds. SoftBank has this. And typically what you have here is you have either...
singular CEO like you have with SoftBank or more typically you have like a management committee. So this is I believe this is Doug Leone, Neil Shen and Roloff both at Sequoia. It's Mark and Ben at Andreessen and they manage the oversee kind of the entire operations of the firm. And then you have people running each fund down below that.
Yeah, and I think Ben Horowitz said in the Hard Things About Hard Things that this was inspired by CAA? Yeah, by the Hollywood Talent Agencies. Yeah, yeah, yeah. That it's more like, hey, what if we operated, you know, as a, you know, the way that they do and brought it over to the venture industry instead of just starting yet another venture firm. And the interesting thing, so that's sort of how they got to, many people have this partner title. But the other interesting thing that Andreessen really pioneered is
investing in all sorts of things for the firm that is exactly the opposite of the stay lean approach that everybody always had. So it's a conference center. It's like the real dog and pony show when you go there where you're like, whoa, this is... Not only are you super impressed as an entrepreneur, you're impressed as a corporate that if your job is as a chief digital officer or chief...
information officer at a fortune 500 company, you know, you're regularly sort of brought to meet with companies there. It's, it's sort of treated as a, as a, um, uh,
you know, they're a value add or the pitches that you're a value add in a lot more ways than capital because you're sort of applying the management fees from all your various funds into creating this really rich and robust platform that sort of contributes to building great companies at all stages and scales. Yeah, and Mark and Ben were super explicit about this when they started Andreessen Horowitz.
you know, and they were former operators and they kind of looked at the whole industry and they were like, this is crazy. You know, we raise, you know, firms raise these successive funds. They have this management fee stream and then they just like the incentives are not to spend money and keep the fees at the end of the year. What if instead we took all those fees and just like you said, Ben invested it in hiring a whole bunch of, you know, other departments, um, kind of within the firm. Yeah.
And you see this a lot. You see the platform role sort of emerging. You also see analytics really emerging within firms now. People are using... I know SignalFire is a big firm that's doing this. People are...
doubling down really aggressively on using sort of data from, you know, all sorts of places. Obviously, you could like look at LinkedIn as a primitive source, but combining a bunch of things together to really understand, you know, the people that they should be investing in and recruiting to their companies. And I think in the same way that we saw, you know, data transform tech companies 10 years ago, we're actually seeing it transform VC now.
Yeah. And what's interesting, well, two thoughts on this one, you know, you guys, I think at PSL have taken this, uh, to the, you know, even further logical extreme, which is you actually have an operating company attached to a venture fund, right? Yeah.
Yeah, that's worth talking about. And it's actually kind of the other direction too, because since we started as a studio, what we sort of cut our teeth on is we're able to start companies and sort of create them from nothing, or perhaps partner with someone who has a really good idea to sort of take a great potential CEO and an idea and then build everything around that together.
you know, the, the adding the venture firm onto that is really rather than thinking about it, like great. Now we're a venture firm that sort of has a studio that can incubate companies. It's sort of like, what if they're sort of peers and work in tandem where the way we look at it, it's like, okay, cool.
that's a person we'd love to work with. We got two offerings. One, you can go spend a bunch of time building the company and then come to us when you're ready for funding. If you don't want to go do that on your own or you don't have a great idea or you feel like the studio approach is more right for you, then great. We have a way to do that too. And it's kind of just like now it's a menu with two options. So this is where a little bit of, this is editorializing on my end, but I think is really important for people
people to understand, especially entrepreneurs, um,
this kind of whole trend of other people within venture firms who are not investing partners, um, can work really great if you have the right incentives and structures aligned, like, like you guys at PSL, like, you know, the, the folks at PSL, like you're the operating company, the studio is like, was the first thing is the main thing. You all have equity in that. Like you're very incentivized for doing great work. The problem is in,
In some cases, if you don't set up those incentives, right, some of these roles like, you know, that are non-investing roles within venture firms are
They don't have the, as we talked about earlier, like the pinnacle of, you know, reaching the corner suite, if you will, in, in venture firms is becoming a management company partner, a general partner in funds and partner in the management company that can't happen for these roles. So like, there's no, like the, the incentives to do great work and perform over time. Aren't there in the same way? Like there's no advancement for these roles. Um,
And it's also like, it makes sense because if you think about the core competency of any business, like I've always thought about, you know, you always want to work in the core competency of the business. So if you're, you know, a software engineer, you want to work at a technology company. You don't want to go and do software for Abercrombie. If you're, you know, an amazing logistics person, like you probably don't want to be doing logistics for, you know, the latest direct-to-consumer software.
