156. Chaos Capital, the new Micro VC Movement and LPs Chasing Hype (Chris Douvos)

The Full Ratchet Chris Douvos VIA Super LP

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Chris Douvos of VIA joins Nick to discuss Chaos Capital, the new Micro VC Movement and LPs Chasing Hype. In this episode, we cover:

  • How his mindset as an LP has evolved
  • Startups out of Standford vs Berkley and if the valley is over-fished
  • How the micro VC movement has changed
  • Chris’ selection criteria and what he looks for in managers
  • Why he most often says no
  • The impact on LPs of companies staying private longer
  • The impact of new LPs coming into venture on asset class
  • How the LP community interacts… adversarial, collaborative, competitive or othewise
  • The areas where Chris can grow most as an LP
  • and we wrap up w/ his thoughts on co-investment alongside GPs as well as follow-ons in later rounds


Guest Links:

Quick Takes:

  1. If there were a marketplace for universities he’d short Stanford and go long on Cal. Stanford feels like it’s over-fished
  2. The Bay Area will evolve from a startup hub into a financing center for tech
  3. SF is the only place w/ a bench of founder CEOs w/ the ability to manage through hyper-growth
  4. During the initial micro VC movement, investing as an LP was a bit like shooting fish in a barrel. There were so many good funds to choose from that he said NO to Baseline and SoftTech
  5. Today, the error term in the regression has gotten so much larger b/c there is so much noise
  6. A person’s ability to crisply/succinctly describe what they’re doing demonstrates clarity of thought
  7. First, he looks for “edge.” What is the person the best in the world at, in a durable way
  8. The Second thing he looks for is strategy– does it make sense at a macro level and does it resonate with their skill set
  9. One of the problems is that performance is a lagging indicator, not a leading indicator
  10. Top quartile persistence is going down. If you’re a top quartile firm, it is less likely that you’ll remain in the top quartile (~13% chance that next fund is in the top quartile)
  11. In a world where a lot of entrepreneurs have become investors, many do not think like investors and consider things like portfolio management
  12. You can fall in love with founders and technology, but don’t fall in love w/ the stock
  13. He spends his day trying to strip out luck from skill. What makes many of the great firms great is repeatability, driven by process
  14. Every fund manager must be able to answer, “what exit value does each portfolio company need to achieve to return your fund?”
  15. Every fund manager says that they have a great network and it’s their competitive moat
  16. With the increase in companies staying private longer, many institutional investors’ allocations are locked and they don’t have capacity to invest in new funds or successor funds
  17. A lot of new LPs and overseas money is chasing hype and returns, entering the asset class
  18. Venture is the fullest articulation of the idea of America
  19. Over 50% of IPOs have an immigrant founder
  20. Diverse startup founding teams outperform those that lack diversity

Transcribed with AI:

welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran and this is the full ratchet

Welcome back to TFR. The Super LP joins us today on the program. Chris DeVos is a longtime veteran of the asset class and has a reputation as one of the most transparent and helpful supporters to early fund managers. In this episode, we discuss how his mindset has evolved as an LP startups out of Stanford versus Berkeley. And if the valley is overfished, how the micro VC movement has changed Chris’s selection criteria and what he looks for in managers. Why he most often says no, the impact on LPS of companies staying private longer the impact of new LPS coming into the venture asset class how the LP community interacts adversarial, collaborative, competitive or otherwise, the areas where Chris can grow most as an LP and we wrap up with his thoughts on CO investment alongside GPS, as well as follow ons in later rounds. This is one of the most fun interviews I’ve done since starting TFR. Chris may be called the Super LP, but he’s also just a super guy. And I look forward to many more discussions with him. Here’s the interview with Chris DuBose of VIIa.

Chris DeVos joins us from Palo Alto.

Oh boy. Sorry, I’m just exuberant.

I can tell this will be a fun one already. Chris is a managing director at VI A a $1.6 billion private equity fund of funds. Prior to joining dia Chris co led the private equity program at TIFF, the investment fund for foundations. And prior to that Chris worked on Princeton University’s endowment team. Many of us know Chris as the Super LP sporting his trademark red t shirt under his Oxford and authoring the blog at Super lp.com. He’s truly one of the pioneering investors in the micro VC movement. Chris has been a big pleasure to have the chance to chat. Welcome to the show.

Thanks so much. In fact, we can we end it right there because I don’t think you get any better. Awesome Intro and I don’t know if I can live up to that. Oh, boy,

I think you’re gonna surprise some people today. Let’s start off with an easy one. Tell us about your path to become an NLP.

