Uncapped #34 | Mel Williams from TrueBridge

Summary

Podcast Summary: Uncapped with Jack Altman

Episode: #34 | Mel Williams from TrueBridge
Date: November 25, 2025
Host: Jack Altman (Alt Capital)
Guest: Mel Williams (Co-founder, TrueBridge)

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Episode Overview

Main Theme:
Jack Altman hosts Mel Williams to explore the nuanced art of institutional venture investing—from picking the best VCs and funds, to dissecting power laws in returns, the current state of AI-driven froth, fund structures, and what truly differentiates great LPs and VCs in today’s hyper-competitive ecosystem. The conversation navigates the seismic shifts in tech and venture capital, fundamentals for emerging managers, and essential LP wisdom.

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Key Discussion Points & Insights

1. The Current State of Venture in 2025

• Excitement and Froth Around AI:
  • Venture is at the dawn of an AI wave expected to fuel returns for the next 10–15 years. There’s palpable evidence of real value and rapid growth, yet early-stage valuations are “very high, maybe frothy” (01:35).
  • "I think overall our sentiment is excitement. We think we are at the leading stages of an AI wave that will power business opportunities and return generation over the next 10 to 15 years." — Mel Williams (01:35)
• Disparities Inside and Outside AI:
  • Outside AI (hardware, defense, consumer), markets are “reasonable if not attractive.” Milestone-based investing and more attractive valuations prevail (03:50).

2. Market Risks and Power Law Dynamics

• Booms, Busts & Power Laws:
  • Expect both “a lot of carnage” (companies missing product market fit after raising big at high valuations) and “more value created over the next 10 years than we've ever seen” (04:47).
  • Comparison to the dotcom era: many failures but births of titans like Amazon and Google (05:16).
• Why Winners Magnify:
  • Lower marginal cost of software, more rapid adoption by enterprises and consumers, and faster revenue ramps.
  • “Society has embraced tech as a potential solution more so; I think we're seeing the ramp faster.” — Mel Williams (05:34)

3. Talent Dynamics

• The market for technical talent is more competitive, with giants like OpenAI and Meta now magnetizing even startup-minded employees (06:18).
• “The value of signal in this market is magnified... attracting capital and talent and customers at a rate we haven't seen before.” — Mel Williams (07:03)

4. Portfolio Construction: Platforms vs. Individuals

• Platform Funds vs. Boutique Players:
  • TrueBridge likes both premier platforms and specialist managers with unique edges (07:45).
  • Enthusiastic about the “power law” dynamic: “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.” — Mel Williams (07:45)
• Concern for the Long Tail:
  • “Worried about the long tail of venture in this cycle... The signaling effect is so strong that the brands have real advantages” (09:02).

5. The Consensus vs. Contrarian Debate (09:36)

• Reactions to debate: Is “good investing” just consensus investing?
  • Mel: “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. Peter Thiel is the signal.”
  • Both matter: Great firms create and chase signal.

6. The Dominance and Scale of Venture Brands

• “Brands matter. Good brands equal positive signal in the marketplace. And positive signal has real positive meaning for founders”—for valuation, follow-on, talent, customers, and regulation (12:05).
• Strategic advice to founders: Sometimes it’s better to take a lower valuation from a top brand because of lifecycle capital and support (13:25).

7. The Fund Size Debate

• Acknowledges both Josh Kopelman’s (First Round) and Marc Andreessen’s perspectives:
  • Fund size does matter, big numbers are harder to 10x; but being in the very winners is more important (14:58).
  • “The largest fund in the market is often the highest returning fund. And it's a self-reinforcing cycle.” — Mel Williams (15:59)
• The right question: Fund size should scale in relation to the firm’s capability, investment team, conviction, and strategy; rapid size increases cause issues (16:16).

8. Concentration & Investing Style

• Highest-performing VCs are:
  1. Contrarian or first-principles thinkers (the signal, not the follower)
  2. Willing to concentrate capital in winners with conviction (18:18, 19:14)
  • “When they see it working and they see a win in their portfolio, they’re willing to push their chips on the table. That’s how the highest performing funds generate returns.” — Mel Williams (19:15)
• Typical concentrated portfolios: 11–13 companies, with 60–70% of NAV in the top three winners (19:50).

