David Clark: Lessons from 32 Years of Fund Investing - Why Exits Will Be Larger | E1131

David Clark 0:00 One of the prevailing narratives is that you can't get a fund returner for a billion-dollar fund. So, we had a look at our data. And we found 45 investments that have returned a billion dollars to the single fund that invested and were also fund returners. What you need to do is to compare fund sizes today with the exit sizes in 10 to 15 years, because that's when those companies are ultimately going to become liquid.

Harry Stebbings 0:23 Dave, I am so excited for this. I've heard, uh, many of your conversations before. Uh, you have some strong opinions-

David Clark 0:29 (laughs)

Harry Stebbings 0:29 ... which I'm excited to dive into. So, thank you for joining me.

David Clark 0:31 Yeah, no, it's a pleasure, Harry. I've been listening to your podcast for a long time. And, and, you know, really impressed by what you've built here, and the guests, and so honored to be part of it.

Harry Stebbings 0:39 Do you know it's been 10 years?

David Clark 0:40 Wow.

Harry Stebbings 0:40 Like, I'm getting freaking old.

David Clark 0:42 (laughs)

Harry Stebbings 0:42 But, uh, I-

David Clark 0:43 You must have started when you were 12, did you?

Harry Stebbings 0:44 I was actually 14.

David Clark 0:46 (laughs)

Harry Stebbings 0:46 But I'm glad that it was an early start. You've been an LP for 32 years. And 32 years with VanCap.

David Clark 0:53 Yeah.

Harry Stebbings 0:55 How (laughs) ... Sorry, I didn't mean to like age you there. But how did you first become an LP? And when was that, "I wanna do this as a career"?

David Clark 1:02 Yeah. Funnily enough, I didn't grow up thinking, actually, my life's ambition is to become a, an LP in VC funds.

Harry Stebbings 1:07 (laughs)

David Clark 1:08 Um, I, so I, I, I, I grew up in a small village in Northumberland. Um, I, I'm pretty sure that nobody in that village had ever heard of venture capital.

Harry Stebbings 1:17 (laughs)

David Clark 1:17 And, and, and I hadn't heard of venture capital. Um, but I, I'd sort of finished university. Um, I'd actually was keen to kind of go on and, and, and do a PhD. Um, but, but kind of life intervened at that time. And, and I had to end up getting some real work. And I was just looking for pretty much anything. Um, I saw an advert. So, my, my girlfriend at the time, my wife now, was, was living in Oxford. I was still living with my parents up in Northumberland. And so I, when I came down to see her, um, we were looking for ... I was looking for a job. I saw an advert in the Oxford Times, "Numerous graduates required for global finance firm." And I thought, "Well, that doesn't sound very interesting. But if I don't apply for it, she's gonna see it and she'll kill me." (laughs)

Harry Stebbings 2:02 (laughs)

David Clark 2:02 So (laughs) , that was, that was 1992. Um, and I was fortunate enough that, that, um, you know, my, my first boss was willing to take a punt on a, you know, a spotty, fresh graduate with no experience, who'd never heard of VC before.

Harry Stebbings 2:14 I absolutely love that. I mean, often, uh, fear is a great driver.

David Clark 2:18 (laughs)

Harry Stebbings 2:18 Um, co- ... When did you know that you actually loved doing it?

David Clark 2:21 Like, for me, I'm curious about things. Um, and I, and, and I like to sort of really dig into the detail. And, and it was probably after sort of four or five years when we were starting to see, um, the first kind of dotcom companies begin to emerge. I remember we got a stock distribution, uh, of, of Netscape, um, and, and, and it was my job to figure out what we were gonna do with stock distributions. So, I remember phoning up, um, the CFO of Netscape at the time, it was a six-month public company, and having a conversation with them. And thinking, "Shit, this is really interesting." (laughs)

Harry Stebbings 2:57 (laughs)

David Clark 2:57 I never thought that I'd be doing something like this. But actually, being ... having that kind of not quite a front row seat as an LP, but, but maybe a second row seat into, into new technology, new developments that are changing society, um, I, I, I struggle to think of a more interesting career and, and a more interesting way to spend the last ... to

David Clark 3:17 have spent the last 30 years.

Harry Stebbings 3:18 I mean, it is an inc- incredibly interesting seat to have. It's also a seat that's changed over time, I'm sure.

David Clark 3:25 Yeah.

Harry Stebbings 3:25 Ryan Okina at MIT said that it's become harder than ever. I'm intrigued. Do you think it has become harder than ever?

David Clark 3:33 I can see why you would have that perspective, in, in, in the sense that there are just so many funds and managers out there today. Um, and, and you are constantly bombarded by people who are trying to raise money and, and, you know, wanna, wanna pitch you. Um, and it's simply impossible if you were trying to, to, to meet with everyone, to be able to work through those and to select successfully. And so I think from an LP, one of the things we've learned is that being an LP is all about understanding what you're good at and understanding what you're not good at, and making sure that you are focused. So, for us, actually, the last, the last five or six years have been very simple, because our view is that it's, it's been impossible to actually distinguish good managers from average managers, because everyone looked good. Everyone had companies that were getting written up. Um, everyone could talk about some interesting deals that they'd done. Everything looked great. But I think one of the advantages of having been in this industry for so long is that we've seen cycles happen before.

Harry Stebbings 4:36 Mm-hmm.

David Clark 4:36 And, and, you know, we've made all the mistakes in the book. Um, I remember in the early '90s we mass ... Uh, in the late '90s rather, we massively expanded our, our roster of managers, we did a lot of first-time funds, and this was all in '98, '99, when things were looking unbelievable. We were backing managers in a fund two, where their first fund was showing 100% IRR and a 5X TVPI. Couple of years later, those funds were looking very different.

Harry Stebbings 5:03 Right.

David Clark 5:03 And so I think it's really sort of understanding what it is that you want to see in a manager, that's what you have to do in order to be able to do this job successfully and be ruthless about, about sticking to that particular focus.

Harry Stebbings 5:17 M- my question to you though then is if you think about the last five or six years, it's impossible to select, everyone looks good, then you end up doing nothing. And you have to stay at the forefront of great managers, you have to ensure that you don't miss the next great franchise. How do you approach that knowing that you don't wanna enter a world where you can't decide, but also you can't miss?

David Clark 5:39 Yeah. I think you can miss. Because again, one of the things that, one of the things that we've learned is that you don't have to do every great manager out there.... you just have to make sure all the managers you do are great. So, it's not about trying to see everything and pick every wi- everything that has the potential to rise into that top quartile or top decile. It's about understanding what your lane is, being comfortable in your lane, and recognizing that lane is still relevant and is still able to produce the performance that, that you expect from the asset class. And I think particularly over the last five years, um, we just felt it was... Even if we saw a really good manager, we thought it was the wrong time to intercept them. And actually, there would be a much better opportunity when there was far less noise and far more signal to fine-tune that decision. And we saw this back in 2010, 2011, 2012, where we were able to add several top-tier managers after the financial crisis, because a lot of their traditional MP- LPs were struggling with the denominator effect.

Harry Stebbings 6:40 Mm-hmm.

David Clark 6:40 Um, there'd been very little liquidity, so they were struggling to make new commitments. And I think that a lot of those managers there recognized it was important to have a reasonably diversified LP base. So not just Ivy League endowments, but also some family offices, some fund of funds. And as you know, as a fund of fund, we don't suffer from the denominator effect, because we raise capital and then we invest it. So, as long as we've managed to have our close before the market turns, we've got capital that we can invest

David Clark 7:07 into a much better environment.

Harry Stebbings 7:08 Far less noise and far more signal sounds wonderful. Uh, sadly, when you have far more signal, there's far more noise. And traditionally, I agree with you in terms of supply of capital in cycles, but there is a permanence to the wall of capital that has entered venture, I think. And you're seeing a new size of that with sovereigns and pensions doing what they're doing today. Is that possible anymore?

David Clark 7:33 I think, again, it, it comes down to understanding what's... how venture works, and going back to the first principles of the industry. And that's one of the things that, that we've always tried to do, is to, is, is to really go deep on understanding what is it that makes a great fund? What is it that really drives outperformance in the venture industry? And the thing that we constantly come back to is that venture is a power law industry, and it's 1% of the exits that ultimately generate the bulk of the-

Harry Stebbings 8:04 Mm-hmm.

David Clark 8:04 ... returns created by the entire industry globally. So, we're looking at, at around 30 companies a year that generate more than half of the total exit value for the VC industry.

Harry Stebbings 8:14 Mm-hmm.

David Clark 8:15 And when we look at who are the investors in those companies, it tends to be the same names time and time and time again. And so for us, we'd much rather spend our time trying to access those very best names than trying to find that needle in a haystack, that one in a 500 new emerging managers that might potentially do that. And if it means we miss out on one of those managers, then we're, we're fine with that, because we've got enough in our roster that continue to find those key companies and drive that outperformance.

Harry Stebbings 8:45 You're right, absolutely, that, uh, there are a continuing set of names that are in the best. Those continuing set of names are also most often in the multi-billions of dollars in terms of AUM and fund size, and that will dramatically impede their level of having a 5X net fund, say.

David Clark 9:01 Yeah.

Harry Stebbings 9:01 It is just fucking hard- (laughs)

David Clark 9:03 (laughs) .

Harry Stebbings 9:03 ... to do a 5X net on the size capital they have.

David Clark 9:05 It's, it's hard to do a 5X net full stop. So we had a look at the, the PitchBook data-

Harry Stebbings 9:10 Yeah.

David Clark 9:10 ... around, um, DPI. So, we looked at funds from 2000... And again, this is going back to first principles here. Rather than looking at, at, at, at, at research that other people have done, we want to go back to the original data ourselves and figure out what's going on here. So there was about 1,200 funds that were raised from 2000 to 2014, '15, I forget the exact date. Um, and we looked at what the DPI statistics were for those funds. More than 50% hadn't returned 1X capital. And so these are funds that are more than... that are 10 years old now, at least 10 years old now-

Harry Stebbings 9:42 Mm-hmm.

