Earnest Sweat 00:02
Welcome to Swimming with Allocators. I’m Earnest Sweat and each episode Alexa Binns and I give you a VC podcast from the LP perspective. You ready? Let’s dive in. Today on Swimming with Allocators we have Chris Douvos, the managing director and founder of ahoy capital. Today’s conversation was full of Jim’s, where Chris shared, why VC is a heartbreak business. Also how emerging managers can develop long term relationships with institutional investors. And lastly, what could happen to the next generation of GPs. With that, let’s jump in. Today

Alexa Binns 00:41
We are speaking with Chris Douvos, Managing Director and Founder of Ahoy Capital. Ahoy Capital is a boutique fund manager that focuses on early stage VC, through friend and direct company investments. We are so thrilled to have the one and only super LP here on the show to share his perspective on this asset class. Thank you for joining us today, Chris. Hey,

Chris Douvos 01:03
It’s my pleasure. And by the way, I have to say that super LP was not a nickname I gave myself. It has nothing to do at all with my investing ability or Sure, sure, no, it was I was on a trip with a good friend of mine, a guy named do Chai who then was at the northwestern investments office, and now he’s at Horsley bridge. And we were on a trip that I missed. We were in London and I had and I was wearing a red t-shirt that looked like I was going to work out and I was pressed into service. And I had a little red sticking out over the top of my collar and of my dress shirt and said what is that you’re super LP shirt, you know, underneath I said, and hence the nickname was born. So that was like 2002 2003 It’s been a while.

Earnest Sweat 01:50
Can you share with us your journey to your LPC? Sure. And

Chris Douvos 01:55
it’s been a long time that I’ve been doing this, I’d never thought it’d be this long. But it’s been awesome. And I’ll tell you like I had a pretty boring business background but after, after I spent my business school summer at Morgan Stanley, I was like, Man, I want to do something more interesting than this investment banking was like crushing my soul. And I realized I wanted to be a principal, not an agent. And, and I talked to a friend, the guy named Seth Alexander, who’s now CIO over at MIT. And Seth was then in the yellow investments having something like, tell me about what you do. And he like, tell me all about it. It was amazing. I was like, Wow, this seems really interesting. So he says, yeah, it’s the closest you’ll ever come to, you know, managing your own multibillion dollar fortune, you know, I’m a child of immigrants, a multi, multi billion, multi $1,000 Fortune was I’d ever thought about but but you know, endowment management is amazing, because you have low liquidity needs long time horizon few tax headaches, a single client, all this stuff that makes endowment such great investors. And so fast forward to 2001, the summer 2001, our guy who did venture at Princeton quit, to go to another university. And they were like, who wants to do venture and it was 2001 it was grim in venture. And it was like, you know, the nose game where everybody likes, touches their nose, and, and the last person to touch your nose has to do whatever, like clean up Thanksgiving. Like we, we basically did something only a hair more sophisticated. You know about ventures. And I was like, Oh, I’m doing a venture now. This is amazing. Because it really jives with kind of like my vision of, of what, you know, how I wanted to contribute to society and be part of this idea of like, you know, the, this America that was ever, ever moving forward, and the child of the real and the ideal, the genius of the modern. And so I was like, this is fantastic. And I came out to California and I was like, excited to get out here. And then like, I came back, like drunk with ideas as like, this is frickin amazing. And so I was hooked. Like that was my journey to venture into Princeton. And then I left Princeton, because I actually started perceiving, like in 2004, that there was a change afoot in, in entrepreneurial finance as I joined TIFF, opening the West Coast office in 2008. And then have been out here ever since and left tiff to go to VA when they closed the West Coast office because I needed to stay out here. And then when my partner passed away, va spun all the funds that I’ve been managing out into Hoodie capital, so it’s been a lot of fun. That’s

Alexa Binns 04:34
awesome. You were a pioneer investor in the micro VC movement. You’re that’s part of your reputation. And, and I’m curious where that conviction came from. And, you know, maybe it’s changed today. Oh,