9. TrueBridge’s Approach to Emerging Managers

• Institutions struggle with seed: “Branded platform firms have always struggled to invest effectively in seed... so we want exposure with people solely focused on that segment” (21:12).
• Seed allocation: Focus on concentrated investments with “the best in class” managers, not broad exposure (22:37).
• For TrueBridge, it's "more people driven" than strategy; unique access, strong investment judgment, and personal brand are key (23:45).

10. Case Studies & Misses

• Best Hits:
  • Backed Sunil Dhaliwal (Amplify), Jason Green (Emergence), and most notably, Peter Thiel’s Founders Fund at its institutional inception (25:18).
• Biggest Miss:
  • Passed on First Round’s first fund, but corrected course and became a “longstanding investor” later (28:02), noting LPs can often fix missed opportunities with new funds.
  • “There’s no cost to us of waiting that fund, waiting that one fund.” (30:12)

11. Durability of Venture Brands

• Venture firms are hard to kill due to:
  • Highly diversified, ever-growing LP base.
  • Difficult for many LPs to distinguish between luck and skill (network and reference checks crucial).
  • Long feedback loops: A firm can raise several funds before performance is really evident (30:44-33:06).

12. TrueBridge’s Concentration Over Time

• Started with 18 managers in Fund I (2007); now, Fund VIII will be 11–12 managers—an intentional, annual re-ranking/concentration process (33:32).
• Always operates under capital constraint: “We like investing from a capital constrained position because it forces us to make these tough choices” (35:57).

13. Advice to Aspiring LPs (37:14)

• Build Relationships:
  • “You're only as good as your network... really focus on building authentic, personal relationships.”
• Be Realistic About “Signal”:
  • “Follow the signal, try not to be the signal. I think it’s really hard to be the signal. I think you have to be exceptional.”
  • Early LPs should be patient—“It takes time, you have to build network, see patterns, and only then can you really be the signal.”
  • LP business is forgiving on missed early bets: “There’s not no cost, but those costs are low to missing the first fund. I’d rather cry over the investments I didn’t do than the ones I did put in the portfolio.” (38:55)

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Notable Quotes & Memorable Moments

| Timestamp | Quote | Speaker | |-----------|-------|---------| | 01:35 | “We think we are at the leading stages of an AI wave that will power business opportunities and return generation over the next 10 to 15 years.” | Mel Williams | | 04:47 | “We’re going to see a lot of carnage... and we will see more value created over the next 10 years than we've seen in the venture industry.” | Mel Williams | | 05:34 | “Society has embraced tech as a potential solution more so; I think we're seeing the ramp faster.” | Mel Williams | | 07:03 | “The value of Signal in this market is magnified...” | Mel Williams | | 09:02 | “Worried about the long tail of venture... The signaling effect is so strong that the brands have real advantages.” | Mel Williams | | 12:05 | “Brands matter. Good brands equal positive signal in the marketplace.” | Mel Williams | | 14:58 | “Fund size does matter. It's hard to overcome the math. Right. Josh is right. You're less likely to turn a billion or two or $3 billion ten times than you are $100 million. But... often the largest fund in the market is the highest returning fund.” | Mel Williams | | 18:18 | “The two characteristics that we've identified over, over, you know, our history... Number one is a combination of contrarian investing or first principles investing... Number two, they have conviction.” | Mel Williams | | 25:18 | “Perhaps our best decision in the history of our firm... was the decision to back Peter Thiel and his partners at Founders Fund... Not conventional but turned out very well.” | Mel Williams | | 33:32 | “We started... in 07 thinking that building a concentrated portfolio of the best performing managers... was the best way to generate outsized returns. We are investing fund eight today... will be across 11 or 12 core managers. So we've consistently concentrated our portfolio over time.” | Mel Williams | | 37:14 | “You're only as good as your network... really focus on building authentic personal relationships with people in the industry.” | Mel Williams | | 38:16 | “Follow the signal, try not to be the signal.” | Mel Williams |

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Important Timestamps & Segments

