Uncapped #34 | Mel Williams from TrueBridge

[00:00] The two characteristics that we've identified that are most important for exceptional investors are, number one, they approach the market from a contrarian standpoint or first principle standpoint. Number two, they have conviction. When they see it working and they see it win in their portfolio, they're willing to push their chips on the table. Yeah. And that's hard to do. All right. I'm very excited to have Mel Williams, the co-founder of TrueBridge here. Mel, thank you very much for doing this with me. It's great to be here, Jack. Thanks for having me. [00:30] like 17 or 18 years ago. Yep. And today it's like one of the premier fund to funds in venture. And you've got $8 billion under management. You were very early to funds like Thrive, Founders Fund, and you also like provide the data that powers the Forbes Midas list. So like you're very in the know about top venture firms and how the ecosystem has been working. And so my goal with you today really is to understand the... [00:54] your vantage point on venture, where we're at, what it looks like and sort of, you know, how you're how you're seeing things. Because for us as venture investors, our job is to like pick companies. Your job is basically to figure out how to pick investors. And so that's kind of what I want to open up with you about today. Sure. The first place I'd love to start is just getting your overall pulse check on it's 2025. AI is obviously very important. Companies are growing quickly. They're valued, you know, more highly than ever. [01:24] came out of these doldrums post-Zerp, but now we've had a couple years of very exciting time. How are you overall feeling as somebody who allocates exclusively to venture? Like, what's your sentiment? - I think overall our sentiment is excitement. You know, we think we are at the leading stages of an AI wave.

[01:43] that will power [01:45] business opportunities and return generation over the next 10 to 15 years. We're in the early stages of that. There's evidence that it's working, right? And it's working at scale. And so I think all of those things are very exciting. I think at the same time, it feels like a very frothy investment environment. Valuations are relatively high and they're very high at the earliest stages, it feels. Like they're higher at the early stages than at the late stages? I think so. I think so. [02:15] at revenue multiples that are not peak revenue multiples. - Yeah, and don't look that different than public multiples or something. - That's right, that's right. So what's the, you know, I think Palantir's trading at a thousand times. [02:25] revenue. [02:27] OpenAI's recent round was not done at 1,000 times revenue, right? So what's the right market multiple for those assets? And so I think in the growth rounds of the market today, [02:37] capitals being invested around and being raised at relatively healthy multiples at the earlier stages at the formation stages, where there's less evidence of a product, less evidence of a product market fit, you do see [02:50] founders with credibility, founders who could check a couple of boxes, raising [02:55] large pools of capital at very high valuations. Yeah. I mean, one of the other tricky things is it does seem like the growth rates right now are genuinely faster than they've ever been. So like before AI, it was like, if you were going one to three of ARR as a software company, you could get your A done. And now it's like one to five, one to seven, something more. And so I do also think it's really hard to put multiples on these companies when they're growing really fast. I think that's right. The pace of revenue growth is something that we haven't seen

[03:25] product market fit where founders effectively go straight to an A. [03:28] Yeah. And so you probably have a lot of that in your portfolio. Of course, we are seeing that. Yeah. We've seen that across our portfolio from our flagship funds and the branded firms all the way down to the to the seed firms. Outside of AI, and obviously we'll come back to that, but like in other categories like hardware, defense, maybe consumer, like what other what other sentiment sort of updates have you had recently? Yeah, I don't think the market is as frothy outside of AI. And so I think it's a very reasonable, if not attractive market when you move outside the AI space. [03:58] Um, [03:59] I think valuations are so attractive. I think founders are still talented and you're seeing good companies starting and being built. You're seeing capital staging in at relatively attractive valuations. [04:12] in response to milestones being met, revenue being generated, etc. So I wouldn't characterize the market outside of AI [04:19] S. Frothy. But within AI, which [04:22] today represents 50 to 60% of the activity across the venture landscape. There's more demand than there is supply. [04:31] And so we're seeing behaviors that are challenging, right? - Obviously we're hoping that everything here turns out to be good. In a world where like everything that's happening right now, like doesn't turn out to be so good. [04:40] What do you think are like the main risks that you see right now that would explain like the future of like why this went wrong? I think we're just going to see companies that don't [04:49] don't get product market fit. [04:51] We're going to see companies don't get product market fit that have raised a lot of capital, where capital went at a high valuation. And so I think we're at an interesting place in the venture industry where if I were to say...

