Ryan Akkina: How MIT Builds Their Venture Fund Portfolio & How MIT Approach Direct Investing | E1109

1. 0:00 – 0:50

   Intro

   1. HSHarry Stebbings0:00

      Is it harder than ever before in terms of investing in venture funds?

   2. RARyan Akkina0:03

      It's gotten a lot more difficult, for a lot of reasons.

   3. HSHarry Stebbings0:06

      This is Ryan O'Keene. He is a member of the global investment team at the MIT Investment Management Company with an AUM of over $30 billion. For the funds which are working really well, what are the reasons that they go sideways?

   4. RARyan Akkina0:18

      Frankly, if people have a spell of success, sometimes they become arrogant, right? They start to make worse decisions and treat people worse. When things are going well, you're never as smart as you think you are, and when things are going poorly, you're never as dumb as you think you are.

   5. HSHarry Stebbings0:31

      For managers who are contemplating raising today, what would be your biggest piece of advice?

   6. RARyan Akkina0:35

      I think you have to treat the process like...

   7. HSHarry Stebbings0:40

      Ryan, I am so excited for this. I love, love that you're here. So thank you so much for joining me today.

   8. RARyan Akkina0:45

      My pleasure. The tables are turned now.

   9. HSHarry Stebbings0:47

      The tables are turned now, so this is gonna be fun.

2. 0:50 – 4:14

   Entering the World of Fund Investing

   1. HSHarry Stebbings0:50

      Uh, the LP world is an interesting one. How did you make your way into the world of fund investing and being an LP and come to be at MIT?

   2. RARyan Akkina0:57

      Well, it's definitely not a job that you, uh, you think of as a kid or something and say, "I wanna be an LP," right?

   3. HSHarry Stebbings1:02

      (laughs)

   4. RARyan Akkina1:02

      I mean, I didn't even know the job existed probably till my early 20s. Uh, you know, not to be too meandering, but maybe to explain a little why I got interested in technology as well, um, you know, originally I thought I would be an engineer, and I was lucky I had this interesting job in high school where I worked at HP and Intel working on microchip design on this project called the Itanium processor. And so I- I assumed when I went to college, I'd probably do double E and, uh, you know, be an engineer after that, but I wound up at Stanford and, uh, started in double E, and about four summers into my internship at HP and Intel working on this processor, I decided I didn't really like working as a individual contributor engineer in a cubicle somewhere and wanted to do something different, so I switched to something at Stanford called Management Science and Engineering. In, in retrospect, maybe what I should've concluded is I just didn't like working at a big company, uh, but anyway, I did that, and I was also part of a lot of entrepreneurship activity at Stanford, if you will. There was this club called BASES that helped organize the career fairs and speaker series and things like that. So I got to meet a lot of interesting VCs and entrepreneurs through that, um, got to work with some interesting firms as well. This was back before YC was so well-known, for instance, and I remember one spring, I think, we helped, uh, organize a YC startup school event on the Stanford campus, so I got to see that from pretty early days. So, you know, I actually, when I was graduating, I thought, "Well, maybe I'd like to become a venture capitalist." And I also started a, a company with some friends my senior year that, uh, a few months in, I decided it was unlikely to work out, so I didn't stick with it. They actually went on with it for four or five years, I think, and went through YC and made a go of it. Uh, but anyway, I actually thought about becoming a, a venture capitalist after school, and I had an offer at a firm, but I ended up deciding, uh, you know, I don't really have a right to win there, right? I'd seen by that time that the returns were pretty concentrated in just the, the top people, right? And not having been an entrepreneur or even a, you know, a senior executive or somebody in tech, I might have just said, "Well, you know, is this really the best thing for me to start off at 22 and just carry someone's bag and probably not be very much value add?" So, but then inexplicably, I decided to be a management consultant instead.

   5. HSHarry Stebbings3:12

      (laughs)

   6. RARyan Akkina3:13

      (laughs) Uh, so I- I did that for, uh, about a year, and, uh, you know, it was a good experience. I learned a lot, but about six months in, I could already tell I didn't want to do that for the full two or three years that you typically do it as an analyst, um, and I remembered I'd been interested in investing from seeing venture capital and, you know, obviously I still didn't have a good reason to be in venture capital. I thought, "What else can I do to learn about lots of different types of investing, and where could I work for a good cause as well?" Uh, and so that's how I got the idea of working for an endowment or foundation and learned about this whole LP world, and it just happened that MIT had a, you know, a job posting on their website, so I applied to that and through chance and luck basically wound up there in, in '09 and that was 15 years ago. I've been there ever since.

   7. HSHarry Stebbings3:56

      It's so interesting what you said about kind of the right to win. You know, Keith Rabois said on the show the other day that the single most important question any manager has to answer is, "Why do the single best founders in the world choose to work with you over everyone else?"

   8. RARyan Akkina4:07

      Yeah.

   9. HSHarry Stebbings4:07

      And I- I always find it astonishing how few LPs ask that. I mean, that is the question in my mind in many respects.

3. 4:14 – 6:07

   Changes at MIT Over 15 Years

   1. HSHarry Stebbings4:14

      Before we get into that and how you think about kind of picking and selecting managers, you know, you mentioned 15 years there now at MIT. Uh, the landscape's changed a lot in that time. Is it harder than ever before today, and how do you think about comparing then and now in terms of investing in venture funds?

   2. RARyan Akkina4:33

      It's gotten a lot more difficult for a lot of reasons. I, I think one is, I mean, if you just think of the strategy we used to have and I think a lot of other large endowments had, for such- for some time it was basically sit back, see who the top five or six firms are, focus on Series A's in, in the US mainly, and, um, you know, we had a good enough, uh, brand as MIT or other endowments and foundations to wait till these things were pretty proven, not to mention we've been investing in these things a long time. I mean, MIT has been investing in venture firms since I think at least the '70s, perhaps even earlier. Uh, so we could be a little bit lazy and sit and wait and then get into whatever the top firms were, and there wasn't a huge number of them, right? And today, I think the ecosystem is hugely more complex, right, in terms of stage, in terms of geography, in terms of all sorts of, you know, different business models there are for venture firms, different, uh, sector specialists and so forth. So it's just there's a lot more waterfront to cover, first of all, and secondly, it's a lot more competitive, um, right? I mean, I think it's been said for a while that venture's kind of a cottage industry, or at least it was, but now, uh, you know, it's- it's probably every day there's an article in the Wall Street Journal or the FT about something in venture land or startups. It's become a very, uh...

   3. HSHarry Stebbings5:50

      I think, I think Doug Leone put it well, which is that, you know, we've transitioned from a boutique cottage industry with high margins to a commoditized low margin business.

   4. RARyan Akkina5:59

      Yeah. Unfortunately. (laughs)

   5. HSHarry Stebbings6:00

      Sad- sadly.

   6. RARyan Akkina6:01

      Right, right, and so we have to try and still find the places where we can make high margins, and that's- that's become very difficult

4. 6:07 – 7:33

   Evolution of the Financial Industry

   1. RARyan Akkina6:07

      obviously.

   2. HSHarry Stebbings6:07

      I don't think we ever go back to that boutique high margin business. I think we've forever...... private equitized or hedge fundized, our business has changed so seismically, and there's no going back, just like hedge funds are the asset allocation industry-

   3. RARyan Akkina6:22

      Right.

   4. HSHarry Stebbings6:22

      ... that they are in private equity is. Do you agree with me, or do you think we do get back to the more boutique industry?