David Clark 9:42 ... hadn't returned 1X capital. Um, there was just 6.6% that had generated 3X net DPI, and just 2.6% that had generated 5X DPI. So when you're talking about the incidence of 5X funds, let's put that into context that it's 1 in 50 funds that's capable of generating a 5X fund-

Harry Stebbings 10:04 Mm-hmm.

David Clark 10:04 ... according to the, the, the, the data on PitchBook.

Harry Stebbings 10:07 Mm-hmm. Which really begs a couple of different questions.

Harry Stebbings 10:10 Basic question, is venture really worth the illiquidity premium? You are a fund of funds, but the S&P will get you 2.6 over 10 years, pretty much with guarantees and with liquidity. Why bother doing venture?

David Clark 10:23 Because it's a power law industry. And if you're able to consistently compound at that top quartile-

Harry Stebbings 10:30 Mm-hmm.

David Clark 10:30 ... in venture, then you're gonna massively outperform the NASDAQ-

Harry Stebbings 10:33 Even-

David Clark 10:34 You're gonna massively outperform the S&P.

Harry Stebbings 10:35 But if the fund sizes are so large, you know, we're seeing... I, I, I do name names, but I'm not saying anything about their performance. But your Andreessens, your GCs, your Light Speeds, your, any of the big firm brand names, they're multi-billions of dollars. Doing, doing a 3X is insanely hard, again, on, on a lot of fund sizes. But on that, it's, it's, it's so hard.

David Clark 10:55 And I think, I think for us, that's the one, that's the one big thing that keeps us awake at night. It's, it's have these funds become so big that they can't ultimately deliver, um, that type of performance? And today, we haven't seen that. So there's a few-

Harry Stebbings 11:11 When you say that type of performance, wha- what is the type of performance you need?

David Clark 11:15 North of 3X.

Harry Stebbings 11:16 North of 3X.

David Clark 11:16 On a aggregate portfolio level.

Harry Stebbings 11:18 Mm-hmm.

David Clark 11:19 So when I look at... And, and, you know, we've, we've disclosed a, a little bit of the sort of high-level performance, so happy to, happy to do that. When I... So we have a, a group of a dozen core managers. And, and, you know, like 90% of all the capital we've invested over the last decade plus has gone to those managers. And when we look at the performance of, of their mature funds, so let's take away the ones that were raised in the last couple of years, we are seeing a net multiple back to us north of 3X, around that kind of 3.5X on a, on a blended basis, on an aggregate basis. So this isn't...... pie-in-the-sky numbers.

Harry Stebbings 11:51 Mm-hmm.

David Clark 11:51 This is what those funds have delivered. And the other thing to look at there is what percentage of them have actually lost money. So go back to that 50% of cap- of, of funds from Pitchbook haven't returned 1X DPI. Um, what we found is less than 3% of those funds haven't, have l- are, are showing a TVPI of less than 1X.

Harry Stebbings 12:11 Wow.

David Clark 12:12 And this is going back... Some of those funds are going back 30 years. So that's through the dot-com boom and bust. It's through the financial crisis.

Harry Stebbings 12:19 (exhales)

David Clark 12:19 So what we're able to do still is to capture a significant chunk of that upside while minimizing the risk of losing capital. But I don't want it... I don't, I don't want to not answer your question on fund size-

Harry Stebbings 12:31 Yeah.

David Clark 12:31 ... because I think this is, this is really important. And again, one of the prevailing narratives is that you can't, you can't get a fund returner for a billion-dollar fund.

Harry Stebbings 12:40 Yeah.

David Clark 12:40 So we had a look at our data, um, and we found 45 investments that were, that have returned a billion dollars to the f- single fund that invested and, and were also fund returners. And most of those have happened in the last seven or eight years. So the idea that you can't get a fund returner from a billion-dollar fund is just untrue. And, and actually the, the majority of those weren't just a billion dollars, they were multiples of that. I think the most we have is a $15 billion outcome-

Harry Stebbings 13:09 (exhales)

David Clark 13:09 ... for a single fund. Um, so you have to sort of understand the size of the outcomes that we're now talking about for these funds. And, and just one last point, Harry. The other thing that I think you also have to bear in mind is that you're looking, you're comparing today's fund sizes with today's exit sizes.

Harry Stebbings 13:30 Mm-hmm.

David Clark 13:30 If I look back 15 years ago, I was having exactly the same conversations about funds. "They're way too large. You're never gonna get a 3X multiple." What you need to do is to compare fund sizes today with the exit sizes in 10 to 15 years, because that's when those companies are ultimately going to become liquid. And if you look at how those exit sizes have increased over the last 15 years, are you saying to me that you don't think technology outcomes are gonna get bigger

David Clark 13:57 over the next 15 years?

Harry Stebbings 13:58 So then let's play this game out then. I, I, I like that a lot, because most people are like, "Well, we need to compare fund sizes today to exit sizes today. And actually, we've had this realization that we were wrong in COVID and that companies shouldn't be 40X revenues, they should be... and we're back to the normal now." And so it's really interesting to say, "Hey, project yourself forward 10 years to the exit sizes of 10 years time." What do you think the exit size of 10 years time is, then?

David Clark 14:19 Yeah, I think... (laughs) So in, in, in the famous words of Yogi Berra, "Predictions are hard, especially those about the future."

Harry Stebbings 14:26 (laughs)

David Clark 14:26 Um, so I think what you have to look at, we, we would sort of take a step back and, and say, "Is technology becoming more or less important? Is it capturing a smaller or larger share of the economic pie? And are the market sizes for the winners in technology getting smaller or bigger?"

Harry Stebbings 14:44 Mm.

David Clark 14:44 We think all of those arrows are pointing upwards. And so, yes, we know the multiples that you will see on those individual companies' earnings or revenues were going to fluctuate. But ultimately, the markets that they're playing in and the share of the economic pie that technology is going to capture, in our view, is only going to increase. And so that gives us confidence that whatever the, the multiples are at the time of exit, the, the dir- directionally, we're going to see exits get larger.

Harry Stebbings 15:13 Do you worry that we've never had such a strong incumbent set? People often say, "Oh, we've always had incumbents, and they've always been usurped by innovation. We've never had data network effects like we do today. We've never had, you know, Microsoft doing whatever it is, 300 million in free cash flow debt."

David Clark 15:27 We've never had

Harry Stebbings 15:27 either. No.

David Clark 15:29 (laughs)

Harry Stebbings 15:29 And s- yeah, very good point. And so I worry intensely that, yes, the market size increases, the proportion of like, you know, spend to tech ingre- but it concentrates intensely, which is not good for us.

David Clark 15:43 Yeah.

Harry Stebbings 15:44 Do you share my worry on that?

David Clark 15:46 I think, I think you're right. Yeah, that was a, a, a... I think you... It, it's clear that the, the, the, the incumbents today have managed to have multiple, um, iterations of their products.

Harry Stebbings 16:02 Mm.

David Clark 16:03 Um, and, you know, the question, the question I would have, though, is, is how long is that likely to continue? Um, and I, I remember back in the, in the mid-90s, reading The Innovator's Dilemma, Clayton Christensen.

Harry Stebbings 16:16 Yeah.

David Clark 16:16 And it was a real eye-opener at the time, just around how it's very difficult for, um, those incumbents to, to, to really innovate and to disrupt their own bus- and cannibalize their own business models.

Harry Stebbings 16:29 Mm.

David Clark 16:29 And it's interesting. Y- you know, look at what's happening with someone like Google today. Look at the, um, the reaction to, to their AI product that we've just seen over the last, the last couple of weeks. And all those people that are now saying, you know, "Google needs to really address where they're growing as a business." Um, you know, look at what Elon's done with Twitter in terms of, you know, turning that company on its head. I think there are a lot of challenges for the incumbents, and, and there's no guarantees that they're going to be able to continue to hold that dominant position, particularly as we enter different technology paradigms. So one of the, one of the things... I, I don't know if you've, if you've had a chance to read Chris Dixon's book yet.

Harry Stebbings 17:12 No, I haven't, but I've got him coming on the show in a week. (laughs)

David Clark 17:15 Oh, fantastic. (laughs)

Harry Stebbings 17:15 So I probably should do, but yes.

David Clark 17:18 But I think what's really interesting there is... You know, I, I, I study philosophy at, at, at university. Um, and one of the, one of the things we looked at, there was a, a really small book called the, the, um, The Structure of Scientific Revolutions by a guy called Thomas Kuhn. And it's really interesting about the way that, that, that science works in paradigms. And, and by a paradigm, it, it basically means a particular way of thinking. And that paradigm exists for a certain amount of time, and then new evidence, new data emerges, and the paradigm changes. And when the paradigm changes, it's, it's hugely disruptive. And I see similar things happening in technology. We've seen it with, you know, with the, the mainframe. We've seen it with client-server. We've seen it with the first generation of the internet. Uh, we've seen it with mobile. You know, we're seeing it now with AI. And the one thing I would put on top of that is blockchain and crypto. And if we do see blockchain and crypto really emerge as a dominant technology paradigm in conjunction with AI, then I think that's gonna have a very significant impact on the

David Clark 18:19 incumbents that are out there.

Harry Stebbings 18:20 Do, do you not think, though, that actually, the, the thing that actually made...... the prior incumbents usurpable or replaceable, in whatever way we wanna call it, is actually the lack of linkage between them and the new platform. And I think what concerns me most is when you look at, you know, w- the platform shift that we see today with AI, fundamentally, it also all goes down to compute as well, ability to spend on compute, scale of buy, scale of purchase, scale of data-

David Clark 18:44 Yeah.

Harry Stebbings 18:44 ... scale of data quality. There is a core linkage in the prior platform to this platform, which gives them unparalleled advantages that, you know, we didn't have when moving from on-prem to cloud.

