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Inside the Mind of the Investor Who Backed Josh Kushner, Peter Thiel, and Marc Andreessen | Ep. 34

Mel Williams is a co-founder and Partner at TrueBridge Capital Partners, a fund of funds with $8 billion in AUM focused on venture capital. Since 2007, Mel’s team has backed firms like Thrive, Founders Fund, Sequoia, and Alt Capital, and powers the data behind the Forbes Midas List. Before TrueBridge, Mel co-founded UNC Management Company (UNCMC), where he worked closely with the President/CIO to manage over $2 billion of endowment capital for the University of North Carolina. We covered: - Investing in frothy markets - Doubling down on winners - Seed vs multi-stage - Picking managers Timestamps: (0:00) Intro (1:10) AI valuations and a frothy market (4:35) Long term market risks (7:18) Should VC funds keep getting bigger? (9:37) 10% of the market is the signal (14:08) Venture math debate (18:05) Characteristics of great investors (20:46) The case for seed stage firms (23:09) Picking managers (24:59) Big wins and big misses (30:12) It’s hard to kill a good brand (33:06) Building a concentrated portfolio (36:53) Advice to young LPs More on Mel: https://truebridgecapital.com/ https://truebridgecapital.com/team/mel-williams/ More on Jack: https://www.altcap.com/ https://x.com/jaltma https://linktr.ee/uncappedpod Email: friends@uncappedpod.com

Mel WilliamsguestJack Altmanhost
Nov 25, 202540mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 1:10

    Intro

    1. MW

      The two characteristics that we've identified, uh, that are most important for exceptional investors are, number one, they approach the market from a contrarian standpoint or first principle standpoint. Number two, they have conviction. When they see it working and they see it win in their portfolio, they're willing to push their chips on the table.

    2. JA

      Yeah.

    3. MW

      And, um, that's hard to do.

    4. JA

      [upbeat music] All right. I'm very excited to have Mel Williams, the co-founder of TrueBridge, here. Mel, thank you very much for doing this with me.

    5. MW

      It's great to be here, Jack. Thanks for having me.

    6. JA

      So you started TrueBridge like seventeen or eighteen years ago.

    7. MW

      Yep.

    8. JA

      And today it's like one of the premier fund of funds in venture, and you've got eight billion under management. You were very early to funds like Thrive, Founders Fund, and you also like provide the data that powers the Forbes Midas List. So like you're very in the know about top venture firms and how the ecosystem has been working. And so my goal with you today really is to understand your vantage point on venture, where we're at, what it looks like, and sort of, um, you know, how you're, how you're seeing things. Because for us as, uh, venture investors, our job is to like, pick companies. Your job is basically to figure out how to pick investors. And so that's kinda what I want to open up with you about today.

  2. 1:10 – 4:35

    AI valuations and a frothy market

    1. MW

      Sure.

    2. JA

      The first place I'd love to start is just getting your overall pulse check on it's twenty twenty-five, AI is obviously very important. Companies are growing quickly. They're valued, you know, more highly than ever. We just came out of these doldrums post-ZIRP, but now we've had a couple years of like very exciting time. How are you overall feeling as somebody who allocates exclusively to venture? Like, what's your sentiment?

    3. MW

      I think overall our sentiment is, um, is excitement. Um, you know, we think we are at the, at the leading stages of an AI wave, um, that will, that will power business opportunities and return generation over the next ten to fifteen years. Um, we're in the early stages of that. Um, there's evidence that it's working, right? And it's working at scale, and so I think all of those things are very exciting. Um, I think at the same time, um, it feels like a very, um, frothy investment environment. Um, valuations are relatively high, and they're very high at the earliest stages, it feels.

    4. JA

      Like they're higher at the early stages than at the late stages?

    5. MW

      I think so. I think so. I think-- So I think if you look at some of the more recent growth rounds, they've been done at, at revenue multiples that are not peak revenue multiples.

    6. JA

      Yeah, and don't look that different than public multiples or something.

    7. MW

      That's right, that's right. So what's the... You know, I think Palantir's trading at a thousand times-

    8. JA

      Mm-hmm

    9. MW

      ... revenue. Um, OpenAI's recent round was not done at a thousand times revenue, right?

    10. JA

      Yeah.