• [01:35] – State of Venture and AI-driven Market
• [04:47] – Risks & Power Law Paradox
• [07:45] – Platforms vs. Boutique Managers in Venture
• [14:58] – The Great Fund Size Debate (with reference to Josh Kopelman & Marc Andreessen)
• [18:18] – Two Traits of Exceptional Investors: Contrarian and Conviction
• [25:18] – “Best Bets” Case Studies (Founders Fund, Amplify, Emergence)
• [28:02] – Missing First Round’s First Fund (and lessons learned)
• [33:32] – TrueBridge Portfolio Concentration Philosophy
• [37:14] – LP Career Advice: Network and Signal

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Takeaways for Listeners

• The power law rules all—selecting exceptional managers and having patience beat chasing every hot trend.
• Brand, signal, and network effect are central to both fundraising and venture success, whether you’re a founder, VC, or LP.
• Concentration (in both companies and fund relationships) and having the conviction to “push your chips in” distinguish the top performers.
• For aspiring LPs, authentic relationships and learning to “follow the signal” matter more than swinging for the fences on day one.

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Episode’s Tone

Candid, insightful, and analytical—deliberate reflections from a seasoned LP, with Jack Altman’s curiosity prompting practical wisdom for practitioners at every level of venture capital.

Transcript

[A]

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 a win in their portfolio, they're willing to push their chips on the table and that's hard to do.

[B]

All right, I'm very excited to have Mel Williams, the co founder of Trubridge here. Mel, thank you very much for doing this with me.

[A]

True. Great to be here, Jack. Thanks for having me.

[B]

So you started TrueBridge like 17 or 18 years ago.

[A]

Yep.

[B]

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 your vantage point on venture, where we're at, what it looks like and how you're seeing things. Because for us as venture investors, our job is to 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.

[A]

Sure.

[B]

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 more highly than ever. We just 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, what's your sentiment?

[A]

I think overall our sentiment is excitement. We think we are at the leading stages of an AI wave that will power 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.

[B]

It feels like they're higher at the early stages than at the latest.

[A]

I think so. I think so. I think so. I think if you look at some of the more recent growth rounds, they've been done at at revenue multiples that are not peak revenue multiples.

[B]

Yeah. And don't look that different. Than public multiples.

[A]

That's right. That's right. So what's the, you know, I think Palantir is trading at a thousand times revenue. OpenAI's recent round was not done at 1000 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, capital is being invested and rounds are 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 founders with credibility, founders who could check a couple of boxes raising large pools of capital at very high valuations.

[B]

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 before AI, it was like if you were going 1 to 3 of ARR as a software company, you could get your A done. And now it's like 1 to 5, 1 to 7, something more. And so I do also think it's really hard to put multiples on these companies when they're growing really fast.

[A]

I think that's right. The pace of revenue growth is something that we haven't seen before.

[B]

You were just mentioning though, these early stage rounds before there's product market fit, where founders effectively go straight to an A. Yeah, yeah. And so you probably have a lot of that in your portfolio.

[A]

Of course we are seeing that. Yeah, we're seeing that across our portfolio from our flagship funds and the brand of firms all the way down to the, to the seed firms outside of.

[B]

AI, and obviously we'll come back to that. But in other categories like hardware, defense, maybe consumer, what other sentiment sort of updates have you had recently?

[A]

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, I think valuations are still 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 in response to milestones being met, revenue being generated, et cetera. So I wouldn't characterize the market outside of AI as frothy. But within AI, which today represents, you know, 50 to 60% of the activity across the venture landscape, there's more demand than there is supply. And so we're seeing behaviors that are, that are challenging. Right.

[B]

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. What do you think are like the main risks that you see right now that would explain the future of like why this went wrong?

[A]

I think we're just going to see companies that don't don't get product market fit. Right. 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 in a, we're in an interesting place in the venture industry where if I were to say let's look forward over the next 10 years, I think, I think the following two things can be true. We're going to see a lot of carnage over the next 10 years and we will see more value created over the next 10 years than we've seen in the venture industry.

[B]

Like in the late 90s. It's like, you know, a bunch of those companies got wiped out in dotcom bust but then you held it also like Amazon and Google.

[A]

That's right, that's right. And venture has always been a power law driven business. It's even more so today.

[B]

Yeah, it does seem right.

[A]

The magnitude of the winners is even greater today than it has been in prior cycles, I think.

[B]

What do you think explains that?

[A]

I think it's explained by the lower marginal cost of software. I think it's explained by incumbents and 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, 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 budgets to go try a bunch of AI software. Consumers are signing up for ChatGPT 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.