Chris Douvos 04:50
that’s, that’s an interest. That’s a whole nother question. Because the world is kind of ever changing. And I will tell you, there are good reasons for doing things there, sometimes not so good reasons for doing things. I don’t often like to really accentuate the good things, right? Like I sit around and I say like, Hey, you know, there’s this capital gap that was a thing that people were talking about a lot back in those days like the the capital requirements of companies were coming way down and the big Sand Hill Road firms were kind of forced to write checks that were too big. And so, so a lot of the really early funds, like floodgate and first round and, all the apps, they, they really thought a lot and talked a lot about this capital gap, and that and this new breed of entrepreneur that was coming out and a way to address his own fears. So I had this vision that was very pure and, and thoughtful and intellectually honest. If I’m being intellectually honest with myself, the not so good reason for doing it was like, everybody I knew was like, trying to bang down the doors of you know, Sequoia and Kleiner Perkins and, and benchmark. You know, you know, we were Sequoia investors at Princeton, but when I went to tiff like, why is dead Leone going to like, let me in, like, you know, because we do good stuff, like, there’s a lot of people that do good stuff. And so I was like, Where can I like, make a mark and where can I find something new? And actually, you know, this, now that I’m talking through, and maybe I can feel better about myself a little bit, because one of the things that David Swensen told me, as I said, to like, we’re in the early days of private equity, and, you know, people sometimes listening don’t know, Swenson, he’s, he’s like, a real pioneer like, you know, develop, like the model that asset allocators like really follow today, in a sense, the quote unquote endowment model or the quote unquote, Yale Model. And I said to Swenson, a big part of the Yale Model is illiquidity and leaning into inefficient assets. And Yale started doing private equity back in the mid 80s. And I said to him once, and this really stuck with me while I was fishing out micro VC firms. I said, dude, was it hard to find good firms? It must be really hard to find great firms, right? Like, this is this new asset class and, and he said to me goes, Oh, it’s really easy, actually. Because there weren’t that many of them. He’s like, there were like, 30 buyout firms when we started this. And he’s like, so you decide you want to do buyout, you decide you want to do operationally intensive, lower middle market buyout, there’s like 15 of those firms. And you meet with all 15. And you find out that six are clowns. So you got nine left. And four of those are like, not great partners with a capital P, I can double click on that later. So now you have five firms investing in all of them. Right? You’re basically like investing in like a third of the addressable market or whatever, you know, whatever the number is, he’s like, it was actually kind of easy. And then you build an information set, you get smarter, and you kind of grow up with the industry. And I was like, oh, man, I can do that in this space. And that was a lot of fun. But like, the reality is, like, that’s just a rationalization for me just trying to be like, trying to, like carve out a space for myself.

Alexa Binns 08:10
You were talking about what micro VC was like. Would you do that strategy today? Like, what is your approach to micro VC? Change? Yeah,

Chris Douvos 08:24
yeah. So that’s a really, really important question. What was really interesting to me was, in the way I just described, like, you know, the kind of the Swensen-esque like picking a third of the, you know, of the managers. If you rewind to 2005 2006, there were like a small handful of these micro VCs. I think at one point, we did this, like retreat at Cavallo point north of up in up in Marin, and everybody, you know, who is there, like, literally, it’s like, it’s like the picture on the back of the, you know, $2 bill or whatever it is, like the Declaration of Independence, like everybody’s there, I don’t want to name names, because there’s all like, you know, cedar or there’s a famous been 39 dinner, which, like, people of a certain age will, will remember. And you’re like, you could have invested in every one of those people and made money, right period. And a lot of smart people on the table, amazing men, women, younger, older, like it was, it was impossible not to make money. Everybody in that era made money. And there were a lot of reasons for that. Not just idiosyncratic to them, but the market, etc. But, but, you know, I thought I would talk to Samir Kaji a lot about this and Samir would track the number of these firms and so, so I think back to being a Kabbalah plant, and literally 80% of the seed dollars in America. We’re at that table, right, a big conference room table, probably like 30 people and then severely accounts for 1000 people writing, you know, SSI checks. And we’ve seen the rise of AngelList. And in the capital gap of 2005 became chaos capital of 2020. Right. And there’s just a lot of money sloshing around. And so for us, like, early on, we had a refinement, because I didn’t want to invest in everybody. And I missed some really, really good funds because of this. But early on, I was like, Look, I believed that structurally, single GPs were overmatched by the market, there’s just too much to do. And so I wanted to find people. And for me, I kind of feel like I grew up with the first round. And I was like, This is my archetype of firms, I looked for groups like that, or like True Ventures that you spend a lot of money building community or data collective that had all these, you know, kind of really involved, you know, the collective right, I want to invest in three to four managers a year, and that’s new and existing, right. And so it’s really tight. And I’m like, how do we find that? So what I believed in is like, because there’s so and this is a long answer. But like, because there’s so much chaos capital out there, like capital is a total commodity, even today, when it’s scarce, it’s a commodity. And so I started saying, like, Where can he find somebody that’s differentiated? So we started, like, back to kind of my roots of thinking about invention, not just innovation, but really invention, we’ve really leaned into people who spend a lot of time in research environments.