David Clark 18:56 Yeah. But I also look at... So, so if, if we were then saying, you know, "What's the likelihood that we're going to see another kind of outcome in that, in that sort of, you know, multi-hundred billion dollar region?" You know, you look at something like a ByteDance-

Harry Stebbings 19:13 Yeah.

David Clark 19:13 ... in China, which has emerged over the last 10 years-

Harry Stebbings 19:15 Mm-hmm.

David Clark 19:15 ... you know, while a lot of these companies were there. Now it's a admittedly a different market and more restricted, and those companies haven't been able to, to operate to the same extent in China. Um, you know, you look at, at, at how OpenAI has, has, you know, really, really begun to, to, to win that category now. You know, still very early and, and who knows ultimately what's gonna happen there. But I still feel optimistic that it's the nature of... The fundamental nature of technology is that incumbents ultimately have a half-life, and, and that half-life has admittedly got longer. But I do think we will still see companies come over time that will disrupt those industries, and it will be based on different technology paradigms.

Harry Stebbings 19:57 So I'm interested, you said about kind of the amount of funds that were able to return a billion dollars and even one that did $15 billion. Uh, liquidity in venture is (laughs) one of the most important things. I think it's Horsley Bridge data where they talk about the compressed timelines for liquidity and how unless you take advantage of them, venture's a really shit asset class. But if you do take advantage of them, then it's brilliant.

David Clark 20:20 Yeah.

Harry Stebbings 20:21 My question to you is, how do you think about liquidity strategies in those very short timelines and the managers that do it well and those that don't? Because otherwise it is shit.

David Clark 20:31 Yeah. No, and, and I think I would absolutely agree with that. It's the, it's the classic thing was that, that there's years where very little happened and, and then there's weeks where years happen sort of thing.

Harry Stebbings 20:39 Yeah.

David Clark 20:39 And, and so, you know, you do see that in, in, in venture. It... There are, there are short periods of time where you need to capture the value. Um, and if you don't do that, then you're going to struggle. So I, I think again, it comes back to, for us, investing in managers who really understand the dynamics of the industry, who've been through those cycles before, or, or have people within their firm that have been through those cycles before, and understand the importance of generating liquidity when, when it's, it's, it's available. And, you know, from an LP's perspective, the way that you're able to do that is to make sure that you are investing consistently across every vintage. You're not trying to time the market. Because if I look at the stuff that we were seeing get liq- get liquid in 2019, 2020, '21, these are the investments that we made 10 years earlier.

Harry Stebbings 21:27 Yeah.

David Clark 21:28 And 10 years earlier was 2010, 2011. This was financial crisis when people weren't deploying checks.

Harry Stebbings 21:35 I, I write this stupid schedule and I just don't listen to it at all 'cause there's way more interesting... Uh, you know, liquidity is predicated on often IPOs or M&A. You mentioned Lina Khan. Uh, M&A is pretty much fucked. I'm worried about that.

David Clark 21:48 Yeah.

Harry Stebbings 21:48 Do you share my concern?

David Clark 21:49 Yeah. Uh, in the short term, I do. Yeah. I think it's, it's interesting how, you know, the UK regulator can block, you know, two US companies from merging, which is, is an interesting one with, with Figma and Adobe. And so I, I think it's going to be a challenge, um, for the, the big tech companies to acquire significant new product. And that goes back to the conversation we were having a second ago about their ability to iterate and-

Harry Stebbings 22:16 Mm-hmm.

David Clark 22:16 ... continue to, to stay in that, in that position. But I do think it makes it harder for, um, the M&A market to, to, to, to operate at scale. And so I think for companies, it's becoming increasingly important that they view themselves as standalone businesses, and ones... And, and, and, and, and for the founders to take the view that this is not just a kind of let's get it to a couple of million dollars in revenue and then we can sell it to someone. It's about, how do we build something that's actually durable and sustainable and, and, and standalone? Um, and, and those are the sort of companies that ultimately are able to go public. I think the impact that will have is that the concentration of returns in venture is going to be even smaller, as in there, there's gonna be fewer companies that ultimately account for that, for that performance. And so it's going to be even more important that you're backing managers that can identify them, win them, work them, and as you said earlier, know when to get out.

Harry Stebbings 23:16 I, I, I totally agree with you and get you that you said about the

Harry Stebbings 23:19 UK blocking two American companies from merging. You know, I had Larry Summers on the show and he very much, you know, stated that... I can't remember. China's a jail, Japan's a whatever it is-

David Clark 23:30 (laughs) .

Harry Stebbings 23:30 ... uh, an old people's home, and Europe's a museum.

David Clark 23:33 Yeah.

Harry Stebbings 23:33 Uh, you know, Keith Rabois was... has a go at me for being here. Uh, how do you feel about Europe? Do you share the world's concern around Europe falling drastically behind an ever-increasing China and US?

David Clark 23:47 Uh, I think, yeah, I, I'm not a, I'm not a macroeconomist. So I, I, you know, let's... I, I, I know my area.

Harry Stebbings 23:54 Well, neither does any venture investor-

David Clark 23:56 (laughs) .

Harry Stebbings 23:56 ... but we still opine. (laughs)

David Clark 23:57 (laughs) . Yeah, but I, I... (laughs) . I'm... As, as an LP, I kind of know my lane and happy to sort of stick in that. What I... If I'm looking at it from a, a venture perspective, I, I, I think it's important as an LP to know what you know and know what you don't know. So I'll tell you what I don't know. I don't know what the next great sector's gonna be. I don't know where the next great company is gonna come from. Um, I don't know whether Europe is gonna outperform China or India or the US. What I have a much better sense of are who are the people who-... do know that, or have a good shot at knowing that. And this comes back to, as an LP, my job is to select managers. And I want to select those managers who can consistently find those top 1% companies, wherever they are. Jog- you know, geographically or wherever they are in terms of industry, sector, um, whatever. Um, so I think that's, that's really important. And, and when I look at our portfolio, um, there's a reason only 10% of our portfolio is invested in Europe.

Harry Stebbings 24:57 How much is in the US?

David Clark 24:58 70.

Harry Stebbings 24:59 China?

David Clark 25:00 10.

Harry Stebbings 25:01 Is China going to nothing?

David Clark 25:03 Not sure.

Harry Stebbings 25:04 Yeah.

David Clark 25:04 It's come down by half over the last 10 years.

Harry Stebbings 25:07 Yeah. (laughs)

David Clark 25:08 Um, so-

Harry Stebbings 25:09 This, this is a really interesting thing that, you know, obviously I speak to a lot of LPs. And, you know, there's been dramatic shifts in allocation towards obviously China and, and Israel over the last, you know, few years. Uh, towards the US and Europe again. Like, there's been an influx of additional capital that's come from that.

David Clark 25:24 And I think that's, uh, no, and, and we've seen it. I was, I was just chatting to a, um, uh, a guy I know at a UK fund, uh, earlier today. And, and they've just recently closed, um, and done a fantastic job. And had actually raised a lot of capital from US investors, and he was thinking a lot of that is possibly those investors taking their China allocation and, and now moving it into Europe. Um-

Harry Stebbings 25:45 I think we would fall in that bucket.

David Clark 25:46 (laughs)

Harry Stebbings 25:46 I, I have one European investor, uh, and everyone else is US.

David Clark 25:50 Yeah, yeah. Our perspective is we don't want to... I, I don't care how much is in Europe. I don't care how much is in the US. What I care about is are we getting exposure to-

Harry Stebbings 26:00 The best managers.

David Clark 26:01 ... the best, the best, those top 1% companies. And, and, and that will define the best managers. And so when I look back at the, the, the, the, the best VC exits over the last six or seven years, the managers that we've backed have been in 85% of the top 20 or 30 exits there. So we're consistently getting exposure, and not just logo exposure, like proper exposure.

Harry Stebbings 26:24 When did you do your last fund?

David Clark 26:26 What do you mean, when did we last make an investment?

Harry Stebbings 26:27 Like, wh- when did you last make a new investment, a net new fund?

David Clark 26:30 A net... So, so this is not a re-up?

Harry Stebbings 26:32 No to re-up.

David Clark 26:33 Uh, our last one was probably 2018.

Harry Stebbings 26:40 (laughs)

David Clark 26:40 And it was a Fund 18.

Harry Stebbings 26:43 (laughs)

David Clark 26:43 I'm, I'm... Not, you... No, I prefer not to disclose-

Harry Stebbings 26:46 No, no, no, no, no, no, no.

David Clark 26:47 ... which manager it was.

Harry Stebbings 26:47 You don't have to, you don't have to at all. I, I just wanna... But, so then, I mean this in the nicest way. Is your job not just to not piss off your existing managers?

David Clark 26:55 (laughs) That's a good-

Harry Stebbings 26:56 Na- I'm like, Alfie's a friend of mine. I would nev- I would never bother pitching Alfie because it's like y- you know, 2000- it was six years ago.

David Clark 27:04 Yeah.

Harry Stebbings 27:05 I'm so sorry to be so rude.

David Clark 27:07 No, no.

Harry Stebbings 27:07 Do your f- Do your LPs not ask, like, "Why are we paying fees? You, you d- net new investment was six years ago?"

David Clark 27:15 Yeah. (laughs)

Harry Stebbings 27:16 It's a game of access.

David Clark 27:17 So, you know, ultimately, what's, what do in- what, what do our investors care about? Our investors ultimately want to try and get the best risk-adjusted returns they can from the venture industry.

Harry Stebbings 27:30 Mm-hmm.

David Clark 27:30 Um, and we think we have a strategy that delivers that. In a way, trying to sort of understand how that strategy works under the hood, it, it's a bit like how do our, how do our managers find their best company? I don't really care how they do it. There's lots of different ways to be a successful VC investor. I'm less worried about that. I'm more worried about their output-

Harry Stebbings 27:48 Mm.