you know, product company. You want to be doing it for like a true logistics company. And actually maybe you do, cause that's a fantastic role. And there's lots of reasons. Well, I think that's the, like if you think about what a venture firm does, its primary value is deploying it's, it's, it's picking and winning and nurturing and it's picking the right companies, winning those deals and then nurturing those companies and doing everything you can to support them. So the chief, uh,
And it's doing all three of those things. So if you're only doing one of them or none of them, then you're not in the core competency of the business. So the, but in a venture firm, it's, it's, it's the primary value creation is done by excellent capital deployment. And so like, it makes sense that that's sort of the, the pinnacle of the thing. If you look at something like a studio, like there's like,
a ton of value creation that happens in the building process. There's a ton of value creation that happens in the validation process. So there's like, you know, a bunch of engineers and marketers. There's a ton that comes from design. Like there's, it's, it's interesting to think about as we, David, your prediction that last year that came true was like the continued change of the venture landscape and the way that, that firms are organized. Like,
I think studio is one model, but there's a bunch of others where, you know, there's value creation that happens in ways other than investing. And so you'll sort of, yeah, yeah. So you start to see sort of, you know, opportunities for those roles too. And before we move on, I mean, I think the takeaway here is not that like anyone in those roles is, you know, is not great or that they're bad roles. It's just that like,
There can be really great reasons to have one of those roles in a typical venture firm, but you're not necessarily incentivized to stay there for decades like you are if you're on the investing track. Right. And firms, some people will figure out how to incentivize that to the extent that it's extremely value additive, and those ones will change the way the industry works. Yep. Totally. Okay. Yeah.
Let's move on to LPs. You guys are LPs. You're LPs and acquired. A deep dive into why y'all are called LPs. Exactly. So limited partners in venture firms. So these are the investors in venture firms. And the fundraising process, this is interesting. And again, something I realized starting Wave, the bulk of it
is almost always done and has to be done by the partners of the firm that are in the management company in a traditional VC structure. So like, you know, when I, when I was at Madrona, I would interact with our LPs and that was great and they wanted to get to know me. But like at the end of the day, it's,
As LPs, when they're investing in a fund, that fund is managed by the management company. So they they want to know who all is operating within the firm. But like the true relationship, you know, the the necks on the chopping block, so to speak, are.
are the partners in the entity that is managing the fund. Um, so they're typically the ones that do the bulk of the fundraising. And this was basically my entire 2017 along with my partners, Riley and Sarah. Um, and, uh, uh,
Uh, and, and that's where the, the relationships are typically held. Um, so, okay, who are these LPs? There are a bunch of different types. Um, and also this has been evolving over the last couple of years. So I would say traditionally in sort of order from small to large investors and funds, there's individuals, individual people, um,
They can be great, you know, typically former entrepreneurs, other VCs, people are influential in the ecosystem can help the firm and the fund. Um, but they typically don't have the capital. Like say you're raising a, you know, even a relatively small, you know, $55 million fund like wave or $80 million fund like PSL. Um, it's going to take a lot of individuals to make up that capital. Um,
Yeah. And it's worth calling out. Like, you know, if you're an entrepreneur, you sort of think of this would be like an, uh, an angel round or a party round if it was made up of, uh, you know, a bunch of 500 K or maybe a bunch of million dollar checks rather than sort of, um,
The company analogy would be a bunch of 25K checks. The LP to venture fund analogy would be a bunch of half million dollar checks. But like hard to fill up around that way. Although I will say, and David, you can definitely attest to this. The...
quote unquote, easy part of raising a round if you're a company seeking venture capital is that you get your lead. They probably want as much as possible. They'll syndicate a little bit of that out to, you know, angels or other people you feel would be valuable. But they basically, you know, they're going to take 50 plus percent of the round you're raising.
Not the case for venture funds. How many anchors do you really need to fill up a venture fund? Yeah, I mean, for us at Wave, our largest single LP is about 15% of our fund. Again, compared to typically for a company, the lead investor in a round will be at least 50%, if not 75% plus of the capital.
That's a lot of people you need to convince to say yes. Yes. So that's individuals. Obviously, you need... If you're only going individuals, which some funds do, you need a ton of people typically. One step up from that are family offices. So these look a lot like individuals, but these are people who have enough wealth that they have dedicated people who are employed by their family office to manage their money. Typically, these are...
folks with net worth in the several hundreds of millions to low billion dollar range. Those tend to be a little more sophisticated and they'll do larger bite sizes, a million, two million, even up to five million in commitments to individual funds. Above that, you have fund-to-funds.
