← How I Invest with David Weisburd
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- [00:00]
Jamie
Why I get so excited about emerging managers, why I believe there's so much alpha in Von1 managers. When you see the interaction of high skill and high volatility in the environment that you're playing in, it creates this moment in time or this place where skill can actually show up in returns. If you were to come into your Monday deal meeting and have this manager come across as brand new and someone that you had never met before, would you take a meeting foreign?
- [00:38]
Interviewer
So Jamie, your partner at Screen Door, one of the top LPs in the world, and last time we chatted you said that a lot of the managers today look exactly the same. What did you mean by that?
- [00:48]
Jamie
It's funny you asked this question because I think it's the LP's fault. But you have a manager come in your inbox or come through a warm intro and you are X product manager, X operator, X XYZ brand name firm that you're spinning out of, or you have X Network and it's all generally the same. Like if you were to blind yourself and just hear the story, a lot of it sounds the same. But I think LPs force that. Like we're looking for something that's an easy underwrite, that's fundable. So we're all looking for the same thing. Let me see your track record with your co investor list. Do you have dpi? I mean that's, that's a huge win. But let me see what network you have, let me see what thesis you have, which is really just a sector play, but they call it a thesis. And so a lot of LPs just force a standardized way to underwrite a GP. So when you come into my inbox or you come into my network, you all sound the same and then it's really hard to discern what that person's edge is or why they're differentiated than the 50 other EX product managers that are in my inbox. And so it then falls on the LP to. To dig in differently and really understand that managers, what we call Screen door, GP market fit, which means your fund size and your strategy and your lived experiences. So what gives you the right to be the best at sourcing, selecting and winning? All need to align to give you that high probability of an edge that turns into a win.
- [02:19]
Interviewer
So it's not just the best strategy for the best market, it's also the best person executing the best strategy for the right market.
- [02:25]
Jamie
Exactly. Because I think.
- [02:27]
Interviewer
What's an example for that?
- [02:28]
Jamie
Yeah, I think it's really important to ask this GP first, like, why are you doing this? Like, this is really hard. And it's not just I am really good at networking and so I have XYZ into my arm's reach and I'm going to go invest in my buddies. And we've seen that a lot before and that's great for today, but it's really saying, hey, I was early at XYZ firm, multiple of them. I was also early at these failures. And so I lived the 0 to 10 at multiple places. And then I became a venture partner somewhere and I started doing angel deals and I started to really see what excellence was not just on the operating side, but on the investing side. Because I think that gives someone unique perspectives and then they're taking a crawl walk, run approach of I'm going to go start my own venture fund because I have unique insights in developer tools or developer ops and I understand the investing side of the house. So I'm going to go raise a small fund because that aligns with the deals that I wrote as an angel investor. And then I start to win deals because founders want me because of my unique experience and the unique skill set that I offer at that zero to one phase. And then that earns you the right over time to start writing slightly larger checks. So maybe your fund two is one and a half times what your fund one was because you've earned that right with founders to start writing larger checks. And so you're going along this journey of crawl, walk, run, but you're doing it with intention and you're doing it based off of one's lived experiences or one's journey up until today.
- [04:17]
Interviewer
What does it take to be a good seed manager today?
- [04:20]
Jamie
Yeah, it's a really interesting question because I don't think it's just being a good investor like a lot of people can be a good investor. But I think borrowing from kind of my public markets experience is that you have to understand what it takes to build a firm. And it's not just investing in great companies. You also need to know when to exit. The market has changed so much that being a good investor is only half the job. It's being a fund manager and understanding that along that way there may be times that you need to sell a piece off. So is that six years into this investment or is that 10 years into this investment? Is that 12? Is that 15? When do you exit? And so being a good manager is understanding what it takes to endure and survive and win. And then to dpi, that's always important. But understanding that part of this job is to build a firm and what that takes. And that might mean I am really good investing. Like I have such a nose for network. I can find really good founders, I can talk shop with them. But that means I need to hire and I need to hire someone that does other parts of the job of running a fund. And that's okay because you should be spending as much time as you can with your superpower, which is investing or talking to engineers or playing in those networks with other people that are just as socially awkward as you. But that might mean I'm not great at running operations or that might mean I'm not great at interacting with LPs. So if you can hire for that part of that job, that's also really important. And then lastly, I would say flexibility. The market is adapting and innovating so quickly that if you raised a fund three years ago, midway through your investment period, the market shift and the definition of seed is so much bigger or wider today. And so your investment strategy needs to be flexible and adaptable to changing market conditions. So if you are too rigid in your focus, then you're likely going to lose.
