Investor Stories 339: Disruptive Forces (Tully, Jones, Green)

Investor Stories 339: Disruptive Forces (Tully, Jones, Green)

On this special segment of The Full Ratchet, the following Investors are featured:

  • Tim Tully
  • Michael Jones
  • Mitchell Green

We asked guests to discuss the factor that could cause the most disruption to the industry going forward and how that will change the next decade of venture.

The hosts of The Full Ratchet are Nick Moran and Nate Pierotti of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.

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Transcribed with AI:

Welcome back to TFR on today’s special segment, we asked guests to discuss the factor that could cause the most disruption to the industry going forward, and how that will change the next decade of venture. Here’s the segment called disruptive forces.

On today’s special segment, we have Tim Tolley of Menlo Ventures, Tim, what factor could cause the most disruption or change the VC industry? And how do you think that will make the next 10 years of VC look different than the last time?

I think that there’s a lot of small funds that, you know, may have sort of, and may have some trouble, you know, maybe in the few coming years here, we’ll sort of leave it at that keep there’s a lot of a sort of over investing happening, particularly in one sector, generative AI, I’m not worried about about that. So I think that’s a that’s a danger to a lot of folks. And I think the other piece is what you open the show with, right? Like, are we collectively over investing in generative AI? I don’t know. I bet you you don’t get people asking you questions on the podcast that much. Let me ask you, man, do you think that VCs are over investing in generative AI right now?

I do. 100%. Yeah, it’s what everyone wants to talk about on the show all the time. And I don’t know peak hype cycle usually makes for disappointment.

And are people saying that we’re over investing on the show? Or is it you that they all

think we’re under investing? Much like they thought the same in crypto, about a year and a half? I mean, this one feels real. So I’ll give you that. But I don’t know, seed rounds at 100. Post? Plus, that’s, that’s tough.

Yeah, I mean, I’ll say there’s real revenues, serious revenues being generated. So I don’t think it’s like as crypto but I’m with you. Like, I think we’re over investing in things, people are investing in things that are features, not, not companies like and it’s, it’s, it’s pretty extreme. Sometimes I get a little bit embarrassed by it, because I don’t want to be like, lumped into the crowd of folks who like invest in small features. Because I feel like sometimes I’m expected to no better just given my background.

I mean, it’s tricky, like, you look at the YC batches, and Google makes an update to chrome and puts, you know, 20 of them out of business overnight.

It’s funny, you say that the same same thought, the same thought.

On today’s special segment, we have Mike Jones of science, Mike, what factor could cause the most disruption to the VC industry? And how will that make the next 10 years of VC look different than the last? I

mean, you know, everyone’s talking about tax, like, you know, you start taxing unreceived carry allocation and you know, 409 a value, it’s going to it’s going to upset VC industry, it’s going to make a lot of people question what they’re doing. And it’s going to create a lot of problems, like it’ll shrink this industry super fast. And I think for a lot of us, we’d probably look to be doing it somewhere else, just to be candid, because like, it’d be so so detrimental to our industry. So think tax is a major, a major factor for us. The other one would be like, Well, if you know if, in a certain sense, the VC industry, considering the majority of our companies are not going to be public companies, the majority of the companies that becomes customer will probably be acquired by larger businesses did their big disruptor is that traditional large conglomerates decide to invest heavily into early stage ideas, and they create a structure and a product to do so. Our stock market and the way that they report their earnings doesn’t really allow that in an effective way. So there’s a lot of reasons structurally why they probably wouldn’t do that. But it’s like, if you look at a lot of the companies we invest in, you know, there’s naturally larger companies that probably should be doing this, but just isn’t because of the size and scale dynamic, which I completely understand. So that would be another big change is yeah, if large conglomerates had to deploy heavily into early stage, they could change venture pretty effectively. What about

innovators dilemma? Do you think

that like, what that’s like your that’s like, if it’s too small, like what why spend time on small things versus like focus on?

Well, it’s like, anything that we launched will cannibalise you know, a really healthy margin profile? Because, you know, in order to exponentially increase the market, you have to reduce the price so much. So it opens up more consumers. Yeah,

I mean, the way that I always get that phrase to me is like some large companies like look, if I make my core offering 3% better, it’s going to net me $500 million, and we’re talking two years like I go risk X dollars and it’s going to make me something tiny that won’t even matter to me at any design that may not be the traditional Innovators Dilemma, but this is the one I come across more frequently, which is almost more of a size and scale issue. Got it? Got it

On today’s special segment, we have Mitchell green of lead edge capital, Mitchell, what factor could cause the most disruption to the VC industry? And how will that make the next 10 years of VC look different than the last time

that didn’t return money? I think you’re going to be in a world of pain to raise new capital. DPI matters. It’s not just TCPI. You can you know, TVP is okay. Let me define some metrics. Total value paid in capital, these are all net. Gross doesn’t matter only net to be clear, your elbow, your investors cannot eat gross returns, they can only eat net return. So first, that’s important people that net there’s a massive spread between gross and net returns. And people don’t think about fund management the right way and don’t invest enough of the fund and don’t recycle capital back and other deals to get the net returns higher. But so there’s TVI total value to paid in just DPI which is distributions to paid in. So if you put $1 in my fund, like how much am I giving you back net? And then then TVP is just DPI plus the unrealized value? The DPI numbers on Cambridge associates like benchmarking data is just awful, like, terrible. Yeah, we live through like one of the biggest, you know, like run ups in stock market and multiple expansion history. And the numbers are just awful. Like, it’s like it’s actually just like mine. And if like if you weren’t selling in the last few years, like when were you going to sell is my opinion?

Yeah, fair point.

That will conclude this instalment of investor stories. If you’re enjoying the programme and would like to see it continue. Take a moment and leave a five star review in iTunes. Okay, that will wrap things up for today. Until next time, over prepare, choose carefully and invest confidently thanks for joining me