   5. RARyan Akkina6:26

      I agree with you. I think this is something that only goes one direction. And, and of course there will be cycles. Like right now, uh, in things to, you know, having a bad spell the past few years, it's become a little less popular and there's a little less competition, but, um, I think that is a secular trend, it's, it's gonna be an industry with more capital and more eyes on it.

   6. HSHarry Stebbings6:44

      Uh, I don't mean to push back on you, but MIT is a great name, period.

   7. RARyan Akkina6:48

      Mm-hmm.

   8. HSHarry Stebbings6:49

      Can you really not get into great funds and be a little bit sit back?

   9. RARyan Akkina6:53

      Oh, abs- absolutely. I mean, there are several, uh, very impressive firms that we missed, uh, and if we were to try and get in today, you, you know, you never know, but in, in, I think in many cases maybe we would be able to get in, but the check size we would be able to get would be relatively small, small enough that we would question whether it was worth doing. But maybe that's something we should think about. There might be cases where we would be willing to do something even with a really small check, just for the relationship. But yeah, I mean, these firms, uh, once they're discovered, and it happens early and earlier now, you know, they, they rightfully prioritize their existing LPs and the people who back them, uh, from the beginning, when they're thinking about who to give capacity to for future

5. 7:33 – 8:34

   Investing in Emerging Managers Now

   1. RARyan Akkina7:33

      funds.

   2. HSHarry Stebbings7:33

      And so you go earlier and earlier down the funnel. Peter Lecite at SCS said on the show that now's the best time ever to be investing in emerging managers.

   3. RARyan Akkina7:41

      I think he's right, though. Right? I mean, I think, well, one of the hard things is seeing who's truly dedicated and who truly wants it badly, right?

   4. HSHarry Stebbings7:51

      Mm-hmm.

   5. RARyan Akkina7:51

      And during times like this, when it's much harder to raise capital, you see which new firms really want it badly, and, and the ones who don't are disappearing, right? So I think that's one thing. And, and of course, look, and at least f- for some period of time while we're in a down spell, there will be a little bit less competition and valuations will be better as well.

   6. HSHarry Stebbings8:08

      I, I, I totally agree with you there. Can I ask which firms have you backed, just to provide some context for listeners?

   7. RARyan Akkina8:13

      Yeah. Yeah, well, uh, as I said, we, we've been lucky that we've been in this game a long time as an institution, right? So we're lucky to be in a lot of the big names you would expect, you know, Sequoia, Kleiner Perkins, Andreessen, et cetera. Um, and then s- you know, there's some newer things as well that we've done in the past 10 or 15 years, like say, Greenoaks or Y Combinator, Initialized. Those would give some flavor for some of the things we

6. 8:34 – 13:18

   Evaluating Managers

   1. RARyan Akkina8:34

      do.

   2. HSHarry Stebbings8:34

      Great. No, super helpful in terms of context setting. So I do wanna kind of go through the stages that we kind of invest through in funds, and start with the pick, and I'd love it if we can go as granular as possible. It's, it's a crap question, so forgive me for it, but when we think about the evaluation of new fund managers, what is it that we're honing in on, and how do we think about manager evaluation?

   3. RARyan Akkina8:56

      (sighs) So I think the, the way I usually try to kind of bucket it into different areas for evaluation is, um... And I think I've heard other people say this before, too. It's certainly not original to me. It's see, pick, win, right? We need people who can see the best deals, or at least a, a very large volume of deals, right? Hopefully the best deals are inside that set. Uh, then we want them to be able to pick the best ones to try and invest in, and then finally, they need to actually be able to win allocation of those deals, right? Because there's lots of people who have great deal flow and who can pick the right stuff, but the final boss, so to speak, is, okay, can you get that entrepreneur to pick your term sheet over someone else who's really impressive? And then finally, I'd add, uh, service. How, how well do these GPs service their founders and, and ensure that when they're in the next competitive deal, uh, that founder they just backed is gonna be a positive reference for the next one?

   4. HSHarry Stebbings9:52

      What do you think is the most important? I know they're all needed-

   5. RARyan Akkina9:55

      Mm-hmm.

   6. HSHarry Stebbings9:56

      ... to win, but actually, some less so than others, respectfully.

   7. RARyan Akkina9:58

      Sure.

   8. HSHarry Stebbings9:58

      I know many managers, and we see it obviously in our reference data, that actually have very poor NPS and founders don't like working with them.

   9. RARyan Akkina10:05

      Yeah.

   10. HSHarry Stebbings10:05

       They actually continuously pick diamonds in the rough. They don't actually even see that much-

   11. RARyan Akkina10:09

       Yeah.

   12. HSHarry Stebbings10:10

       ... but they are great pickers. You have... How do you think about really what's primary?

   13. RARyan Akkina10:15

       I, I mean, I think if you're a great picker and you're not really that well-liked, it can work. I mean, it depends on how competitive your space is, right? So I think in seed, that's probably more doable than in Series A, for instance, right? Um, although, of course, there, there are people who win and, you know, you hear crazy stories about. Um, I, but I would say, we tend to spend the most time thinking about the, the winning and, and servicing angle, which kind of feed on each other. Because I, I think, you know... Look, there is at least several hundred people in the industry at any given time, GPs I'm talking about, who have good deal flow and good picking abilities.

   14. HSHarry Stebbings10:48

       Uh-

   15. RARyan Akkina10:48

       The competitive aspect forces us to p- to focus our evaluation on those final two pieces, the winning and the picking. Or sorry, the winning and the servicing.

   16. HSHarry Stebbings10:56

       No, I, I totally agree with you on that kind of focus there. In terms of actually when we think about track record, many LPs kind of place it primary, and we had Peter, again, at SCS on the show very recently, and he said, "It's like fourth or fifth for me," like it's backward-looking.

   17. RARyan Akkina11:11

       Yeah.

   18. HSHarry Stebbings11:12

       How do you think about the primary nature of track record or not?

   19. RARyan Akkina11:16

       (sighs) It really depends on how mature the person's track record is, right? I mean, obviously if we're looking at a new fund, um, there is no track record to evaluate, although I would say when we back a new fund, we do probably have a bias towards people who at least have some kind of angel track record.

   20. HSHarry Stebbings11:33

       Totally.

   21. RARyan Akkina11:33

       And so that can give us some hints as to their taste and ability to do things. Of course, it's not everything, and someone may be in, you know, a dozen unicorns or something from the last 10 years, but if they were only really small checks, that doesn't necessarily tell us about their ability to put a big check into something like that in the future. Um, so, you know, we try to... I'd say the earlier someone is in their career, the more we have to focus on qualitative or subjective things, like, uh... You know, I, I mean, I, I don't think it should be underestimated how important just likability is, right? I think, uh, when a founder chooses someone to be on their cap table, they know it's gonna be a partnership that's gonna last for a very long time, right? And, uh, you know, if they're choosing between, say, three GPs who are sort of equally, uh, credible and impressive, um, you know, there may be one GP who they just vibe better with for whatever reason, right? And they pick that person. So I think j-That's actually, even though it sounds so simple, that's not an aspect of this to be underestimated, and, and a lot of the time we spend with GPs, I'm often asking myself, you know, "What kind of founder would this particular person appeal to and, and why?" And, uh, an interesting observation I heard about Sequoia once actually is that one of the things that made them so successful was there was this period where they had Mike Moritz and, um, and Jim Goetz and, uh, Doug Leone all kind of in their prime, uh, all very impressive VCs in their own right, uh, but interesting, they each have kind of a different flavor of entrepreneur that they would appeal to. So, uh, between having those three really imp- impressive people who all kind of had different entrepreneurs they would appeal to, that allowed Sequoia to cover a really broad swath.