And these can be great, great investors. These are themselves funds who look a lot like venture funds, except their expertise of the partners there, instead of investing in companies, it's investing in other venture funds. So they raise money from the same types of folks. And then yes, it is as silly as it sounds. Yeah, it is as silly as it sounds. But again, these are great people. Like we have a few of these, you know, on our, in our investor base.
And they're great because their full-time job is focusing on this asset class, um,
which brings us to the next and what typically historically was the largest player in the, in this ecosystem were endowments and foundations. So these are what you think of, you know, the, on the smaller side, you have things like art museums or hospitals, children's hospitals, especially their endowments, um, investing in growing that on the larger side, you have the big universities, the Ivy league, Stanford, you know, the university of Texas has a huge endowment, um,
Uh, they, they manage a very large pool of capital. Like the university of Texas, I believe is close to $50 billion in, uh, in endowment size and growing every year. Um, they have lots and lots of people that are dedicated to multiple asset classes, uh,
So the difference between them and fund to funds, like if you're a fund to funds, you might only focus on venture or only focus on a subset of venture. If you're the university of Texas endowment, you do hedge funds, venture, private equity, real estate, public markets, you know, illiquid investments, all sorts of things. Yeah. If you think about sort of an endowment, uh,
And sort of the way endowments work that many, many LPs I'm sure are much more versed than I am, but it's basically you get a pile of cash and then it spits off some interest every year and you never have to dip into the pile of cash. So it's great. You know, universities, foundations that you fundraise into the endowment or the endowment is given by a single individual at some point in history. And then you sort of have a sustainable two to 4%, uh,
stream of interest that comes off of it every year. And I say 2% to 4% because it's fairly low risk in order to sort of not risk significantly decreasing the endowment. That
They're looking for exposure in all sorts of asset classes, and they're extremely careful and calculated about what is the different allocation. Venture is part of their sort of small slice of high-risk allocation to potentially have sort of a little piece of those big winners that venture funds get to invest in. Yeah. So this is a good... So why are we going into all this detail on...
limited partners other than explaining your name. Um, this is super important because the key thing to understand here is that for almost all of the dollars that get invested into venture funds and the ecosystem, um,
It's just a super small part of the overall portfolios of these institutions. Like typically a large endowment will have about 5%, maybe 10% of their total investment pool allocated to venture as a whole globally. And then any one firm or any one fund is like well less than 1% of their assets. So what that means is that they're looking for like a
a very, they're buying a product. Like they're looking for a very specific risk and return profile from these investments, from these managers, these, these VC firms and funds that they're investing in. Um, and
And that's actually, I think why over the last couple of years, you've seen so much money flow into venture. And this asset class is that there's no growth. There's no yield to be had anywhere else. Like public markets other than tech have been pretty flat, you know, certainly treasuries and bonds, like yielding anything. Yeah. If you want growth in your portfolio, the only place to get it has been venture capital and private markets, right?
Yeah, it is also worth knowing, like we keep talking about how it's a very small percent of allocation. I like to remind myself of this every once in a while when I get too caught up in the startup world of, you know, this VC raised this big fund and all this quote unquote capital sloshing around.
If you are a venture investor and then you go and talk with someone at a PE firm or a hedge fund or a public equities investor or a bond investor or, you know, someone who's doing foreign exchange or treasuries, like there are much bigger pools of capital.
than venture all the way up. I mean, it's, it's, there are rarely smaller pools of capital than venture and it's, it's, uh, it's sort of interesting to, to think about it on the, um, on the smaller side of the scale. Yeah. So what that means for it, and this is again, when I've sort of figured out over the last couple of years, I think is really interesting.
These managers of capital that are investing in venture funds, like obviously they care about performance. Like if a firm, you know, XYZ venture firm isn't generating returns over the long run, they're going to lose their LPs. Yeah.
But the thing about performance is that in venture, it's very hard to measure for a very long time. Like the time cycles are super, super long. So the LPs have to make a decision, you know, to use the analogy of you guys, you have to make a decision whether to continue to your subscription next month or
for Acquired, you know, like a year in advance of any of those shows coming out, you know? Yeah. I mean, it's almost in some ways, it's kind of like a Kickstarter, like a pre-order because, you know, you have to assume that you're somewhat, if you raise fund one, two to three years later, you're going to need to sort of start up the engine of raising fund two, maybe even sooner.