Sure. You know, it’s funny because I’ve kind of stumbled around through my career. I studied history in college and and you know, we had no pre professional classes at Yale except Except Swensons class and then the accounting class in which by the way, I got a C minus. Although the irony is when I went back to business school and took accounting, and at the same professor, I got a top 10% grade, I got a distinction. And he asked me to TA and I said, RT, are you sure you want me to ta because as an undergrad, I got a C minus in this class. I said, Hey, the second time must have been a charm. But they had so I was a history major. And then I went into strategy consulting, because because it seems like the liberal art of business and and I was at this awesome firm monitor company that was like experimenting with all kinds of stuff. And I got into investing there and worked on our hedge fund and also on on our growth equity fund for a little bit. And it was amazing, because it was a whole new world. You know, as consultants, we really afflicted by analysis paralysis. But in the investing world, we actually had to have an opinion and make, you know, make a stand on things. So so that was really quite compelling to me. But what was interesting was, there I was my knee. This is 1999. And I was on the hedge fund and I was talking to these analysts and stuff and companies and what have you looking at Internet stocks? And I had this realization, I was like, Oh my gosh, when we value companies on eyeballs, right? Because you remember, that was a big valuation metric. When we valued companies on eyeballs, each person one eyeball or two. And I was just saying, you know, let’s see, too, but like, I can’t imagine that that would be silly, like, you know, so So I was like, either way I was off by like, you know, a 1x. So I decided I needed to go back to business school to to get you learn what I’m what I could about, you know, really how to value companies. Although I gotta say if I can take a quick detour, and this actually kind of was a big signpost on my path. Yeah, as I was leaving monitor to go to business school, I was also interviewing with this company. That was like a proto Gen catalyst company like it was it was this little company that Fialkov Cutler and all those guys that invested in and for those who know General catalyst they know fiasco is is like amazing. zoompresence, he’s got this like Einstein hair, and he’s super energetic. And he’s just kind of awesome wild man. And I said, you know, I gotta go to business school because I actually have to figure out what, what I’m doing because I actually don’t feel like I know anything about anything because that’s okay. Nobody really does. And then he looks at me, he goes, do most of us go to business school now is like studying geology during the Gold Rush, you got to get out in the field or otherwise, you’re not going to make any money. Sure. Right. And that was like, really kind of stuck with me in 99, because everybody seemed to be making making money. And then I but and here I was at business school spending money. But the market kind of reversed itself. And it reversed itself while I was, you know, kind of in March of 2000, and I was doing my business school summer at Morgan Stanley. And that was a real eye opening experience, because that’s where I learned I wanted to be a principal rather than an agent. And, you know, I bumped into my old college friend, Seth Alexander, who’s now the CIO at MIT. And I said to him, I said, dude, tell me about what you guys do. Because he was then in the Yale Investment Office, and he said, Hey, dude, this is like, the closest you’ll ever come to managing your own multibillion dollar fortune. You know, we’ve got low liquidity needs long time horizon, a single client, you know, endowments are the purest investors. And I thought, wow, this is amazing. Ken, can you can I come join you guys at Yale? And he goes, Well, you maybe you should talk to the Princeton guys instead. So he plugged me in the end it at Princeton and feminism, right? I you know, I always said when when, you know, all these managers would come in, you know, VCs and private equity guys. And they’d been doing the run all up and down the East Coast and all the Harvard guys went, you know, Peter Dolan was a Harvard guy, you’d go down to Yale, all the Yale guys are are younger, youngest in the office, guys are el alums. They’d get to Princeton and they’d say, you know, did you guys go to Princeton? And I’d say, Well, no, actually, I went to Yale, not once, but twice. But as I said, In Roman times, it would be Panis, EB Patria where there is bread, there is my country. And Princeton’s got a lot of bread. And, you know, and then Dan fader, our head of private equity took me aside when he’s like, You really got to quit it with a Latin ship.

I took four years in high school, and people still don’t enjoy it.

Yeah, right. And so I kind of got rebuked there, but, but it was fun to be behind enemy lines. That was a great portfolio and a great place to learn the business. So

So when did the transition happen to Tiff and then you know, why the decision to move to VIIa?

Sure, so tiff was an amazing opportunity. Because there was a Princeton I’d really learned a ton and, and it was a, you know, really just amazing platform for learning. But one of the challenges I felt was, you know, our endowment was so big. And I started to get a sense for some of the changes that were afoot in entrepreneurial finance, all the stuff that today we talk about, when we talk about lean startup. And I felt like the whole venture industry was wrong footed. Now principle continue to make a lot of money. They they’re brilliant folks. But I thought, you know, where can I? Where can I really kind of articulate this, you know, vision that I’ve got with respect to smaller funds that are more nimble, and can you know, kind of address what back then we were calling the capital gap. And just at that moment, David Salem, our founder at TIFF called me up because they were looking for a new co head of private equity. And he said, we’ve heard great things about you. You’re a little bit of an iconoclast. So we love people who think differently, why don’t you come come join us, and he had me at hello. And I joined and David said, I want you to invest courageously. I want you to be a heroic investor. And I thought, well, I’ve got this heroic idea. And either it’s going to end really well or really badly. And he goes, Look, chase it down. And so that led to this really awesome and fruitful period where, you know, this is now Oh, 40506 as getting really close with Josh Koppelman, and, you know, Roger Ehrenburg in New York and LA TV guys, and a lot of that kind of pioneered Mike Maples, a lot of the pioneers of the, of the, what we what we then came to call micro VC, who invested in a bunch of them. And in my hypothesis, then was was right and I was really, really lucky to do so. Is part of that too, you know, to get more involved in the fabric. I moved out to California, I’d been living in Princeton and working at TIPS office in Philly, the Philly suburbs, and which, coincidentally was around literally around the corner from first rounds, Conshohocken office, and moved out to California in L. A, to really kind of, you know, be among the, you know, among the startup folks in a more kind of row. fast way, and, you know, get get differential insights that way. And so I moved out here to LA. And I said, you know, what’s funny is, I had a business plan for running that TIF office. And I said, you know, in three years when the lease is up, either we’ll have, you know, 20 people out here or zero people. And six weeks after I open the office, the global financial crisis hit, you know, all kinds of haywire. And so the three years is up, our lease is up, we had a change of a good change of leadership. And as David, you know, stepped aside after a long and kind of story tenure, and they were deciding to centralize the footprint and but I had been enchanted by the sunny and magical land. So not who’s not right, it’s hard not to love California. And so and the just the energy, and as a result, I decided to stay out here. And so I called up my old buddies at VIIa, whom I’d known for like a decade, I said, Hey, can I come on board and launch, you know, a micro VC product and contribute to the other stuff that you guys have going on? And that was in 2011? And it’s been a ton of fun? Awesome,

awesome. Can you can you talk about how maybe your approach and or your mindset has either changed or evolved through your various roles at at some of these firms?