   22. HSHarry Stebbings13:15

       I, I, I totally agree with you, incredibly different profiles

7. 13:18 – 15:45

   Mistakes in Investing Evaluation

   1. HSHarry Stebbings13:18

      there. (laughs) Uh, in terms of, like, I think we learn a lot from mistakes actually. When you think about picking mistakes that you've made in the past, what did you see or not see that, with the benefit of hindsight, you wish you had or you missed?

   2. RARyan Akkina13:33

      (inhales deeply) It's, it's funny. I mean, that's a question we get asked a lot, and it's hard to... I can't point to that many things that are, like, the common things that go wrong. It seems like it's kind of idiosyncratic in, in many cases. Everything goes wrong for slightly different reasons. I mean, o- one thing is just I think sometimes we underestimate how badly people want it, right? Like, it takes a long time to be successful at this game, and it's, I think it can be probably a slog for the first five to seven years. I think the, the feedback loop you have to get going as a VC is you need to have some wins that make you super credible to other people, right? And then that allows you to have better deal flow, have better winning ability, et cetera, and then you have that positive feedback loop. Um, you know, some people may be very impressive and have an interesting thesis and work really hard, and then for whatever reason, after five to seven years, they just, they didn't, uh, get a lucky strike, and they, it's harder for them to stay relevant at that point, right? Because people point at that person and say, "Well, they've been doing this a long time and they haven't been successful yet. Maybe they're not that good," right? But there's other people who do get lucky more quickly, uh, and they, you know, they're lucky enough to get that, that feedback cycle going. So, you know, I, I, sometimes I think it's, it's partly luck. Um, but, you know, what are other things that go wrong? I think sometimes people-

   3. HSHarry Stebbings14:52

      Can I ask, in the first three years of a firm, post backing them, what are the signs where you go, "Yes, I'm glad we're in there"? 'Cause the companies, I mean, respectfully, if it's in the first three years, they might have raised up rounds, sure, but up rounds are, you know, funnily common. Um, there's not gonna be exits. What is it in the first three years of a fund investment where you're like, "This one's good"?

   4. RARyan Akkina15:13

      Honestly, I would say in the first three years, you usually can't tell. Right? It would be sometime between three and five years where we start to see whether they're, some of their company's really inflected. And, and not, uh, we don't necessarily care whether something has had an up round, um, although obviously that, there's signal value there. Uh, but if we see they've backed some companies that are really starting to get fundamental traction and be, uh, you know, have the potential to be iconic companies, that's, that's the proof, right?

   5. HSHarry Stebbings15:39

      Yeah.

   6. RARyan Akkina15:39

      And that's what we have to wait and see. That's, that's the only time we know more concretely that something's really working.

   7. HSHarry Stebbings15:43

      I, I, I totally agree with you in terms of that

8. 15:45 – 16:47

   Why Good Funds Go Sideways

   1. HSHarry Stebbings15:45

      timeline. I spoke to Neil Nato before the show, and he said, "Ask him specifically for the funds which are firing, which are working really well-"

   2. RARyan Akkina15:53

      Mm-hmm.

   3. HSHarry Stebbings15:53

      "... what are the reasons that they go sideways?"

   4. RARyan Akkina15:57

      Well, one thing is, uh, I think sometimes firms grow too big too quickly, right? And that forces 'em out of whatever their sweet spot was. I think another issue is, you know, frankly, if people have a, uh, spell of success, uh, sometimes they become arrogant, right? And sometimes they lose their intellectual honesty and their humility, and they start to make worse decisions and treat people worse and not work as hard, et cetera. Um, that, that can happen sometimes and cause someone who was otherwise on a good trajectory to, to go sour. You know, there's a lot of things that can go wrong. An- another thing I'd point to is, um, honestly, sometimes people just lose their, their motivation, right, once they've been successful enough. And that's a key thing we try to suss out, right? When we get to know people, what is it that drives them and how long is this really gonna keep them competing at the top of their game for?

   5. HSHarry Stebbings16:45

      Yeah. No, I, I, I totally get you on the kind of understanding

9. 16:47 – 18:08

   Evaluating Large Firms

   1. HSHarry Stebbings16:47

      the motivation side. In terms of following your managers, you know, I, I obviously speak to a lot of LPs, and this is the hardest thing, is, our rockstar manager, I'm not gonna name names, but, like, name your great rockstar manager that's at an incredible firm now and leads the firm. They've just scaled so much, and now, like, we don't really want to follow them, not because we don't like them, but because it's a $3 billion raise-

   2. RARyan Akkina17:08

      Yeah.

   3. HSHarry Stebbings17:08

      ... or a $2 billion raise. How do you think about that balance of, yeah, supporting the manager who's done very well-

   4. RARyan Akkina17:15

      Yeah.

   5. HSHarry Stebbings17:16

      ... but also, like, the opportunity cost of that cash could be put to use much earlier and, uh, by higher, you know, multiple and invested opportunities?

   6. RARyan Akkina17:24

      Yeah. Yeah, it's, it's tough. I mean, our default is always to be loyal to the people who we're already invested in, right? But I think it is a reality that in the LP business, we're always on this treadmill of every firm, no, no matter how great, has a half-life, right? No firm is gonna be great forever. They'll eventually botch a generat- generational transition or something, if they even try. Um, so, you know, how do we evaluate when people are getting too big? We think about things like, okay, how many great GPs do they really have on the team? How much can each of those people put to work? How much historically have they put t- to work per year? Things like that, which try to give us some idea of what's reasonable. Um, and of course, sometimes people, you know, they just go a little bit too far, and that's when we have to start scaling down.

   7. HSHarry Stebbings18:07

      Yeah. That's challenging.

10. 18:08 – 18:35

    Communicating Non-Reinvestment to Managers

    1. HSHarry Stebbings18:08

       How do you tell a manager that you're not gonna reinvest?

    2. RARyan Akkina18:11

       (laughs)

    3. HSHarry Stebbings18:11

       That's a hard conversation to have.

    4. RARyan Akkina18:13

       Yeah, I mean, usually we try to know it well ahead of time and, and tell them relatively early in whatever their fundraising process is, but there's no, there's no way to sugarcoat it, right? That's definitely, uh, you know, one of the least fun aspects of this job.

    5. HSHarry Stebbings18:28

       I always hear it's, like, firing them. It's like, if they're surprised, it's probably on the person firing.... so I totally-

    6. RARyan Akkina18:34

       Probably,

11. 18:35 – 20:46

    Backing Greenoaks: A Case Study

    1. RARyan Akkina18:35

       yeah.

    2. HSHarry Stebbings18:35

       ... yeah, I totally agree. Speaking of the firms that kill it and scale, Green Oaks-

    3. RARyan Akkina18:39

       Mm-hmm.

    4. HSHarry Stebbings18:40

       Um, I chatted to Neil before, as I mentioned. He said that you, in particular, and MIT put a flag in the ground for him and for Green Oaks first, which really made Green Oaks, in some ways, a- achieve what they'd have done. Can you take me to that decision, why you backed Neil-

    5. RARyan Akkina18:57

       Yeah.

    6. HSHarry Stebbings18:57

       ... what you saw that others didn't? Just help me understand it.