- [06:22]
Interviewer
You said managers need to be able to endure and survive. Today there's what some people call an extinction level event happening with emerging managers. What differentiates the emerging managers that are going to live through this extinction event and those that will not make it?
- [06:37]
Jamie
It's interesting where you have these funds that raised in the ZIRP era and some of them have taken longer to come back and fundraise intentionally because the marks just aren't there. Where if you raised a fund two years ago, you, you're getting some nice AI momentum marks in there. And so does that mean they're going to win? Does that mean 10 years from now that's going to be the 50x fund in the portfolio? That's really hard to know because it's so volatile that journey up until the end. But I think any manager that's starting a fund right now seems to be a lot more serious and understands the implications of what it takes to, to run a fund. And I've noticed a lot of the managers coming to the table have taken advantage of the innovation that's happening today and understand that I have to know about dpi, I have to talk about secondaries or I have to go find people around the table to help me understand how to manage this firm and hiring, call it junior level talent. Where talked to a lot of GPS three years ago. That said, when I Raise fund two, I'm bringing in an equal level partner. That's my plan, benchmark is my goal. And now when they come and raise their fund two or if it's their fund three, they've completely changed their mind and they're bringing in more junior level talent to date them and recognize that no, this is my firm, this is my superpower and I need the help. But I need to bring it in in a smarter way. Because some of the junior level talent out there has a great nose for finding talent, but also gets pulled into the fomo. They don't really understand a full cycle and they don't necessarily know what it takes to produce excellence in venture because it's really, really hard to understand that exponential curve before the curve influx.
- [08:31]
Interviewer
And by junior talent you mean investment talent. When is the right time to also bring non investment talent and differ?
- [08:39]
Jamie
It depends on the strategy, depends on the fund size. Candidly, if you're a $15 million fund, what's that budget for bringing in non investment talent? But we've certainly seen Fund 1 and Fund 2 managers outsource non investment related needs, especially around the I'm just not really good at this operations thing or managing. How do I get my K1s and my audited financials out in time or how do I deal with any of this back office stuff? And so typically we find that fund one managers try to do it themselves. Some are successful and some are not. And then they realize I'm about to raise my fund to when I've only spent half my time investing. I need to outsource that talent. And that could be someone that is very junior level or that could be hiring an outsourced CFO that's able to support that stuff. Because that's the unsexy thing, that's the boring stuff, that's the headache. But that's really important for LPs to get the reporting on time.
- [09:33]
Interviewer
Outsourced CFOs. Do these generally work? Are there good outsourced CFOs?
- [09:38]
Jamie
I don't have any names to shout out there, but I've certainly seen that create a lot of success for the gps and even a scenario of like a chief of staff that can be supportive of gathering all the information. Especially if you're in like a highly diversified portfolio, that's a lot of data that you need to be tracking. And so having that set you up for success is really important. I'd also be curious too. With AI now, is there tools that you can build in house or if there's agents that can help support, support your data tracking of that where if we have this conversation three years from now, I'd be curious if that's as much of a need as it is today.
- [10:19]
Interviewer
Earlier in the conversation you referenced this concept of bringing together a team that plays to their superpowers. How do you do that practically? And what are some of the archetypes for high performing teams that succeed at early stage venture?