[05:02] Let's look forward over the next 10 years. I think the following two things can be true. We're gonna see a lot of carnage over the next 10 years. [05:11] and we will see more value created [05:14] over the next 10 years than we've seen in the venture industry. Like in the late 90s, it's like, you know, a bunch of those companies got wiped out in dot com. Right. [05:21] bus but then you had it also like amazon and google that's right that's right adventure has always been a power law [05:26] driven business. It's even more so today. Yeah, it does seem- Right, the magnitude of the winners is even greater today than it has been in prior cycles, I think. What do you think explains that? I think it's explained by the lower marginal cost of software. I think it's explained by incumbents and [05:42] individuals being more willing to try new software more quickly, right? I think in the last cycle, a lot of your incumbents were asleep at the switch, right? And so we saw growth rates were slower, right? In enterprise buyers, growth rates were slower. No one's asleep at the switch in the cycle, it doesn't feel like. And so enterprises all have, [06:02] budgets to go try a bunch of AI software. Consumers are signing up for ChatGPT as fast as you can, as fast as you can imagine. And so I just think there's more, society has embraced tech as a potential solution more. So I think we're seeing the ramp faster. As you know, I obviously like, I work with many more companies at like the Series A stage than at the later stages. And one of the things that's really interesting is when I was starting Lattice, recruiting against the incumbents,

[06:32] Not easy, but like it was if somebody didn't want to go to those companies, it was like not competitive. It was just like a different product versus now. It's like all these even very hot series A companies. It's like, well, OpenAI and Anthropic and Meta and these other places are extremely compelling, even the very startup. [06:50] - Right, right. - And so I also think the talent aggregation that's happening at these big companies at huge scale is different than it seems like it's been before. - I think that's right. [07:00] or SpaceX and Anderrol and all these places. [07:02] I think the value of signal in this market is magnified, right? And signal, right? [07:09] in this market seems to be attracting capital and talent and customers at a rate that we haven't seen before in the venture business. How do you feel about the dynamic where a lot of [07:21] venture platforms, many of which are some of the best in the world, are now getting [07:26] so large that a high percentage of their dollars basically are just going into these [07:32] like snowballs rolling down a hill that are just like runaway huge. Like, is that something where you're like, I, you know, would rather have the early stage exposure? Like, actually, those companies are going to be massive and getting into those companies at almost any price is good. We think a little bit of both, frankly, and we structure our portfolio that way. We do realize venture is a power law driven business and that, you know, your returns are generated by the companies you're invested in that end up being winners and less so by the valuation at which you entered those companies. And so we think... [08:01] um kind of the growth the venture growth

[08:04] stage of investing and CDE rounds, if done right, with the right firms and the right companies, is a really attractive risk adjuster return in this environment. Really attractive risk adjuster return. And the platform funds have the right to win across those stages, right? At the same time, there's just [08:23] There are individuals who have a unique angle and or a unique approach to, um, [08:31] to founders, a network of founders who have proprietary deal flow and who have a right to win at that stage in a competitive environment. And so we like that segment of the market as well, which is really the earliest, earliest stage of the market. So basically you're kind of in a mindset now of it's either the premier platforms or you try to find, you know, individuals with these edges. It is. It is. Yeah. What about the rest of the market? Because obviously most of the [09:01] But yeah, so, you know, I'm worried about the long tail of venture in this in this market cycle. Right. [09:08] I think the magnitude of the winners is going to be [09:11] is outsized in this market, is likely to be outsized in this market. We're seeing evidence of that today. I think the signaling effect is so strong that the brands have real advantages in this market. Generally worried about [09:24] kind of a long tail of venture, worried about companies that are unable to pivot, you know, prior legacy software companies that are unable to pivot into AI related opportunities. That's what scares us the most. Yeah. There was a tweet, which I know you didn't see because you're a serious person who doesn't waste time on X, but Martin Casado. I'm not on X. That's good. You're smart. Martin from Andreessen posted something that was very thought-provoking