    7. RARyan Akkina19:01

       (sighs) Yeah, well it's, it's funny, uh, that decision almost didn't happen, and I, I told... I didn't tell Neil this story until somewhat recently, um, but actually, uh, th- when we first invested in Green Oaks, it was back during the period where we were a bit more conservative in the VCs would, we would back. And as a general rule, we didn't wanna back anyone who didn't already have a great brand. And of course, Green Oaks, at that time, was raising its first institutional fund, uh, and, you know, was not well-known at that time, so it definitely didn't fulfill that criterion, um, and I remember actually, you know, my boss Seth and I decided, "You know, let's, let's leave this and look at Fund 2 or something." Um, and the next... But I slept on it, and then the next day I, I decided to call my boss, Seth, back and say, "You know what? I think we should at least make a small bet on this to start," and, and we did, and which is... It's lucky we did because that's been one of our most successful, uh, relationships over the last 10 years. But, you know, to answer your question, what had we seen him, I think one thing that stood out even then was before he raised his fund, he'd done a bunch of, uh, individual deals, not with the fund but sort of on a, a, you know, a deal-by-deal basis-

    8. HSHarry Stebbings20:08

       Yeah.

    9. RARyan Akkina20:08

       ... raising money for each thing. And we talked to a number of the founders that he worked with, uh, like Bam from Coupang, for instance, and, um, you know, we do thousands of reference calls, right? And so we're pretty attuned and calibrated to when something stands out and, and the way founders talked about Neil was, you know, it was really exceptional relative to most calls we do, so that stood out. Um, you know, he had an interesting thesis at that time too on e-commerce, which, uh, was part of why we backed him, although he evolved over time and is much broader now. But, you know, at the end of the day, it was a bet on, on him and Benny and a gut feeling, really.

    10. HSHarry Stebbings20:44

        So many things to unpack there.

12. 20:46 – 23:37

    Strategy Shifts and Position Sizing

    1. HSHarry Stebbings20:46

       First, to what extent do you understand strategy shift? When a manager says, "Ah, we're doing e-commerce. Ah, we're doing SaaS," and then, actually, a lot of it was not that.

    2. RARyan Akkina20:55

       Yeah.

    3. HSHarry Stebbings20:56

       To what extent is that, okay, moving with the times, versus, no, that's not what we underwrote?

    4. RARyan Akkina21:01

       There's definitely tension there, right? I mean, we want people to do what they say, but if they, if they discover the original strategy is not likely to work, then obviously we want them to evolve, right? Um, so I think it's about, you know, communicating that early if you are gonna shift your strategy and doing it very purposely and, and being clear about why.

    5. HSHarry Stebbings21:21

       Yeah. You said there about, you know, sleep on it, and actually, I wanted to put a small check in for us. Um, how do you think about position sizing and building a portfolio book of funds? Like, how many is enough? How many do you wanna have?

    6. RARyan Akkina21:34

       Yeah.

    7. HSHarry Stebbings21:34

       What does that look like?

    8. RARyan Akkina21:36

       So today, at least in the US venture portfolio, we probably have maybe six to eight core relationships, we would refer to them as, where we're writing checks of like 50 to 150 million per fund. Um, so tho- some of those big names you would think about, right? And then after that, we have another bucket where the check sizes are typically 10 to 20 million per fund, um, and, and those are things where they may be less mature managers and so that's why we're not writing as big a check, or it could be that, um, you know, it's just a, a fund with a very small size and so we just can't scale it to 50 to 150 million because maybe it's only a $100 million fund or something, right? And of course, there's often many other LPs around the table. And then the- a third bucket we have now is, uh, things where basically we'll write a, a million dollar check, uh, because maybe it's extremely early and the person had no track record, not even an angel trackord- record, let's say. Or, um, or we're doing it to work with them to source co-investors. But in terms of the number of things, so as I said, there's maybe six to eight really big core things. In, in the middle bucket, there's probably about 20 managers today-

    9. HSHarry Stebbings22:43

       Yeah.

    10. RARyan Akkina22:43

        ... and then in the third bucket, um, it's something we only started in the last couple years. There's, I think, maybe three things in that so far, and we hope to put a lot more in that bucket in the future.

    11. HSHarry Stebbings22:53

        Okay. How man- how much do you put out a year in terms of venture funds-

    12. RARyan Akkina22:56

        In terms of-

    13. HSHarry Stebbings22:57

        Dollars.

    14. RARyan Akkina22:58

        ... dollars? It, you know, it varies a lot depending on, uh, where we are in the cycle.

    15. HSHarry Stebbings23:02

        Can I, can I, um, anything I can ask you, I mean-

    16. RARyan Akkina23:04

        Yeah.

    17. HSHarry Stebbings23:04

        ... how does it vary? Like, '21 versus '23?

    18. RARyan Akkina23:07

        (sighs) You know, I think, uh, I mean, at, at peak we probably put somewhere between one and one and a half billion out, uh, per year. Um, you know, I usually think of all of our private commitments at once, so I'm, I'm actually not certain off the top of my head what would just be the, the venture part of that. But, you know, to, to give you an illustration of how much it can change, uh, you know, at peak we probably were putting three billion out the door in one year, and, and now we're probably down to about a third of that, so maybe a billion dollars.

    19. HSHarry Stebbings23:36

        Okay. Got you.

13. 23:37 – 27:50

    Compressing Deployment Timelines

    1. HSHarry Stebbings23:37

       One thing that changes the deployment pace for you is the deployment pace of managers.

    2. RARyan Akkina23:41

       Sure.

    3. HSHarry Stebbings23:41

       We saw temporal diversification become a myth in 2021-

    4. RARyan Akkina23:45

       Yeah.

    5. HSHarry Stebbings23:45

       ... uh, or supposedly so. To what extent is it okay for managers to compress deployment timelines as they did? I mean, we, we saw many do 12-month deployments.

    6. RARyan Akkina23:54

       Yeah, I mean, I would say that's probably one of the things where we most wish people had been more disciplined.

    7. HSHarry Stebbings24:01

       Yeah.

    8. RARyan Akkina24:01

       Right? Um, and, and when people-

    9. HSHarry Stebbings24:03

       I think we got too much of a break, if I'm honest, Ryan.

    10. RARyan Akkina24:05

        Yeah.

    11. HSHarry Stebbings24:05

        Like, LPs do not chastise venture investors more f- uh, as they should for 12-months deployments.

    12. RARyan Akkina24:12

        Yeah. Yeah, well it's, uh, the tension there, right, is the, the top VCs have scarce capacity relative to, you know, their fund size relative to the universe of LPs who might like to invest. Uh, there's a big mismatch there, right? And so I think LPs often feel reticent to criticize people too harshly, right? But I mean, look, we all know that, that we were all undisciplined (laughs) for some period of time, right? It's not a secret. And, you know, every- every- virtually everyone did it. I mean, if we were gonna say, "We're not gonna invest in people who, uh, were undisciplined in '21,"... we would have no investment base in this.

    13. HSHarry Stebbings24:49

        You'd have a very, very finite pool.

    14. RARyan Akkina24:49

        We could only invest in new people basically, right? So I think we have to... Look, we, uh, we have to try and make sure that at least people are, are being intellectually honest about making mistakes and being undisciplined and, and forthright about what they learned, and we have to move on.

    15. HSHarry Stebbings25:01

        I mean, we, I did the analysis here though, and when we compare our entry price now versus 18 months ago, it's 43% lower.

    16. RARyan Akkina25:08

        Yeah.