And so, you know, you all know startups, very, very unlikely, particularly with a seed fund or even a Series A fund that a year to two years out, even three years out, that anything's going to be a sure thing or, you know, certainly not returning capital or in very rare cases returning capital. So, you know, when you're an LP, you're almost...
there's still lots of reasons why you could potentially, uh, uh, not be signing up for a second fund, but in your head, you do kind of have to think about, okay, am I, am I,
you know, given no returns, but with a lot of other signal from the way I've seen this, this partnership and this fund behave, am I interested in a fund to even absent any return data? Right, right. And that gets into what I mentioned earlier is that like a lot of these LPs think about when they're investing in a fund, they're buying a product, like they're buying a very specific product.
risk and return profile. Like if you're investing in waiver PSL at the seed end of the spectrum, ideally like you want very high risk. You expect that a lot of the investments that our respective firms are going to make are going to fail. But in return for that, you want us to have such incredible upside that if we invest in the next or create the next Airbnb or Uber or whatever, that our returns are going to be so enormous that
Um, and, and then as an LP, you're managing that profile versus your, you know, other venture managers versus your private equity profile, hedge fund, et cetera. Yep.
So, most venture firms have this concept of an LPAC, a Limited Partner Advisory Committee, and this is the closest thing that venture firms have to a board. They don't have the same level of governance that a board over a company would have, but it's a group of typically the largest investors in a given fund, typically meets quarterly, and it's kind of like...
They're supposed to be the representatives for all the investors in the fund about making sure that, you know, the partners and the firm is sort of staying on track to their strategy. It is interesting. And I think there's another entrepreneurial analogy here. So if you've started a company and you've decided you raised money for a specific thing,
And you're working on that thing. It's not like you've pivoted or that's failed, but like a new thing happens in the market. And it's really tempting to be like, oh my God, we have to go all in on this thing now because this is the opportunity. The world just changed. And like, I know this was the company we said that we were going to start, but like my next board meeting is like a month and a half away. Like we just got to get the engineers working on this now. Mm-hmm.
you can sort of chuckle to yourself and think like, well, that's, that's, you know, it's probably dumb. Like you probably shouldn't do that. Startups are about focus. Yeah. No great operator would do that. Many VCs do do that. It feels much more reasonable on the VC side. If I could very much see, and I've had this happen, entrepreneurs that say, what do you mean it's off strategy? It's a really great financial opportunity.
Mm-hmm.
And it's interesting sort of being on the fun side and realizing and sort of chuckling to myself at the analogy to running a company and seeing sort of a similar distraction, whereas you sort of know it's the wrong thing in a company. There's a lot of sort of external pressures around investing where it's super, super easy to go off strategy.
Well, it's driven by fear and greed as has been so oft talked about. And I think like where you've seen this, like this isn't just academic, like this has played out.
many times at many firms in the last couple of years with crypto. So like lots of venture firms that, you know, have in their charter and their, you know, at the very least their marketing materials when they're raising new funds, you know, we invest in venture capital or, you know, whatever they do. And then they're like, Oh, we want to go invest in some ICOs. Typically they have to go to their LPAC and at least talk to them about what they're doing. If not gain formal approval.
Yeah, it's a really good mindset to be in as a venture investor that it's not your money. Like, I think the temptation is probably to think, you know, I can... Do whatever I want here. Yeah, I see an opportunity and I feel good about it, so I should do it. But, you know...
Venture investors pitch a very specific product with very specific intentions. And then when their limited partners allocate capital to them, they're doing so and then noting exactly what it's for as part of a broader strategy. And the best sort of mindset to be in as a venture investor is this isn't my money. I'm a steward of someone else's capital. I'm
And they've sort of deputized me to look for these specific types of investments at approximately this cadence. Well, I mean, in a very real sense, especially if you are part of the management company, they have hired you to do a job to allocate that capital in a specific way.
And I've always, just to put a fine point on that, I think that framing is super important as an entrepreneur who's out raising. Like, it can be really tempting to say, I have a great relationship with that person or that first person wrote this interesting blog. So like, I'm going to spend a bunch of my time pitching them on this thing and trying to get them over the hump. Like, it's not their money. Yeah.
And that's like a thing you should sort of repeat in your head over and over and over again. Yes, of course, they make investment decisions, but you got to be within thesis in order to really get there. Yeah. So that gets us to the last section here that I think is...
Hopefully the most interesting and useful to everyone, whether you're a VC yourself, maybe a junior VC, um, or especially if you're an entrepreneur, which is like given all of that, that we've just described about how these VCs are structured and how they work, um,
what are their motivations? Um, both firms and individuals. And David, we should say, um, uh, when I say it's not their money. So all of the capital and a venture fund doesn't come from the LPs. Some does come from a commitment from the GP. Uh, and you want to talk about that a little bit? Yeah. Well, so to,
Typically, it's at least 1% of the capital in a fund, in every fund, sometimes up to 5% or 10% of the capital comes from the individual people who are the GPs or the management company members themselves. And a lot of LPs look to this as like a signal of how much skin do you have in the game as a GP. And it's funny, I mean, again, before starting Wave,
I was like, oh, you know, that's sort of academic, like whatever, you know, I can think of lots of reasons why people would be motivated not having as much skin in the game, but like living it now and like feeling it like I get it, you know, like there's a difference between like a significant portion of your assets are on the line here, your personal assets versus like I'm just playing with other people's money, you know? Right. Right. Right.