[09:54] good investing is consensus investing. And you're kind of kidding yourself if you say it's something else. Basically, it's like, you know, obviously at the later stages, like good companies are known, but today in 2025, it's incredibly, uh, [10:08] incredibly early on, you're able to see. And it got a lot of people sort of frustrated and, you know, reacting and saying, "Actually, you know, [10:16] the best companies of the last 10 years were not consensus. And then it flipped and it created this big debate about where's the value in investing? Is it being able to see the future that other people can't see and finding diamonds in the rough? Or is it winning the hearts and minds of founders that any idiot can tell is really good and just having the right to back them? Yeah. I'm curious how you think about it. [10:42] It's an interesting quote. I didn't see it, so thank you for sharing it with me. Within the context of your interpretation of his quote, I think it's both, right? I think... [10:51] you know, as we look at the market today, 90% of the market is chasing the heat and chasing the signal. And 10% of the market is the signal. Sequoia is the signal, right? Peter Thiel is the signal. Josh Kushner is the signal. And so whether... [11:08] whether a Sequoia or a Founders Fund, or these very high quality firms, Mark and Ben at Andreessen, whether they are, [11:17] chasing the signal, whether they are [11:21] investing in contrarian opportunities with conviction, they're creating the signal that the rest of the market is really chasing. So I think it's both, to be honest with you. Well, it's interesting that you say that because those examples have both. They both create signal and they can also win once somebody else has created signal. Correct. Correct. Which is part of why they're so dominant. That's right. That's right. It seems to me like right now, sort of like companies, you know, get these power law, you know, winner dynamics. It seems like venture firms could

[11:51] why shouldn't these firms be managing double or triple or quadruple the money they're managing today? Yeah. Unless you think that like the tech market's not big enough. Yeah. It's like why not just give the ball to the, you know, [12:03] seven foot center who can dunk it. Yeah. Yeah. I think you're right. And I think that's what we've seen over the last 10 years in venture. Right. I think [12:11] I think brands matter. We think brands matter in venture. Good brands equal positive signal in the marketplace. And positive signal has... [12:22] real positive meaning for founders in terms of raising additional capital, in terms of [12:29] attracting talent, acquiring customers, helping in the regulatory environment. Right. And so I think if you look at founding a company, there are really three things at play here. Number one is [12:38] Not only do founders need capital, but founders want help. You did it, right? Starting and growing a company is not easy. [12:46] And so you want capital, but you want help. Ventures are number two, Venture has always been a power law driven business. And so, [12:54] as a founder, you really wanna do things that increase the probability that you're one of those companies that are founded each year that really matter. And number three, I think we're in an environment where [13:05] Um... [13:06] the magnitude of the winners is going to be greater than ever in this cycle. And so if I'm a founder, I want to do everything I can to increase the probability that I'm one of those power law companies. Even if that means taking a lower valuation, I'm raising capital from a brand that has extremely positive signal, right? Yeah. I mean, the other thing, these big brands will invest, you know,

[13:30] many, many times, huge amounts of money into a company. And so even if you take a lower valuation, that's now like this mega deep pocket you have that will help you have capital advantages, which are a huge deal in competitive markets. I think that is important to founders, right? I don't know if you enjoyed fundraising, but I'm not sure. I know many... [13:49] You know, there's parts of it that are good, there's parts of it that are bad. You know, I think if you talk to most founders, they would say they don't like fundraising and they would prefer to spend as little time fundraising as possible. And so when you do raise capital from one of the large brand of firms that are lifecycle investors, you have someone who can fund your growth over time. Yeah. And I think that's attractive to founders. [14:08] This plays into a debate that happened on this show. Not exactly, you know, not at the same time. But Josh at first round was talking about how there's just physics to venture math and you can't have ginormous funds and get great returns. The math just won't allow it. Yeah. Then I had Mark Andreessen on the show and he said. [14:29] said something more of like a techno-optimist view of, [14:34] Nobody can appreciate how big these companies are going to get. Being in the winners always drives great returns. You can put a huge amount of capital into these things. And we're just scratching the surface of how big tech can be. Yeah. Sort of just different takes on the question. Yeah. [14:46] you're in the business of figuring out how to invest in these funds and make the most money. So I would ask you sort of how, if at all, do you think about this fund size question? Where does it fall in the stack rank of things you care about? Yeah, I think at some level and we're invested in both Josh at first round and Mark at Andreessen. And I think at some level they're both right. Fund size does matter. It's hard to it's hard to overcome the math. Right. Josh is right.