Sure. You know, it’s, it’s been a great run. And one of the things that I’ve always appreciated is that the two great luxuries in life are the ability to set your own agenda and the ability to choose the people with whom you work. And I’ve been fortunate, you know, kind of throughout my career to have those in some degree, you know, clearly at Princeton as part of a big team, and we had a lot going on, and as, you know, learning the business, and I was trying to be humble about that. But once I got to VA, and had a lot of or started TIFF, and had a lot of, you know, kind of open field running. And then now here at VA, where there’s a real ability to kind of get excited about things and pioneer different things. I’ve been really lucky. And so so the challenge has been, and I’ve got great partners who are very much the yin to my Yang, both Steven Veatch and Elliot, Tiff and now Jason, Andrew set at VIIa have been great kind of foils to my, you know, kind of reckless abandon. And, you know, what, what I learned at TIFF, which, you know, really has stuck with me was, you know, salem said, I want you to be completely unafraid of being wrong and alone. Because if you’re afraid of being wrong and alone, which a lot of people are, because career risk resides there, you’ll never be right and alone, and he’s like, I want you to be right and alone, because that’s where, you know, that’s where, you know, differential returns lie, he call that the Fortune and glory quadrant. And so, at TIFF, I had a lot of opportunity to, you know, tinker with the portfolio, it was, it was a lot of evolution and a great core portfolio, and, you know, kind of really build out, you know, some of the the micro VC exposures and flash, you know, the flashlight into some new areas. At VIIa, you know, it’s, that’s been a little bit of continuity and change, as well, because I’ve had a lot of freedom. And, you know, Jason has been a great, you know, great supporter in foil. And, you know, kind of conscience for my crazy. But, you know, initially I was doing a lot of, you know, what we’d call micro VC kind of conventional stuff. So first round, true, data collective, etc. But more recently, I’ve gotten really enthralled with very sciency stuff. And so, so we’ve done a lot of, you know, kind of hard tech focus stuff that’s really quite frankly, out of the mainstream. We just backed a fund out of Boston called Rhapsody that I’m super excited about. Ironically, my old friend David Salem is, is also an investor there. And, and, you know, I, I show that to some of my friends and like, wow, this is really interesting, but but crazy. And so in a sense, you’re the fund that I manage, the tagline for the fund is doing the stuff that your investment committee won’t let you do. And people love that. And so we’ve got a great group of endowment and foundation investors and they love that kind of portfolio octane as well as is, is being able to, you know, get an insight, a pulse, you know, finger on the pulse of the valley, but that’s been what’s, you know, really kind of enthralled me from maybe the last 18 months is kind of this this, you know, where’s the real innovation happening? Right, so, so like, like I said, the Rapsody guys do a lot of stuff out of the universities. We’ve just invested in the house fund at Berkeley, which I’m super excited about. And, and, you know, I’m talking to Did you know that there’s guys that cyclotron road a bit of Berkeley? You know, there’s there’s all kinds of really, in fact, actually, with all due respect to Stanford folks, if you can freely trade there are a market for for universities. I would short Stanford and go long Cal. That’s a winning trade.

And our audience just turned off the I’m sorry.

The advertisers who are are gonna lose now, just kidding. No kidding aside, though, the, the, the rationale there is, you know, Stanford is such an over fish pond and, and valuations are really high. And there’s a lot of confidence let’s, let’s call it that. Among Stanford entrepreneurs, I find a ton of hunger among the Berkeley folks and the talent is just as good. And it’s, it’s an absolutely amazing place. And it’s, it seems to be so under fished, and I don’t, I do know why every time I drive there from Palo Alto, it’s, it’s an ordeal. But as more and more venture firms are up in the city, I think it’s going to be easier and easier to get to and I think it’s going to be a flourishing ecosystem.

Well, you know, if we zoom out even further is, is the Bay Area overfished?

You know, this is, this is a really important point, I think that the Bay Area is, is going to evolve over time into being more of a money center. And it’s gonna look more like New York, but for the startup world, right. So Sand Hill Road slash South Park will be the Wall Street, and you’ll have the kind of big incumbent corporate HQ. But I do believe the world is getting flatter. But I also think it’s hard for an ecosystem to sustain. There has to be a lot of momentum and a lot of energy like that, you know, venture ecosystems are really subject to entropy, right there, you have to continue to devote energy to fight the natural order of, you know, kind of order tending to disorder. And so, so that, you know, there’s some that I think are going to go and really thrive during this period. And, you know, Steve Case has the whole Rise of the rest thing going on. But I also think it’s really, there are ingredients. In the end, maybe I’m just a homer on this, but there are things that exist in the Bay Area that don’t necessarily exist anywhere else, or certainly don’t in that concentration. One that I think is overlooked is this kind of, you know, entrepreneurial management, like people who can manage through hyper growth is a particular skill. That is in short supply, I think everywhere else, but that, you know, I think the lily and Hoffman from Greylock, called Blitzscaling. You know, I think I think there are very, very few places if not, you know, no other places that were where the talent exists to, to really kind of go through that in a systemic way it’ll happen, you know, here and there. But, but like the flip side of that, and I’m just trying to be a realist about it, like, one thing that that I think this period of time will see is you will look back on this period, and I’ll say there are a lot of people who are founders who should have been employees. And there are a lot of people who are VCs, who should have been founders. And I’m thinking of that, you know, the, the classic, you know, four time five time startup company, CFO, who just, you know, really, you know, read, lather, rinse, repeat, and you collect their their stock options and ESDs for four years and, you know, manages the company through to acquisition. You know, a lot of those people that who are really successful actually don’t have to work anymore. Now they can become mentors. But a lot of them are after one or two iterations that becoming VCs are just leaving the ecosystem. And I think that’s very deleterious. I feel like the stickiness of people in their roles has gone way down. And I worry a lot, a lot about the subtle implications of that. Interesting.

What about the micro VC movement? So you mentioned some of the formative funds that things off? We just had Tim O’Reilly on on the program, and he was talking about some of the these similar concepts, but, you know, how have you seen sort of the micro movement evolve and change? And clearly, you’ve still, you know, stayed with it. I mean, you’re still funding some of the earliest firms and some of the smaller firms, but I’d be curious to hear, you know, if things have changed for the better and how you’ve seen sort of the micro VC movement change?