And one other thing that I wanted to touch on here, because I think it's important, is vesting. So typically in a company, you're getting maybe a four or five year vest on your probably stock options that you could get in the company. In a venture fund, it's going to be much longer, probably in the neighborhood of eight years. Or longer, yeah.
Yeah. Vesting into the carried interest that you have been granted in that particular fund. And so, you know, when you are on the investing side of a venture firm, you know, you're typically there a lot longer to, you know, to vest into your carry. Yeah. And that's another point where...
it's again, really helpful to keep in mind the management company, non-management company distinction because vesting everybody who's a general partner in a fund vests into their carry, but the management fee stream, there's no vesting, you know, that's just income every year. Um, so it's again, where you can get these divergences in, uh, in incentives. Um, okay. So, so motivations, um,
So let's talk first about firm as a whole, like the motivation for any given firm who you might be working with, uh, either at or, or with as an entrepreneur as a whole. Um, the first thing you should ask yourself is what is, what's, what's this firm's model? Um, so that includes, you know, one, how are they, how's the partnership structured? Like the motivations for, you know, a benchmark type, fully equal partnership are very different than the motivations for, you know, a, uh,
uh, Andreessen Horowitz, like, you know, family of funds. So who am I interfacing with at what, at what level, uh, of the firm is important. But then for the model for the fund, uh,
Really, the biggest thing is funny. You know, I think it's Mike Maples at Floodgate who has likes to say that your fund size is your strategy. And I mostly agree with that with the caveat that it's it's fund size plus your portfolio size given that fund size. So let's take a hundred million dollar fund.
Obviously, that means you can't be leading Series Bs or really even Series As these days, which Series As are $20 million rounds. It's worth talking about why. If you have a $100 million fund, what are you really investing in new companies and when? Right. Great point. So...
A, off the top, you have the fees that come out of the fund. So typically these funds are structured as 10 year partnerships at 2% fees every year. That's 20% of the capital. So $20 million out of a hundred million dollar fund. That's just crazy.
Not for investment. So right off the top, you've got only $80 million to invest. Um, and, and then of course, fundraising expenses and fundraising expenses and, you know, various partnership expenses that can add up to another, you know, much less than that, but it could be another million or 2 million for the fund. Um,
But then given that, it's not like you have that full amount of capital to invest in just series A's because you need to manage your ownership in these companies over time. You're expecting that, especially for your winners, they're going to raise multiple rounds. You want to defend your ownership position in them when they and prevent dilution to yourself when they do raise their next rounds. You need to reserve capital for per rata.
So a lot of firms do, you know, one-to-one or even two-to-one reserves, meaning that for every $1 they invest in their initial entry, whether that's seed or A or B or whatever, they'll invest twice that amount of capital or they'll reserve twice that amount of capital in the fund to invest in future rounds in that company. Right.
Right. So when you see the news that so-and-so just raised $100 million fund, you say, okay, cool. They're probably spending three to four years to invest $40 million into, or less, $30 to $40 million into brand new companies. They call that dry powder that a venture firm has to invest. And so if you think about that, if you start thinking about check size, let's say it's a Series A firm,
I mean, gosh, you can't be a Series A firm with $100 million. You can't, no, because you've got to be writing $10 million checks into these rounds. Right. You've got like three companies you can invest in. Yeah, great portfolio construction is not having three, four companies. So you have to think about...
So you're probably a seed firm. Your check size is going to be that million to two million. And so let's say it's, you know, you say a million to two and then you end up doing some two and a half and threes. So you're probably with that $40 million investing in 20 companies at two million each. Mm-hmm.