[15:16] you're less likely to [15:19] turn a billion or two or $3 billion 10 times, then you are $100 million, right? [15:24] But at the same time, you have to be in the power lock companies to generate long term returns. And so when we look at the data over [15:33] over a long period of time, and we go back to the 1980s, and we look at the venture returns from the 1980s, what we conclude is that fund size does matter, but it's not the only thing that matters. And if you look at returns over a long period of time, what you'll find is that [15:48] Often. [15:50] the largest fund in the market is the highest returning fund in the market. And it's a self-reinforcing cycle. So how would you explain that? The highest returning firm is able to raise more capital, is able to hire better talent, is able to attract better founders. And it's just a virtuous cycle, right? Yeah. I also wonder if that best fund is still deploying less than they would have been capable of deploying in many cases. So I think that is the key question. [16:20] we always look at is [16:22] is how does the fund size relate to the capabilities of the firm? [16:26] And it's not the absolute fund size that matters most to us. It is, how does it, how does that fund size relate to the capabilities of the firm? How does it relate to the size of the investment team, the strategy, the level of conviction, the access, the access to founders, the good founders, the level of conviction they have about portfolio construction. And where we've seen level conviction there, you're saying more concentrated is better. Exactly. So where we've seen firms get tripped up and, um,

[16:56] Josh Leonard did some great research on this at the University of Chicago on fund sizes and venture returns. And his conclusion was it wasn't the absolute level of fund size that mattered. It was the increase from one fund to the next. And when fund sizes were more than doubling. [17:10] that's when firms get into trouble. And we see evidence of that in the marketplace. We'll see a firm that is managing a $700 million fund, building a portfolio of 25 companies where an average [17:20] position size is 15 to 20 on entry, right? The market gets hot. They go from 700 million to a billion four. [17:29] they need to build the same 20 to 25 [17:33] company portfolio, but an average [17:36] Ticket size needs to be an average investment size needs to be $40 million. And they need to have $70 million in their winners, right? And making that shift, [17:47] When you're sitting around the table within a venture firm, [17:51] investing in the next round, just having the conviction to put $70 million into one company when you've historically put $20 million into your winners. It's just, it takes time to make that shift, right? And so that's where we've seen fund managers get tripped up. The concentration thing is really interesting. Like some of the large firms that I really respect, like Founders Fund or Thrive or Green Oaks, I feel like are... [18:14] I feel like they have a lot of dollars into a relatively small number of companies. They do. You know, the two characteristics that we've identified over, you know, our history, our 20 year history, and just going back and looking at the data over time.

[18:28] The two characteristics that we've identified that are most important for exceptional investors are, number one, is a combination of contrarian investing or first principles investing. And so it goes back to this comment that they are the signal, right? They're not following the signal. They're willing to invest when others aren't. They're willing to approach the market from a first principles standpoint. And Peter Thiel is a great example of that, right? [18:58] round, right? So number one, they approach the market from a contrarian standpoint or first principle standpoint. Number two, they have conviction. Right? [19:06] And when they see it working and they see it win in their portfolio, they're willing to [19:13] push their chips on the table. And, [19:16] That's hard to do. [19:17] That's really hard to do because for a lot of people, it's hard to sleep at night. [19:21] when you have that level of concentration. But that's how the winners and the, that's where, that's how the highest performing funds in the venture industry have generated their returns. - Concentrating into their winners. - Concentrating into their winners. [19:33] just as like a [19:34] you know, vague barometer on it. Like, what does a really concentrated portfolio look like? Like, what percent going into the top [19:42] first, second, and third largest positions, would you be like, yeah, that's concentrated? Like, where would you be like, even for Founders Fund, that's a little excessive? Or is there no number? Yeah, yeah, yeah. So two thoughts. Number one, we see... [19:52] We see fund managers who are launching funds today, raising funds today, with the intent of building a concentrated portfolio of...