Yeah, it’s a really, really rich question, because there’s so much that’s gone on. And, you know, I mentioned earlier that you we used to talk about the capital gap. And that’s just quaint now, right, the capital Apple is because there were all these VCs who were, you know, we’re looking to write five to $8 million checks, but entrepreneurs didn’t need that much capital. Well, today there’s, you know, there’s seed funds, there’s pre seed funds, there’s mango seed funds, right? We the taxonomy is is crazy. It’s really the markets really segmented and then. And then, you know, you’ve got AngelList and funders club and a lot of folks who are doing interesting stuff in those rare so there’s, there’s just a ton of capital. In fact, I know some of you calls that capital, chaos capital. Right. So the markets really changed. And I remember, this is actually a lesson one of the things I learned from David Swensen way back in the day was, or it might have been from Andy Goldin at Princeton. The secret of, of Yale success, and Andy was at Yale in the early days, Secret of the yield down successes, they got to illiquid asset classes first, right, and they built the best portfolios. And so 8586 87 Yield is one of the few institutional investors really diving into private equity. And I said, was it you know, the question I asked was, jeez, was it really hard in those days? To make money? You know, was it hard to evaluate? The the players, you know, there was so much, you know, uncertainty. And I’m pretty sure that was Andy, Andy just looked at me because it was actually really easy. I go, What do you mean, he says, Look, in any space, there were so few players, or maybe, you know, we would solely do as you’d specify an area of interest. So we’d say, you know, operationally intensive, you know, mid market buyouts or, you know, West, you know, Silicon Valley, early stage it firms or Boston based, you know, healthcare firms, whatever the, whatever the answer was, and we go and visit with every one of the firms that were in the space, and most of the space has had, like 2030, maybe 40 firms, and pretty quickly, you can figure out who the clowns and amateurs were, and then we would back two thirds of the rest. i Whoa, are you serious? Because yeah, and you have to realize I was like, 10 managers, right. But that was, you know, like a third of the universe. Oh, and by the way, as a result, there’s a huge survivorship bias. And nobody talks about the the handful that that fell away. But, you know, IVP is in the sequoias and decliners and the and then they’re all there diasporas, you know, the TVI, which turned into benchmark, you know, all these were part of our portfolio and huge optionality. And I said, holy smokes a light when I heard that a light went off, and I said, that when I was getting into micro VC, I was like, because I’m not smarter than the next guy, right? Like this is. Actually when I started blogging. Josh Koppelman was like you look, you’re not any smarter than the next guy, but you’re like, at least 20%. funnier. Like a real voice, and I’ll go, like, Come maybe a left hand. Yeah. So I can’t go toe to toe and say like, oh, is, you know, is this fun? Better than that fun? You know, in a world where there are 450 microphones? I’m not sure that I’m, you’re almost testing a joint hypothesis, which is like, A, is this manager better than the next guy and be? Am I smart enough to perceive that? Did you know that differential right in, but rewind to 2005? Man, that was a different time, because there were a dozen firms and every single firm that you did or didn’t do made money, right? Like, I did first round and OA TV and trough and maples, they all made money. And I didn’t do Clavia a and baseline and felices. And they all made money. Wow. It was literally like it was it was fish in a barrel was awesome. And all those are great. All those folks are great investors. And the only reason I didn’t do more of them was I had a committee that was was yelling at me, because I remember, I wanted to do baseline and in somebody on the committee at TIFF, who shall remain unnamed, they usually gave me a free rein, but I’ve done a bunch of this stuff. And this person said, Look, you know, I like what you’re doing with some of this micro VC stuff. But don’t you think it’s the triumph of hope over experience? And they said no to baseline, and I was really bummed out about it. And really, it crushed me. And I was really bummed to say no to Steve, because he’s an amazing investor in person. But I had written my investment memo for first round with a higher ceiling than actually what I had, you know, given so basically, I written my investment memo for 12 and a half million which is 10% of the fund. But I only wrote a $10 million check and when they said no to my $5 million commitment to baseline, I took two and a half of that and put it in first round. And and that was FRC, to which she Oh, is the Uber fund so that it worked out? Okay. Although all things being equal, I’d rather have the relationship with Steve. To be to be honest, yeah, I don’t know where I was going with that, Oh, we’re so fast forward to today. You know, this is what I’m struggling with. And quite frankly, one of the reasons why I’m looking at deep science, because there’s just so much noise in the market so much, you know, if you if you think of it as a regression, right, and you look at all the like elements of value. You know, the, the error term in the regression has gotten so much larger, because there’s just so much more noise. And there are people out there, I think, who are smarter than I am, who can figure out, you know, they’ve got different insights, or maybe, you know, maybe they’ve got bigger portfolios, and they’re spraying and praying, but I’m really committed to a concentrated portfolio. So I’m kind of like, you know, what, I’ve got my bets. For somebody to get into the portfolio, they’ve got to bring something really unique to the table. Because there are a lot of super smart people who I have confidence will make a lot of money that I just can’t back.

Interesting, you know, I don’t have the data on it. But cash the amount of deal flow. Now, at the startup stage, I feel like there’s a parallel here, you know, the number of funds and the number of startups it’s just, it’s exploded, you know, everyone, it’s a startup. And it is hard to separate you know, the riffraff from from the good ones. And even better, you know, the exceptional ones from from the great ones.

Well, let me turn around on you for a second. Because I feel like we’re in the interrogation, or I’m just taking the spotlight. What are the like one or two things that you can that like really grab you by the lapels? Where you say like, oh, yeah, in all the noise that I’ve been dealing with in the last two weeks, or what have you, here’s some signal.

Well, without meeting a person, I think, if somebody can’t express their vision, in a concise and compelling way, it’s an immediate thing for me. And they had to do that over email. So to be honest with you, I get four or five decks a day, but maybe one out of 50 do that. And so that’s kind of my easiest filter. And then once you get you know, in personally, I can start testing for decision making ability, tenacity, authenticity, you know, connection with the real problem in the customer set, but it’s very hard to parse without meeting people. And that’s my biggest challenge. I got a deal flow team that works on filtering from afar, we call it and, you know, I, I lose sleep over passing on things that maybe I should have met with the founder. Right? Because there have been deals we’ve done where, you know, my first, my first look at a deck, I said, this is going nowhere, right? And somehow the founder got to know me and blew me away. And those are, you know, some of our best markups doing big series A’s and taken off. So

Well, look, you know, this is this is the challenge because one thing I struggle with is Warren Buffett says famously that there are no called strikes and investing. But our business is so skewed that there might be called strikes, right? If you missed something that was right in your lap, but the problem is that we’re dealing with such imperfect information. And I think your your I love that phrase deal flow from afar. And your, your articulation of you know, can somebody actually crisply describe what they’re doing that shows, you know, kind of clarity of thought, and that is very critical. You know, that clarity of thought, and focus has got to be critical for entrepreneurs, who are going to be you, their biggest challenge is gonna be focused, right and staying on task in a world where they’ve got, you know, 800 balls in the air at any one moment. So that’s, that’s a great, I love that, that answer.