    17. HSHarry Stebbings25:08

        And, uh, over the last nine companies we've done, that has held true. And so, like, I think, uh, I'm glad that temporal diversification does still exist.

    18. RARyan Akkina25:17

        Well, look, another thing I'd say is, uh, as someone who works on both public markets and private markets, in the public market, if a manager, uh, went all to cash in their portfolio, we wouldn't like that either. We would say they're trying to time the market, right? Uh, so similarly, I don't think you can criticize VCs for deploying money during a bubble period. Right now, uh, do I wish they deployed less? Sure.

    19. HSHarry Stebbings25:39

        Oh, 100%. I don't think you can ever sit out-

    20. RARyan Akkina25:41

        Yeah.

    21. HSHarry Stebbings25:41

        ... 100%.

    22. RARyan Akkina25:41

        Yeah.

    23. HSHarry Stebbings25:42

        Uh, you mentioned that kind of the, the public explosion and, uh, role you have. A lot of people have always said about the denominator effect when publics were not performing, uh, and it was leading obviously to a pullback on the private deployment side. Uh, how has that changed now with NASDAQ actually doing well and public looking good?

    24. RARyan Akkina25:59

        Yeah.

    25. HSHarry Stebbings26:00

        Has it made less pressure on private deployments?

    26. RARyan Akkina26:02

        It's certainly improved things for us. Um, we're less liquidity constrained now than we were, say, at the beginning of last year. But the, the major issue still continues to be that there's all these big companies like Stripe, for instance, uh, from the last cycle that have not, uh, had liquidity events yet. And so until some of those things get liquidity, we'll probably still be more constrained than we otherwise would be.

    27. HSHarry Stebbings26:26

        How... Is it challenging also, given, you know, your role with MIT, and, like, actually having outflows that are, I presume, required in terms of the scholarships-

    28. RARyan Akkina26:33

        Yep.

    29. HSHarry Stebbings26:33

        ... and maintenance and everything involved, which is incredibly important obviously, but a, a lot of LPs don't have mandated outflows that h- have to be made? Is that difficult because you kind of have to project forward into unknown times, and you don't know what you're gonna need when?

    30. RARyan Akkina26:50

        It certainly makes it a more tricky situation, but, you know, we, we have a lot of ways of modeling this, right? And for the most part, we're able to be pretty consistent in the check sizes we, we put out. I would say the last two years are unusual because of this dual problem of, one, we normally assume all our managers are gonna raise every two to three years, and there was a period where basically everybody deployed a fund in one year and then raised again right away. So, that was one thing. And then secondly-
14. 27:50 – 29:33

    The Liquidity Challenge

    1. HSHarry Stebbings27:50

       How do you think about the liquidity challenge? You mentioned Stripe there, you, you... There's many others, uh, your Databrickses world. We, we have this whole generation of companies now that's form- has formed a new economy of, like, pre-IPO but should be IPO companies in many respects.

    2. RARyan Akkina28:02

       Yeah.

    3. HSHarry Stebbings28:03

       How do we answer the liquidity question? (laughs) I'm sure you get it, uh, from Seth and from other people, but what's the answer? There's a lot of companies waiting.

    4. RARyan Akkina28:12

       I mean, there's not much we can do strictly speaking, right? I mean, there's some cases where maybe, uh, particularly if there was a co-investment, we could encourage the manager to sell some secondary or something, but, you know, there's, there's not r- much we can do, right? We're, we're waiting like everyone else for these things to, to IPO, and, and I think another thing we're concerned about, of course, is with a lot of these companies, so much of the cap table is owned by, uh, investors who've been there a long time and may be obligated by their fund lives to get out. Uh, it's anyone's guess what's gonna happen to the prices of these things when the lockup windows expire, right?

    5. HSHarry Stebbings28:44

       Do you ever think about selling positions and managers? We often hear about managers, you know, g- getting out and getting liquidity. Do you ever think about actually selling positions and funds?

    6. RARyan Akkina28:52

       We'll certainly think about it. We almost never do it because we're not willing to do it at, uh, a low price.

    7. HSHarry Stebbings28:58

       Yeah.

    8. RARyan Akkina28:59

       Right? I mean, the reason these secondary funds exist is obviously to get high IRRs themselves, right? And so generally speaking, uh, you know, if we're selling a package of something to someone smart and they think they're gonna make a 20% plus IRR, that means that's where we should probably just hold these things, right? So luckily, we've never been in a dire enough liquidity situation where we had to do that.

    9. HSHarry Stebbings29:23

       Yeah.

    10. RARyan Akkina29:23

        Right? I think we would only do that if we were really forced to.

    11. HSHarry Stebbings29:26

        Yup. No, I, I totally agree. I mean, we've seen 80% discounts on some-

    12. RARyan Akkina29:29

        Right. But look, if we can get a good price, certainly we'll think about it, but it's just, that's virtually never the case.

15. 29:33 – 32:53

    Importance of Direct Investing

    1. RARyan Akkina29:33

    2. HSHarry Stebbings29:33

       You said about the third bucket being, you know, sometimes people who can provide good directs. You mentioned Coupang earlier. Um, I know that you're very active in terms of directs investing. Why is that such an important part of strategy do you think?

    3. RARyan Akkina29:46

       I think, I think there's a number of things we like about it. One is just, um, you know, if you could have another tool in your toolbox for making good investments, why not, uh, build that up, right? Uh, secondly, I, I mean, I personally find it easier in a lot of cases to write a big check to a co-invest than to a blind pool fund, right? Because no matter your conviction in someone, when you're writing them a blank check, you know, we don't, we don't know what's gonna happen, right? And, and as we've, you know, talked about it a little bit, even with people who have a really good track record, uh, you know, you can't, you can't fully predict how they're gonna do with that next check, right? But if we have a opportunity to invest in something with that we know is a great company today at a reasonable valuation, uh, and sometimes with a really great structure around it as well, it's, I find it much easier to have high conviction in that.

    4. HSHarry Stebbings30:32

       What do you mean by a great structure around it?

    5. RARyan Akkina30:35

       Well, so for example, Neil might've mentioned the Coupang case. Um, the, most of the money we invested in that was in this special structured note where we felt it had very protected downside, but...... managed to keep a lot of the upside as well. So it was very easy to have high conviction in that situation.

    6. HSHarry Stebbings30:52

       How do you protect the downside in that way?

    7. RARyan Akkina30:54

       Well, basically it was, uh, it was a note where it was the most senior thing in the capital structure. Um, and of course, we had a view about the minimum future EV of, of that enterprise, right? And so, and relative to that, it was very small. So it was just, it was very tough for us to envision a scenario where this thing got primed and we didn't at least get our money back.

    8. HSHarry Stebbings31:15

       Yeah. Now, how do you think about the decision-making process and the underwriting process on the direct side? 'Cause I see a lot of, a lot of actual, uh, kind of LPs make the mistake of not doing the work and not trusting the manager and kinda just falling in the middle-

    9. RARyan Akkina31:30

       Mm-hmm.

    10. HSHarry Stebbings31:30

        ... where they kind of have someone half the time kind of check out the company and-

    11. RARyan Akkina31:34

        Yeah.

    12. HSHarry Stebbings31:34

        ... if it's done poorly, they meet in the messy middle.

    13. RARyan Akkina31:37

        Yeah.

    14. HSHarry Stebbings31:37

        How do you think about the underwriting process?