[B]

As you know, I obviously I work with many more companies at 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 like say like Fang roughly was, was mostly 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 to very startup minded employees.

[A]

Right, right.

[B]

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.

[A]

I think that's right.

[B]

Or SpaceX and Anduril and all these places.

[A]

I think the value of Signal in this market is magnified. Right. And, and signal 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.

[B]

How do you feel about the dynamic where a lot of venture platforms, many of which are some of the best in the world, are now getting so large that a high percentage of their dollars basically are just going into these snowballs rolling down a hill that are just runaway huge? Is that something where you're like, I would rather have the early stage exposure actually those companies are going to be massive and getting into those companies at almost any price is good.

[A]

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 it's, 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 kind of the growth, the venture growth stage of investing and CDE rounds, if done right with the right firms and the right companies, is a really attractive risk adjusted return in this environment. Really attractive risk adjusted return. And the platform funds have the right to win across those stages. Right. At the same time there's just, there are individuals who have a unique angle and, or a unique approach 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 stage of the market.

[B]

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.

[A]

It is, it is, yeah.

[B]

What about the rest of the market? Because obviously most of the market is not one of those two things, I guess. I mean, maybe just by dollars, but yeah.

[A]

So, you know, I'm worried about the long tail of venture in this, in this market cycle. Right. I think the magnitude of the winners is going to be, 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 kind of a long tail of venture, worried about companies that are unable to pivot prior legacy software companies that are unable to pivot into AI related opportunities. That's what scares us the most.

[B]

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 Cassandra, I'm not on.

[A]

That's good.

[B]

That's that you're smart. Martin from Andreessen posted something that was very thought provoking and got a lot of people stirred up. Basically, he was like, increasingly good investing is consensus investing. And you're kind of kidding yourself if you say it's something else. Yeah, basically it's like, you know, obviously at the later stages, like good companies are known, but today in 2025, it's incredibly, incredibly early on, you're able to see. And it got a lot of people sort of frustrated and reacting and saying, actually 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, you know, any idiot can tell is really good and just, you know, having the right to back them?

[A]

Yeah.

[B]

I'm curious how you think about it.

[A]

It's an interesting quote. I. 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, 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, whether a Sequoia or a founders fund or these very high quality firms, Mark and Ben at Andreessen, whether they are chasing the signal, whether they are investing in contrarian opportunities with conviction.

[B]

Yeah.

[A]

They're creating the signal that the rest of the market is really chasing. So I think, I think it's both, to be honest with you.

[B]

Well, it's interesting you say that because those examples have both. They both create signal. And they can also win once somebody else has created signal.

[A]

Correct, correct.

[B]

Which is part of why they're so dominant.

[A]

That's right. That's right.

[B]

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 too, where it's like, if the signal is that powerful, why shouldn't these firms be managing double or triple or quadruple the money they're managing today? Unless you think that like 3, tech market's not big enough. It's like, why not just give the ball to the seven foot center who can dunk it every time.

[A]

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 brands matter. We think brands matter in venture. Good brands equal positive signal in the marketplace. And positive signal has real positive meaning for founders in terms of raising additional capital, in terms of 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 not only do founders need capital, but founders want help. You did it right. Starting and growing a company is not easy. And so you want capital, but you want help ventures. Number two, venture has always been a power law driven business. And so as a founder, you really want to 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 the magnitude of the winners is going to be greater than ever in this cycle. And so if I'm a founder, I'm going 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 on raising capital y from a brand that has extremely positive signal. Right.

[B]

Yeah. I mean, the other thing, these big brands will invest, you know, many, many times huge amounts of money into a company. And so even if you take, you know, a lower valuation that's now like this, you know, mega deep pocket, you have.

[A]

That's right.

[B]

Help you, you know, have capital advantages.

[A]

Which are a huge deal. I think, I think that is important to founders. Right?

[B]

Yes.

[A]

I don't know if you enjoyed fundraising, but I'm not sure I know many.

[B]

Yeah, there's parts of it that are good, there's parts of it that are bad.

[A]

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, who can fund your growth over time.

[B]

Yeah.

[A]

And I think that's attractive to founders.

[B]

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.

[A]

Yeah.