[20:00] 11 to 13, [20:02] investments, right? And these are series A firms raised by experienced investors who believe they have [20:10] good founder deal flow and good access and the right to win. And they're building concentrated portfolios from the outset, right? It's not a 25%. [20:18] investment portfolio. It's a 13 investment fund portfolio. And then when you drill it down to at the end of the fund life or at the max NAV of the fund life, what percentage is in the two, three, four winners? It's 60, 70%. In three names. Yeah. Yeah. Yeah. And that's happened because they're just driving their, you know, those, those names are the successful names and their NAV is increasing and that's driving the value of the portfolio. It's probably like you should be so lucky to have names that are worth putting that much into. So it's probably a good [20:48] obviously, and, um, [20:50] I'm curious about the way you think about picking the other basket of sort of like [20:55] less obvious names and less obvious managers for you to be in business with. Yeah. I guess my first question before I ask is like, why have that basket at all? [21:04] because, you know, we just talked about how great the sort of platforms are becoming. Yeah. [21:09] What's the point? I know there's an argument for it, but how would you say it? I think... [21:14] Established managers have always struggled with investing in the seed space successfully. And we've seen it over the history of those platform firms, right? For some of them, they've been in and out of seed. They've been in seed with various strategies, either as, you know, they hire individuals to invest directly in seed. They build a portfolio. They realize all the negative signaling effects of that that hurts their downstream investing. They get rid of that individual.

[21:44] and then they go back a couple of seed managers to generate deal flow. And so I think if you just look at the history of venture of the last 20 or 30 years, [21:52] the branded platform firms have always struggled [21:55] to invest effectively in seed because it's tough, right? It's difficult and it has impacts where they're downstream investing. And so for us, we wanna have exposure to that segment of the market with people who are solely focused on that segment of the market and who we think are really good at investing in that segment of the market. - So it's about exposure above anything else? - It is. It's about exposure, but it's also about returns. If we look at the seed returns, [22:22] within our portfolio, our seed returns are accretive to the overall returns within our portfolio. Yeah, you just can't deploy as many dollars to it. That's right. And I guess it has more variability or does it have not that much variability when you're diversified? I mean, you know, the seed segment of the visual market today is very, very large. We could deploy a lot of dollars. We're not convinced that the manager quality is that deep. We believe in building [22:52] the best way to generate out [22:53] size returns for our investors. So we could build a portfolio of 50, 60 seed managers and invest a ton of money. But we consciously choose to invest a smaller pool of capital in a more concentrated portfolio of seed managers who we think are best in class. Do you care more about [23:11] strategies or the people like the equivalent question here to a VC would be something like, are you backing like founders or markets?

[23:19] predominantly, and I actually think like, and some people think, ah, it's both. Some people will actually take a side on that. Like, you know, like a lot of Gil, who's a phenomenal investor, you've mentioned, like, you have market-driven more than most people. Other people are like all people. Some people are really product obsessed. Like, do you have an angle on this for yourself, where you're like, there's just some managers you want to be in business with no matter what? Or there's just models that you think are going to be excellent, you know, come hell or high water? At the seed stage segment of the market, for us, it's more people-driven. [23:48] We try not to pick markets. We don't want to lock our limited partners capital up 15 years into a market that may be in or out of favor over that 15 year period. But we are very excited and interested in identifying people. [24:01] or groups of people who have... [24:04] exceptional track records [24:06] who have a unique angle to the market, whether it's a unique network of founders that they can tap into, whether it's a unique approach to connecting with founders, whether it's a unique point of view on a segment of the market. We're always excited about investing with people who have a unique angle and or approach that generates what we think is either proprietary deal flow for a right to win in a competitive situation. And then we're always excited about investing [24:36] You know, when you're at the seed stage, and you're not walking through the front door with a Founders Fund business card or Sequoia business card, you gotta stand out. [24:44] And so we think that's part of the equation for us when we're looking at seed managers. It's evidence of strong investment judgment through a track record.

[24:53] this unique approach and or angle that generates proprietary deal flow or right to win and its ability to build a personal brand. If you think back to sort of [25:02] doesn't have to be seed managers, but like first, second, third, like early in their fund life managers. Can you share any stories of either like a couple of great decisions that were like hard to make and like how they played out? And also like a huge miss where you were just like, I read that wrong and I missed out on a lot. Sure. So we've been lucky enough to make a number of affirmative decisions at TrueBridge that have worked out well over time, that have had positive impacts for our portfolios and our returns. [25:30] Investing with Sunil Dhaliwal when he left Battery to form Amplify Partners was not an obvious decision. [25:38] We had known Sunil while he was at Battery. He was running their seed portfolio. We liked him as an investor. When he left Battery, his seed track record was a little unproven. But we liked the portfolio put together at Battery. We liked his approach to the marketplace. He had a very, once again, going back to [25:55] an approach he was focused on internet infrastructure at the time, which we thought gave him both a chance to proprietary proprietary deal flow and a right to win in a competitive situation. So we backed him in his first fund. It was a $45 million fund. It was not obvious. And that's turned out to be a double digit returner for us. You know, backing Jason Green at Emergence early was not obvious. [26:19] an individual with a great track record, partners with good track records. Once again, a unique approach in terms of SaaS software specialization, but it was not obvious.