- [10:34]
Jamie
Because in early stage venture you have to be non consensus and. Right. I think that's really hard because I think it's like once you've gotten excited about an idea, you kind of start to own it and you start to build up a thesis and excitement around it. And then by the time you're in the fifth inning, if you were to get all that information freshly new today, would you still be just as excited? Maybe not. But you've just started to own this idea and you have this natural behavioral bias in you that kind of creates that excitement. And if you've received new information that may be cautious, maybe not a red flag, but cautious enough that you probably should take that seriously enough to continue to do more work. But it's hard because you've started to build up this idea and you started to build this excitement. Having a partner around the table that can ground you on that and say hold on, hold on, you're crazy. Or like you're missing this or this is actually more than just a caution, this is a red flag. We need to spend a couple hours diligencing out this potential issue. Having someone around the table that you can have that conversation with and can ground you in reality is crucially important. And so I think being able to disagree but with respect is where I've seen a lot of success happen. Because you need to be able to pull someone out and say you're wrong. And I think you're wrong because of xyz. Supporting with evidence ideally. But if it's not done with respect, then I think you start to have cracks form and you start to see partnerships dissolve over time.
- [12:18]
Interviewer
Disagree and respect. But you also reference this archetype of essentially this crazy entrepreneur that tries to hit these thousand X and this level headed partner. Is that something that you see in some of the best partnerships?
- [12:31]
Jamie
I certainly see the yin and the yang there. And I think that with those types of partnerships because the personalities are so different that you need to have known each other a while and you need to have kind of like figured out those differences and even going back to my days at Bloomberg Where I would see like an engineer talk to a salesperson that just didn't work. Like they were talking two different languages. And so being able to find a common ground and a way to communicate with the same language, even though you have very different perspectives on something is crucially important because I think that communication can either make or break you.
- [13:13]
Interviewer
That's why the respect is so important. Everybody talks about this concept of having a partner with complementary skill sets, which sounds so wonderful. Everybody nods their head and in reality it's extremely difficult with no respect. Said another way, there has to be respect for this part kind of partnership to work versus if you have two salespeople or two engineers, they kind of already speak the same language. They might have different styles, but they don't have this fundamentally different philosophical view on the world.
- [13:40]
Jamie
Exactly. Because when you say to if you are my partner and I say you're crazy or I think you're wrong, like what are you thinking? Like, I have a completely 180 perspective on what you think. And if you're like, I'm pounding the table for this and I'm like, you're completely missing it and you're wrong. We have to come to a resolution and I need to be able to say to you like, I think you're wrong. This is why you're missing it. And it can get heated because sometimes you're passionate about this opportunity or whatever decision you need to make. And if at the end of the day you can't like walk away and be like, I think they're wrong, but I completely respect them. How do you come back together and not have any resentment build or cracks form, Especially if one of you is going to be right and time's going to tell and then you start to build up those resentment or you start to see those cracks form to be even wider. It's really why the respect piece is so important.
- [14:36]
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- [16:21]
Interviewer
I invest you've seen now across hundreds of GPS, maybe approaching thousands based on your your previous experiences, this concept of consensus at the early stage, all things being equal, do you want your managers to have this policy where somebody could pound the table and bring through a non consensus deal or do you find two very smart people should come to the right decision more than one person advocating for their own position?
- [16:49]
Jamie
Having alignment and not necessarily agreement is really crucial. And so what does that mean in play? My favorite topic obviously portfolio construction. But I tell gps in general do enough deals to be confident that you'll be in a winner and then grab as much ownership as you possibly can because that's the cheapest entry point. But it's important to have 10% of your fund or your capital allocated to break the rule investments. So if that means especially it has to be what works for the partnership, if someone has a silver bullet that they can use, that other partner needs to be comfortable with that silver bullet going into the portfolio because like you're in it for the carry. And so is that bullet going to be the next big thing or is that another zero in your portfolio eight years from now where it could have gone to something else and so making sure that the partners are comfortable with that investment strategy. But I think having 10% of that capital go to break the rule investments, whether that may be your pre seed and seed fund and you have access to $125 million post money valuation seed, do you actually put some capital in there because you have a network reach that gets you access to that profile of a founder and deal. If you think it's going to potentially return your fund, don't pass on it. Or if it's some weird wonky founder that doesn't really fit your archetype, but there's just something about there that you think is super unique and it's a new network and there's a relationship there you really want to does it fit into that 10 bucket do it. Because I think that it is so hard to continue to stay non consensus in an environment where so many people are focused on like momentum style plays and you see these markups there and it gets you super excited and you're like I want to double down butter. Early momentum correlated to big wins 10 years from now. I think that correlation is pretty low.