[B]

Then I had Marc Andreessen on the show and he said something more of like a techno optimist view of nobody can appreciate how big these companies are going to get. Being in the winners always drives great returns. You can put huge amount of capital into these things and we are just scratching the surface of how big tech can be. So of just different takes on the question. 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?

[A]

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 overcome the math. Right. Josh is right. You're less likely to turn a billion or two or $3 billion ten times than you are $100 million. But at the same time, you have to be in the power law companies to generate long term returns. When we look at the data 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 often the largest fund in the market is the highest returning fund in the market. And it's a self reinforcing cycle.

[B]

So how would you explain that the.

[A]

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.

[B]

I also wonder if that best fund is still deploying less than they would have been capable of deploying in many cases.

[A]

So I think that is the key question and the calculus that we always look at is how does the fund size relate to the capabilities of the firm? And it's not the absolute fund size that matters most to us. It is 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, to the level of conviction they have about portfolio construction. And where we've seen level of conviction.

[B]

There you're saying more concentrated is better.

[A]

Exactly. So where we've seen firms get tripped up. And Joshua 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, that's when firms got 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 position size is 15 to 20, 15. $20 million, right. The market gets hot, they go from 700 million to a billion.

[B]

Four.

[A]

They need to build the same 20 to 25 company portfolio, but an average ticket size needs to be. An average investment size needs to be $40 million. And they need to have $70 million in their winner, in their winners, right? And making that shift, when you're sitting around the table within a venture firm, 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.

[B]

The concentration thing is really interesting. Like I, some of the, like the large firms that I really respect, like Founders Fund or Thrive or Green Oaks, I feel like, are pretty con. Like, I feel like they have a lot of dollars into a relatively small number of companies.

[A]

They do. You know, the two characteristics that we've identified over, over, you know, our history, our 20 year history, and just going back and looking at the data over time, 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? I mean, he did the Airbnb round at three and a half billion dollars when no one else wanted to do that round.

[B]

Right?

[A]

So, number one, they approach the market from a contrarian standpoint or first principle standpoint. Number two, they have conviction. And when they see, when they see it Working and they see a win in their portfolio, they're willing to push their chips on the table.

[B]

Yeah.

[A]

And that's hard to do. That's really hard to do because for a lot of people it's hard to sleep at night when you have that level of concentration. But that's how the highest performing funds in the venture industry have generated their returns.

[B]

Concentrating into their winners.

[A]

Concentrating into their winners.

[B]

Just as a vague barometer on it, what does a really concentrated portfolio look like? What percent going into the top first, second and third largest positions would you be like. Yeah, that's concentrate. Like where would you be like even for founders fund, that's a little excessive or is there no number?

[A]

Yeah. So two thoughts. Number one, we see, we see fund managers who are launching funds today, raising funds today with the intent of building a concentrated portfolio of 11 to 13 investments. Right. And, and these are series A firms raised by experienced investors who, who believe they have 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 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, 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.

[B]

And that's happened after because they're just.

[A]

Driving, you know, those, those names are the successful names and they're nav is increasing and that's driving the value of.

[B]

Portfolio probably like you should be so lucky to have names that are worth dimension too. So it's probably a good thing.

[A]

Yeah.

[B]

So we've talked about like the big platforms obviously and I'm curious about the way you think about picking the other basket of sort of like less obvious names and less obvious managers for you to be in business with.

[A]

Yeah.

[B]

I guess my first question before I ask is like, why have that basket at all? Because you know, we just talked about how great the sort of platforms are becoming. Yeah, what's the point? I know there's an argument for it, but like how would you say it?

[A]

I think 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, 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, they're out of seed, and then they go back a couple of seed managers to generate deal flow. And so I think of if you just look at the history of venture over the last 20 or 30 years, the branded platform firms have always struggled to invest effectively in seed because it's tough, right? It's difficult and it has impacts for their downstream investing. And so for us, we want to 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.

[B]

So it's about exposure above anything else.

[A]

It is, it's about exposure, but it's also about returns. If we look at the seed returns within our portfolio, our seed returns are accretive to the overall returns within our portfolio.

[B]

Yeah, you just can't deploy as many dollars to it because it has more variability or does it have not that much variability when you're diversified?

[A]

I mean the seed segment of the vision 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 concentrated portfolios. We believe concentrated portfolios are the best way to generate out 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.