David Clark 27:48 ... than their, than their process. You know, from our perspective, you know, we want to continue to deliver that performance. And so we are paranoid about every time I see... I was just doing something today, there was a new white paper about why emerging managers and small funds outperform. And I'm all over that data, because I want to understand what are we missing? What's wrong with our strategy? Why should we be cert- you know, why should we do, um, a, a whole load of net new managers? What advantage will it give us? Um, and-

Harry Stebbings 28:16 I'm so intrigued. You said there about output. Uh, I, I'm loving

Harry Stebbings 28:20 this. But you said there about output over process. I just think that's so wrong.

David Clark 28:24 (laughs)

Harry Stebbings 28:24 Because, like, the investment decision-making process is the product of venture capital. And actually when you think about sustaining great returns, and when you think about what makes a firm great, it's the process that lea- it's the inputs that lead to the outputs. I could have a random investment in Uber from a friend who I've worked with before. Crap process, crap portfolio, my output will be great.

David Clark 28:49 Yeah.

Harry Stebbings 28:49 That fund will be great.

David Clark 28:50 How, how do you know if the process works?

Harry Stebbings 28:52 You do a review.

David Clark 28:54 Of the process or of the output?

Harry Stebbings 28:55 Uh, you can do a review of both.

David Clark 28:57 How do you know, how... But how can you know the process works unless you judge it by the output?

Harry Stebbings 29:02 In terms of, like, how do we know... 'Cause it's such a long timeline for knowing-

David Clark 29:05 Yeah, how do you know, how do you know that, that, you know, somebody's investment process is better than somebody else's investment process?

Harry Stebbings 29:11 I think you can understand the quality of one's thinking and how they think about creating environments of safety, where you actually champion and challenge together, where you hear all voices, when there isn't a dominant voice, when there isn't a bias, a bully, when there isn't uneven confidences in a partnership, when there isn't, uh, unequal distribution on personnel-

David Clark 29:31 So you wouldn't invest in Vinod Khosla?

Harry Stebbings 29:33 Pff. I mean, that, this-

David Clark 29:35 You wouldn't invest in Bryan Singerman? Where there's a single-

Harry Stebbings 29:37 I... All I-

David Clark 29:37 Where Founders Fund have a single, you know, single GPs can go and do deals. Andreessen Horowitz, single GPs can go and do deals.

Harry Stebbings 29:42 I would, I'd, I'd definitely do that, but they champion e- they challenge each other intensely. Bryan will get pushback from Peter like nothing else. And he'll get pushback from Napoleon, and he'll get pushback from all of his other partners. He will be rigorously challenged. No, I wouldn't do a partnership where I felt, one, Khosla. Yes, I would. Why? Because I think Keith would push back immensely if he didn't like a deal that Vinod liked. And I think Vinod would listen.

David Clark 30:07 Yeah. I'm not saying there's a... And I think one of the things that, that, that-

Harry Stebbings 30:10 I get you, totally, but I-

David Clark 30:11 One, one of the things, one of the things that, that, that I've seen is that there's no right, single right way to do venture.

Harry Stebbings 30:18 Mm.

David Clark 30:18 There's no single right way-

Harry Stebbings 30:19 That's so true.

David Clark 30:20 ... to make decisions. There's no single right way to structure a partnership. There's no single right background for a successful VC. And actually trying to predict what the key determinants of, of success are-We've tried to do it, and we haven't been able to do it.

Harry Stebbings 30:38 (laughs)

David Clark 30:38 And I'm, I would love to see, I would love to see the long-term data from other LPs, um, that says that they have been able to do it. And it may just be us. It may be that, you know, we're in Oxford, we're not in Silicon Valley.

Harry Stebbings 30:55 Mm-hmm.

David Clark 30:55 If you're in a different environment, you can do things differently, you see things differently, um, you have a, a, you know, very different inputs.

Harry Stebbings 31:02 Mm-hmm.

David Clark 31:02 But, but, but I think one of the things that, that we feel very strongly is that actually all the talk about edge and how you pick emerging managers, how do you know if you're successful or not with your strategy? And it's very easy to talk about, you know, "I've found this fund," or, "I've done that," or, "I looked for this." How do you go back in 10 to 15 years' time and say, "Did that actually work or did it not?" And what we've been able to do with our strategy is to look back, because we've been doing it for so long-

Harry Stebbings 31:34 Yeah.

David Clark 31:34 ... we've been able to look back at the output and go, "That's actually been successful."

Harry Stebbings 31:39 Do you not worry that that is a lagging indicator, it doesn't represent a new strategy? I s- I hear a lot of endowment funds say that, say, "Oh, we, uh, we, we've got the Yale David Swensen model." And I'm like, "He did that in the '80s-"

David Clark 31:51 Yeah.

Harry Stebbings 31:51 "... when there were much fewer managers to select-"

David Clark 31:53 Yeah.

Harry Stebbings 31:53 "... and venture had much better returns." That is not a comparable strategy today. Do you not worry that that is lagging data that you are now acting on in today's environment?

David Clark 32:02 Yeah, and I think it, it, t- totally accept that, that one of the challenges of venture is that the feedback loop is so long.

Harry Stebbings 32:09 Yeah.

David Clark 32:09 And, and, and to be honest, most LPs probably aren't gonna be in the same job when-

Harry Stebbings 32:15 (laughs)

David Clark 32:15 ... when that (laughs) , when that feedback comes.

Harry Stebbings 32:17 Yeah.

David Clark 32:17 So they're, they're more worried about deploying than they are about what happens 15 years down the line when, you know, when the performance data is, is actually in. But then I, I would kind of flip that around and say let's go back to the first principles. So, I totally accept that. Let's go back to the first principles, let's go back to the underlying performance data, and let's see what strategies, you know, can be successful. Um, and, and for us, it, it's, you know, f- we think venture is such a power law industry.

Harry Stebbings 32:50 There are new strategies which haven't been done before,

Harry Stebbings 32:53 uh, to the extent that they have, like, uh, Sam Altman, who is obviously a, a fantastic CEO and also invests heavily on the side-

David Clark 33:02 Yeah.

Harry Stebbings 33:02 ... there haven't been cases like him before. And so we don't have data sets to predict forward on or to judge against. How do we think about entirely new models which may be better?

David Clark 33:12 Yeah. And I think as an investor, it's a little bit s- you know, for us, we don't feel we need to be out there trying to test these new theories. What we need to try and do is to find when something is working to jump on it as quickly as we can, and then trying to, trying to get access in there where we have more signal and, and, and more conviction that, that it's not just a good story, a good narrative, but actually it's going to result in strong performance. And so when we do look, um, so, you know, w- we are looking at, at adding new managers in the market today, because we think that signal-to-noise ratio looks a lot better, because we're now starting to see a lot of those companies that, that raised money in, in, at the height of the, the ZIRP era, you know, begin to come back down to, to, to, t- to ground, and, and, and get a sense of what they're, what they're really worth. And so I do think over the next couple of years you will start to see managers differentiate themselves. But I think for us, the earliest we would intercept a manager would probably be Fund Three, and that's where we've had the most success historically. So if I look-

Harry Stebbings 34:22 (laughs)

David Clark 34:22 ... at our 12 managers, probably half of them we ended up doing at Fund Three. Uh-

Harry Stebbings 34:26 Why is that the critical juncture?

David Clark 34:28 I think it's because you can look, you get a better sense in Fund One as to whether or not they've been able to find one of those top 1% companies. And once you have found those, one of those top 1% companies, again, our, our, our experience and our data suggests that you're more likely to be able to replicate that. So I, again, going back to some of the academic data that's out there, it does suggest that that first success is actually random. But once you've had that first success, there's a high likely or higher likelihood that you can then leverage it and start that virtuous circle and begin to build a franchise.

Harry Stebbings 35:04 Do you care about the ownership on that first success?

David Clark 35:06 It has to be material, yeah. It has to, uh, uh, it's not just the ownership. It's also about, it's also the role of the investor in contributing towards that success. So if you wrote a $50,000 seed check and turned up 15 years later and found you had a company that, you know, went public at a $10 billion valuation, then that's less interesting for us. I- if you were leading a round, if you were on the board, if you were working with the entrepreneur very closely, if you were adding value-

Harry Stebbings 35:39 Do you think VCs add value?

David Clark 35:42 I think some VCs add value (laughs) .

Harry Stebbings 35:45 (laughs)

David Clark 35:45 I think some VCs don't destroy value.

Harry Stebbings 35:48 Mm-hmm.

David Clark 35:48 Uh, I think there's a wide range.

Harry Stebbings 35:49 Do you care if your VCs add value? I know it sounds strange, but isn't-

David Clark 35:54 I think, I think, I think we care if our VCs... We want our VCs to understand when they need to get involved and when they need to get out of the way, because there will be certain points in a company's life where they do need help. Nothing, n- no success happens in a straight line.

Harry Stebbings 36:12 Mm-hmm.

David Clark 36:12 There are, you know, you look at most of the, the companies out there that have, that have been successful. At some stage, they had a near-death experience. And I think the role of a founder is, it can be at times incredibly lonely. So I think there are times when a VC needs to be there for that founder, um, and needs to give them a har- have a hard conversation with them and needs to deliver a bit of tough love, but also needs to be supportive, um, and, and, and, and, and, and also in a way to be a psychological support for, for that founder.

Harry Stebbings 36:43 Ah.

David Clark 36:43 So-I think the best VCs are able to do that and can pick and choose their times. I, I think there are clearly VCs out there who just need to back off a whole heap.

Harry Stebbings 36:54 I agree with you. I'm just intrigued. So, on this juncture of like, hey, we inv- we tend to often find the entry point is the third fund. And we bo- y- you acknowledge that you can't really judge a process, or it's very difficult to judge a process, 'cause of the lack of tied outcomes, or the kind of outdated outcome that comes. What else is part of the selection process then? H- just help me understand how you get excited by a manager.