Earnest Sweat 11:29
That’s so much, it just shows how like, trying to find this invention, right? becomes more and more difficult even when you say this. Now you might have started 15, more like research based. firms have more sperm coming. I mean, it’s crazy.

Chris Douvos 11:48
Like, every time I do a podcast, I get like, on the podcast, you said X Yeah, and I am X and like, it’s, it’s awesome. I think it’s great, because you know what that’s like the beauty of entrepreneurship, you gotta learn, you gotta let 1000 Flowers bloom. And it’s my job. Like, there’s a lot of pretty flowers. And it’s my job to like, figure out not only which is the prettiest, but like, which fits, you know, kind of exactly what I’m looking for in that moment, which is also subject to my portfolio construction constraints and everything. But like, it brings up an interesting point. And this is like my own personal journey. So this is like therapy. When I started I was like, I’m never going to be a top down investor. Like, I want to just invest in the best athletes. Like, I’m going to find all the best athletes because I’m a great talent scout, right? Like that’s basically like how I, you know, I viewed myself as like a guy at the combine with a clipboard and a big, big wad of chewing gum in my mouth. Ready down 40 times. But as it turns out, I’m actually like, I’m like a reluctant top down investor, like not a bottoms up investor. I’m like, how did this happen? Like, it’s really, it’s weird. I’m like, okay, I get it. Like I was a lot harsher on people when I was younger. I guess that’s wisdom as you like, feel soft about and regretful about the people you’re hard on because now you realize they were right.

Earnest Sweat 13:16
So I wanted too much

Alexa Binns 13:17
humbleness. i Where, where’s this been in our industry? I think maybe that’s been the biggest.

Chris Douvos 13:27
You know, I wonder if I could turn my camera around. I have on my whiteboard. A, I won’t say who this is. But somebody who is a household name and venture said to me he goes venture is a business of heartbreak. And nobody actually likes thinks that’s actually a new screen. I’ve added to my new investments as I want people to write checks pre 2016 And I’m like, man, you know what venture is about heartbreak. I’ve been doing this a long time. And everybody’s like, everybody who’s new to venture thinks that it’s like all about 10x funds and unicorn companies and you get this whole like, you know, this whole propaganda apparatus like it’s the venture industrial complex, it’s just all sexy all the time. And man, I’ve been doing this a long time and I think I have a pretty good track record. If for no other reason, because first round two was like a 45x net fund. And I’m like, that trumps all my other sins. But man if this business just kicks your ass and grinds you in ways that like peep a lot of people are doing it doing today like have no idea

Earnest Sweat 14:42
Yeah. Now we’re getting into therapy because of the good and bad things about venture for me. The reason I felt like it’s such a unique career path is because it resembles life more than any other industry to me. You can help people. Are you just and then think like, Why did I meet that person? Like, what was the point of that, and then you can remember, hey, that was a great opportunity, I would bet on that entrepreneur, again, it just didn’t work out. And so that is life, like, those are those costs, you know, constant lessons, you