- [18:52]
Interviewer
This being able to go non consensus invest in things that look weird or different. So critical for early stage venture. At Nico Bonatsis who built the General Catalyst seed practice over 15 years, he gave us that they did a lot of research on this which is 50% of all returns for entire sector are made on companies before the sector has a name, before Fintech has a name, before mobile had a name. And what's crazy about that is 50%. Well you could say well I'll just wait for the other 50%. The problem is that the 50% comes in the first couple years and the other 50% could take another two decades. So the extreme power laws and things that look weird, that look different, that look like why do people have people laying on mattresses in their homes? Why are people jumping into strangers cars and paying them for these really weird, really uncorrelated business ideas. Those tend to account for these thousand x power law.
- [19:50]
Jamie
And I think that's why I have a lot of reasons why I like a more diversified approach. Although at screen door we certainly back all profiles of portfolio construction. But I think when you tend to lean into more shots on goal, it allows you to take those few bets on the wonky and weird that like this just doesn't make sense. But if it works, it's huge. And so when you have a couple more shots on goal it allows you to take that risk because if it doesn't work out, it's not as detrimental to the fun model math because you have other bets in there that may feel a little more safer then that allows you to really take advantage of the tails.
- [20:34]
Interviewer
One double click on what you said earlier because it's a really brilliant model that solves for a couple different things you said 90% essentially very rules based. You have to follow these rules on all these 90 and then 10% flexibility. The reason I think that's a really good model is a lot of people, they either pretend that they never break the rules and are always breaking the rules because you need some flexibility in the model, or they do the opposite, which is they break all the rules and then every one of their investments is at a 3 to 4x higher valuation because valuation doesn't matter at entry. They use that mantra and then they end up having this Sometimes even these funds have great winners, but you paid up for everything, you end up with
- [21:14]
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- [25:23]
Jamie
I've thought a lot about why I Get so excited about emerging managers or like why I believe there's so much alpha in Fun one managers. And I've seen a lot of great returns in this space. And I think about it in like this investment framework where if you think about like two axises and on the vertical axis is manager skill. So the higher up you go, the more skill you have. And on the horizontal axis there is the volatility of the environment that you play in. So if you're on the left side of the axis it's low ball and if you're on the right side of the horizontal axis, it's high ball. And I think when you see the interaction of high skill and high volatility in the environment that you're playing in, it creates this moment in time or this, this place where skill can actually show up in returns. And I think that in that like top right quartile between high skill and high volatility, that's where fun one managers naturally live. Because you have less constraints, you are a fun one. There is no pre existing LP expectations from you. There's no pre existing expectations around your ownership targets, no pre existing expectations from founders. Even if you've spun out, you're likely doing a different strategy than what you were doing at XYZ brand firm. And so it's this low constraint world that fund one managers live in that allows them to just invest in a way that provides significant upside. And as firms mature, you naturally have pattern recognition set in. You naturally have expectations from LPs, you typically have raised a larger fund. So you naturally have ownership targets that you must hit to make your fun math work. Founders have certain expectations of you. If you've made follow on investments, there's more expectations of you. And so that's a natural evolution and not always a bad thing. But I think that it just naturally means that fun ones play in an environment that have less constraints and allow for more upside. Where as you mature as a firm, constraints set in that make it harder for you to take advantage of sometimes the wonky and the weird.
- [27:48]
Interviewer
Said another way, fund ones are oftentimes best ideas for the gps. Fund twos are kind of what you went out in the market 18 months ago. You're almost constrained to that strategy.
