Sequoia, Saito, Andriessen discussed on Venture Stories

Venture Stories


What seemed to be inflated prices. If you look back into Saito. Why are we different that even other seat stage firms like a typical seed stage venture firm for every dollar? They put up front they'll reserve two or three dollars for follow on investments. And really really if you're doing that. We would argue only a third of your company only third of your capital is early stage and two-thirds. In other words, everything you reserved is really now late stage, which would late stage risk and return until like why is that why are you in early stage investor and most of your capital is being invested late stage. And and Ida argue is because the best practices in the industry and best practices in quote here because this is a small industry, and there's not a lot of best practices yet. But the best practices have really been established by you know, the top tier funds if you look at the secreta and benchmark gray lock and excel Andriessen, you know, all these guys that are the industry print setters if you will. And they all have the story of oh, it's really important to have reserves and support your entrepreneurs Rapallo on. Then double down on winters, and there's all this lower. If you will in the industry, and I'd argue that makes a lot of sense for them. Otherwise, you know, if I'm gray lock, and I have a billion dollar fund. There's no way I can get a billion dollars into the early stage investments, and so I have to put most of my money late stage because it doesn't fit anywhere else. And now I need a good story to my LP's on why I'm doing that. And so it's like that. Now becomes you know, that's practice around venture. And yeah, it's good to support entrepreneurs, and that sort of thing, but I had argued the data doesn't support it. So we're really driven by the date it when we look at the the data and the analysis give you sense. So forty years of venture kind of linked to the industry early stage. Twenty percent IRR over those forty years. One of the best performing asset classes in existence. If you look at late stage bay stage is being defined as series being beyond ten percent IRR. Oh, it's still a great in kind of the. Industry. But it only is only half the performance of early stage and early date. And so he's me or what's are listed here. Well, sorry, early early stages seed a and b late stages C N beyond. So that's the some of the data that I've been able to see so, and if you draw a line there, and you say, well, anything you're putting C N beyond is getting ten percent anything that's early is getting twenty percent. You know, it's like I wanna put all my money in basically whereas getting twenty percent or better if I can get it even within early stage. How would you break out, you know, seed in a because I have a lot of conversations about him a lot of people use are just talking about. Would you rather be? Why c would rather be first rounded, it'd be benchmark exhilarated at seed or a how do you break out with her? Well, you know, so I'd love to be any of those guys. Right. I mean, they're all killing it. Yeah. But if I look at like, if I look at like, white combinator, and if I look at their unicorn hit rate, and by the way, CBS insights, and pitchbook and so forth and put some of this data out there. And they have about a one percent unicorn hit rate, which is about the industry average. And oh, by the way, if you had an index fund of the venture industry of smart index fund, you do great. I mean twenty percent IRR over forty years. That's awesome. So so I I would say so why combinator is really playing call it the industry index. Now, if you go to like, a first round capital, they're being a little more choosy. I'd say and by the way, they're unicorn hit rate is almost three percent. So they've got a three x hit rate on unicorns compared to white commentator. I think they're doing an awesome job in terms of being able to manage a large folio inequality way. Oh, that's probably we're lu- ends up. So if you look at the success path for us, we probably look more like first round at the end of the day as opposed to like, a benchmark moving other. We benchmark has about a four and a half percent unicorn hit rate, and so you know, when when you get the later stage, you get and the more data you get the easier. It is to pick out the companies that are likely to be successes. However, you're also paying for it with much higher valuations and the competition is much more intense. Yeah, if you had all the relevant skills. You say you'd still rather be you'd rather be found because it's too crowded the air. How do you do you at all? So so I argue that the the opportunity for the best risk and return numbers are in the first ground category. 'cause it 'cause I actually think so a lot of the upside gets bid out, even when you get to the as like the really promising as the so FIS of the world the penalties of the world that sort of thing. I mean, you know, when you come out of the gate really fast, and we'll tell into your by the way that different story. But so fi when it came out of the gate, there were ten x increase between the seed price and the price. So if you were a series A investor getting into so fi you did you did good. But you didn't it didn't make your fun. Whereas if you were a seed investor that one investment made your fund if benchmark was on this call or someone from sequoia, what do you think they would say in terms of why aren't they saying, hey, we should talk frown or construction start doing leading seeds instead of leading ace. What do they believe that's being there? So they they would say it's like, hey, look, you know, my I can get all the capital. So I need the skit my scarcest resources might time. So if I can't write a ten million dollar check and ultimately put forty million dollars into a company. It just doesn't make any sense for me to spend time on a company so like at the seed stage, I mean, even a large seed where somebody's raising two to three million dollars. You know, it doesn't make sense for a benchmark sequoia Andriessen gray lock to spend any time at all on these things and Bowie every once in a while, there's some, you know, it's it's such a blow your hair back startup company that these companies will write a two million dollar seed step seed, Chuck like the like sequoia had and they put like a million dollars

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