You got me off my game. Chris. I’m the interviewer here. So I’m gonna flip it back around. So tell me, you know, I’ve read about sort of the way that you select and what you’ve written about it on your, on your blog, but I’d love you to kind of talk more about, you know, you’ve highlighted these points around ability and sensibility, repeatability authenticity, which is something that that I love in particular, but can you tell us more about what you’re looking for in fund managers?

Sure. So you know, that there’s two kinds of their two prisons through which I look at managers and so one and there’s kind of related and you just articulated one of them, but I’ll drill down on it in a sec. But the first one is pretty early on, you know, in talking to people and kind of building my own Everybody’s got their own process, right and their own framework, I guess, and I started mine with you know, people right or do the people have some kind of differentiation or particular insight or edge I guess edge is the best way to to articulate it. What are they going to best in the world at in a durable way? And then the second thing is, is strategy, right? And I don’t have particular insight on strategy, right? Like, if you, if you come to me to ask about crypto three years ago, I would have said like, this is ridiculous. But my job is not to say crypto is ridiculous. My job is to find the people who are finding new areas, the best new people are finding new areas. So when I talk about strategy, the main thing there is a does the strategy make sense at a macro level? Relative to a an agnostic? You know, kind of worldview? And then does the group of people attacking that strategy? Read do that? Does the strategy resonate with people and you’d be surprised how often people are doing things that don’t really resonate with their skill sets. And that’s a whole nother discussion. But but that’s actually a real real issue. Out of the people in the strategy falls, the portfolio, and the portfolio, you can touch and taste like, this is why I moved to California, you know, and as I think about a more decentralized startup, where like it, this actually stresses me out, because am I going to have to spend, you know, I’d already spent a lot of time in Seattle, you know, New York, LA Toronto Waterloo, like, you know, all the great startup hub, emerging startup hubs, am I gonna have to spend more time there to, to build those networks that I have here. That’s, but that’s where you find out about the VCs, as practitioners, right? Entrepreneurs love talking about their businesses, they love talking about how their VCs had been helpful or not. And that, to me, it’s the filter, there’s no filter, usually. Then out of that portfolio falls of performance, right. And it’s a lagging indicator, not a leading indicator, and that’s one of the problems is, you know, a lot of people approach approach through the, through the entry door of performance. But my experience has always been I’ve always believed, you know, this, this lagging issue is a real thing. And we see you know, that all the research and internet shore at MIT has done a ton of good research on persistence. And you know, we’ve built this whole mythology around persistently to top quartile persistence. And Internet has shown that top quartile persistence is actually declining over time. And so that actually is really interesting and profound, if you think about it for a few minutes. But I’ve always believed that to be the case, since that mean, it’s so that means a top quartile firm, people think if you’re in the top quartile with fund to end fund, n plus one is going to be in the top quartile. And I think that Antoinette’s if I’m reading it, right, and I’ve got to go back and read it. But the latest thing, her latest study, I think, suggests that if you’re in the top quartile, I think there’s only like a 13% chance that fund n plus one is gonna be in the top quartile. Wow, it’s amazing, right? And look, you know, when I was at Princeton, when I got there, our number one performing manager, was a great historical manager, there were a number one fund relationship, as I recall it, but they’d crushed it with their $75 million fund, their $150 million fund was awesome. Their $300 million fund was pretty damn good. Their $600 million funds started getting a little bit shaky. And then they went on to raise 1,000,000,002 and a $2.4 billion fund, that both were really mediocre, right. And suicides is one way where people trip themselves up, but people also call in rich, right? Like they’re retired on the job, people’s skill sets go out of vogue. I think you know, there’s a lot of entrepreneurs turned VCs think that their entrepreneurial experience is much more durable than it actually turns out to be there networks are more durable. So this is actually like the persistence of performance is actually why you know, I almost don’t trust it. I spend more time on the portfolio just understanding the people because we don’t get to invest in assets we invest in people, right so understanding kind of how they’re going to continue to do the Voodoo that they do. Which is where we get to this ability sensibility repeatability and authenticity. So ability is you know, that’s the same as kind of the people what edge do they have like, you know, can they do this sensibility is like, you know, maybe it’s not the right word I just tried to come up with because it sounded kind of alliterative, but But you know, do they think like investors is kind of what I’m getting at there Right? Like we’re living in a world where all these entrepreneurs have turned investor in they don’t even gesture in the direction of of thinking about portfolio construction. They love these companies. But you know, somebody wants one of my guys in public markets stuff. Somebody once said to me Look, you can fall in love with companies just don’t fall in love with the stocks because the stocks are piece of paper, you know, pieces of paper that reflect you know, the, the discounted future value does present value of discounted future cash flows, right. That’s a piece of it. You can love General Motors, but General Motors stock is a completely different thing. Yep. All right. And I think that a lot of entrepreneurs turned investors don’t actually get that they just get so enthralled by the technology and I think it’s gonna change the world. And then you get, you know, these companies come out of Y Combinator with silly valuations and you’re just like, I don’t even understand how you’re going to maintain any kind of reasonable cap table and how you’re going to exit at any kind of reasonable multiple to make you know, for your your VCs to make make make money. So not you know, not to kick kick those guys, but they’ve definitely changed the tempo and driven some of this stuff. So, you know, this is this sensibility point is hard. repeatability is actually you know, a lot of people come to me and I say, Well, what are investors looking for? And I think that’s the answer is how do you you know, if I were to boil down my job into you know, kind of one sentence it’s I spend my day trying to strip out luck from skill right and now we live in a world back this back to the Buffett you know, no called strikes question. Like we live in a in a corner of the investing universe that’s much more you know, kind of where luck is much better rewarded. But at the end of the day, you look at the great firms you know, first rounds the union squares, the sequoias, others, what makes them great is repeatability. Right, they’re there. They’re not one hit wonders. And Andy Wiseman has written a lot about this and Fred and the Union Square guys particularly about repeatability being driven by process, right, those guys are real process hounds. And I think that’s the most underrated stuff in everybody loves all the posts about entrepreneurs and success stories and this and that. It’s a, it’s a nitty gritty about repeatability, that’s like the pure surprise winning blog post from those guys. Right, and then you get to authenticity and look at the end of the day. Again, we’re investing in people. And I want to make sure that those people are thinking like principals, not agents, that they’re, that they’re that I understand who they are, you know, not that they’re big phonies, with me and big phonies with their entrepreneurs, because the world has gotten so small, that you know, entrepreneurs really key on that authenticity in in, you know, kind of singularity of mission and resonance. And, and that’s really important for me, too, because there’s so many people will say one thing to what, you know, with what they think I want to hear, like I often ask people, what’s your definition of victory. And people say, making a lot of money from my LPs. And I’m like, bullshit, you don’t stay up at night worrying about you stay up at night, thinking about your, you know, how you’re going to, you know, buy your place in Santa Barbara, you know, or how you’re going to, you know, whatever, I could say all kinds of funny and inappropriate stuff that my