So it's, it's interesting to now, now. So this though is where you do get a lot of divergence and it's super important to know as an entrepreneur that,
the firm your firms you're talking to think about portfolio size. So like, for example, us at wave, we're anticipating having roughly 15 to 20, you know, certainly not more than 20 companies in our portfolio for fund one. Um, there are plenty of other seed firms out there. So that means for us that, you know, we're leading rounds, we're writing, you know, the exactly like you said, one to $2 million checks as a $55 million fund. Um, and,
And, uh, and when you do all that math with reserves and everything that, that works out a different approach that we could have taken is we could have said, we want to increase the number of companies in the fund. You know, we want to have 50 companies, you know, in, in the fund because seed is so risky. We want to have more shots on goal. That's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's, that's,
That means, though, we'd have to lower our check size, take less ownership, have many, many more investments. That would also mean a different operating strategy for us, right? Like if we had 50 companies with three partners, we couldn't be that involved in. You probably need associates. You're not that involved in each company. You're spending much more time just like pounding the pavement rather than sort of, yeah.
Instead, we're going to have like five-ish companies for each of us over three years. That lends itself to a very different model where we have a lot more time to be involved in each company. Right. It's interesting too. I mean, the...
The way you make money as a venture investor is by owning a lot of equity in a really valuable company or two. And it is interesting to think about, you know, okay, David, so why don't you just own less of 50? Come on, what's the big deal? Well, you know, when you start to think about this, let's say...
Let's go with that strategy for a minute. So you own 5% of a company at seed. Let's say that company IPOs. You probably, even with being able to participate in defending your ownership and continuing to invest, you get one, maybe two more rounds out of that. You probably end up with 2% to 3% ownership in that company. Yeah, if you're lucky. Let's say 2%. So that company does really well. And it IPOs for $2 billion. And you're like, this is great.
Okay. You own 2% of that. So that's, uh, what? 40, 40 million dollars. Yeah. So it's $40 million. Uh, we, the hypothetical fund size here is, is a hundred million. Uh, so, okay, cool. And that's your best company. Yeah. That's your best company. You're now 40% of the way to one X-ing. Yeah. And you're shooting here for three plus. Yeah.
Three is minimum, minimum for a good fund. You can start to see how the math gets really hard. Yeah, and why ownership is so important and why when you're talking to investors, they say, look, I have a target ownership, especially in the seed series A of 15%, 20%, because anything less than that, you're just going to get diluted down so much and you actually need to have...
several unicorns in your portfolio, which is so unlikely to make it count. So you want to be able to make it so that when there is that one or two companies in the portfolio that really outperform, that that can be the real bulk of the financial return to your LPs. Yep. And this is why, you know, when you're... The reality is generally, as we've talked about on other LP episodes, if you're out raising around for a company...
The question is not how much of the company you're going to sell typically. It's how much money are you going to raise? Be able to raise. And then the valuation is that times 20%. Yeah. Yeah, it continues to amaze me that the way that private companies are valued is take the amount that investors are going to need to satisfy their ownership percentage and take the amount that...
you can raise. If the math works out reasonably well to be approximately market, then you can back into what a quote unquote market cap is for that company by doing the multiplication. And that, you know, 20 years later, at some point you're, you're valued on, you know, a discounted cashflow. And it's amazing that like there are, there's a gradual mix from one to the other in valuing your company in a completely different way. Yep.
So, okay. So let's, let's jump to the next thing, which is likely to be on the minds of the firm, um, that you're, that you're working with, um, of the VC is, um,
It depends, depends on the firm, depends on where they are in the cycle. But I would argue it's probably not performance. It's probably raising their next fund. Just like probably if you're an entrepreneur, you know, especially as you get farther into your fundraise, you know, again, depends on the entrepreneur, but you're you're.
your motivation is, is probably more keeping the lights on in your company and making sure you don't die, that you can continue to meet payroll than it is, you know, your exit. Um, so given what we talked about earlier with LPs, um,
The raising the next fund. So again, like performance is part of it, but more important, especially for early funds is not having this style drift is not saying like having sold your LPs that, Oh, we're going to, you know, invest in, um, you know, uh, uh, startups in, in the Midwest, uh, let's take drive capital, um, and then going and deploying all your money in China. Uh, LPs are going to put you in the penalty box for that.
David, you see a really compelling opportunity. It's someone you know really well, and it's the best entrepreneur that you've wanted to bet on for years. You missed their seed, but you now have an opportunity to lead their Series A.
Mm hmm. Yeah. But that's when it gets tough. And, you know, a lot of firms will make that investment. But again, especially for the people that are on, you know, in the management company that are responsible, who's next are on the line for fundraising for the next fund. They're thinking about if we do this, what does this mean about the story we're going to have to tell to raise our next fund? Yep.
And so as a, you know, again, an employee at these firms or an entrepreneur, it can be really hard to, you know, unearth all these dynamics. But to the extent you can figure out like,
What are those dynamics at this firm? Their next fundraise, when is it likely to happen? Is it likely going to be easy or is it likely going to be hard? You know, if it's likely going to be a hard fundraise, you're going to have nervous investors. Uh, if it's likely going to be easy, they're going to be a lot more easygoing. Um, yeah.