- [27:58]
Jamie
Exactly. And so I've certainly seen Fund 4 and Fund 5 managers do really well and keep those constraints and loose and lean and flexible and adaptable. But it becomes harder because you just have these expectations set from LPs and founders around what you are in the market. And when you Think about kind of high skill and a high volatility environment. If you throw a little randomness in there or a little luck in there when you get a lucky bounce, like it can really make a difference in your return and really drive that.
- [28:35]
Interviewer
And you mentioned you've seen some fund fours and fund fives that have more loose mandates. How do they pull that off and what's upstream of that?
- [28:44]
Jamie
I think the most consistent thing that I've seen across all asset classes in success is staying humble and kind. Because the sourcing strategy that you had at fund one is very different than your fund for strategy. And if you've backed really great companies before, hopefully that founder flywheel effect is showing up and that has a positive network effect to your sourcing, but it's very different. You may have started this fund based off of some unique insight, some unique opportunity. Maybe you did have an edge in your network access, but by the time you're a fund two or fun three, it's probably arbitraged away and everyone else figured it out. So if you are humble enough to know that you need a refresh or it's maybe the reason you do hire someone more junior because they're able to hang out at those hackathons and they're able to get into those parties or they're able to get into those networking events where they fit in a lot more. It's able to refresh your network edge. And candidly, it's why a lot of the GP advisors are part of screen door today, because a lot of them are able to stay close to the new managers coming to market and ensure that their game is just as good as their emerging managers.
- [30:02]
Interviewer
It's a massively underreported topic in that managers networks decay over time. Oftentimes you mentioned earlier, there'll be operators, they'll be within an ecosystem. It might have been in the PayPal mafia and then the Palantir and the Ex Uber, but at some point these networks decay. How did GPS avoid that?
- [30:23]
Jamie
That comes through first backing really good founders? Because if you back someone that spun out a PayPal mafia and now you backed a company that created its own mafia, that's a. That's a great way to build a direct network effect.
- [30:38]
Interviewer
Founders introducing other founders.
- [30:40]
Jamie
Exactly.
- [30:41]
Interviewer
Is that what you found as the best source of introduction for portfolio companies?
- [30:46]
Jamie
I have. And it's sometimes a little wonky though, because like I've seen scenarios where you were early into a great company and they introduced you to this company and they introduced you to this company. But what happens when that founder introduced you to a network and then you get a bunch of deals out of that network? From a mapping perspective, it's a network check. You were, well networked in yc, for example, and you got a bunch of deals out of YC eight years ago.
- [31:15]
Sponsor/Announcer
Great.
- [31:15]
Jamie
But the reason you got into that network is because you backed some founder that introduced you to everybody. And so I think that the founder flywheel effect is really, really helpful and really accretive to an underlying manager's portfolio because it also allows you to not have to be the content machine. Because if you don't have a good sourcing network by backing good founders, you need to find another way to get the introductions. You need to find another way to get to these founders. And so there's nothing wrong with content. It's a great way to find managers. I found wonderful managers from being on your podcast NLP's. But, you know, I think that the founder flywheel effect ends up showing up in a lot of the returns.
- [32:00]
Interviewer
We were talking about this earlier, before we started recording. Alex Hormozi calls this choose your hard. It's fund management, just like any type of business. For some reason, fund managers don't think about their business like a business, but it is fundamentally a business and the best businesses have some competitive advantage. Yeah, I've seen so many different variations. Some people have founder dinners, obviously for me, I have podcasting, some people have writing, other people speak at conferences. None of these are wrong answers to this distribution challenge. What's most important is that you have to pick a lane and go deeper and just be the world class person at that.
- [32:37]
Sponsor/Announcer
Absolutely.
- [32:37]
Jamie
And I think about it in terms of when I look at these early stage managers, I'm like, you're likely in one of three buckets. You're the largest check, you're the first check, or you're the most helpful check. Typically you fall into one of those. Sometimes you're two of the three, but there has to be a lane that you play in and you need to be the best at it. And it's okay to start as like, I am the smallest check and I'm, you know, the most helpful there. But by the time you get to fund three, your goal is to be the largest check. That's okay. There's nothing wrong with that type of strategy, but there needs to be a version of a lane that you play in and you have to be the best at it.