[26:31] Their second and third funds have turned out to be both double-digit returning funds. So those were both not obvious or not conventional decisions. When we made them, they turned out very well. Perhaps our best decision in the history of our firm that was largely unconventional was the [26:49] at Founders Fund when they raised their first institutional fund back in 2007. Peter, at the time, was recognized as a good investor. He was recognized, probably had more credit as being their first investor on Facebook than he did anything else. He was running his hedge fund, Clarium. He had put two partners, Ken Howery and Sean Parker beside him, who had backgrounds as good operators. Peter's first fund was largely his own personal capital. He went to market in '07 to raise [27:15] an institutional fund. We met Peter and Sean and Ken at that point in time. There were as many reasons not to invest in Founders Fund 2 as there were to invest in Founders Fund 2, but we made the decision to invest. [27:29] You know, we didn't, [27:30] know at the time that Peter would become one of the singularly exceptionally best or singular, exceptional best investors in the history of the venture industry. Yeah. He has built a firm. [27:42] at... [27:43] Founders Fund on a track record that is [27:45] second to none in the venture industry. And today we're one of the largest investors and founders funds. So that's probably the best investment we've made. I guess so when you go that early, it gives you the right to put huge amounts of dollars into the platform later. And we've been very lucky to establish a very good relationship with them. That's been mutually beneficial for both sides. So are there any situations where you where it went the other way? Yeah. Where you have turned out somebody was

[28:08] phenomenal or just it went great and you didn't see it? Yeah. So I'm proud to say that today we're [28:14] We've been longstanding investors with Josh Koppelman and his partners at the first round. But when Josh was raising his first fund, we were just getting started and we had known Josh in his prior life. And he offered us the opportunity to invest in his first fund. That was a good fund out here. That was a really good fund. Really, really good fund. But at the time. [28:33] You know, we were trying to build a concentrated portfolio [28:37] We thought that was the best way to generate outsized returns. We had promised our limited partners to build a concentrated portfolio. And the opportunity to invest with Josh was wonderful, but it didn't fit our portfolio construction. So we passed. Have you mostly found the ability to correct the mistakes after... [28:53] missing it? We think we have. We think we have. One of the things that actually is really nice in, you know, being an LP versus a venture investor is when you miss in venture with a company, it's like you missed by like a big multiple, even if you come in to later round. Yeah, yeah, yeah. You just get to invest in a new fund. You don't have the same cost. You don't have the same cost as a limited partner, right? Yeah, as long as the relationship was strong. That's right. But for everybody, I think, you know, relationships along Silicon Valley is a

[29:23] important. That's right. We're very careful about how we, how we say no. Yeah. Um, but you know, I think you're exactly right. So, you know, we met Mark and Ben when they were raising fund one, exceptional individuals, um, [29:34] exceptional investors, had a vision to build [29:38] a firm that was going to disrupt [29:40] or at least they believed would disrupt the venture industry. We chose not to make that bet at that time, because they hadn't built that platform, they hadn't built that operating platform. We stayed in close touch with Mark and Ben, and when they came back to market to raise Fund 2, they had built more of that operating platform that was their vision, right? They had a good track record for Fund 1, and so we engaged with them in Fund 2, and that's where we became an investor. And today, we're one of the larger investors in Anderson Harvitz as well. But that goes back to your point of, there's no cost to us. [30:09] of weighting that font, weighting that one font. So there's these buckets of big platforms that dominate. [30:15] There's, you know, smaller firms, you know, whether they're emerging or established. There's also then obviously this long tail of venture firms that you mentioned that wouldn't fit into either of those, but keep getting funded and seem to... [30:31] be on a path to keep growing their funds even. And I'm curious what the dynamics are of [30:37] um, [30:37] from your seat as an LP, why is it so... [30:41] Durable wire venture firms so durable. It's hard to kill a good brand inventor and even a regular brand. It's hard to kill a regular brand Yeah, yeah, yeah, I think it has to do with the structural