    15. RARyan Akkina31:39

        Well, ideally, we, we do like to get to know these businesses, and so ideally, we like to get to know them well ahead of time. In the case of Coupang, for instance, you know, when we first got, uh, interested in it, it was when we did a reference call on Neil with the company and were very impressed with, uh, Balm. And that was, uh, that was something that Neil actually invested in before Greenoaks I, uh, and so we were kind of, uh, you know, disappointed actually that we were investing in this new fund where it was not gonna have that exposure, right? And so we told him, "If there's ever an opportunity for us to invest alongside you in this company in the future, let us know." Uh, and you know, and sure enough, within a, a few years after that, Neil did see there being a potential opportunity to put this structured round together and, and let us know and, you know, we had enough time to go visit, uh, the company in South Korea and tour some of the warehouses and things like that, get to know Balm a little bit better. I'd also say I think we had a prepared mind because by that time, obviously we'd seen Amazon work in the US, right? We'd seen some other things in other countries, like say JD in China or Flipkart in India turn out to be interesting as well. Uh, so that was some of what turned us onto the opportunity, and, and in that case, we were able to spend quite a lot of time getting to know the company, getting to know the financials, getting to know the structure, and really being thoughtful

16. 32:53 – 34:40

    Portfolio Allocation and Position Sizing

    1. RARyan Akkina32:53

       about it.

    2. HSHarry Stebbings32:53

       Okay, so we know that we want to invest. How do we think again about portfolio allocations and sizing on a per-position basis?

    3. RARyan Akkina33:01

       It depends on our liquidity at any given time, but, uh, there's a huge range honestly. So in, you know, in the case of Coupang, that was 120 million co-investment for us. We made, I think, at distribution prices, 7 to 8X or something like that. It's probably a little lower now, uh, that the stock's come down a bit, but, you know, that was a large outcome for us obviously. You know, sometimes it's constrained by what we can get. I mean, there's another opportunity where we co-invested in Snowflake, uh, before it IPO'd, and in that case, we were only able to get a few million bucks allocation, even though given what we knew about the company, we would have invested a lot more, uh, if we had the opportunity. Uh, but, you know, I'd say it's, it's a wide range. If something's earlier stage and less certain, doesn't have as much structure, uh, it may only be a $5 million check.

    4. HSHarry Stebbings33:43

       I may be veering into completely dangerous territories here, but why not? Um, are the incentive structures financially right in endowments?

    5. RARyan Akkina33:51

       Uh-

    6. HSHarry Stebbings33:52

       When I ... What I mean by that is 120 million, 7, 8Xed, that is a huge amount of carry if you're in a traditional fund structure.

    7. RARyan Akkina33:58

       Sure.

    8. HSHarry Stebbings33:59

       Do endowment funds have the financial incentive structure right?

    9. RARyan Akkina34:04

       I mean, honestly, I think the answer is no. (laughs)

    10. HSHarry Stebbings34:07

        (laughs)

    11. RARyan Akkina34:07

        Like, uh, I think we're able to do what we do because I have to give credit to our CIO, Seth. He's created a culture where people care about doing these things and wanna do these things. And I think also it helps that, um, because we had a period of success, I think we had, you know, we built up s- enough credibility in our own situation to feel comfortable taking some of these risks, right? But yeah, I mean, the traditional endowment or foundation, I think part of the reason they're not good at this stuff is they don't have an incentive to be, right? And people, when they don't have an incentive to take risks, they're not gonna wanna stick their necks out.

17. 34:40 – 36:00

    Incentive Systems in Family Office Investing

    1. RARyan Akkina34:40

    2. HSHarry Stebbings34:40

       What's the right way to do it? If you were to construct a family office, uh, I give you a blank canvas.

    3. RARyan Akkina34:47

       Mm-hmm.

    4. HSHarry Stebbings34:47

       How do I create an incentive structure that allows for people to be really motivated, take risk on manager evaluation? You know, uh, we see this commonly between us, but like a lot of the firms that exist today, we're not excited necessarily about moving forward, but you definitely won't get fired for putting money in X firm.

    5. RARyan Akkina35:03

       Right.

    6. HSHarry Stebbings35:04

       How do we move away from that and what's the right incentive structure?

    7. RARyan Akkina35:08

       Well, it's, it's tough. I'm un- I'm of two minds on this, right? Because I think the, the reason ... There are good reasons for endowments and foundations to have the incentive structures that they have, because something that the governance is typically concerned with is they wanna make sure things don't go awry, right? And they don't wanna give people, you know, a free option on an institution's capital, right, by giving them carry necessarily. So, you know, there's good reasons to do it the way it is done, but I, uh, you know, if I think, if I had a blank sheet of paper, if I were running a family office, let's say, I would probably do something where, one, people would be required to invest a lot of their own money in the investments the firm is making, um, you know, either money they already had or a large portion of whatever their bonus might be. Um, and I would probably say yes. There has to be some kind of incentive structure, maybe over a, a suitable hurdle.

    8. HSHarry Stebbings35:59

       Yeah.

18. 36:00 – 38:59

    Price Considerations in Direct Investments

    1. HSHarry Stebbings36:00

       Uh, can I ask, on the, on the direct investing again, uh, in terms of pricing, matters a lot. We'd lost price sensitivity for a lot of managers. When you think about your lessons over 15 years, how do you reflect on your relationship to price when doing directs, and what is, uh, what are you looking for? Is it a 3X? Is it a 10X? Is it a-

    2. RARyan Akkina36:19

       Yeah. Yeah, I think, um...It's a tough question, right? I mean, obviously, we're all waited a little bit to what we see happening in the public markets at any given time, right? And I think at- at one point, during the peak of the bubble, we were weighted too much higher exit evaluations than we should've been. We made mistakes like everyone else. I would give ourselves some credit for, at the peak of the bubble, we said no to several co-investments where, uh, you know, people that we really respect and still respect were pounding the table to- to do these things, and we said no.

    3. HSHarry Stebbings36:49

       Do you worry that they won't come back to you if you don't do them? Like, I've had this with quite a few LPs-

    4. RARyan Akkina36:53

       Mm-hmm.

    5. HSHarry Stebbings36:53

       ... where they say, like, "We'll do it if you won't- if you won't bring us the next one, like, if you need us to."

    6. RARyan Akkina36:58

       Yeah.

    7. HSHarry Stebbings36:58

       And I'm always like, "You don't have to do something you don't want to."

    8. RARyan Akkina37:02

       Yeah.

    9. HSHarry Stebbings37:02

       And that's fine, but do you worry that if you don't, they won't come again?

    10. RARyan Akkina37:06

        You know, it's always a concern, uh, but look, I think you have to be- you have to be disciplined at the end of the day and- and say no to things that are marginal uses of your capital. And, you know, could there be a few cases where we can be helpful with a smaller check for something that's right on the margin for us, but a big deal to that manager? Sure. Occasionally, we might do that because we think overall it's NPV positive, right? But, you know, I think another thing that keeps people coming back to us is we're probably one of the few LPs, certainly one of the few university endowments, who can react to one of these things very quickly in- in big size. I mean, I talked about how in the case of Coupang, we had quite a bit of time to look at it, but there are other cases where, you know, with Neil, for instance, I think there was a big article maybe last year about the deal he did in Rippling, right? And that came together over a weekend, right? Uh, during this- this, uh, bank collapse period.

    11. HSHarry Stebbings37:54

        Are- are you able to take me to that?

    12. RARyan Akkina37:56

        Uh, I probably can't talk about it in detail, but, you know, the- the point I'm making is that within a few hours, Friday night, uh, we made the decision to back that deal. I don't think there's many LPs who can do that.