[B]

Do you care more about strategies or the people? The equivalent question here to a VC would be something like are you backing founders or markets? Predominantly. And I actually think like in some people, like it's both, some people will actually take a side on that. Like, you know, Gill, who's a phenomenal investor, had mentioned like you have market driven more than most people. Yeah, 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, calm hell or high water at the seed.

[A]

Stage segment of the market? For us, it's more people driven. 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 or groups of people who have exceptional Track records 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 with people who can build a personal brand. 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 got to stand out. 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. This unique approach and or angle that generates proprietary deal flow or right to win and its ability to build a personal brand.

[B]

If you think back to sort of 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 couple great decisions that were hard to make and like how they played out or and also like a huge miss where you were just like, I read that wrong and I missed out on a lot.

[A]

Sure. So we've been lucky enough to make a number of affirmative decisions at True Bridge that have worked out well over time that have had positive impacts for our portfolios and our returns. You know, investing with Sunil Dhaliwal when he left Battery to form Amplify Partners was not an obvious decision. 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 he put together at Battery. We liked his approach to the marketplace. He had a very once again going back to an approach. He was focused on Internet infrastructure at the time, which we thought gave him both a chance of 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. 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. You know, their second and third funds have turned out to be Both double digit returning funds. So those were both, you know, not obvious or not conventional decisions when we made them that turned out very well. Perhaps our best decision in the history of our firm that was largely unconventional was the decision to back Peter Thiel and his partners 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, he probably had more credit as being the first investor in Facebook than he did anything else. He was running his hedge fund clarium. He had put two partners, you know, Ken Howard and Sean Parker beside him were, who had backgrounds as good operators. Peter's first fund was largely his own personal capital. He went to market in 07 to raise 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. You know, we didn't 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. He has built a firm at Founders Fund and a track record that is second to none in the venture industry. And today we're one of the largest investors in founders funds. So that's probably the best investment we've made.

[B]

I guess when you go that early, it gives you the right to put huge amounts of dollars into the fund later.

[A]

It does. And we've been very lucky to establish a very good relationship with them that's been mutually beneficial for both sides.

[B]

So are there any situations where you, where it went the other way where you turned out somebody was phenomenal or just it went great and you didn't see that.

[A]

So I'm proud to say that today we've been long standing investors with Josh Koppelman and his partners at 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.

[B]

That was a good fund.

[A]

I heard that was a really good fund. Really, really good fund. But at the time, you know, we were trying to build a concentrated portfolio. We thought that was the best way to generate alpha 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.

[B]

Have you mostly found the ability to correct the mistakes after missing it?

[A]

We think we have, we think we have.

[B]

One of the things that actually is really nice in being an LP versus a venture investor is when you miss in venture with a company, it's like you missed by a big multiple. Even if you come into later round, you just get to invest in a new fund.

[A]

You don't have that same cost. You don't have that same cost as a limited partner, right?

[B]

Yeah. As long as the relationship was strong.

[A]

That's right.

[B]

For everybody. I think relationships are long. Silicon Valley is a small world. And so it's like passing graciously on everything is really important.

[A]

That's right. We're very careful about how we say no. You know, I think you're exactly right. So, you know, we met Mark and Ben when they were raising Fund one. Exceptional individuals, exceptional investors had a vision to build a firm that was going to disrupt or at least they believe 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 too, you know, they had built more of that operating platform. That was their vision. Right. They had a good track record for fund one. And so we engaged with them in fund two and that's where we became an investor. And today we're one of the larger investors in Andreessenhorst as well. But that goes back to your point of there's no cost to us of waiting that fund, waiting that one fund.

[B]

So there's these buckets of big platforms that dominate. There's smaller firms, 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 be on a path to keep growing their funds even. And I'm curious what the dynamics are of from your seat as an lp, why is it so durable? Why are venture firms so durable?

[A]

It's hard to kill a good brand.

[B]

And venture, even a regular brand, it's.

[A]

Hard to kill a regular brand.

[B]

And venture.

[A]

I think it's has to do with the structural makeup of the venture industry and the kind of the supply demand of capital in the venture industry. And so venture capitalists are raising capital from a highly diversified supply base. I mean, I don't know how many institutional LPs or individual LPs there are in the world, but there are tens of thousands of supply sources to our supply of capital to venture firms where they're raising from a highly diversified supply.