wife was my wife was just talking about buying a place in Santa Barbara this morning. It’s

an amazing place. Right. But that’s that’s what organizes your energies, right? And I think people try to give an answer that they think I want to hear. And that actually is really dismaying to me, because I want to understand you look, I get a the best answer actually ever, was from Josh Koppelman, I said, What’s your definition of victory, Josh said to me, I want to self actualize through my work. And for people who know Josh, he know that he does. That’s exactly what he does. And that’s actually been an inspiration to me.

Wow, unreal. What about the other side of the coin? What what are the common? If there are common reasons? What are the common reasons why you say no, you know, you see, I’m sure you see just a whole bevy of fund managers and pitch decks, and, you know, are there are there certain things that people just don’t have? I mean, you talked about the entrepreneurs that may or may not think about portfolio construction, but are there other things that sort of jump out that managers aren’t focusing on that are really critical, sort of in the in the long game here? You

know, I think, I think that there are there are a few things that that really bugged me. One is not thinking about portfolio construction, and this is something that all kinds of, you know, falling in love with companies and, and, and all that stuff is is, you know, that I mentioned is important, but I you know, I think one thing that a lot of venture managers don’t do is they don’t think about how am I going to create a, an aggregate return, you know, a venture level venture type return at the fund level. And so I wrote a blog post a while back called, I think it was called all about the Benjamins. And it was you know, talked about this metric called return the fund equivalent. And it was basically like alright, for each company in your portfolio. What you know, because venture is such a power law game, you know, we’re not going to hit a whole bunch of doubles here and play you know, small ball like this is about homeruns and grand slams. You know, not about the bunting, the runner over from first to second and then you know, or a hit and run right? He’s a baseball bat. For right? And so I encourage all of my managers to say like, Hey, you know, for every company or portfolio, tell me what exit value? What enterprise exit or enterprise value Exit Do you need to get for that company to return your entire fund at your ownership? Fully? Right? And it’s amazing, like you have some people do this exercise, they’re like, Oh, my God, my median company has to exit for $1.3 trillion. Right? Yeah. I just but like, and then you like, put that up, you know, you know, hold the mirror up to them? And you say, Okay, do you really believe that your average company, you know, maybe, you know, maybe this company will exit for you? 250 or 400? million? But do you really believe that you have a chance to generate, you know, venture returns on on the bulk of your portfolio? Or, you know, and so, so it’s a really interesting exercise. You know, the other thing that actually bugs me, is, you know, I do look at, you know, how to competitive moat, and the number of people who just say, our network, like, you know, I’ll say like, why are you best in class? They’ll say, Well, we have a great network. And like, every, I don’t know, anybody who doesn’t have a great network, right? Or at least, you know, who thinks they don’t? Right, like, right, right. And so that’s like, a lot of people’s literally, like more than half my meetings. That’s what people lead with. They’re like, Oh, we have a great network. I’m like, okay, so what I key on is like, where’s your point of view different from the consensus, because if you have a consensus point of view, then you’re just trying to out x, you’re the sperm trying to fertilize the egg, and there are a million other sperm, right? I want to know, like, how you’re going to, you know, how you’re going to come up with something, you know, kind of out of left field that where you’ve got conviction. And a lot of people fail that test.

Interesting. What about, can you talk a little bit about some of these, you know, the companies are staying private longer, you know, paper gains are not converting into dollar returns, you know, how is that impacting you and the LP class that’s investing in these venture funds, particularly those that are are going early, I mean, you’re investing in, in microphones, and, you know, timeframes are kind of pushing out, maybe, maybe the outcomes are getting larger, but timeframes are pushing out. So, you know, how has that affected the way you do business?