David Clark 37:18 Yeah. So, we have... I wanna say we've never invested in a manager that has come into us directly. So... (laughs)

Harry Stebbings 37:27 (laughs)

David Clark 37:27 W- I, I, I'll reply to all of them, um, but it'll be s- you know, it's, it's not something we wanna spend our time looking at. So, we have a, we have a, a, a pretty simple screen. You know, we wanna look at what we think are those top 1% companies. We spend a lot of time looking at who are the early stage investors in them. Um, and then it's a case of us trying to reach out and build relationships with those managers. So, our, our deal flow is all outbound.

Harry Stebbings 37:56 Deal flow's all outbound?

David Clark 37:58 Yeah.

Harry Stebbings 37:59 Wow! Okay. How much is referrals from other managers that you're in?

David Clark 38:03 If they're not on our list, none.

Harry Stebbings 38:06 Huh. So then, then just help me understand, what will lead you to outbound a manager? Is

Harry Stebbings 38:11 it like, "Oh, I really like their portfolio." "Oh, a- that's an incredible background." "Oh, I've seen their s- returns in PitchBook." What is it?

David Clark 38:19 No. It's looking at, at those top 1% companies.

Harry Stebbings 38:22 Yeah.

David Clark 38:23 So, we will, we will... We have a list of all the, you know, the, the top, the top 1% companies that we think that, you know, that are out there. They're the ones that have exited, the ones that are just below, um, and, and we're looking at who are the investors in those, who are the early stage investors? And we start to see names that we don't recognize. That's when we'll get interested, and we'll do a little bit of work, um, to see, you know, is this... You know, where did they intercept these companies? You know, maybe have a con- maybe that's when we'll do some soft referencing amongst our GPs and say, you know, "What do you think of such and such?" If they're not in that screen, then we're not gonna spend our time there. And this goes back to the conversation we had right at the start about is it harder to be an LP today? Yes and no, depending on how you're looking at the industry and how you're screening the potential candidates for investment.

Harry Stebbings 39:12 Okay. But we find one, and we are like, "Yes, that's great. We, we really want to invest. We wanna do the 2018 net new investment." If they're smashing it out the park and in there in, you know, in the top 1. or 1% of companies, they don't have any allocation in their funds.

David Clark 39:28 Mm-hmm.

Harry Stebbings 39:28 Everyone is taking up the allocation. How do you... And respectfully, you're a fund of funds. Right? You're not a foundation, you're not a healthcare institution.

David Clark 39:36 Yep. Yep.

Harry Stebbings 39:36 How on earth do you win?

David Clark 39:38 Persistence? (laughs)

Harry Stebbings 39:40 (laughs)

David Clark 39:41 Um, it's understanding, understanding the entry points as well. Even great firms go through challenging periods of time. Um, you know, one of the reasons why we see great firms fail is because they don't handle succession well. And some of them will handle succession badly but get there eventually. So, there may be an opportunity to, to intercept during the period where people are thinking, "Is this still a, a manager that, that makes sense?" You know, we talked about intercepting a number of our existing managers post-financial crisis. You know, I think there's an opportunity today. You know, w- we know the lack of liquidity is having an impact on, um, on a number of LPs, um, because they, they need to have distributions coming back in order to make new commitments.

Harry Stebbings 40:29 Mm-hmm.

David Clark 40:30 So, I do think there's an opportunity, um, to, to potentially add one or two-

Harry Stebbings 40:34 Are you saying that, though... Actually, 'cause the last few years actually weren't bad if you were, if you were a good LP. The last few years weren't bad for distributions. Plus a denominator effect is better now given where public markets are. Like, is, is it really the problem that we thought it was?

David Clark 40:46 I think the denominator effect, you're right, has, has, has, has dissipated. Um, I look at the distributions that we're getting, and we, we had a good 2023, but that was on the back of things that went public in 2021.

Harry Stebbings 41:00 (sighs)

David Clark 41:00 And one of the metrics we track is what's the value of the public stock that's held by our managers. Um, and that number has been coming down. And there've been no net new adds to that list for the last 18 months or so.

Harry Stebbings 41:13 And they don't distribute to you, they hold for you?

David Clark 41:15 They will distribute over time. So, it probably takes 18 months, 24 months for a position to be fully realized-

Harry Stebbings 41:22 Yeah.

David Clark 41:22 ... from those managers. So, you know, we're getting to the stage now where those companies that went public in, in the s- the second half of '21, you know, they've certainly begun, they've certainly distributed the bulk of, of the shares that they had. There is some still left, so you know, we are seeing liquidity still coming back. But it will take time to replenish that inventory. So, even if we start to see IPOs in the second half of this year, it's gonna be six months before those shares become freely tradable. Um, and again, it will probably be another 12 to 18 months before those positions ultimately get distri- fully distributed.

Harry Stebbings 41:54 Hard question. Those positions are fully distributed, do you hold or do you sell?

David Clark 41:59 We tend to sell, um, because we, we don't think it's our job to, um, hold public stock for our investors. They have, they have their equity managers who do that, um, and would do a better job than, than we would. Now, we don't necessarily go back to the VCs and u- and say to them, "You should distribute as soon as a stock becomes freely tradable." You know, we want them to, to use their judgment, um, as to when to distribute stock, particularly if they're still closely involved with that company. Because we've seen a number of occasions where, um, you know, the very best companies will continue to compound-

Harry Stebbings 42:37 Mm-hmm.

David Clark 42:37 ... as, as a public company. Um, and, and actually holding for a period of time after that, um, is actually beneficial for, for performance.

Harry Stebbings 42:47 Now, I, I, I was speaking to a, a dear friend who's now a PE and they said, "Listen, the, the managers who I will chastise are those who had the chance to distribute in the last few years and did not. Then I will get angry." Do you share that perspective?

David Clark 42:58 It depends on...... why they didn't distribute, and I don't think you can take it on a case-by-case, like company-by-company basis. I think you have to look at the overall volume of their work. So if they've decided to hold... Let's say they had 10 companies that went public, and they decided to hold one of them, and they distributed the rest, and they decided to hold that one because there were very specific reasons why they felt like there was significant upside there, then we have no problem with that. But it should be the exception rather than the norm. And I think it's interesting that- that- the, the criticism that Sequoia had for the Sequoia Fund, it's absolutely the right idea, it just happened that they implemented it at a time in the market where you saw significant correction once it was put in place.

Harry Stebbings 43:48 Well, I don't disagree with you. But for those that maybe aren't aware, like can you just explain your thesis, why you think it is the right idea? Because many question that at all.

David Clark 43:57 Yeah. Yeah. I- I- I think, you know, what again our experience has been when we talk about venture, there's a power law. But that is even true when you look at public companies that come from the venture industry. So there are a handful of public companies that have continued to compound, um, at high levels for multiple years after, um, going public. And in a way, the IPO, I don't necessarily view it as- uh, uh, uh as a systematically... It's not a systematically different company post-IPO than pre-IPO. You know, yes, there's reporting differences, and they've got to manage, you know, to quarterly expectations to some extent, but I think the very best companies can continue on that journey. And it- it seems if you're in one of those top 1% companies, like ride it all the way. Don't try and sell it early because you need to get points on the board. And again, this comes back to, you know, what do our managers do really well?

Harry Stebbings 44:56 (sighs)

David Clark 44:57 And- and- and what differentiates the very best managers from- from the rest of the pack? It's they recognize when they do have one of those top 1% companies, and they have the- the confidence, and they've got the history to know that if they do hold onto it and things go wrong, it's not going to be fatal for them. But they trust their judgment that actually by doing that, they can significantly add value.

Harry Stebbings 45:20 Do you think you can really tell? And I use NVIDIA as a good example here. Like NVIDIA was public

Harry Stebbings 45:25 for a very (laughs) long time before the last few years. The acceleration and enterprise value of that company is unbelievable and exceptional. But, uh, you know, bluntly, I remember recommending it to my godfather in 2012 because I saw the rise in usage of mobile gaming, and they, you know, compute behind that.

David Clark 45:43 Yeah.

Harry Stebbings 45:44 But I had no fucking idea about AI in 2012, and them being at the forefront of that. And I don't think many of the venture investors would- would have sold when they went public, whenever that was. And so do you think you can even tell, honestly?

David Clark 45:56 I think it depends on where you are in that company's life cycle. So at the time NVIDIA went public, it was a very different business, and I don't think you could've predicted the AI wave.

Harry Stebbings 46:07 Yeah.

David Clark 46:07 But I- I- I look at, I look at what happened with Square, for example. So Square went public. It was a couple of billion dollar company. I know two of the venture investors in there held onto that for several years post-IPO because they knew the Cash App was coming. They knew there was another leg there, and they felt that the market wasn't fully valuing the option value of that second product line. And so where you have that sort of situation, then- then I think it's absolutely right for the venture investors to continue holding.

Harry Stebbings 46:36 I agree with you, and I get you. Can I ask, you said about kind of succession, and I am really intrigued on that 'cause you said, you know, you like to have that juncture where maybe there's a faltering but different firms make it through, different firms don't make it through. What have been some of your biggest lessons from 32 years (laughs) -

David Clark 46:52 (laughs) You don't have to be ruminating here, Harry. (laughs)

Harry Stebbings 46:53 (laughs) I know, and I'm so impressed. Like- but, um, what are your biggest lessons in those that make it through tough succession and those that don't? Because there's many that don't that we kind of forget about.