Again, hard to understand from the outside, but this is likely what's on the minds of the people you're interfacing with. If you've ever heard the phrase that that firm was excited to get their markup, that basically they're excited to show an on-paper return on an investment. And it's...
It's really not an outcome that people should be striving for, but it definitely happens where a motivation is that a firm wants to show that one of their investments got marked up and it affects the likelihood of a deal to get done. Well, it affects it's at least something to be able to point to when they're out raising their next fund that, you know, hey, we don't have liquid returns yet, but we have something to show you. Yeah.
So let's get to the last piece, which is actual performance. Now, this is interesting. And I think the...
interesting discussion here is like, what would a VC do if like, let's say if you're, if you're a hundred percent focused on just being able to raise your next fund versus performance, you're going to, um, you're going to stick to the strategy that you sold LPs on. You're going to optimize for markups and anything that can show some sort of like demonstrable traction. Um, but
but that that's a trade off versus like actually maximizing the value of your portfolio sometimes. So like, let's say if you're a hundred percent only focused on portfolio value maximization, um, you're going to care about a couple things. Um, you,
you're going to care about not throwing good money after bad. So like, again, you're focused on raising your next fund. Let's say you put a lot of money into one portfolio company. You've talked it up to all your LPs about how great it is. They hit some hard times. They might need a, you know, a bridge financing, some extra capital. You might, even if you are worried about the longterm performance of that company, you might bridge them to say, okay, like we're going to keep them alive. We're going to keep this story going so we can raise our next fund. That's certainly the incentive. Yeah.
Certainly the incentive, um, on the opposite end of the spectrum, you would be completely ruthless and capitalistic and say, I don't believe if I give you more money that I'm going to get a return on it. I am saving that money for better, you know, investment opportunities. Yep. Another really interesting, um,
dynamic here is whether you're driving towards as an investor and a board member, whether you're driving towards continued markups and continued sort of paper success on the fundraising trail for your portfolio companies, or if you're driving towards outcomes. And I think if you look at a lot of
of different venture firms, you can see the different biases here. Like are firms driving their companies to go public, you know, early or late? Are they driving, you know, towards acquisitions happening or not? And you can have a lot of influence as a board member here. A very common example of this, and this same calculus gets made by management teams of startups is, you know, let's say a company has raised 20, 30 million bucks, you know,
And they have an opportunity to sell. So let's say they've raised their last round was, you know, $15 million on a post of 100. They have the opportunity to sell the company for, you know, 150 million bucks, which in the venture world, that's not a huge outcome. That's not something that the firm is sort of talking about regularly as, oh, this big winner. Right.
is looking in the fundraising market like they would be able to do another round. But it's not clear who the acquirer would be. They don't necessarily think the company could be public. There are scenarios sort of both for the glory on the entrepreneur side and sort of the momentum of just sort of keeping
keeping going and sort of the, the, um, perceived success around continued large, large fundraisers, uh, the markup since that valuation would be higher than the exit value that the investor would see. Um, that's definitely an incentive. Um, you, you sort of see these rounds that, that, uh, um,
But it also wasn't going to return the fund.
Right, right. And so, yeah, I think you could see a different fund than USV potentially applying pressure there and saying, hey, actually, we should go raise that next round and see if this can be something that's really a fund returner. I know it's a great multiple, but the cash generated here really doesn't move the needle for us. And they sort of, in some ways, took the counter incentive and said, no, it's really time. This is where this business should lie.
You know, I think this comes down to who has the VC managing your time. And it's, it's how like my, what I've seen from a lot of the most top performing VCs is that like, this is how they think about things. They may or may not be
outwardly explicit about this but it's you know if in a case like that is it worth the time of the firm and the partners to dig in and work harder with this company to keep it going raise the next rounds if you're not sure that the market is big enough to support a huge outcome or is it to say okay it's in everybody's best interest to sell this now get the outcome move on to the next one yeah
Great point.
That's fine. Okay. So that's kind of on the firm side. And obviously we've talked about extreme examples here. The reality is that every firm is somewhere between these two poles of the spectrum and where they are changes over time with the evolution of the firm and where they are in their own fundraising cycles. But again, I think it's really important to as much as you can try and get into their heads of like where they're at, it can help understand, help explain their motivations. Yeah.
Yep, absolutely. Okay, so now let's talk about, to wrap it up, individual motivations within a firm. Now, generally in a equal partnership type model, at least in theory, the idea is that there is no difference between individual motivations and firm level motivations.