- [33:16]
Interviewer
And the worst thing is kind of being in between these lanes, being too big to be small for a round, but too small to be the lead check. So you're not getting that first look.
- [33:28]
Jamie
Yeah.
- [33:30]
Interviewer
Even though you hang out with mostly gps, you're also an LP and you also have LP friends. Your LP friends. What is the systematic error that they're making on venture today?
- [33:41]
Jamie
I think it's overlooking the opportunity costs to invest in emerging managers. It's really hard to. I talked about this earlier where you get really excited about the opportunity. You really like this gp. You have a relationship there. They remind you of so and so. So you've made this investment and I'm just going to re upping them and then I'm gonna re up and I'm gonna re up because they've been good to me. I see early marks. It's positive, like it's a feel good thing. But if you were to come into your Monday deal meeting and have this manager come across as brand new and someone that you had never met before, would you take the meeting? And I think a lot of times people would say no. But because you have that existing relationship, because you have information and things that you see that are not necessarily on the marketing materials and they're a really good person and like it's a feel good thing. It's so hard to remove that bias of if you got all this information coming through today. Are you a buyer or a seller? It's what we talk about a lot at Screen Door and we talk about this with, you know, Satya and Hunter from Homebrew. Are you a buyer or a seller? That's the conversation.
- [34:58]
Interviewer
There is no hold.
- [34:58]
Jamie
There is no hold because it could just mean that you need to forego and go buy another fun one. Man.
- [35:06]
Interviewer
A test of that is are you adding more money to the manager? No. Why not?
- [35:10]
Jamie
Exactly.
- [35:11]
Interviewer
If you're so bullish on your manager, why aren't you increasing your check size? Now you might have portfolio constraints, but that's kind of the tell. Reminds me of this zero based thinking in terms of employees. Would you hire that employee again? If not, why are they still at the firm?
- [35:25]
Jamie
Yeah. And if it's a perfect world and you have more money to deploy, add more money. But I also think that if you were so good at your job that you would just end up doing five managers and call it a day because you could pick the five best. And so there's the balance there of. Hence my love for diversification. But you know, portfolio construction is very important. But if you're not willing to buy this fresh today, then you shouldn't be re upping and you should put your
- [35:53]
Interviewer
money to work else Mel Williams said this from from True Bridge also runs the Midas list which is every new manager must compete with more of our existing portfolio.
- [36:03]
Jamie
Absolutely.
- [36:03]
Interviewer
When you're in the top funds, sometimes the smartest things for an LP to do is just to put more money
- [36:09]
Jamie
behind those top I think sometimes as LPs you have really hard decisions to make because venture has such long feedback loops. But it's also being mindful as we talked about before, are the networks refreshed? Is this have they aged out? Is it relevant? And it's doing a fair underwrite of the existing relationship you have today with the potential of a new relationship and also thinking about does a new GP get me into these deals earlier? Because when I backed this ABC venture fund at fund one and fund two they were true precede and seed. Some managers choose plan to stay grounded in true pre seed and seed investing. But by the time you get to fund four or fund five they may have strategy drift and they could be great. But Is that Fund 4 the same fund and strategy as Fund 1 and Fund 2 or is it actually a brand new strategy? And so you have to be mindful of that strategy drift when you compare it to new opportunities.
- [37:12]
Interviewer
Make two really interesting distinctions. One is you might have been right to back them in their Fund 1 Fund 2 and you might be wrong to back them in the Fund 3 Fund 4, which is same with startups. Sometimes you made the right C investment, the wrong series A investment, the right series B investment. All these need to be rethought from first principles. And the second part of that is a lot of times I'll hear LPs say well they're now fund four and fund five. They give us more late stage exposure. Well, weren't you already exposed to late stage? So either your portfolio construction before was wrong or now it's wrong. But sometimes you use this almost lazy thinking or passive thinking in order to justify your current portfolio construction.