    13. HSHarry Stebbings38:08

        How do you decide in that way? I- I don't know if you can go into the decision-making process-

    14. RARyan Akkina38:12

        Yeah.

    15. HSHarry Stebbings38:12

        ... but that is an incredibly compressed timeline. I don't- I don't know any that can write that size check in that timeframe.

    16. RARyan Akkina38:17

        Well, we didn't write the whole thing.

    17. HSHarry Stebbings38:19

        (laughs)

    18. RARyan Akkina38:19

        To be clear. I mean, honestly, Neil probably had several other, uh, you know, several of Neil's LPs were very good, and I'm sure there were others that participated as well. Um, you know, in- in a situation like that, a lot of it is- is trust, right? I mean, we trust Neil's judgment, but also, that was another case where the structure was fantastic. You know, we knew a lot about the company already. Uh, we had several other people we know who had a really high opinion of, uh, of Parker, so I think we had a prepared mind for it as well. So it was a combination of we had a prepared mind because we knew about the company and the founder already, we had a lot of trust already in Neil and his team, and thirdly, the structure was really fantastic.

19. 38:59 – 43:16

    Lessons from Investing Mistakes

    1. RARyan Akkina38:59

    2. HSHarry Stebbings38:59

       Can I ask, when you think about the direct investing mistakes, you've had 15 years, I'm sure there's some, what have you learned from the ones that haven't worked out?

    3. RARyan Akkina39:08

       The worst of c- that I've been involved in at least was an oil and gas investment.

    4. HSHarry Stebbings39:12

       Can I ask what happened?

    5. RARyan Akkina39:13

       Well, basically what happened was, uh, so there was an oil cycle, right? And there was a- a manager we- we were invested in who was very good at doing this, uh, play basically, where this was sort of, I don't know if I would say towards the end, but basically, there was this thing they could do for a number of years where, uh, as you know, right, shale technology has really, uh, improved and innovated a lot in the last 15 years, and there was a period where it was a relatively new thing to be doing horizontal exploration of certain oil plays. And so they found this interesting area where it had been, uh, vertically explored with vertical wells, but not horizontally explored, which could really increase the yield of oil you could get from the acreage, right? And, uh, be- because it was vertically explored, they had a pretty good idea from looking at those wells where things would probably work and where they wouldn't, but, uh, you know, the- the bigger buyers of these parcels of acreage typically wouldn't give you full credit. So what these guys would do is they would buy the stuff that hadn't been horizontally explored, like a large parcel, and then they'd do a few wells here and there, horizontal wells, to prove it out, and then they would flip it for a big, uh, MOI, right? Anyway, there was a period where there was a big oil decline and they founded a new place they thought would be good to do that. Um, and- and it did work out initially, but then the problem was actually it was so successful that it was very hard to flip this package because it got so big. Uh, right? I mean, this thing was worth, I think, over- you know, well over a billion dollars at peak. Uh, and at peak, it was probably like a five to seven X for us. And anyway, so the- the way they wanted to exit it was they ultimately, uh, merged it with another small, uh, public company that had complementary acreage, and then we just had this perfect storm of, uh, you know, new CEO, we had a oil price decline after that, they drilled a few bad wells as well, the company they merged with had a fair amount of debt already, and so things just spiraled down, right? And so I don't- he- you could say, "Look, what did you learn from that?" You just, uh, you know, everyone knows not to do commodity-oriented things with high leverage and all these other potential problems. I- at least as it re- as it relates to venture capital, I think one of the things I learned from that is I think we didn't appreciate how brittle these sh- small shale businesses can be, particularly if you're gonna not just flip acreage, but actually try to fully produce it, because the decline rates on these wells are so high. Even though on a well basis they can have high IRRs, the decline rates are so high. If you're trying to really maximize production, you have to basically reinvest your whole balance sheet every year, and even if someone is really good at that, let's say they get it right 80% of the time. Well, you know, .8 times .8 times .8 times .8, after five years, you're starting to face pretty significant probabilities-

    6. HSHarry Stebbings41:58

       Yeah.

    7. RARyan Akkina41:58

       ... of a big loss, right? And so that's- in some ways, I think that's what happened there, and, you know, what is my takeaway? You have to be very careful with businesses where, uh, you have to reinvest the balance sheet every year or you have to continuously reinvest to customers, right? So other parallels I sometimes notice, things like gaming where maybe you have a very high churn rate in the- the customers, right? Um-

    8. HSHarry Stebbings42:20

       My friend just bought a- a sports team.

    9. RARyan Akkina42:22

       Yeah.

    10. HSHarry Stebbings42:23

        ... with his private equity fund, uh, for several billion dollars. He said, "The thing I didn't expect, it costs 500 million to keep this fucking running every year." (laughs)

    11. RARyan Akkina42:32

        (laughs) Yep.

    12. HSHarry Stebbings42:33

        And you're like, "That's... Yeah, it is different."

    13. RARyan Akkina42:35

        Yep. So, you know, that's an example-

    14. HSHarry Stebbings42:37

        Did that knock your confidence? 'Cause I think that, you know, I spoke to Doug Leone actually in the show about this, like when you have a, a loss or-

    15. RARyan Akkina42:43

        Mm-hmm.

    16. HSHarry Stebbings42:43

        ... not a loss, but something that does not perform as expected, it can hit your confidence and the winners are those, that as you did, is like, "Pick yourself up. On we go."

    17. RARyan Akkina42:52

        It- Of course it, it hurt me a little. I mean, I think I was lucky that I'd had some other successes I was-

    18. HSHarry Stebbings42:56

        Yeah.

    19. RARyan Akkina42:56

        ... involved in by then, so it's not like, uh, you know, that was the only thing I'd done and then it was a failure. And I mean, I'm amazed actually, we, I think on that particular deal, we still recovered about a third of our capital or something like that, so it wasn't a, a zero, but, you know, you always... Yeah, I mean, it has to, it impacts you a little bit, of course, but-

    20. HSHarry Stebbings43:14

        Yeah.

    21. RARyan Akkina43:14

        But luckily, things have been fine since then.

20. 43:16 – 52:49

    Evolution of Ryan's Investing Style

    1. RARyan Akkina43:16

    2. HSHarry Stebbings43:16

       Has your investing style changed over the years? 15 years is a long time. Has how you think, how you prioritize, what you prioritize changed?

    3. RARyan Akkina43:24

       Well, for one thing, I- I personally spend a lot less time on the public markets than I used to. Um, I mean, actually when I started at MIT, I was mostly doing public market stuff, but I'd say in the last seven to 10 years, I've sort of switched to doing mostly private stuff. Uh, I- I just find it much easier for me and my personality to, uh, I think generate alpha on the private side. I mean, the public side is always becoming more competitive. If you think, if you think venture is competitive, try making alpha versus, uh, you know, the NASDAQ, right, as a public manager. That's incredibly difficult to do on a consistent basis. That's one thing that's changed for me. I think another thing is, um, I think after seeing things play out over a couple of cycles, I trust my judgment a little more.

    4. HSHarry Stebbings44:06

       Mm-hmm.

    5. RARyan Akkina44:06

       Right? I mean, there are things that happened during the peak of bubbles where, uh, you know, you didn't think something would do nearly as well. Maybe they're something you passed on, right, for good reasons and then it does incredibly well and, you know, it's rather confusing, but, but sure enough-

    6. HSHarry Stebbings44:20

       What- what did you-

    7. RARyan Akkina44:20

       ... these things eventually come down to Earth.