[30:54] Makeup of the venture industry and the kind of the supply demand of capital in the venture industry and so I [31:02] Venture capitalists are raising capital from a highly diversified [31:05] supply base. I mean, I don't know how many institutional LPs or individual LPs there are in the world, but there are [31:12] tens of thousands of supply sources to our supply of capital to venture firms where they're raising from a highly diversified supply base. And probably growing quickly. And growing. Yeah. It's really difficult for... [31:26] LPs to distinguish between luck and skill. - In the managers? - Really difficult, right? Because by the time a venture capitalist gets to our doorstep, they've got a good story for every winner in their portfolio. [31:43] We're lucky in that we have a good network, and so we can go figure out the difference between luck and skill, but I'd say 90% of... [31:49] institutional limited partners can't. [31:52] figure out or can't distinguish between luck and skill. How do you figure it out? [31:56] I mean, like, I'm sure you're not saying you figure it out perfectly, but you figure it out to some extent. When you're saying we go figure it out, what does that mean? Because I think it's so hard to tell. What that means is that we have one of the best networks in the venture industry. And so when we're trying to figure out [32:11] the role that a GP played in a company or a winner in their portfolio, we have a large network of people we can go call to figure out. What really happened? Was it luck or was it skill? Yeah. Right? Right. And so I think that's the other component is it's hard for investors to distinguish between luck and skill. And so they see a positive track record and they attribute, they misattribute it to skill when it may have just been luck. Right. And if it's just luck, it's not repeatable. Yep.

[32:41] the feedback loop in Venture so long. [32:45] I mean, it takes seven, eight, nine, 10 years to see strong evidence of performance in a venture fund. It takes 10, 11, 12, 13 years for these companies to exit and dollars to come back. [32:54] And by that time, you know, a firm has raised two or three additional funds. Yeah. So I think those are the structural elements that allow third and fourth quartile firms to continue to raise capital. You talked about how... [33:08] for venture firms concentration, you know, you believe is correlated with success. Have you felt your own desire to [33:16] concentrate your own book with managers over time? You know, as we talk about these power law companies and power law managers to an extent, does it make you relative to say five or 10 or 15 years ago, change your own thinking about how you want to allocate your own [33:31] -Funds? -It has, and we do. Um, you know, we started our business in '07 thinking that, um, [33:37] that building a concentrated portfolio of the best performing managers in the business was the best way to generate outsized returns for our investors. Our first fund was invested across 18 core managers. We are investing fund eight today, 18 years later. [33:53] And our eighth fund will be invested across 11 [33:58] or 12 core managers. So we've consistently concentrated our portfolio over time. And we think of our jobs as simply investing [34:08] as much of our limited partners capital as we can with the best performing managers in the business. And we force rank our portfolio every year.

[34:17] managers that are at [34:19] Slots 10, 11, and 12 are always at risk of [34:22] leaving our portfolio, [34:25] And the reasons why managers leave our portfolio are, number one, we can put more of our limited partner's capital to work with managers that we rank numbers one through six. And that happens a lot. We've been very successful at increasing our allocations to the Sequoias and the YCs and the Founders Funds of the world. We see new entrants come into the marketplace that we think can perform at a very high level. [34:44] And if we think a new intern can perform better than the 10th or 11th or 12th manager in our portfolio, we make the tough decision to put the new intern into the portfolio. So Founders Swing was a new intern into our portfolio. And Drees and Harvish was a new entrance into our portfolio. YC was a new entrance into our portfolio when they started to raise outside capital. And then the third thing, third reason why managers exit our portfolio is a result of something specific to the manager. [35:14] strategy drift, changes in fund size that we think exceed the capabilities of the firm. And so those are the three reasons why managers leave our portfolio. That makes sense. But we've concentrated over time. Yeah, it makes sense. And I'm sure those are very hard [35:27] calls to make, but it's probably very important for the ecosystem. And also just like to the point before, there's a lot of money out there and people can, there's a lot of sources of capital for all these firms. Yeah. It's been very important to the returns of our fund. Our returns are best in class. And I think it's a result of... It's the same as a venture firm concentrating. That's right. That's right. And we've always invested from a capital constrained perspective.