[B]

Base and probably growing quickly and growing.

[A]

It's really difficult for 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. 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 institutional, institutional limited partners can't figure out or can't distinguish between luck and skill.

[B]

How do you figure it out? I mean, like I'm sure you're not saying you figured out perfectly, but you figured 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.

[A]

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 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 happens. 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. And then I think the third thing that is at play is that just the feedback loop in ventures so long. Right. I mean, it takes 7, 8, 9, 10 years to see strong evidence of performance in a venture fund. It takes 10, 11, 12, 13 years for these companies to exit in dollars to come back. And by that time a firm has raised two or three additional funds. So I think those are the structural elements that allow third and fourth quartile firms to continue to raise capital.

[B]

You talked about how for venture firms, concentration, you know, you believe is correlated with success. Have you felt your own desire to 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 funds?

[A]

It has. And we do, you know, we started our business in 07 thinking that 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. And our eighth fund will be invested across 11 or 12 core managers. So we've consistently concentrated our portfolio over time. And we think of our jobs as simply investing 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. Managers that are at slots 10, 11 and 12 are always at risk of leaving our portfolio. And the reasons why managers leave our portfolio are number one, we can put more of our limited partners 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 the world we see new entrants come into the marketplace that we think can perform at a very high level. And if we think a new entrant can perform better than the 10th or 11th or 12th manager in our portfolio, we make the tough decision to put the new entrant into the portfolio. So FounderStorm was a new entrant into our portfolio. Andreessen Horowitz 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. So it's either a team change, good investors leaving, 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.

[B]

That makes sense.

[A]

But we've concentrated over time.

[B]

Yeah, makes sense. And I'm sure those are very hard calls to make. Very good. 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.

[A]

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.

[B]

It's the same as a venture firm concentrating.

[A]

That's right. That's right. And we've always invested from a capital constrained position. We could put to work much more capital than we actually raise in our funds.

[B]

I'm sure.

[A]

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.

[B]

Let's say that you could just get 50% more allocation in your existing managers and have a 50% bigger fund. Would you be Totally neutral, slash happy to do that.

[A]

That's how we've grown our business over time, right? So we've grown our flagship fund from 500 million to 700 million to 900 million. We'll go to market to raise 900 to a billion dollars. 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 5. And it's a result of our ability to increase our allocations to these managers as a result of our ability to put more capital with the best performing managers in the business.

[B]

As a final question for I don't know how big my audience of LPs is, but for any young LPs out there, could you share any 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?

[A]

You know what's become clear to me over 25 years as a limited partner in the venture industry is that you're only as good as your network. It's often said that investing in ventures like walking into a dark room, the longer you're there, the more you see. And so my advice to individuals entering the institutional LP world within the venture segment is really focus on building, building your network. You know, really focus on connecting with the people that you think are important. Work really hard to make those relationships authentic, work to make them personal. When you can be aggressive about building your network because that's what's going to generate deal flow, that's what's going to 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.

[B]

Interesting. Why?

[A]

I think it's really hard. I think it's really hard to be the signal. I think you have to be exceptional to be the signal.

[B]

Do you think you should aspire to become the signal over time or do you think that you should?

[A]

I think if you have, 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. Because I think that's the way the business works.

[B]

And I guess maybe to the prior point in as a vc you get paid a lot more to see something early than as an lp because to that point you missed a first fund. Yeah, they're going to be great for a long time.

[A]

Yeah, there's not no cost, but those costs are low to missing the first fund. 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.

[B]

Such an interesting point because when I think about a lot of my favorite LPs I feel like I've learned a lot from including you. I think of the LPs who 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.

[A]

Right.

[B]

Logically speaking, right. As a career decision, it's probably better to just follow the good stuff.

[A]

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, 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. Right. We're lucky that the principals of our firm have been in the venture industry for, individually for 35 plus years. You know, I started my career as a venture backed founder back in 1995. I've seen all the cycles in venture over the last 30 years. To the extent that we can be the signal in the market today, 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.

[B]

Right. I had Dan Feder on the show too and he obviously I think of.

[A]

He has been in the industry.

[B]

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 too.

[A]

That's right.

[B]

All right, well, it's good advice. Well, Mel, this is really fun. Thanks for making time for it.

[A]

Absolutely. Thanks for having me.