- [37:50]
Jamie
Exactly.
- [37:52]
Interviewer
Right now DPI is a big topic for limited partners. You referenced it. Secondaries. Now emerging managers are putting secondaries as part of their strategy. If you were advising an LP today, would you advise them to sell their best managers, their worst managers? How should I think about getting liquidity in their venture portfolio?
- [38:11]
Jamie
I think it comes back to what the goal is first of their venture portfolio and how diversified you are and where you're looking to deploy capital going forward. And I also think that you have to think about the relationship piece There. So if you're going to sell out of your best managers, what's the reason for it? And is it because you're not planning to re up into them? And then again, what's the opportunity cost of a dollar? What can you get for selling today? And can you go put your money to work? And something that's compounding at a higher rate. I would probably advocate for yes on that piece of it. But it also comes down to that individual lp because the worst thing you can do is sit out. Like it's gonna cost you more to miss out on outliers than to just kind of stay on the sidelines. And so I think it's really important for LPs to be allocating consistently to ven through multiple vintage years time and time and time again. And so if not choosing to sell out of a manager means that you're going to sit out a vintage year, that's the biggest costly mistake.
- [39:18]
Interviewer
Reminds me of the Warren Buffett principle, which is the number one factor on investment is this opportunity cost, even today. Dpi. Everybody wants dpi.
- [39:27]
Sponsor/Announcer
Great.
- [39:27]
Interviewer
What are you going to do with the dpi? Some endowments have to pay operating costs, obviously extremely important. Some endowments have really good opportunities to invest more into their top managers like we talked about. Yeah, but some people just want DPIs for DPI sake just to feel, feel better about their investing in their portfolio. And sometimes that has significant negative opportunity costs as well.
- [39:48]
Jamie
Definitely. And especially if you're a taxable lp, then when you get that dpi, you have to go pay taxes and then you're going to go reinvest it and hopefully find a high IRR investment available for you. And so I think it's really being thoughtful about like your network access and what you can deploy that DPI into. But of course, if you have liabilities that need to be paid, or you know, have a payout ratio that you need to meet, then at some point, you know, things need to DPI and exit. But it's also why I think the earliest stages are so interesting now because you don't have to wait till ipo. You can sell out via a secondary in a series C or D round. And that's not negative anymore. It used to be, it used to be, you know, something that was not necessarily looked upon as positive. And so because you can exit via a secondary in that primary round, it's a great way to provide DPI to your early stage LPs.
- [40:44]
Interviewer
We started the conversation talking about venture turning into this consensus asset class you now have a handful of funds raising more than half of all venture capital. And this has happened now for several years. What are the second order effects of that for emerging managers?
- [41:02]
Jamie
It really means that early stage or emerging managers today need to pick a lane and focus on it. You have a lot of these larger firms creeping down into seed. What is even seed today? It's changed so much and has such a wide definition. Is 150 million post money valuation truly a seed stage company? I think it's managers needing to identify what the proper fund size and strategy is for themselves to win. And so does that mean they go earlier, they go true pre pre seed or super angel style? Or do they want to go bigger and start to compete to get into those rounds? Do they need to be writing a two and a half, $3 million check out the gate to to win those types of rounds? Or is it trying to play somewhere in the middle where you're going to be slower to deploy and more thoughtful to deploy but ensure that you can find these profile of rounds being raised where you write that one one and a half million dollar check. And I think it's really understanding that GP's superpower and how they're going to adapt to win in this market environment. And it's why a lot of these emerging managers that have come through I'm super excited about. Because you can't just have a good network and invest in some great angel checks. Like you have to pick a lane and be good at that lane and be able to win because it's gotten so competitive.
- [42:29]
Interviewer
Well, Jamie, you're the second ever guest to come on the podcast for a third time. You and Alex Edelson from Slipstream, you guys are two, three time guests. I looked it up this morning. You were originally episode 12. So thanks so much for being a friend of the podcast, personal friend and looking forward to doing this again.
- [42:46]
Jamie
Thank you for having me. Can't wait to come back.