Yeah, this is this is actually, I think, a huge problem across the ecosystem, I think 2018 is the year that those chickens come home to roost. Because we’ve been in, you know, a really long boom time. And, you know, the the periodicity of funds has been getting, you know, kind of faster and faster over time, it’s slowed down more recently, for a couple of reasons. But, but the, you know, we went through a several year period, where funds were coming back every two years, and the normal cadence is, you know, kind of three, three and a half. And, as a result, you know, of the dynamics you’ve described, in that, you know, which drives funds coming back fat, you know, the, the pace of investments, you know, driven funds to come back faster, a lot of institutional investors that I talk to you at the very top of their allocations, and they’ve got, you know, they’re sitting on these inflated paper, you know, portfolios, and the money just hasn’t been coming back. And I literally will talk to people, they’re like, We don’t have you know, we’re 20% above our target, we just don’t have any money to invest in new funds, until we get some liquidity. So I think people, you know, are thirsting for liquidity. So they can start recycling because the Nirvana is where you’re recycling the distributions, right? And there’s, everything’s at a good pace, and you’re getting money coming out of the portfolio, and you’re putting that into, you know, capital calls. And that’s been interrupted. And that’s really hard. And so that led me you know, one of the kind of most hilarious moments of my life was I got to do a talk, I think it was like 2014 at the NVCA annual meeting, and here’s, you know, NVCS all these guys and your Dixon dollars sitting in the front row and his coat and tie and, you know, Republican really serious and I ended up there, it was just after a16z invested in Rap Genius. And I put up a slide that was the, you know, from Rap Genius, the lyrics to the song Method Man, by Wu Tang Clan. And for those of you who don’t know, the song at the beginning, you know, I think Reza and Jezza are like kind of jousting who can who can come up with a better mode of torturing a, an adversary. And I think one of the guys has, you know, I’m gonna, I’m gonna so you asshole shut, I’m gonna keep feed, feed you and feed you. And I’ve said, this Dixville just looks so horrified. And I said, you know, but that’s what it’s like to be NLP. Right? We’ve got this exit sphincter that’s sewn shut. That the pig is not going through the snake. And so that’s great. You know, the exit sphincter has been like a really, you know, important, you know if off color metaphor, because that’s, that’s what we all feel we’re just gorge on these, you know, these and in some, you know some people’s cases, it’s like a company like I was just talking to investors like, oh my god is Xiaomi ever goes public, like we’ll actually be able to make venture investments again. And it’s gotten to that level. So I think 2018 is going to be an interesting year, because I think a lot of a lot of venture firms have slowed their role, but like, you know, LPs are kind of out out on the frontiers.

So is it is it new LPS that are coming into the asset classes, that we’re still seeing funds, there

is a lot of that. So there’s definitely a lot of LPs, and a decent amount of overseas money kind of chasing both hype and, and returns, even though a lot of those returns have been on paper. And so there’s definitely a flow. But I think if you look at the numbers, and this has been, there’s been a barbell thing in the data, right, we’re seeing the middle kind of getting hollowed out on the one and you’ve got, you know, maybe a dozen firms that are raising or whatever they want to raise, like Sequoia, here’s in the market with, you know, five, a $5 billion dollar fund, and they’ll get that closed in a heartbeat. And then on the other hand, you have just a ton of these small funds, a little, a lot of them are struggling, a lot of them are still getting raised. So you know, it’s kind of a combo of these of these two things driving fundraising, but I’d say the bulk of it is, you know, large funds, sovereign wealth funds, new entrants, you know, corporates, you know, coming into the big funds. Got it.

You know, a lot of folks are kind of cagey on the mic, but I can tell that you’re not one of those folks. So I’m gonna go ahead and ask, you know, what’s the LP community like, is it? Is it tight knit? Is it competitive? Do you guys play nice with each other? You know, how was that interaction? Because we think about that quite a bit between GPS, and depending on you know, what geo you you’re in or where you invest? I think there’s variability. But I’d like like to hear your take.

Yeah, you know, it’s really interesting, because I think this is one thing that GPS really underestimate the closeness of the LP community, it is, you know, there are times of the year, where you see the same people every week for in several places for 567 weeks, right. And we’re about to embark on one of the venture meetings, everybody’s going to be out here for a bunch of things. And I’ve been getting caught, you know, people are gonna be sleeping on my couch here in Palo Alto. You know, I mean, literally, like, you know, we have dinners, you know, together, we hang out. And all we do is gossip about GP. It’s all we do, which is why it’s hilarious. It always cracks me up when like, the VC will call me with like an amendment request. They’re like, you know, we’re, we want to extend our fund, and everybody’s already on board. And I’ll call like, the five other LBO, big LPs and have fun. And I’m like, and then like, Now, one of my GPS is like, yeah, you know, I got this, I’m gonna raise an opportunity fund, I’ve already got everybody all lined up. And literally, I called the three largest investors in the fund. They’re like, we haven’t even heard about this. And I like you guys. Like, you know, it’s almost ciliates. Like, that’s all we do. So you know, it is competitive. I’m not sure I’m like sharing my very best idea with people until I have like, invested. That was a big problem. We had a Princeton because we had such big dollars to move. And so we were always a little bit cagey and, and close to the vest. But then once we did something we wanted, you know, kind of good investors around with us. And so, a lot of LP one, there’s an LP who, with whom I’m playing in their member guest at their golf club, there’s another LP, that I have dinner with, like, once a month, and we gossip like it’s, it’s pretty. If GPS, were flies on the wall, at the average, like LP gathering, they’d be mortified. That’s hilarious.

I love it. Well, you know, what, what ways do you think you can grow most as an LP you’ve been doing this for quite some time? You seem to be somebody that is pretty self aware. So you know, where do you think you have the most room to grow?

Well, you know, this, the self awareness question is actually really kind of interesting. Because in like, 2000, you know, I’ve been an LP since 2001. And you, you start to build, you know, kind of pattern recognition and see, see what’s working, what’s working and not I’m really tight with Rob Hayes, at first round, and Rob and I were sitting around and I think in like, oh, 708 I was like, You shouldn’t be a VC dude. And I was like, I gotta tell you the reality of it. And this goes to the self awareness is I’m actually a little bit lazy. And so you know, I don’t know if I have that hustle. You know, you hear about Mike Moritz like hustles. And here’s a guy who’s like at the top of the, you know, the pyramid, and he’s still out there hustling. And every, you know, a lot of people I know are out there hustling and constantly building new relationships and networks and building them. And I, you know, I can do like 85% of that, but I’m kind of lazy. And so, but that always kind of stuck with me. And as our investors started saying, Look, you got a great group of, of GPS, I’m sure that you know, like, you’re so tight with so many of these folks. I’m sure they like run ideas up the flagpole. I’m like, yeah, all the time, they’ll go, why don’t you do some co investing? So since 2014, we’ve been doing co investing. And I’ve been, you know, I’ve done probably the firm’s done 40 deals by now, which I probably led, like 25 or 28 of them. And I love it. And, you know, we’ve been, we’ve been in a lot of did a lot of super early stage stuff. And we’ve been in companies where I’ve been able to kind of help out, you know, plugging entrepreneurs into either other entrepreneurs or potential customers. And that’s a lot of fun. And I keep thinking like, oh, maybe I should raise a direct fund and go out and just kind of do deals and what I’m like, but but at the end of the day, I come back to the fact that I’m, I’m kind of lazy, but doing co investments alongside our GPS, who are far smarter than I am, and are kind enough to show me stuff at pretty early levels has been super fulfilling, and I hope to keep kind of growing that and you working with entrepreneurs is so much fun. I just feed on their energy, like, one of the reasons why I’m an you know, in venture capitalist, I believe it’s like the fullest articulation of the idea of America. Right? And, and it’s the way in which I get to express my patriotism without being kind of jingoistic. Right. Like I, you know, this is the very, the, Walt Whitman wrote, you know, California, home of populous cities in the latest inventions, right. Like, he wrote that in 1850. You know, I see the genius of the modern, the child of the real and the ideal, right. And that’s, you know, kind of, you know, heir to a grand past and father to a an even grander future. Right. That’s, that’s the stuff that really like gets me jazzed. And so, you know, when I work with entrepreneurs and see that vision, and you know, I just gets me so freakin excited. I’m