David Clark 47:04 I think, you know, when we- when we look at the- the firms that have done it well, I think they recognize its importance, and they don't wait too long to address it. So there's- there's one of the managers that we back that have a- that has a policy that says, "Once you get to a certain age, you're out unless you're invited by the rest of the partners to stay within the partnership." Um, and I think-

Harry Stebbings 47:24 Explicitly ageist. I like it. (laughs)

David Clark 47:26 (laughs) I think what that does, it- it- it- it really sets the precedent that- that this is a partnership, it's a firm, and the firm is more important than any individual. Um, and I think that's- and I think that's really important. And- and where we've seen firms not handle it well, it's where the senior partners and maybe the founding partners have just been there for too long. They've kept too much of the economics. They haven't cleared a path for the people below them to come and- and- and really step up. And I think, you know, things change so quickly in venture, um, that- that you've got to have that continued fresh blood coming through.

Harry Stebbings 48:00 (laughs)

David Clark 48:00 Otherwise, you get stale really quickly.

Harry Stebbings 48:02 Do you think you're close enough to know when things change in the firms that you're in? Like, I- I- I- ooh, uh, I don't know the firms you're in and- and respect that. But I'm sure I could tell you some horror stories right now of, um, things that are happening in your firms because my friends are in them, and I... Like I, it's like founders know founders.

David Clark 48:20 Yeah, yeah.

Harry Stebbings 48:20 Do you know what I mean?

David Clark 48:21 Yeah, yeah.

Harry Stebbings 48:21 Do you think you're close enough to know?

David Clark 48:23 It's probably a fund later than the issues would start to emerge.

Harry Stebbings 48:27 Mm-hmm.

David Clark 48:28 But at the same time, I think you also... You probably hear a lot of (laughs) , a lot of tr- just general scuttlebutt about what's going on in there. And- and you know, how much of that actually plays out. So I think, you know, you can- you can almost hear too much-

Harry Stebbings 48:47 Mm-hmm.

David Clark 48:47 ... and- and not understand or- or find it a challenge to really appreciate, you know, what's-... what's, what's gonna, what's material for the firm. And, and everyone likes to moan about where they work. That's never changed. Um, I think, I think for us, what we, what we tend to look for is, is to make sure that firms have that process where, you know, we're seeing a continual flow of new people coming in, and they're being valued for the work that they're doing, and the senior partners stepping aside. Now, we-

Harry Stebbings 49:16 How do you know the work that they're doing is good?

David Clark 49:18 Well, (laughs) I think, again, it comes down to ventures. Unfortunately, it's a liz- there's a lagging ind- indicator there. So, I, I, I think it's, it's trying to sort of understand who are the value drivers within a portfolio. You know, who are those top potential one percent companies? Um, and then understanding who actually sourced those deals, who did the work. Um, are they the ones that are, that are being elevated within the partnership? Um, and is there enough room at the top end to let them have the freedom to come in and, and, and continue to do those deals, and ultimately start to, to influence the, um, influence the behavior of that partnership and, and the strategic direction?

Harry Stebbings 50:01 Who do you think's done generational transition the best?

David Clark 50:04 I think there's two interesting ways of doing it. So, if I look at the firms that are on, um, you know ... I, I look at someone like, um, like Accel, um, who, you know, is probably on the third or fourth generation now of, of, um, of leaders within that firm. I think they'd probably admit that, that, you know, they didn't get everything perfect. But I think they've handled most of those transitions, like, pretty well. And it's, it's really hard. Um, I think Sequoia have a really interesting way of doing it as well, where, you know, people kind of step aside, and, and, um, you know, Don Valentine stepped aside for Mike and Doug. You know, Doug stepped aside for Roelof. Um, so I think they understand the importance of doing that. The other way is that, like, I think Foundry Group have done a really good job.

Harry Stebbings 50:52 (laughs) I love Foundry Group.

David Clark 50:53 Because they've understood that, actually, we're not gonna try and do that. There's a group of people here that want to work together. And when we're done, we're done. And that, I really respect that, that-

Harry Stebbings 51:03 That-

David Clark 51:03 ... that they haven't tried to do s- to pretend.

Harry Stebbings 51:06 Do you know, Foundry Group, I cold emailed Brad Feld when I was 18. And he would get on a call with me, he would help me, he would mentor me. I think it's astonishing, this industry, for the amount that actually the best do give back, which is really special.

David Clark 51:19 Yeah. Yeah, yeah.

Harry Stebbings 51:20 Um, can you talk to me about your re-up process?

David Clark 51:23 (laughs)

Harry Stebbings 51:23 I'm being serious. Is it just like ... Yep.

David Clark 51:27 So, I think we have a pretty good sense of, um, who ... Like, if you asked me today, I could tell you who we would re-up with and, and, you know, who are the ones where it- it- it- it, there's more of a decision. I think 90% of the managers that we have, you know, we're very happy with. We know we're going to re-up with them. Um, and, and in a way, our, our diligence on them is a continuous process. It's not about, about, "Oh, they're now raising a fund. Let's kind of meet them and talk to them for the first time." We want to continue to, you know, we wanna ... We spend time with our managers as much as we can without getting in their way. Um, but we also, you know, make sure that we're doing a lot of work behind the scenes to understand the quality of their portfolio.

Harry Stebbings 52:07 Mm-hmm.

David Clark 52:08 Um, you know, do they continue to have those key companies? Are they, are they the, uh, you know, in, in their more recent funds? But having said that, we, for every investment we do, we still go through a full diligence process. Um, so, you know, we will write our, you know, we'll take references, we'll write our full investment recommendation. But that's-

Harry Stebbings 52:27 (laughs) You've got to give Alfie something to do.

David Clark 52:28 (laughs)

Harry Stebbings 52:28 I mean, seriously.

David Clark 52:30 But I think that's more confirmatory diligence that, like, like, "Have we missed something here?" And so, it's not, it's not a case of, you know, "Do we think there's something we're worried about here?" It's, it's really a case of making sure that there's not something that's fallen through the cracks that we haven't missed. And, and also, you know, to be perfectly honest, if, if, if something goes wrong in the future, we want to be able to point to our LPs and say, "Look, we've actually done a thorough job here. We're not just sitting there and, and, you know, on the beach smoking cigars and not doing any, you know, not doing the work." You know, we are properly looking after the money that, that we've been entrusted with, um, and making sure that, you know, that every decision we make has got a rigorous process behind it.

Harry Stebbings 53:12 And I, I, I totally get that. Do you always do three funds?

David Clark 53:15 No.

Harry Stebbings 53:16 Hmm.

David Clark 53:17 No.

Harry Stebbings 53:18 Do you always do two funds?

David Clark 53:20 No. No.

Harry Stebbings 53:22 That's, why would you not do the second?

David Clark 53:24 So, there's been an instance of a manager where we've only done one fund. And, um, and there were very specific reasons for that. It was a, um, it was mainly a China fund.

Harry Stebbings 53:40 Mm-hmm.

David Clark 53:40 Um, and there were some, you know, some team issues, so-

Harry Stebbings 53:43 Is team the number one reason you won't do a fund, ironically? I think the best funds break down because of partnerships breaking down.

David Clark 53:51 I think that the, the two reasons we don't do, the two reasons we would say no to an existing manager would be performance and succession. So, so the succession, in a way is, is, is team.

Harry Stebbings 54:04 Mm-hmm.

Narrator 54:04 Beautiful.

David Clark 54:04 Yeah.

Harry Stebbings 54:05 Okay.

David Clark 54:05 Yeah.

Harry Stebbings 54:05 Okay. So, uh, I'm, I'm intrigued. If a manager is surprised that you're not coming back, is that your fault?

David Clark 54:12 Yes.

Harry Stebbings 54:12 Like, do you get ahead of it?

David Clark 54:13 Yes.

Harry Stebbings 54:14 How far ahead of it?

David Clark 54:15 So, one of the things we do with, with a lot of our managers is we send them our internal benchmarks.

Harry Stebbings 54:21 Mm-hmm.

David Clark 54:22 So, we will compare, you know, all of their funds to all of the other ma- And, and, and, you know, this is, this is great because, you know, Cambridge or PitchBook or Preqin compare, you know, they show the market. But, but our managers want to really understand how do, how do we compare with our peers?

Harry Stebbings 54:37 Mm-hmm.

David Clark 54:37 So, one of the things we do is, is, you know, every quarter or every six months, um, we'll send them ...... send them the benchmarks that, that, obviously all anonymized, but will show where their fund ranks. And because, because it's a relatively small number of managers, um, we group it by, by three years. So, if you're a 2015 fund, we compare you to funds that we did in '14, '15, and '16-

Harry Stebbings 54:58 Mm-hmm.

David Clark 54:58 ... so there's a decent sample size there. And by doing that, I think it allows us to identi- i- i- i- it shows them. It's obvious if they're not performing, and it, it also shows them where, you know, specific- so, we do it by IRR, we used to do it by, uh, TVPI, and we do it by DPI. And so, we've had some conversations with people that, where we said, "Look, you know, you guys are really good on IRR and TVPI-"

Harry Stebbings 55:22 (laughs)

David Clark 55:23 "... but you're lagging on DPI, you know? How are you thinking about that?" And, and, and some of them will go, uh, "You know, look, we think we've got a couple of really good companies here. We're not selling them. You know, we don't want to force liquidity. We want to ride them as long as we can." Then, then that's great. In others, it would be, "Ah, okay, that's interesting to know. We think there's probably some of our, you know, B companies that we can generate liquidity events for in the, in the near term to help address that."

Harry Stebbings 55:48 So, it's always hard when you, like, say no to a, a manager that you invested in, or not re-upping, and you send them the data and say, "Listen, this is where you stack rank, and, like, this is what led to our decision." 'Cause you can always have an answer back to that. "Well, I'm holding some amazing positions that aren't, you know, DPI quite yet, but they will be," or, "Well, actually," whatever this may be. "There's a to- ton of variance." Is it not better to just say, "I'm so sorry, Dave, we won't be investing"? Because it will always inspire a conver- I could argue a thousand ways on the data.

David Clark 56:16 Yeah, yeah.

Harry Stebbings 56:17 But actually, look at them. "That's lagging, look at that shit firm ahead of me."

David Clark 56:20 (laughs)

Harry Stebbings 56:20 "They've, they're all fucking on the beach." You know?