Chris Douvos 15:18
know, and that’s actually a great point. Because I grew up in New York City, I grew up in Brooklyn, right and, and spent time in the public markets, and everything’s so freakin transactional. And one of the things that like, led me to venture was, you know, a friend of mine said, runs a hedge fund guy once said, once, you know, you got to be nice to the people on the way up, because you don’t want to step on heads, because kick you on your way down. And I said, Man, in Silicon Valley, it doesn’t ever feel like you’re going up or down, you’re just coming around. Like, you know, I don’t want to channel mcconachie too much for time is a flat circle man. Like, you know, it’s people are, are around and you know, and you learn a lot about people. And it’s very, like, in a weird way. It’s like an intimate asset class, right? Like, and that’s what I love about it. Cuz it’s like, is that like six neurons firing that like, are all like, crazy funny, but like, take us down rabbit holes, the real the real point of it is like, it’s really valuable. Like I you know, I used to have a no assholes rule. But there are assholes that I’ve given my last dollar to so it’s not that it’s it’s more that oh, I want to name names so bad, but I’m going to shut up. It’s more that you want to understand how people act in their behavioral footprint and whether they act with integrity or not. Right. And, and, you know, it’s everybody’s fund managers, it’s portfolio companies, right? Like, there are life defining moments, right? The average venture fund lasts twice as long as the average American marriage. You know, like, just as in marriage, it’s like ups and downs and work in the public markets, you don’t like a position ALEC, the management, they can fuck off, you sell the stock, right? In venture like, you’re kind of stuck with that on tour, I’m dealing with a direct investment right now, where it’s just like, it breaks my heart for these guys, because they’ve put every last penny in and of their, like, life savings, and they’ve done everything and like, just watching their entrepreneurial journey, there’s struggle, and I’m sitting here and I’m just like, man, you know, life is hard. You know, and, and just seeing them, their metal right is wild. And by the way, life is hard a lot, so I have to ask ourselves that. Because, you know, we’re privileged to get to do what we do, right? Like, this is the best job in the world, because it’s really interesting. And so, but be like, you know, I grew up really poor, and was very, very lucky to have like, a couple of inflection moments in my life. And, I wake up every morning, like I I was having a conversation with my parents the other day, and my mom refuses to spend more than $5 for lunch. And I’m like, You’re in California, like, you have to adjust California dollars for like, US dollars.

Alexa Binns 18:31
Like it’s a different currency.

Chris Douvos 18:33
Yeah, exactly. Right. It’s like Italian lira. And I sat down, he said, you know, you just can’t eat, like, I’ve been lucky, like you have given them a credit card, like so they’re, they work really hard, like my mom got on the subway every day at 5: 30 in the morning, right? To go an hour and a half into the city. And I’m like, Look, I have money I can pay back like this, this debt, like this generational debt, like, the two extra dollars a day for you to get like the sandwich you actually want will not kill me dead. And it’s like a good thing. It’s always a good reminder to me when you meet people in a venture like, especially these young people who like to get caught up in the Hollywood-ification of it. And, you know, it’s a, it’s a, there’s a whole world out there and I think is a danger that we have as an industry as it were, like, becoming more and more out of touch, you know, with what’s what’s going on in the real world, in the real economy. And that’s something that we’re going to be grappling with, as a nation for the rest of my life. And we’re seeing articulated in the political environment, and the economic environment, all that stuff. So that’s, you know, the All that stuff’s above my paygrade but, but that’s something I spend a lot of time reminding people you know, we’re really lucky to do what we do. Absolutely.

Earnest Sweat 19:48
And all this really kind of influences how you think about the strategy for a boy capital. And you know, I read that it’s, it’s you pride yourself in In backing robust, non conformists, we have the courage of their convictions. Could you just elaborate on that language and what is a non conformance? Because that can look different based on where the market is. Yeah,

Chris Douvos 20:13
I swiped totally from that phrase, robust non conformance to the courage of their convictions from an award that’s like the description of an award that my high school gives to like prominent, not not prominent alums, but like alums who’ve done like, cool and different stuff. I like to think that I’m doing things that absolutely nobody else is doing. But the reality is that if I did that, then their funds would be like $5 million funds, and they wouldn’t matter to anybody. So like, that’s like, the weird thing is NLP, like, you want to be different and interesting, but you need a whole bunch of people just like you to make these things, you know, get off the ground. But I’m, like, really proud of some of the things I’ve done, like, you know, what I love doing is being the first investor in funds. So like, I was the first institutional investor in the first round back in 2005, first institutional investor in data collected, like finding people who are like, really weird and quirky, and then bringing some of my friends along with them. And