[35:52] position. I mean, we've always, we could put to work much more capital than we actually raise in our funds. I'm sure. [35:58] But we actually like investing from a capital constrained position because it forces us to make these tough choices and it forces us to only invest in the best performing opportunities. To push on that, let's say that you could just get 50 percent more allocation in your existing managers and have a 50 percent bigger fund. Would you be totally neutral slash happy to do that? That's how we've grown our business over time. Right. So, you know, we've grown our flagship fund from 500 million to 700 million to 900 million. [36:28] We'll go to market to raise, you know, $900 to $1 billion. But we're delivering exactly the same portfolio and exactly the same exposure to our limited partners across all of those funds. We're delivering exactly the same portfolio construction today as we delivered in fund five. [36:43] And it's a result of our ability to increase our allocations to the managers. [36:48] as a result of our ability to put [36:50] more capital with the best performing managers in business. As a final question, um, for, I don't know how big my audience of LPs is, but you know, for any young LPs out there, could you share any like advice to somebody? Because you've obviously had an amazing career doing this. What would your advice be to like a young LP, whether it's, here's how to be great at it. Here's how to carve your own path. Here's how to make it sustainable. Here's what you should spend your time on. Here's what's a waste of your time. Like what, what do you wish you knew? [37:14] You know, what's become clear to me over [37:17] 25 years as a limited partner in the venture industry is that you're only as good as your network. [37:21] It's often said that investing in venture is like walking into a dark room. The longer you're there, the more you see. And so my advice to

[37:29] individuals entering the institutional LP world within the venture segment is, really focus on building your network. Really focus on connecting with the people that you think are important. Work really hard to make those relationships authentic. [37:46] work to make them personal when you can, be aggressive about building your network, because that's what's going to generate [37:53] deal flow, that's what's gonna generate insight. That's what's going to enhance your decision-making capabilities. So that would be my number one piece of advice, is really focus on building your network and building authentic personal relationships with people in the industry. And I think my second piece of advice would be, follow the signal, try not to be the signal. [38:16] Interesting. Why? [38:17] I think it's really hard. I think it's really hard to be the signal. [38:21] I think you have to be exceptional to be the signal. - Do you think you should aspire to become the signal over time? Or do you think that you should just-- - I think if you have that mindset and you think you have that ability, then yes, try to be the signal. But if you're not sure, be very comfortable following the signal. [38:39] Because I think that's the way the business works. And I guess maybe to the prior point in [38:45] As a VC, you get paid a lot more to see something early than as an LP because to that point, you miss a first fund. Yeah. They're going to be great for a long time. Yeah. There's not no cost, but the costs are low to missing the first fund. Yeah. And I've always said I would rather cry over the investments I didn't do than the ones I did put in the portfolio. It's such an interesting point because, you know, when I think about a lot of my, you know, like favorite LPs, I feel like I've learned a lot from, including you.

[39:15] I think we would probably consider to be more the signal that other LPs look to and say, oh, if they're doing that, you know, I should do it. Right. Logically speaking. Right. As a career decision, it's probably better to just follow the good stuff. I think it takes time to be the signal, right? I think it takes time. You have to be in the industry for a long time. You have to build that network. You have to see a lot. You have to develop that pattern recognition in order to be able to put a stake in the ground and be the signal. [39:40] We're lucky that [39:43] The principals of our firm have been in the venture industry for [39:47] individually for 35 plus years. [39:50] You know, I started my career as a venture back founder back in 1995. I've seen all the cycles in venture over the last 30 years to the extent that we [39:58] can be the signal in the market today [40:01] It's a result of 35 plus years of experience personally and over 150 years of cumulative experience at our firm. For someone entering the industry today, there's risk in being the signal. I had Dan Fader on the show, too. And he obviously, I think of him as- He has been in the industry. He's wonderful. And I think of him as signal. And I'm sure, though, that earlier in his career, you know, I'm sure those adjustments happen as you go through your career as an RP, too. That's right. All right. Well, that's good advice. Well, Mel, this is really fun. Thanks for making time for it. Absolutely. Thanks for having me. [40:31] you