    11. MW

      So what's the right market multiple for those assets? Um, and so I think in the growth rounds of the market today, um, capital's being invested and rounds are being raised at relatively healthy multiples. At the earlier stages, at the formation stages, um, where there's less evidence of a product, less evidence of a product market fit, um, you do see, uh, founders with credibility, founders who could check a couple boxes, um, raising large pools of capital at very high valuations.

    12. JA

      Yeah. I, I mean, one of the other tricky things is it does seem like the growth rates right now are genuinely faster than they've ever been. So like before AI, it was like if you were going one to three of ARR as a software company-

    13. MW

      Right

    14. JA

      ... you could get your A-

    15. MW

      Right

    16. JA

      ... done, and now it's like one to five, one to seven-

    17. MW

      Right

    18. JA

      ... something more.

    19. MW

      Yeah.

    20. JA

      And so I do also think it's really hard to put multiples on these companies when they're growing really fast.

    21. MW

      I think that's right. I think the pa-pa-

    22. JA

      Which makes it complicated

    23. MW

      ... the pace of revenue growth is something that we haven't seen before.

    24. JA

      You were just mentioning, though, these like early stage rounds before there's product market fit where founders effectively go straight to an A.

    25. MW

      Yeah.

    26. JA

      Yeah. And so you probably have a lot of that in your portfolio, of course.

    27. MW

      We are seeing that, yeah.

    28. JA

      Yeah.

    29. MW

      We're seeing that, um, across our portfolio from our flagship funds and, and the branded firms all the way down to the, to the seed firms.

    30. JA

      Outside of AI, and obviously we'll come back to that, but like, um, in other categories like hardware, defense, maybe consumer, like what other, what other sentiment sort of updates have you had recently?

  3. 4:35 – 7:18

    Long term market risks

    1. JA

      Obviously, we're hoping that everything here turns out to be good. In a world where like everything that's happening right now like doesn't turn out to be so good-

    2. MW

      Yeah

    3. JA

      ... what do you think are like the main risks that you see right now that would explain like the future of like why this went wrong?

    4. MW

      I think we're just gonna see companies that don't, don't get product market fit, right? We're gonna see companies that don't get product market fit that have raised a lot of capital, um, where capital went at a high valuation. And so, um, I think we're at a, we're at an interesting place in the venture industry where if I were to say, "Let's look forward over the next ten years," I think the, I think the following two things can be true. Um, we're gonna see a lot of carnage over the next ten years, um, and we will see more value created over the next ten years than we've seen in the venture industry previously.

    5. JA

      Like in the late nineties, it's like, you know, a bunch of those companies got wiped out in dot-com-

    6. MW

      Right

    7. JA

      ... bust, but then you had also like Amazon and Google.

    8. MW

      That's right, that's right. And venture's always been a power law driven business.

    9. JA

      Yeah.

    10. MW

      Um, it's even more so today.

    11. JA

      Yeah, it does seem w-w-

    12. MW

      Right? The magnitude of the winners is even greater today than it has been in prior cycles, I think.

    13. JA

      What do you think explains that?

    14. MW

      I think it's explained by the lower marginal cost of software.

    15. JA

      Mm-hmm.

    16. MW

      I think it's explained by incumbents and individuals being, uh, more willing to try new software more quickly, right? I think in the last cycle a lot of your incumbents were asleep, asleep at the switch, right? And so we saw, um, growth rates were slower, right? In enterprise, um, enterprise buyers, growth rates were slower. Um, no one's asleep at the switch in this cycle, it doesn't feel like.

    17. JA

      Mm-hmm.

    18. MW

      And so enterprises all haveBudgets to go try a bunch of AI software. Um, consumers-

    19. JA

      Yeah

    20. MW

      ... are signing up for ChatGPT as fast as you can, um, as fast as you can imagine.

    21. JA

      Yeah.

    22. MW

      And so I just think there's more-- society has embraced tech-

    23. JA

      Yeah

    24. MW

      ... um, as a potential solution more. Um, so I think we're seeing the ramp faster.