    8. HSHarry Stebbings44:22

       ... pass on that did very well?

    9. RARyan Akkina44:23

       Well, it's funny you ask that and about some of my mistakes, right? 'Cause actually the biggest mistakes I are actually errors of omission, of things that did really well, and probably the number one thing I think about right now is, uh, you know, I mentioned we're investors in YC and when Sam left YC, around then we also had an opportunity to invest in OpenAI and, uh, we didn't do it. So that's, that's definitely an error of omission that-

    10. HSHarry Stebbings44:46

        Why?

    11. RARyan Akkina44:46

        ... I think about a lot. Uh, a couple of things. I mean, one, it was a very unusual structure as people now know. Um, two, you know, it was unclear how they were gonna achieve success technically at the time. We felt that it was a very speculative bet at the time and, um, but, you know, I think that's a case where we probably said, we should've said, "Look, we know Sam. We know he's a special person. This is a huge idea. Make a small bet."

    12. HSHarry Stebbings45:09

        Can I ask you... You said there about kind of the speculative nature of that. How do you actually think from a portfolio, and sorry for being broad, but is there any from a portfolio level of like how much been publics, how much been privates, what cash looks like, and the right level of risk profile to have across the actual whole portfolio?

    13. RARyan Akkina45:26

        Yeah. Yeah, so ideally, we wanna be probably about half-half publics-privates. Uh, we typically carry anywhere from 5% to 10% in cash and short duration government securities. In terms of total risk, I mean, probably one of the main ways we think about it is, uh, we have a concept called drawdown beta where essentially if the market is down, you know, 10%, we only wanna be down, say, not more than 7.5% UH so we try to keep it 0.75 beta or less.

    14. HSHarry Stebbings45:55

        Are you seeing less managers coming back to market now?

    15. RARyan Akkina45:59

        Absolutely, yeah.

    16. HSHarry Stebbings46:00

        Are their fund size expectations changing?

    17. RARyan Akkina46:03

        Yeah, yeah. Happily, they are smaller. (laughs)

    18. HSHarry Stebbings46:07

        (laughs) How do you think about deployment now? Everyone, I think the media in particular likes to present a very gloomy environment. Um-

    19. RARyan Akkina46:13

        Mm.

    20. HSHarry Stebbings46:13

        I don't always agree with it and it's not actually what I'm seeing necessarily. How do you think about deployment today and do you think LPs are closed for business?

    21. RARyan Akkina46:21

        People are not closed for business. I think people have to do things in smaller size or might not be able to do as many new things as they would otherwise like. But, you know, I think especially for the- the firms that have top reputations, uh, I don't think they're having that much trouble raising money, right? I think y- you know, they- they always have more LPs who want to invest than, uh, than they have capacity. So I- I, you know, I don't think the top firms are- are hurting in that regard. I mean, maybe, you know, if they try to raise too much, they'll get more pushback than normal, more critique, um, which maybe is a good thing. I- I think it's the, you know, it's the smaller managers or the emerging managers that are gonna have a lot more trouble-

    22. HSHarry Stebbings46:57

        Yeah.

    23. RARyan Akkina46:58

        ... raising capital in this environment.

    24. HSHarry Stebbings46:59

        What would you advise/change about venture today?

    25. RARyan Akkina47:02

        Well, I would like it to be less competitive. I don't think that's gonna happen. (laughs)

    26. HSHarry Stebbings47:06

        Can I ask, for managers who are contemplating raising today, what would be your biggest piece of advice?

    27. RARyan Akkina47:12

        I think you have to treat the process like an enterprise sale cycle, right? Which means you need to think of it as a numbers game and you need to have a funnel.

    28. HSHarry Stebbings47:19

        I always say li- I actually say lines, not dots, which is Mark Suster's comment, which is to say-

    29. RARyan Akkina47:21

        Oh, interesting.

    30. HSHarry Stebbings47:22

        ... you have to build relationships over time.
21. 52:49 – 57:59

    Quick-Fire Round

    1. HSHarry Stebbings52:49

       Listen, are you ready for a quick fire?

    2. RARyan Akkina52:50

       Sure.

    3. HSHarry Stebbings52:51

       So, what have you changed your mind on in the last 12 months?

    4. RARyan Akkina52:55

       Probably hard tech. I, I wouldn't say I've completely changed my mind on it. Uh, not to say I have a har- uh, a really hard-set view either way, but I think I used to be much more skeptical of them, and I think the existence of things like, you know, Tesla and SpaceX and Endural have, uh, forced me to reconsider some of my biases. So-

    5. HSHarry Stebbings53:13

       So you are inherently more positive in hard tech investing?

    6. RARyan Akkina53:17

       I'm more positive now than I was in the past.

    7. HSHarry Stebbings53:19

       Okay. Do you need to be a specialized firm to win?

    8. RARyan Akkina53:23

       I don't think so.

    9. HSHarry Stebbings53:24

       Hmm. That's a good one. I, I wasn't expecting that. What do LPs do today that we'll look at in 10 years time and think, "Wow, can't believe we did that"?

    10. RARyan Akkina53:33

        I mean, something I, uh, I chuckle about a little is just how pro-cyclical people are. And, you know, two years ago everyone wanted to do lots of late stage and solo capitalists and crypto, and then, you know, a year later they all think it's dead and don't wanna do that ever again. I think most of those things will come back.

    11. HSHarry Stebbings53:52

        (laughs) What won't come back?

    12. RARyan Akkina53:54

        Hmm, that's a good question.

    13. HSHarry Stebbings53:56

        Like, I don't think... I, I believe in crypto-

    14. RARyan Akkina53:58

        Yeah.

    15. HSHarry Stebbings53:58

        ... but I don't think, like, NFTs will come back.

    16. RARyan Akkina54:01

        I mean, even there I'm not, I don't wanna be totally close-minded, right? I mean, a lot of the thing- the, something I think I'm always humble about is a lot of the things that have turned out to be the best businesses are things that many people would've thought were-

    17. HSHarry Stebbings54:14

        Crazy.

    18. RARyan Akkina54:14

        ... totally crazy.

    19. HSHarry Stebbings54:15

        Yeah.

    20. RARyan Akkina54:16

        So I don't use NFTs myself, but, uh, I don't wanna completely close myself to the notion that something there could be successful.

    21. HSHarry Stebbings54:24

        So what won't come back?

    22. RARyan Akkina54:26

        This reminds me of, I think it's, uh, a quote from the Andreessen folks. Uh, I think they say something like, "Nowadays when an entrepreneur comes in and tells us a crazy idea, we assume they're right. It's just that their timing might be off."

    23. HSHarry Stebbings54:38

        Yeah.

    24. RARyan Akkina54:38

        Uh, and I, I, I tend to follow that as well.

    25. HSHarry Stebbings54:40

        Yeah. Uh, they, they also say, "There's no such thing as a bad idea, just a bad time."

    26. RARyan Akkina54:44

        Yeah.

    27. HSHarry Stebbings54:45

        Yeah. Uh, I like it a lot and I agree with you. What would you most like to change about the world of LPs?

    28. RARyan Akkina54:49

        Tough question.Yeah, I don't think I have a good take there. I'd have to think about it.

    29. HSHarry Stebbings54:54

        What would I change? I would change box-ticking nature.

    30. RARyan Akkina54:59

        Well, that's not gonna change.

Episode duration: 57:59