Alexa Binns 21:09
is that part of your calling card to you know, on this podcast, we’re speaking to the full range of high net worth individuals who are helping invest, you know, seed a first fund, all the way through to the endowments and institutional capitals, and, and it is there a little bit of a gap there in the middle? Like, how does one begin to sort of graduate to fun to fun three tastes to begin to institutionalize

Chris Douvos 21:38
like that. There’s this progression that a lot of funds follow. It actually reminds me of when I once saw a cartoon and it was like, it was this professor with a whiteboard. And it had, you know, you had equations. And in the next panel, like, you know, you see the middle, you know, the middle of the, in the middle of the equations, it just says magic. Right. And it kind of feels like that, sometimes getting the funds two and three, and there’s a lot of funds that, you know, raised friends and family, you know, a lot of high net worths, etc. And, and, you know, that gets them to a certain plateau, and they’re kind of stuck there. And then the question is, like, what, what allows you to make that leap in? Is it different for every manager. Like it’s, it’s, you know, it’s, it’s hard to suss out the one thing that is the answer. Except, sometimes people really, like get attached to a company, right? In terms of like, branding, like, those guys were the guys and I use guys gender neutral. Those guys are the guys behind x, right? Company X. And that creates a real momentum of its own. And what I’ve seen is, in my experience, it’s most often like one cataclysmic company, which is weird to me, because like, what we’re looking for as LPS is repeatability. Right? Right. Right. And so it’s like, very, very often it’s like, these guys are in hot, sexy company, like we will, why do they get into hot sexy company, right? Was it like random, like, the number of the number of like, random things that happen in venture is shocking, like, it’s almost impossible to like, there days, and I wake up and I think venture data is useless, because all data is endpoint dependent and time varying. And venture is such a long horizon that you would like to cherry pick anything to prove any point almost. Right. But so, you know, what I look for is some sort of sustainable competitive advantage. And like, for the emerging managers who are listening, what I’d say is like, think about you know, people say differentiation, but differentiation is bullshit, right? There are people however, who can through articulation of, of their process in how they find things or how they decide to invest in things, or, or, you know, or how they add value after the fact where you can say, Okay, I actually believe that this thing is repeatable. I believe that these people will continue to do what we’re told all day long. Past performance is no guarantee of future results. But in venture, you’re actually because you’re investing when you invest in funds, you’re investing in behavioral footprints. People are pretty consistent in what they do. And there’s so many people right now that are just throwing darts and trying to get lucky, right? And they’ve brought into the whole like AngelList, like investing in an infinite number of companies because it increases the odds you’ll have a you know, a A power law event, right, etcetera. And I think that that’s really dangerous. Understand that most people are window shopping. And those that aren’t window shopping explicitly are, are, are probably looking at your fund n plus one. And so the number of people I deal with sometimes like to write notes back to people and I get cold emails, I’m like, Hey, email me in six months, right? And the number of people who don’t is remarkable, it’s like, actually like a shockingly easy way to get rid of people. Wow.

Earnest Sweat 25:33
I think he just really spoke to the challenges for allocators both new and old on how to diligence and develop these relationships going forward. And I can’t take credit for this, this next question, but I was talking to a GP who’s in the market right now. And they said another challenge. They got some average of like, how many touchpoints? Does it take to actually with an institutional like, I think 17 came up? And so how do you get there? How do you navigate through that? And then the second part that she stated to me was that they’re also seeing this carousel of people changing seats from people. So how does that influence the diligence process for allocators when they have people jumping around?