    25. JA

      As you know, I obviously like I work with many more companies at like the Series A stage than at the later stages, and one of the things that's really interesting is when I was starting Lattice, recruiting against the incumbents, like, let's say like Fang roughly, was, was mostly, uh, not easy-

    26. MW

      Right

    27. JA

      ... but, like, it was if somebody didn't wanna go to those companies, it was, like, not competitive. It was just, like, a different product. Versus now, it's like all these even very hot Series A companies. It's like, well, OpenAI and Anthropic and Meta and these other places are extremely compelling-

    28. MW

      Right

    29. JA

      ... even to very startup-minded employees.

    30. MW

      Right. Right.

  4. 7:18 – 9:37

    Should VC funds keep getting bigger?

    1. JA

      How do you feel about the dynamic where a lot of venture platforms, many of which are some of the best in the world, are now getting so large that a, you know, a high percentage of their dollars basically are just going into these, you know, snowballs rolling down a hill that are just, like, runaway huge. Like, is that something where you're like, I, you know, would rather have the early-stage exposure? Are you like, "Actually, those companies are gonna be massive, and getting into those companies at almost any price is good"?

    2. MW

      We think a little bit of both, frankly, and we structure our portfolio that way. Um, we do realize venture is a power law-driven business, and it, um, you know, your returns are generated by the companies you're invested in that end up being winners, and less so by the valuation at which you entered those companies. And so we think, um, kind of the grow-- the venture growth stage of investing in, in C, D, E rounds, if done right, um, with the right firms and the right companies, is a really attractive risk-adjusted return in this environment, really attractive risk-adjusted return. And the platform funds have the right to win across those stages, right? Um, at the same time, there's just... There are individuals who have a unique angle and/or a unique approach to, um, to founders, um, a network of founders, um, who have proprietary deal flow and who have a right to win at that stage in a competitive environment. And so, um, we like that segment of the market as well, which is, uh, really the earliest, earliest stage of the market.

    3. JA

      So basically, you're kind of in a mindset now of it's either the premier platforms or you try to find, you know, individuals with these edges.

    4. MW

      It is. It is.

    5. JA

      Yeah.

    6. MW

      Yeah.

    7. JA

      What about the rest of the market? 'Cause obviously most of the market is not one of those two things, I guess. I mean, maybe just by dollars, but...

    8. MW

      Yeah. So, you know, I'm worried about the long tail of, of venture in this, in this market cycle, right? Um, I think the magnitude of the winners is gonna be, um, is outsized in this market, is likely to be outsized in this market. We're seeing evidence of that today. Um, I think the, the signaling effect is so strong that the brands have, um, have real advantages in this market. Generally worried about kind of the long tail of venture, worried about companies that are unable to pivot. Comp-- You know, prior legacy software companies that are unable to pivot into AI-related opportunities. That's what scares, scares us the most.

    9. JA

      Yeah.

  5. 9:37 – 14:08

    10% of the market is the signal

    1. JA

      There was a tweet, which I know you didn't see because you're a serious person who doesn't waste time on-

    2. MW

      [laughs]

    3. JA

      ... X. But Martine Cassard-

    4. MW

      I'm not, I'm not on X [laughs] .

    5. JA

      That's good. That's, uh, that... You're smart. Martine, uh, from Andreessen-

    6. MW

      Mm-hmm

    7. JA

      ... um, posted something that was very thought-provoking and got a lot of people stirred up. Basically, he was like, "Increasingly good investing is consensus investing, and you're kind of kidding yourself if you say it's something else."

    8. MW

      Yeah.

    9. JA

      Basically, it's like, you know, obviously at the later stages, like, good companies are known, but today in 2025, it's incredibly, uh, i-incredibly early on, you're able to see. And it got a lot of people sort of frustrated and-

    10. MW

      Yeah

    11. JA

      ... you know, reacting and saying, "Actually, you know, the best companies of the last 10 years were not consensus." And, you know, then it flipped, and it created this big debate about where's the value in investing. Is it, you know, being able to see the future that other people can't see and finding diamonds in the rough? Or is it, you know, winning, you know, the hearts and minds of founders that, you know, any idiot can tell is really good and just, you know, having the-

    12. MW

      Yeah

    13. JA

      ... right to back them?

    14. MW

      Yeah.

    15. JA

      And I'm curious how you think about it.