Because, you know, let's take Wave, for example, like we're an equal partnership. So whatever outcomes, regardless of whether a company is, quote unquote, my company or Sarah's company or Riley's company, you know, whoever's on the board, we don't even treat how we manage Wave this way. We all share equally in the proceeds. We all own the firm equally like there's no difference. So we're incentivized to help every to make collective decisions.
If that's not the case, if you have a tiered partnership or you have a case where somebody is your board member or lead investor, they're not even a full partner in the firm. You can see how the incentives would be for them to maximize their own investments and their own track record, both because that's, you know, in a in a sort of Machiavellian sense, because that's a portable track record. Maybe they could move to another firm. Maybe they could do something else.
But even if they have the firm's best interest in mind, they want to be promoted within the firm. They want to make, you know, general partner, management company partner. The way they do that is they make great investments. Yep. It's interesting, too, to compare this to. So PSL operates in this way where just because, you know, I, you know, worked on Taunt and spun it out and I'm the board member, I don't have any sort of more interest.
uh, financial upside in that than I would in, you know, uh, jet closing or boundless or, um, sort of any, any company that I didn't work on as closely. Um, you know, the, the flip side of that is the sort of eat what you kill model where, uh,
sort of a different, the, the downside to that is of course you lose that sort of, uh, culture of helpfulness and culture of, of team, um, in some ways. The upside is of course you can really motivate someone who is, uh, uh, you know, let's say they have the motivation and then personality type of like a really good enterprise salesperson. I mean that, that's exactly the incentives that drive someone like that to be really, uh,
really excited and an enterprise sales organization had no you know individual based comp yeah
And I think that's what's so interesting about this is like both of these models work really well. Like benchmark is incredibly successful. Likewise, Sequoia is incredibly successful and they don't have the same structure or anything close to it. Um, so it's really about like, you know, understanding what your culture is, what your structure is and what's going to work and then how things are going to get done. Yeah.
Yep. Great point. Another, you know, kind of related piece to this that's important to think about is where is an individual in their own career, you know, timeline and trajectory? Because that impacts everything.
Back to what we were talking about with firms and fundraising versus performance that can impact their thoughts on an individual level as well. Like if somebody's more towards the end of their career, either with a firm or, or in totality in VC, they're probably not going to be planning to sign up to stick around for too many more funds, uh, fund cycles. Cause again, these funds, uh,
you know, the, they take a long time to manage out, you know, minimum 10 years usually. So if you're already later in your career, you're starting to think about how many more of these 10 year commitments do I want to make versus, you know, focusing just on the here and now. Yeah. And if you're an entrepreneur meeting with, with, um, uh,
someone that works at a venture firm, you should just ask these questions. There's a tremendous amount of like, you can't always discern this from title. You can't discern this from how long someone's been at a firm. You can try, you can get a little signal, but really like,
you know, there's some stuff here that's a little funky to ask. Like you probably wouldn't ask someone, well, are you a partner in the management company? Um, but there's a lot of things that are not the first time you meet them. Yeah. Yeah. But I think it's a fair question. Like, Hey, you know, what are you motivated? Yeah. Why are you excited about this company? You know, what do you want my outcome to be? How do you benefit if it does? Well, I think these are very reasonable conversations to have. And I think, um,
you know, as with any of this stuff, you try and build the best relationship you can and, and, uh, uh, you know, get rid of a little bit of the opacity that exists in a, in a big way in this industry. Mm-hmm. Mm-hmm. Cause again, like,
thinking through an entrepreneur's perspective here like this is in a healthy venture capital relationship uh or even especially in an unhealthy one this person's gonna have a lot of influence over your company um and you can't divorce them you're gonna spend a lot of time with them so understanding what their motivations are is super important yep um well should we bring it home let's do it anything we missed
No, I think a good closing note on this is, uh, David and I are very curious for your feedback on if we just, uh, uh, went off for an hour on something that's, uh, um, feels more like a lecture than sort of a, a conversation or sort of why you signed up to be here. Uh, please let us know. I think, uh, personally, like I wish I had sort of been a fly on a wall in a conversation like this, uh, a few years ago. And I think, um,
Um, you know, I, I, I hope folks are, are interested and find it beneficial. Um, I also think it's, uh, it's super reasonable to, to hit David I up on the Slack and, and clarify any of this too, and happy to have that discussion on sort of the, um, the broader Slack too. So I think, uh, um, thanks for tuning in with us. Yeah, totally. We're all right.
Happy 2019. May it bring many great returns to you all as limited partners and in the rest of your lives and careers. We'll see you next time. We hope to 3x the value of your contribution. Not in cash, of course, but you get it.