Chris Douvos 26:25
So remind me to come back to the second one? Because they’re both very important questions. So one, one thing that really frustrates me is the number of times I meet with people. And after our first meeting, they start talking to me, like, Can I send you documents like, like legal docs, or, and once I said, like, you think I’m going to invest after the first meeting, and this person said to me with a straight face? Well, you have to, we move at startup speed, you have to move at startup suite. And I’m like, GTFOH, like, that is, that is ridiculous. Because like I said, you know, your investment startup goes sideways, that’s like 1/30 of your portfolio, you move on, I’m making three to five investments a year, right. And by the way, these funds, like I said earlier, last twice as long as the average American marriage, So repent, you know, marry at haste and repent at leisure, right? Like, either you got to, like really understand these people, and especially because you can’t sink your teeth into things like tam or, you know, or management team or whatever, you know, or, you know, competitive moat, whatever, product, you know, whatever, wherever you are, like investing, you can’t sink your teeth into that, you have to understand people and people change, right? People’s behavioral footprints are generally consistent over time. But their motivations change. And there’s so many people calling rich and you know, people who become full of themselves right after a couple of successes and likes, and that changes their investing behavior on the margin. And so there’s, there’s a lot that you need to understand with people and like, sometimes I meet with people, and they say, Wow, that felt like therapy, right? I’ve had people cry in, in meetings. And like, I actually stopped asking those questions I used to ask people like, tell me about, tell me about the hardest thing you’ve ever gone through?

Alexa Binns 28:19
Oh, no, no, no second hardest like third like Not exactly.

Chris Douvos 28:23
But like, actually one person who cried was a woman who was like a senior tech exec for a long time. And she talked about like, the sexual harassment. And you know, that she faced as a young sales rep at a big tech CO in the late 80s. And it was very moving for her. And it was very, like, I was like, super stressed out. I was like, I don’t know, like, I feel bad. You’re crying like I did this. But she was like, Look, that actually made me who I am. Right. And it’s, you know, that it sucks that that had to happen. But like, this is somebody who is like an ass kicker. Right? And so it’s a short story long, you need to understand that the second question, which is actually, you know, what I would tell what I tell people I get a lot I hear a lot of complaints, and especially endowment world is big, can be a big, you know, kind of rotating carousel or revolving door or whatever. The thing you need to understand if you’re going to be in the financial markets, you have to have an intimate understanding of the principal agent problem, right? Some people act like principals where they act like it’s their own money, and they have, they’re incentivized and motivated. And, some people are just agents and they’re there for the transaction. Right? And like, and I’ve gotten people have asked me like, What is the principle? What is it? What do they mean by that? And what I say is like, some people get paid by the number of meetings they take, like, that’s their metric, right? And that’s the person who’s gonna be window shopping you so like, it’s really hard for new managers. To kind of suss out what people’s motivations are, but the more you can get at like, are you making investments? When do you make investments? What kinds of things do you like? Do we look like anything you’ve ever done before? Do we look too much like things you’ve done before? Right? Like, there’s a lot of these, you know, the quicker you can get at that, the more you can qualify that. That person,

Alexa Binns 30:23
everything, you’re saying, we’re on your, we’re all on this with you.

Chris Douvos 30:27
I feel it, I feel you guys step per step. I feel like I’m a receiver. And I got sauce Gardner on me.

Earnest Sweat 30:33
Yeah, honestly, honestly, I was like, Man, this might have to be a two parter. But

Chris Douvos 30:39
Hey, this is fun. You guys are great. Like, I’ll talk to you guys all day long.

Earnest Sweat 30:43
Now, we’re gonna take a quick break to speak with our sponsor.

Alexa Binns 30:47
Is there anything, I don’t know, whether it’s sort of a story that keeps getting repeated in the news or VC, Twitter, etc, that you find yourself with a counter opinion or a more nuanced take,

Tyler Kirtley 31:01
you know, ventures, a high flying industry from time to time. And there are companies that are high profile that have high profile stumbles or crashes. So we’ve just all gotten the news alerts over the last week about FTX. And, and I think there’s a segment of the population, particularly the traditional financial world that looks at that, and uses it to label the whole industry. But I think being inside the industry, I see what a productive and important sector of the economy, the venture industry is. So I think about my clients, they’re very thoughtful, smart people, they’re investing in companies developing new science, creating software that’s going to help businesses be more efficient, secure, or creating new consumer products. And it’s, it’s a great place for me to work, I know when I help a client raise a fund, that that fund is going to turn around and invest in companies with big new ideas that are going to hire a bunch of people, and that my client is going to use their expertise to help those ideas come to life. So I think it’s a productive essential engine of the American economy. And, and so I don’t know if that’s a contrary view, but it’s certainly my perspective on the industry as a whole is that it’s, despite some stumbles and excesses, it’s a very positive productive place to be.