gonna call bullshit on your, your lazy comment, I can’t imagine that’s true. It seems like you’re the Energizer Bunny all over the place writing and contributing, but so I was gonna ask about the CO investment. So So you guys do co invest alongside GPS? And do you also invest in follow on that later, later rounds?

Yeah, usually, we reserve about a similar amount as we as we invested. What’s interesting is I’m finding that, you know, since we’re doing a lot of early stuff, we’re doing a lot of like, early notes. And I don’t love notes at all. And so you know, we’ll convert and then do that round, and then maybe have a little bit more for, you know, so it’s fine. It’s fine. I like caps. But you know, I know entrepreneurs don’t. So yeah, you and I, you know, I found that to be a really fulfilling vector for energy lately.

Chris, if we could cover any topic here on the program? What topic do you think should be addressed? And who would you like to hear speak about it?

Who that’s interesting. You know, I think that one thing that we’re hearing a lot about is, is diversity and inclusion stuff. And, you know, we’re all positive on diversity and inclusion, I think that it’s, it’s really important. I’d spent a lot of time talking to visa Clarkson about this, who’s a good friend at SAP ventures. And we’ve talked about, you know, there’s something we could do structurally as LPs, which is kind of a tricky thing. But But here’s a question I have. And I say it is an authentic question. And you know, that on the spectrum of inquiry and advocacy, this is, you know, 100% inquiry and 0%, you know, kind of cynical advocacy, I think it’d be awesome to get people to talk about diversity and inclusion as real drivers of value add, or alpha. Because I think we kind of almost take it as a given that diversity is a positive, but then as LPS you know, we might I think a lot of people struggle to make the case. And I think a lot of people go to their investment committees and say, you know, we want more diverse managers, just because being diverse is good. And I believe that there’s a data set out there and I think there’s some some people who are out, you know, kind of on the forefront of that, you know, the cross culture guys, or, you know, kind of a lean and in or, you know, KEARSON green, some of the folks who’ve done you know, or Trey Vassallo. with her for elephant the room stuff, right? There are a lot of people who’ve done really important thinking in this regard. And I think we need to get the thinking out there, you know, beyond like, you know, what was the phrase hashtag hashtag activism, right, like, beyond the hashtag activists, like, let’s get the data out there so people can really, you know, kind of charged forth and really make a dent here.

Sure. Well, I, I know, I’ve seen data on percentages of immigrant led businesses, and how it sort of destroys returns on on a relative basis of what it should so, you know, I bet there’s similar data for diverse and balanced teams out there.

Yeah, yeah, there’s actually done a bunch of research on this, this first round and, and it shows that, you know, teams with women founders, you know, perform better so, so the data is out there, I think so you just articulate the case is all and you know, look on the on the immigrant founders thing, by the way, holy smokes, you know, 52% of, of Silicon Valley IPOs throughout history have been, you know, kind of immigrant teams, or teams that included immigrants. It’s, it’s an amazing source of, you know, strength of our country. And I fear that, you know, the, the political climate is, is really detracting from that and makes me really sad. You know, what would you know, I, the line I used before about Princeton you it’d be Pawnee CB patria, that is, you know, that comes from Hector St. John and craft corps Letters from an American Farmer. And he says, that’s the, you know, cry of all immigrants, right? And and what Whitman’s talks about, I speak the password primeval I give the sign of democracy, right. Like, this is the the very idea of America is encapsulated in in venture capital. And the more we do to create barriers to, to bringing the world’s best here, the more I think venture capital as a uniquely Americans, source of strength will be eroded. You know, we need to, we need to make sure to kind of nurture this golden goose that we’ve got.

Awesome. Chris, what investors influenced you most and why?

You know, I talked a little bit about Henry McCants at Greylock. He’s, he was a great, you know, great thing. David Swensen talks about optimizing discomfort, right a that’s, that’s really important. Josh Koppelman talked about, you know, I learned a lot about authenticity, and, and, you know, self actualization from Josh, you know, I, I’ve been thinking a lot about who my mentors have been, it’s kind of a patchwork of people. But those I think those folks are all up there in terms of investing.

Awesome. And just to wrap up here, what’s the best way for listeners to connect with you?

Yeah. Hit me a lot of people are hitting me with DMS on Twitter, at C DOUVO s et Cie Duboce. Or my blog, super LP has, I think, an email me tab in so hit that and I’m, I’m keen to write more I my cadence of writing has gone down, but I’m trying to get trying to get back back in the swing. I kind of feel like podcasts are the way to go. So you’re you’re five steps ahead. And

you’ve talked about podcasting before you just haven’t gotten around to it. I know.

It’s back to this lazy thing.

We’ll pick up the cadence the man is Chris Dubose. The blog is super lp.com If you want to be entertained while you learn, check it out. Chris, thanks so much for doing this. This was a huge pleasure.

This is such good fun. I really appreciate it. Look forward to bumping into you again real soon. Awesome.

All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot him an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently thanks so much for listening