    16. MW

      Um, it's an interesting quote. I ha- I didn't see it, so thank you for sharing it with me. Within the context of your interpretation of his quote, I think it's both, right? I think, um, you know, as we look at the market today, 90% of the market is chasing the heat and chasing the signal, and 10% of the market is the signal. Sequoia is the signal, right? Peter Thiel is the signal. Um, Josh Kushner is the signal. Um, and so whether, whether a Sequoia or a Founders Fund or, you know, these very high-quality firms, Marc and Ben at Andreessen, whether they are, um, chasing the signal, um, whether they are investing in contrarian opportunities with conviction-

    17. JA

      Yeah

    18. MW

      ... they're creating the signal that the rest of the market is really chasing. So I think, I think it's both, to be honest with you.

    19. JA

      Well, it's interesting that you say that because those examples have both. They both create signal, and they can also win once somebody else has created signal.

    20. MW

      Correct. Correct.

    21. JA

      Which is part of why they're so dominant.

    22. MW

      That's right. That's right.

    23. JA

      It seems to me like right now, sort of like companies, you know, get these power law, you know, winner dynamics, it seems like venture firms could too, where it's like if the signal is that powerful, why shouldn't these firms be managing double or triple or quadruple the money they're managing today?

    24. MW

      Yeah.

    25. JA

      Like, unless you think that, like, the tech market's not big enough.

    26. MW

      Yeah.

    27. JA

      It's like why not just give the ball to the, you know, seven-foot center who can dunk it every time?

    28. MW

      Yeah. Yeah. I think you're right, and I think that's what we've seen over the last 10 years in venture, right? Um, I think-Um, I think s- I think brands matter. We think brands matter in venture. Um, good brands equal positive signal in the marketplace. Um, and positive signal have, have, has real positive meaning for founders in terms of, um, raising additional capital, in terms of, um, attracting talent, acquiring customers, helping in the regulatory environment, right? Um, and so I think if you look at founding a company, there are really three things that, that play here. Number one is, um, not only do founders need capital, but founders want help.

    29. JA

      Mm-hmm.

    30. MW

      Um, you did it, right? Starting and growing a company is not easy, and so you want capital, but you want help. Ventures al- number two, venture's always been a power law-driven business. Um, and so, um, as a founder, you really wanna do things that increase the probability that you're one of those companies that are founded each, each year that really matter.

  6. 14:08 – 18:05

    Venture math debate

    1. JA

      This plays into a debate that happened on this show, not exactly a, you know, uh, not, not at the same time, but Josh at First Round was talking about how there's just physics to venture math, and you can't have ginormous funds and get great returns. The math just won't allow it.

    2. MW

      Yeah.

    3. JA

      Then I had, uh, Marc Andreessen on the show, and he said something more of like a techno-optimist view-

    4. MW

      Mm-hmm

    5. JA

      ... of nobody can appreciate how big these companies are gonna get. Being in the winners always drives great returns. You can put huge amount of capital into these things-

    6. MW

      Yeah

    7. JA

      ... and we are just scratching the surface-

    8. MW

      Yeah

    9. JA

      ... of how big tech can be.

    10. MW

      Yeah, yeah.

    11. JA

      Sort of just different takes on the question.

    12. MW

      Yeah.

    13. JA

      You're in the business of figuring out how to invest in these funds and make the most money, so-

    14. MW

      Yeah

    15. JA

      ... I would ask you sort of, uh, how, if at all, do you think about this fund size question?

    16. MW

      Yeah.

    17. JA

      Where does it fall in the stack rank of things you care about?

    18. MW

      Yeah. I, I think at some level, um... And, and we're invested in both, um, Josh at First Round and, um, Mark at Andreessen, and I think at some level they're both right. Fund size does matter. It's, it's hard to, it's hard to overcome the math, right? Josh is right. Um, you're less likely to f- to, to turn a billion or $2 or $3 billion 10 times than you are $100 million, right? But at the same time, you have to be in the power law companies, uh, to generate long-term returns. And so when we look at the data over, um, over a long period of time, and we go back to the 1980s and we look at the venture returns from the 1980s, what, um, what we conclude is that fund size does matter, but it's not the only thing that matters.

    19. JA

      Mm-hmm.

    20. MW

      And if you look at returns over a long period of time, what you'll find is that, um, often the largest fund in the market is the highest returning fund in the market. Um, and it's a, it's a self-reinforcing cycle.