Alexa Binns 32:37
Yeah. Yeah. And with it, it’s a lot of that hope and dream and sometimes hype, and it’s like, even without the hope there’s, there’s a lot there. Even without the hype, there’s love and hope.

Tyler Kirtley 32:51
Yes, yes.

Alexa Binns 33:41
Just curious how law firms like yourself, think their services will change over time for GPs.

Tyler Kirtley 33:49
Yeah, so I think we’re constantly thinking about how we can make our services more efficient for clients. So that we’re focusing on the high level issues that they’re facing, and less time on some of the more automatable tasks that aren’t, honestly, as interesting for us to be doing. So one example of something that we worked on as a firm I actually worked on as well was the formation of the Gunderson online fund formation platform. It enabled investors and venture funds to complete their subscription documents online, which had always been done in paper. And I think, though, that the core product that law firms offer is their expertise, their ability to navigate changing market conditions, changing regulatory conditions. The ability when you have a 5050 decision to help a client figure out which way we should go in sort of the heat of a negotiation, and I don’t view that core product is changing over time. No,

Alexa Binns 35:55
you for sure have that eye on that detail on this specificity, as you said that all these GPs have a lot of other things that they are focused on. Yes, get in touch with Tyler currently, or any of the other fabulous lawyers that Gunderson Dettmer on the information team, you can find their profiles at gunder.com. G-U-N-D-E-R.com. And now back to our LP interview.

Loving this term you just used of the Hollywood-ification of venture and every pm from hot cocoa raised a fund two years ago, and this is a hype business, like our job is to hype this up to the next guy to the next guy. And the public markets sort of shut that down. And so I’m curious, what, what is the next decade of venture like? Are they? Do we continue to be this hype? Squad people? Yeah. Is that a haunted house? Yeah. Is that who you have to be? Or is that the tone? And the is the role different actually now, in

Chris Douvos 37:12
The way I think about it is through the prism of something that I call buffets equation. I don’t know if he actually said this, or have I like, made it up in my own head and like, tried to cloak it in, like the vestments of credibility by calling it bucks equation. But, you know, opportunity equals value minus perception, right? This is like a value investors like, you know, kind of thought so. So think about, you know, opportunity, and perception. And then you got, you know, the pivot is like true value, right? So in the public markets way you’d articulate this is like, all else being equal, as the P/E of something gets bigger, the forward opportunity gets smaller, right? And as the P goes down, like certainly, you know, maybe this is why I’m a value investor lost in the valley. But that’s kind of how I think about it. What’s crazy is that in venture, you can create a recursion between value and perception. Yeah, free for a long time, right? For a long time, there’s a perceived opportunity, because people have a perception, right? That is driving value. And in some cases, like, you know, when we’re in what I call eyeball markets, where it’s like all that, like social media stuff, where like, you need a hype cycle for something to get escape velocity. You know, maybe that’s not a bad thing. But ultimately, there is an intrinsic value that’s disconnected from the perception. Right? And, we InVenture, because we don’t get marked daily, we get marked quarterly and really like only the 18 month financing cycle 18 to 24 month financing cycle, which sometimes shrinks to 12 months, but it’s still a long time. Because we don’t get marked daily, we lose sight of that. But in the public market, like ultimately, you have to set these companies to go somewhere, right? We have 47. He said, we have 47,000 companies that have received companies that have received some sort of venture backing. And I’ll tell you, like you think about like in real estate, they use the term net absorption, right? Like you think about the net absorption of those companies, right? You have 50 to 100 and a great year to go public. And you’ll have four to 600 to get acquired, right? Like it’s going to take a million years for all this supply to get absorbed and meanwhile we’re making more right so there’s a lot of like heartbreak to come harkening back to you know, venture as a business of heartbreak. And, and so because in the public markets, they don’t appreciate our bullshit the way we appreciate our bullshit, like we are high on our own supply. Yeah, and I think that like, part of that is the game and part of that is, you know, people say fake it till you make it, you know, as if it’s a bad thing. And I do think sometimes it’s a bad thing and the sam bankman-fried yesterday was, you know, found guilty. So yes, like it is demonstrable, bad thing, you don’t want to like to create frauds. But if you think about the very essence of venture, it’s like you’re faking something because you’re bringing something to life that didn’t exist, right? It’s that, like, electricity, the Zero to One moment, it’s like, you know, got an atom on the Sistine Chapel where like, the fingers are so close to reaching out, and you can see the electricity, right between them creating life, right. And you’re just like, that’s, I always think the Sistine Chapel is like the essence of venture. Right? Like that, that that, that that roof, it’s like, wow, we’re like making something man. You know, about I’m not endorsing creationism, like I’m just saying like that, that painting like, it’s just fucking electric.

