Venture Unlocked #3

I’ve decided to spend some time each week in Q1 trying to work on the craft of venture capital. While I’ve been doing this for close to a decade, I’ think there is always room to learn more. To that end, I’m going to be listening to Venture Unlocked by Samir Kaji, a fellow Kauffman Fellow who is looking at venture from a unique angle given his seat at First Republic.

Since I’ve already listened to the first couple episodes I decide to start with episode 3, Roger Ehrenberg.

Given the notes provided in the link above, I won’t bother telling you what’s in the episode, instead I’d like to give my analysis.

  • To find his partner Roger took 1000 applications, did first calls with 100 people, interviewed 20 and whittled it down to 5 finalists before choosing one person. I’m a fan of such a rigorous process.
  • They actually found fund size growth painful. The fund sizes went 50M, 105M, 160M, 160M. That’s a pretty quick progression up to a steady state.
  • They are pretty aggressive about recycling but that has gotten easier since they invest cross fund. A series B in a later fund get’s liquidity earlier than a seed and makes recycling in that fund easier. I really like that observation a lot since cross fund investing is a controversial idea.
  • When it comes to flexing to get into a deal, they keep capital at risk steady and instead take a lower ownership with an eye towards buying more later. I’m a fan of being disciplined about check size, especially for smaller funds.
  • Their biggest learning was essentially the power law rule: Great companies can get much larger than you could have ever imagined out the outset. Even though everyone believes this, it feels like you have to experience it for yourself to really grok it.
  • Once they had the returns to be picky they were very deliberate about their LP makeup. It’s not often you hear about funds breaking up with LPs, so this is some good insight into what they looked for. Not surprising mind you, funds that are in it for the long haul.

Overall, this is a really good conversation about the growing pains of taking a fund from proof of concept to steady state. My big takeaways were that they learned a lot on the fly and try to do small experiments to keep improving over time. Seems like a team with a real growth mindset.

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