    21. JA

      So how would you explain that?

    22. MW

      The highest returning firm, um, is able to raise more fun- more capital, is able to hire better talent, is able to attract better founders, and it's just a virtuous cycle, right?

    23. JA

      Yeah.

    24. MW

      And so-

    25. JA

      I also wonder if that best fund, like, is still deploying less than they would've been capable of deploying in many cases.

    26. MW

      So I think, I think that is the key question, and the, the, the calculus that we always look at is, is how does the fund size relate to the capabilities of the firm? And it's not the absolute fund size that matters most to us. It is how does it re- how does that fund size relate to the capabilities of the firm? How does it relate to, um, the, the size of the investment team, the strategy, the level of conviction?

    27. JA

      The access.

    28. MW

      The access to founders, the good, good founders, to the level of conviction they have about portfolio construction. Um, and where we've seen-

    29. JA

      Level of conviction there you're saying more concentrated is better?

    30. MW

      Exactly. So where we've seen firms get tripped up, and, um, Josh Lerner did some great research on this at the University of Chicago on, um, fund sizes and venture returns, and his conclusion-

  7. 18:05 – 20:46

    Characteristics of great investors

    1. MW

      tripped up.

    2. JA

      The concentration thing's really interesting. Like I... S- some of the, like the large firms that I really respect, like Founders Fund-

    3. MW

      Sure

    4. JA

      ... or Thrive or Green Oaks-

    5. MW

      Yeah

    6. JA

      ... I feel like arePretty con-- Like, I feel like they have a lot of dollars into a-

    7. MW

      They do

    8. JA

      ... relatively small number of companies.

    9. MW

      They do. You know, the two characteristics that we've identified over, over, you know, our history, our twenty-year history, and just going back and looking at the data over time, the two characteristics that we've identified, uh, that are most important for exceptional investors are number one is a combination of contrarian investing or first principles investing. Um, and so it goes back to this comment that they are the signal, right? They're not following the signal. They're willing to invest when others aren't. Um, they're willing to approach the market from a first principles standpoint, and Peter Thiel is a great example of that, right? I mean, he did the Airbnb round at three and a half billion dollars when no one else wanted to do that round, right? So number one, they approach the market from a contrarian standpoint or first principle standpoint. Number two, they have conviction. And when they see, when they see it working and they see it win in their portfolio, they're willing to push their chips on the table.

    10. JA

      Yeah.

    11. MW

      And, um, that's hard to do. That's really hard to do 'cause for a lot of people, it's hard to sleep at night-

    12. JA

      Yeah

    13. MW

      ... when you have that level of concentration. But that's how, that's how the winners in the... That, that's where, that's how the highest performing funds in the venture industry have, um, have generated their returns.

    14. JA

      Concentrating into their winners.

    15. MW

      Concentrating into their winners.

    16. JA

      Just as like a, you know, vague barometer on it, like, what does a really concentrated portfolio look like? Like, what percent going into the top first, second, and third largest positions would you be like, "Yeah, that's concentrated." Like, where would you be like, even for Founders Fund, that's a little excessive?

    17. MW

      Yeah.

    18. JA

      Or is there no number?

    19. MW

      Yeah, yeah. So two thoughts. Number one, we see f- we see fund managers who are launching funds today, raising funds today, with the intent of building a concentrated portfolio of eleven to thirteen investments, right? And, um, and these are Series A firms raised by experienced investors who, who believe they have good founder deal flow and good access and the right to win, and they're building concentrated portfolios from the outset, right? It's not a twenty-five, um, investment portfolio. It's a thirteen investment fund portfolio. And then when you drill it down to at the end of the fund life or at the, at the max NAV of the fund life, um, what percentage is in the two, three, four winners, it's sixty, seventy percent.

    20. JA

      In three names.

    21. MW

      Yeah.

    22. JA

      Yeah.

    23. MW

      Yeah.

    24. JA

      And that's happened after-

    25. MW

      Because they're just driving... They're, you know, those, those names are the successful names, and their NAV is increasing, and that's driving the value of portfolio.

    26. JA

      It's probably like you should be so lucky to have names that are worth putting that much into.

    27. MW

      [laughs] Yeah.

    28. JA

      So it's probably a good thing.

  8. 20:46 – 23:09

    The case for seed stage firms

    1. MW

      Yeah.