David Clark 56:23 I think we want to, we want to be honest with our managers, um, but there's also, you know, there's also limits to how far that honesty is gonna go, because, you know, we'll, we'll g- we, we want to give them an explanation as to why. And it's up to them if they want to accept that explanation or if they want to push back on it. Um, and, and we'll have a conversation, but, but ultimately, it's unlikely to, to change our mind. I think most of them, most of them, you know, where we have had that conversation, have accepted it and moved on.

Harry Stebbings 56:55 What are you sensitive- like, how do you feel about compression of deployment

Harry Stebbings 56:59 timelines?

David Clark 56:59 So, one of the lessons, you know, I, I said we've made all the mistakes in the book. One of the mistakes we made in the late '90s was deploying our funds too quickly, in, I think we had one fund that was fully invested in 15 months, um, and it was the worst fund we had. So, it was in, you know, a 1999 vintage fund. Um, so as you can imagine (laughs) -

Harry Stebbings 57:18 (laughs)

David Clark 57:19 ... not, not the best outcomes there. Um, and I think one of the lessons we learned there was that time diversification in a fund is so important, and so we look to, to, to invest all of our funds across a three-year period. And one of the things I'm really proud of was that when I look at the fund that was deploying 19, 20, 21, we did that in a quarter under three years. So, even though our managers were coming back, some of them in 18 months, we still maintained that time diversity in our portfolio, and, and, and that was really important. And it's something we talk, you know, we push our managers on all the time, is, is that we want to see three-year investment cycles for them.

Harry Stebbings 58:00 I mean this nicely. You push your managers all the time. Are your managers not just like, "Come on, like-"

David Clark 58:07 Yeah.

Harry Stebbings 58:07 "... I got a queue of people out the door, dude. Like, next."

David Clark 58:10 Yep.

Harry Stebbings 58:10 I don't mean that rudely at all.

David Clark 58:12 No, no, no.

Harry Stebbings 58:12 But, uh, do you know what I mean? It's like ...

David Clark 58:13 No, I think they're more polite than that. (laughs)

Harry Stebbings 58:16 (laughs)

David Clark 58:16 But I think we recognize that there are ... We'll give our opinion to our managers, where we think there's something there that, that it makes sense for us to talk about. Um, if, if, if they don't want to listen to it, then, then that's fine. Um, ultimately, they're the ones that are playing the game on the field, uh, and as an investor, we trust them to do that.

Harry Stebbings 58:39 Mm-hmm.

David Clark 58:39 Um, if they decide that, that ultimately they, they, they're seeing such great opportunities that they want to put their fund to work in, in 18 months, um, then, then they've earned that right to do that. But they've also must recognize that, that they will be held accountable for what they do, um, and, and, you know, it's not to say that, that we'll walk away from a manager if they have one bad fund. That's not the case. You know, we look at these as long-term relationships.

Harry Stebbings 59:05 Mm-hmm.

David Clark 59:06 Um, and so, you know, if, if there is a bad fund, as part of that, we want the managers to be honest about have they really thought about, uh, you know, what are the reasons for that? What are the lessons that they've learned? Now, you know, they might just be saying that, and, and will continue to do what they want, but, but ultimately, you know, it comes down to, um, if it's happening consistently, that's gonna impact performance. And when it starts to impact performance consistently, that's one of the reasons why we'd walk away.

Harry Stebbings 59:33 How do you think about fees and carry and sensitivity around those? We've seen some of the best firms and some of the names, I'm sure, that are consistently in the top 1% of companies even have three in 30. What a brilliant business.

David Clark 59:46 I've never seen a three in 30.

Harry Stebbings 59:48 You've never seen a three in 30? Oh, really?

David Clark 59:51 No.

Harry Stebbings 59:51 Okay. What have you seen that's the highest?

David Clark 59:55 Two and a half. I'd have to double-check that, but I'm pretty sure, I'm pretty sure there's nothing that I've seen that's a three in 30.

Harry Stebbings 1:00:01 How do you feel about fee and carry increases to the two and a half, to the 25, to the kickers? How do you feel about that?

David Clark 1:00:10 For us, it's about net performance. So, you know, what does that performance look like, um, after the fees and carry have been taken off? And, and if it's consistently top quartile, and it's consistently strong, um, then we're relaxed about that. I think I would prefer to see the carry be tiered. So, I've got no issues about paying for performance, um, but I think it's import- you know, i- ideally, I'd like to have that alignment of interest, so that if you do have a, if you have a great manager that has a poor-performing fund, then that's reflected in the, the economics that go back to them for that specific fund. As you said, there's a whole line of LPs queuing out the door wanting to get into these managers, so that's, you know, realistically, that's not gonna happen. Um, so I, I think ultimately for us, it comes back to what, what's the net performance?

Harry Stebbings 1:00:55 Okay. What other things would piss you off? If there's deployment timelines compressing, uh, you know, fees and carry being elevated, anything else where you're like, "Ugh, that's a bugbear"?

David Clark 1:01:05 We've talked about fund sizes. Um, you know, that's, that is something that we continue to, to look at and to monitor. And I think it's, it's important that we see, uh, we still feel comfortable that their, whatever the fund size they're investing out of, that there's a, an opportunity for them to return the fund fr- with an E- with a single investment. It, it's slightly d- certainly for early-stage funds. I think for, for later-stage funds, you know, we probably want to see, you know, half the fund come back from a s- or the potential to return half the fund from a single-

Harry Stebbings 1:01:35 Can I ask, what's your distribution of dollars across the stack, across early, kind of A and BC, and then, you know, growth?

David Clark 1:01:42 Yeah. So, we kind of, uh, it's for us, so we don't, uh, we've got one or two managers that would have seed funds. Um, but there's probably three or four seed funds that we're invested in, um, across our, our, our, our managers. The majority of them would be early stage, and that would be kind of A, A and early Bs.

Harry Stebbings 1:02:00 Mm-hmm.

David Clark 1:02:00 And then I think virtually all of them would have some kind of, um, fund to do later-stage deals, whether that's a fully fledged growth fund, or, or whether it's more of a kinda continuation fund, a sort of opportunity fund, a select fund, that sort of thing. It, it, it varies. Um, we want to be sort of roughly 50/50, um, between early and growth. It's a challenge to manage that. Um, if we end up being sort of 45/55, I think we're comfortable with that. We don't wanna be 30/70.

Harry Stebbings 1:02:31 How do you feel about the stapling? 'Cause it's hard. You know, and the best managers especially, you know, A, they have IR teams. I'm intrigued to see how you feel about those. But, um, they, they also say, "Great, but you need to do India, you need to do growth, you need to do X." And it's like, "Oh, Christ, I just wanted to do your early-stage fund."

David Clark 1:02:49 So, we, again, we go back to the data. (laughs)

Harry Stebbings 1:02:52 Mm-hmm.

David Clark 1:02:52 And we look at the performance. Um, and so, you know, whichever way we cut it, it's, it's, it's really interesting. So, we looked at what's the performance of, uh, of the early-stage US funds from our core managers from 2005 onwards? What's the performance of the growth funds from our core managers from 2005 onwards? What's the performance of the non-US funds from 2005 onwards from our core managers? It's all the same.

Harry Stebbings 1:03:18 It's all the same?

David Clark 1:03:18 It's all the same. In aggregate, it's all the same. Uh, uh, you know, it's a .1, .2 TVPI difference.

Harry Stebbings 1:03:24 Mm-hmm.

David Clark 1:03:25 It's all the same.

Harry Stebbings 1:03:25 DPI difference, or not?

David Clark 1:03:27 No, the growth funds come back quicker with, you know, the, the distributions come back earlier in the growth funds.

Harry Stebbings 1:03:31 Wow.

David Clark 1:03:32 So-

Harry Stebbings 1:03:32 So, why don't you just do more growth?

David Clark 1:03:33 Because we think the growth is probably more economically sensitive. So, it's more, if you think about what goes into the driver of a great growth investment, um, you know, value, entry valuation is probably disproportionately more important than it is on the early stage.

Harry Stebbings 1:03:49 Yeah.

David Clark 1:03:50 Um, and also, um, the, the size of exit is as well. So, I think, you know, we've gone through a, a period where we've had some very strong performing growth funds.

Harry Stebbings 1:04:01 Mm-hmm.

David Clark 1:04:01 And if I showed you a, a, a list of, of, of, of the TVPI of all our core manager funds, you would not be able to predict which was a growth fund and which was an early-stage fund.

Harry Stebbings 1:04:10 Hmm.

David Clark 1:04:10 Our best performing core manager fund in the last 15 years is a growth fund.

Harry Stebbings 1:04:15 Hmm.

David Clark 1:04:15 So... (laughs)

Harry Stebbings 1:04:16 (laughs)

David Clark 1:04:17 Um, so, uh, you know, I think, I think it's, it's, it's really interesting there. But, uh, I think we feel comfortable that, that the, again, the best managers, um, have that ability to pick the best companies. And as companies are staying private for longer now, I th- it, it, it does feel like there's more of an opportunity to generate venture-type returns from slightly later-stage investments.

Harry Stebbings 1:04:42 Roger Ehrenberg said on the show, "Venture returns will get worse."

Harry Stebbings 1:04:47 Do you agree?

David Clark 1:04:47 For existing funds or for new funds?

Harry Stebbings 1:04:49 Both. Take one by one. For existing?

David Clark 1:04:52 For existing, so I think there's no question in my mind that there's still more paying to be had, um, for existing funds. Um, you know, I look at the carrying valuations that, that we see for a lot of companies. And, and they vary quite wildly. Some of our managers have been pretty aggressive in writing things down. Um, others less so. And, and on the int- on the times, one of the things we are interested in is when we, when we do get pitched from, from newer managers, one of the things we look at are where are they holding their marks.

Harry Stebbings 1:05:23 Yeah.

