Topic
Venture Capital 101
Understanding how VC funds work, from LP to exit.
Related episodes
venture capital
venture capital
fund structure
how is the carry from this fund getting distributed in a percentage basis across everyone with carry? Yep. The performance gains from the fund. Yes. But then, of course, there's the fees, and the fees flow into the management company. It's a fee...
GPs maybe aren't working as hard anymore. You know, they've made their money. We've got some junior investors here that are out doing all the deals. Maybe we need to rethink some of the ownership structure of these firms. And it's worth a quick...
because you personally have a lot of money in this fund. I want you to take very, very high risk investments as long as the return is there. Will this high GP commitment make you nervous, make you more risk averse? I thought that was a brilliant...
But and but and not you know, remember what I said at the beginning of the call, substance versus appearance? So I'm 100% substance, 0% appearance. What do you think are the biggest misalignments between GP and LP today in Vancia? Look. Especially...
is called three percent for higher education here in The US. So just to maintain the corpus, the purchasing power of that endowment, you need the 8% return. Most, you know, endowments are targeting a eight to 10% return over the long term, ten or...
early stage. Know, take real estate, for example. You know, you could have a, you know, industrial building that does triple net lease rents being leased to Amazon. Those rents increase 3% a year. It's a very stable asset. There's a replacement cost...
How much of the fund are you? Collectively, we are the biggest investor in the fund. I don't think we're not gonna start talking about numbers. But, you know, you've been in you're you're in the business. You know how much the biggest LP in a fund...
So I'll I'll take a stab. It's a two part answer. Part one is, that venture capital is a small allocation for us. And, you know, when we look at our endowment and foundation peers, particularly some of the folks in the endowment world and at some of...
the dramatic increase in interest in this space has affected the dynamics between GPs and LPs. We view this as the institutionalization of the asset class, which we're either there or we're in the process of. The parallel for us is the buyout...
economic terms of venture funds, especially in those days, was a standard management fee and carry management fee of 2% standard carry performance element of the fund of 20% of the net profits of the fund. And for those who don't know, just quick...
are extremely large today, and I think it's hard to assume the same returns you had from 2010 to, call it, 2017. I I think, you know, Masa and SoftBank, I would I would put as the the the flag in the ground Vision Fund one when when all the other...
Typically, the way that this works is the founding partners of a firm own the management company. That management company is an LLC that has basically the employment relationship with all of the founders, and then it is the sort of umbrella parent...
point that, fund managers need to remember today that your job is not to, you know, set up a fund, find the best companies, invest in them. It goes all the way to managing that money and ensuring that liquidity comes back and that DPI is generated....
VC sorry. LPs are focused on DPI because there's been a real DPI crisis. Our program is a little bit newer, and so as a result, we were, you know, I I I recommended that we think about cash flows and distributions in a fifteen year cycle just...
did you manage to get those right, for yourself? I think the GP commitment has to be particularly funded by the manager himself or herself. Right? And the operational one can also be done by the people backing you. A part of the fees can go, into...
but at some point, the alignment breaks, in our opinion, between the GP and the LP. And when you think about let me put this clearly. I don't ever blame a GP for raising bigger funds. I love incredible business models. I study. I live. I eat. I...
as zero and others keeping it at a decacorn price. This presents actually a really interesting challenge for LPs because they don't know the underlying true value of their portfolios. Now for some that are compensated on TVPI, they actually want...
GPs, the folks like you, that LPs invest in, wanna know that their LPs permanent and and focused and smart and has their back. And, essentially, doesn't over get overly involved. And so we just looked at all those things, and we said, well, what's...
doing really hard things, and that just sort of the perfect mixture of that as a profession, that with my personality, and also just the interest in investing. Venture capital was just the perfect place for me. Absolutely. So when you decided that,...
Yes. Fund. It is the best returning fund of that caliber of venture fund in history. So Horstly loves it. A bunch of other LPs love it. Some LPs absolutely hate what is happening here. And in fact They hate it on every dimension. They try to go...
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