Alexa Binns 41:03
Metaphor. It’s a metaphor.

Chris Douvos 41:05
It’s a metaphor. Yeah, exactly. Like, we live in a less metaphorical age and always speak in our metaphors. To people, the world is too literal for me nowadays, like, Yeah, but that’s it, whatever. Neither here nor there. So where I’m going to call that is like, finding that balance. The problem is, when I say Hollywood-ification like the Astros got mad is like, also the dilettante vacation, right? Where I think people like I have this, like, platonic ideal of venture people being, you know, kind of dynamic catalysts who help on Earth, you know, technologies from excuse me, who under Help unearth, you know, kind of technologies that, you know, that didn’t exist, that are making the world a better place, and are committed to the entrepreneurial journey. And there are a lot of people who are just like, firing checks, like, where to shooting gallery, and they’re trying to, like, you know, tag a unicorn.

Earnest Sweat 42:05
I think one of my final questions is, how does this current market impact the next generation of GPs, whether they’re emerging managers now, or, you know, early GPs that established funds, I think about, like, you know, if you started writing checks as a principal or URL, you know, little P partner at 2017, your market, you know, your portfolio might look like shit. And so, the results of that trying to maintain a seat might not be the best, it might not be in the true spirit of venture. And so how should those people think about their career and venture and how they maintain it, given all these changes in the market?

Chris Douvos 42:47
Yeah, and look, I gotta say, like, the way you ended that question was also really interesting was like, their career venture and how they maintain it. Like, I’m not convinced that venture is the best path for everybody. I think a lot of people came into venture, particularly people coming from operating into venture because they thought they were going up the capital stack, or something. And, you know, it became a thing to do, like, you know, going to law school as a thing to do after you know, being a humanities major right there. A lot of people in venture who should be operators are a lot of people who are, there’s a lot of people in venture who should be founders, there are a lot of people who are founders who should be employees, like we’ve had this weird, you know, kind of shift, right? And at the end of the day, we need to have people creating things. And so I’ve had, you know, during the post early downturn, I wrote this blog called parade of the lifers, right for life as an accounting term lasting. First out, like, if you’re the last into your venture firm, right, you there’s, there’s probably a bull’s eye on your back. Because like you said, you were writing checks in 2017 2018. You know, that it conceivably could be tough sledding for a while. And, and when the firm shrinks inevitably, because, you know, those older partners don’t go quietly, right? They, they, they grip, they’ve Death Grips on the economics, these fun sometimes, and sometimes even when they’re retired on the job or calling and rich. And so I would say that to younger people, I would think about, you know, what is your passion, right? Like, what is it that you want to do? And are there other vectors for that? I was talking to a person exactly as you described, who loves I said, you know, what do you love about your job? They’re like, Well, I love working with entrepreneurs and coaching them. I’m like, Well, why don’t you become a coach? Right? That’s actually in some ways much more pure, because rather than being like a coach who has an economic interest, you know the outcome, you can actually be like a pure coach and maybe even help them more authentically, right. But people think venture is sexy and it is a And when it works well but the reality is like the, the number of ventures in the history of venture, the percentage of people have actually gotten meaningful carry checks is that is actually relatively small. Right? And so again, think about, you know, think about where you might want to go in an operating role or you know, I was talking to somebody the other day who said they made good money over the last 10 years and they want to go teach. I’m like, Man, the world needs teachers right? As KRS once a teachers teach it do the world good kings this rule and most are never understood

Earnest Sweat 45:33
that I don’t even know how to respond after that said that’s a Mic drop.

Alexa Binns 45:41
We know you mentioned your phone’s been blowing up today. So I think we can wrap it up frankly, that we’ve had so much fun. Thank you, Chris. See you later, Allocator!