David Clark 1:05:23 And generally, we've seen the new managers holding last round value marks-

Harry Stebbings 1:05:27 Mm-hmm.

David Clark 1:05:28 ... and, and not writing anything down. Where it's the more established managers that are perhaps earlier in that cycle, you know, they're ahead of the curve in, in writing stuff down. So, I do think we're only part of the way through that. Um, one of the other things we, we track is, uh, loss ratios.

Harry Stebbings 1:05:43 Mm-hmm.

David Clark 1:05:43 So, what percent of companies backed by our managers are below 1X.

Harry Stebbings 1:05:46 Yeah.

David Clark 1:05:46 Historically, for an early-stage fund, that's been 60% of companies don't return 1X cost.

Harry Stebbings 1:05:54 (exhales)

David Clark 1:05:54 Um, you know, we've seen that reduce significantly for more recent vintages. Um, my sense is that it's gonna go back to the average, it's gonna go back to that sort of 60%. So, I think there's a, a lot of paying still to be had. So, that's not just companies who are gonna get, uh, see their values reduce. I think there's a lot that ultimately aren't gonna be successful and go out of business. Um, and we haven't really had the wave of that happen yet. It feels like that's still to come. I don't know, I'd be interested in your perspective as a, you know, as a VC as well. How are you, how are you seeing that?

Harry Stebbings 1:06:26 Well, I, I mean, I, I think, you know, the thing that we see from the data that we have, which is a lot, is the chasm in values that different people have in their books. I mean, just extraordinary chasms in value. I was looking at one today, and one was valued at $800 million, and the other person had it at $10.2 billion. Uh, that's a, a fair wedge of difference between the two. And so, I, I feel for LPs because I think it's really difficult to get a fair grasp of what is the true value of your underlying book. And I think that's very hard. So, I, and I definitely agree with you, the managers who don't need to posture and present a brilliant facade (laughs) don't need to.

David Clark 1:07:00 Yep.

Harry Stebbings 1:07:01 And so, I think you get a lot more truth to that. I'm intrigued, you know, when we think about that, you know, Doug Leonis said before, "We've seen the transition from a boutique high-margin industry to a, uh, commoditized low-margin industry."Do you agree with your 32 years of experience? (laughs)

David Clark 1:07:19 (laughs) I'm not going to argue with Burke. (laughs)

Harry Stebbings 1:07:22 But really?

David Clark 1:07:23 Um, I- I- I do th- I think what has happened to the venture industry, you know, when I started, venture was- was kind of... There was, you know, a bit of semiconductors and hardware, and a bit of software on the West Coast. There was a, you know, a bit of hardware on the East Coast, and some biotech, and- and it- it was a pretty small cottage industry. I think what you've seen is- is over the- the last 30 years, the venture industry has expanded significantly. There's almost multiple parts to that industry now. So, I would say it depends on which part you're talking about. If you're talking about, you know, the- the- the people that are raising multiple billions of dollars to do, um, you know, to do the crossover deals, the late-stage private rounds, then I- I think that is more of a capital allocation exercise than it is a, um, a- a- a kind of craft business. Um, so I think returns there will probably- will probably come down, because the- the weight of capital will make entry values become efficient. And- and, you know, I think- I think we've, you know, we've seen that in a lot of other areas as well. So, you know, parts of the market, I think that is true, but I also think there are other parts of the market where- um, where that's less true, because it isn't necessarily about, is capital a strategic advantage? Um, in- in certain parts of the- of the industry, I think... It- it's still- it's still a case that too much capital can- can be detrimental to a company. So I think there's parts of the industry where you will see that craft approach. And- and for me, it's still around- it's still around the kind of, you know, the seed stage, the series A, you know, maybe the early Bs, before things- before things rea- before things are really driven by the underlying metrics of the business, and it's more about an understanding of market potential and taking a view on founders. I think the more quantitative the decision becomes, the more that excess returns will probably get competed away.

Harry Stebbings 1:09:31 Can I ask you a final one? When you think about your biggest mistake,

Harry Stebbings 1:09:36 a fund that you regret doing, when you review... Don't say it, obviously. Um, I know you won't.

David Clark 1:09:41 (laughs)

Harry Stebbings 1:09:42 (laughs) But, uh, when you review that decision, what did you not see that was the determinant of that fate?

David Clark 1:09:48 I think one of the challenges with investing in venture is that there are so many unknown unknowns. Um, and- and the degree of randomness that leads to... That- that is involved as to whether something is successful or not, is- is high. And the earlier you get, the- the- the greater that degree is. So, I think there are certainly things that- that, you know, we couldn't have been expected to predict at the time we were doing the deal.

Harry Stebbings 1:10:16 Mm-hmm.

David Clark 1:10:16 And one of the things we do with- with- with our investments is- is sort of four or five years post-investment, we'll do a decision review analysis of- of those, um, to see what can we learn from that and how can we improve our decision? And one of the big things that we learnt was, we used to only take references on managers, um, from VCs that they had invested alongside. So we wanted to know what were they like as a- as a partner, what were they like on the board. What we didn't do was, if somebody was operating in a- in a particular space and we knew one of our managers was re- you know, was one of the top investors there and they hadn't done any deals with that manager, we just didn't follow up on that. But now we'll actually say, we'll pho- phone that manager up and say, like, "Why haven't you done any deals with this group?" Like, "What... Is it just that you're in different parts of the market, or are there specific reasons for not having done those deals?" Um, and I think sometimes we learn interesting things from that.

Harry Stebbings 1:11:14 Mm-hmm.

David Clark 1:11:14 So I think that's probably the- the biggest thing that's come out of our decision review process, is to be... Is not just to, um, reference people who we know work with each other, but reference people who are in that particular sector who we would normally expect to have worked with each other.

Harry Stebbings 1:11:29 Do you know why that's just competitor shit talk? Do you know what I mean? Which is like, you ask someone, "Oh, what's it like with X comp-" And they're gonna be a competitor in a lot of cases. "Well, that's shit, and you know, the partnership's breaking down, and they have a broken decision-making process, and the brand's there." But, do you know why that you're actually letting imperfect information then impact your decision-making process?

David Clark 1:11:49 Yeah. I- I- I think the importance there is you have to- you have to triangulate. So, there's not just one specific source of information that is primary. I mean, there's stuff that... And you also have to understand, you have to have that relationship with your VCs that you know, are they the sort of person that- that craps on everyone? Are they the sort of person that gives everyone a great reference? And you need to sort of have that history with them, where you can put that into context, what they're saying.

Harry Stebbings 1:12:17 Mm-hmm.

David Clark 1:12:17 Um, and I think that's- that's really important. Um, and that just comes from time and building those relationships and having those conversations. And it's getting harder. It's getting harder, you know, particularly where, you know, you- you mentioned firms that have, you know, big IR departments, and it's harder to have that interaction with individual partners. You've got to work at it more.

Harry Stebbings 1:12:34 Yeah. It's tough.

David Clark 1:12:36 Mm-hmm.

Harry Stebbings 1:12:36 I want to do a quick fire with you, 'cause I could talk to you all day.

David Clark 1:12:38 (laughs)

Harry Stebbings 1:12:38 So, I'm gonna say a short statement, you're gonna give me some immediate thoughts. Does that sound okay?

David Clark 1:12:42 Yeah. Go for it.

Harry Stebbings 1:12:42 What have you changed your mind on most in the last 12 months?

David Clark 1:12:46 So, if you had spoken to me, um, maybe not quite the last 12 months, but- but certainly sort of two or three years ago, um, I think we were incredibly skeptical about LPs doing co-investments, direct co-investments. Um, because we looked at the data, which is, you know, we know 60% of deals don't return capital. Um, and we just thought, "Why would LPs be doing this? What's the likelihood that they're gonna be getting into those top 1% companies?" I think I would- my view has definitely evolved on that. I'm not all the way there yet, to say that- that actually it's a good thing. But I do think there are situations in which, um, there are different ways to optimize for those top 1% companies. One is to do it through the best...... the best primary managers. One is to do it through secondaries, and I also think another way, selectively, is to do it through directs.

Harry Stebbings 1:13:36 Huh.

David Clark 1:13:37 But directs in established companies, not with seed-stage managers.

Harry Stebbings 1:13:40 What would you most like to change about the world of venture?

David Clark 1:13:43 I think venture is, certainly venture at the, uh, uh, eh, eh, at the highest level is, is quite exclusive. And so, I, I think I'd like to try and democratize venture-

Harry Stebbings 1:13:56 Mm-hmm.

David Clark 1:13:56 ... to some extent. And that works on multiple levels. So, it's about giving, giving everyday investors the opportunity to invest in a Sequoia, or an Accel, or an Andreessen, or a Kleiner Perkins, or an Index, um, and, and not just Ivy League, um, endowments, um, because I think, you know, for the average person, it's, you know, it's tough. And, and, and venture done well, you know, can really drive significant outperformance over a long period of time.

Harry Stebbings 1:14:27 Mm-hmm.

David Clark 1:14:27 So, I think giving, you know, giving individuals access to, to that, I think would be great. But I also think from a, you know, looking at, at, at who comes into venture as well, you know, I, I mentioned, uh, you know, no one in the village I grew up had ever heard of venture. I was lucky someone was willing to gamble on me.

Harry Stebbings 1:14:44 I mean-

David Clark 1:14:44 ... in the past.

Harry Stebbings 1:14:44 ... I don't think anyone had heard of venture in Britain-

David Clark 1:14:46 (laughs)

Harry Stebbings 1:14:46 ... in, 32 years ago.

David Clark 1:14:47 Yeah.

Harry Stebbings 1:14:47 I mean, seriously. I mean, I was like ...

David Clark 1:14:49 Yeah. Yeah.

Harry Stebbings 1:14:50 I mean, this was ... Yeah.

David Clark 1:14:52 Yeah. But I also look, I, I think about, you know, who's growing up in that village today,