    2. JA

      So we've talked about, like, the big platforms obviously, and, um, I, I'm curious about the way you think about picking the other basket of sort of like less obvious names and less obvious managers-

    3. MW

      Yeah

    4. JA

      ... for you to be in business with.

    5. MW

      Yeah.

    6. JA

      I guess my first question before I ask is like, why have that basket at all? Because, you know, we just talked about how great the-

    7. MW

      Yeah

    8. JA

      ... sort of platforms are becoming.

    9. MW

      Yeah.

    10. JA

      What's the point? I, I know there's an argument for it, but, like, how would you say it?

    11. MW

      I think established managers have always struggled with investing in the seed space successfully, and we've seen it over the history of those platform firms, right? Um, for some of them, they've been in and out of seed. They've been in seed with various strategies, either as a, you know, they hire, hire individuals to invest directly in seed. They build a portfolio. Um, they realize all the negative signaling effects of that, that hurts their downstream investing. They get rid of that individual. Um, you know, they're out of seed, and then they go back a couple of seed managers to generate deal flow. And so I think of... If you just look at, uh, the history of venture over the last twenty or thirty years, the brand and platform firms have always struggled to invest effectively in seed, um, because it's tough, right?

    12. JA

      Mm.

    13. MW

      It's difficult, and it has impacts for their downstream investing. And so for us, we wanna have exposure to that segment of the market with people who, um, who are solely focused on that segment of the market and who we think are really good at investing in that segment of the market.

    14. JA

      So it's about exposure above anything else?

    15. MW

      It is. It's about exposure, but it's also about returns. If we look at the seed returns, um, within our portfolio, our seed returns are accretive to the overall returns-

    16. JA

      Yeah

    17. MW

      ... within our portfolio.

    18. JA

      Yeah, you just can't deploy as many dollars to it, I guess.

    19. MW

      That's right.

    20. JA

      And then because it has more variability, or does it have not that much variability when you're diversified?

    21. MW

      I mean, you know, the, the seed segment of the venture market today is, um, is very, very large. We could, we could deploy a lot of dollars. We're not convinced that the manager quality is that deep.

    22. JA

      Mm-hmm.

    23. MW

      We believe in building concentrated portfolios. We believe concentrated portfolios are the best way to generate outsized returns for our investors. Um, so we could build a portfolio of fifty, sixty seed managers and invest a ton of money. Um, but we consciously choose to invest a smaller pool of capital in a more concentrated portfolio of seed managers who, who we think are best in class.

  9. 23:09 – 24:59

    Picking managers

    1. JA

      Do you care more about strategies or the people? Like, the equivalent question here to a VC would be something like, are you backing, like, founders or markets predominantly? And I actually think, like, and some people will be like, "Ah, it's both." Some people will actually take a side on that.

    2. MW

      Yeah. Yeah, yeah.

    3. JA

      Like, you know, like Alagill, who's-

    4. MW

      Right

    5. JA

      ... a phenomenal investor we've mentioned, like you have m-market driven more than most people.

    6. MW

      Yeah.

    7. JA

      Other people are like all people.

    8. MW

      Yeah.

    9. JA

      Some people are really product obsessed.

    10. MW

      Yeah.

    11. JA

      Like, do you have an angle on this for yourself where you're like, there's just some managers you wanna be in business with no matter what, or there's just models that you think are gonna be excellent, you know, come hell or high water?

    12. MW

      At the seed stage segment of the market, for us, it's more people driven. Um, we try not to pick markets. We don't wanna lock our l-limited partners' capital up fifteen years into a market that may be in or out of favor over that fifteen-year period. But we are very excited and interested in identifying people, um, or groups of people who have, um, exceptional track recordsUm, who have a unique angle to the market, um, whether it's a, it's a unique network of founders that they can tap into, whether it's a unique approach to connecting with founders, whether it's a unique point of view on a segment of the market. We're always excited about, um, investing with people who have a unique angle and/or approach that generates what we think is, um, either proprietary deal flow for a right to win in a competitive situation, and then we're always excited about investing with people who can build a personal brand.

    13. JA

      Mm.

    14. MW

      You know, when you're at the seed stage and you're not walking through the front door with a Founders Fund business card or a Sequoia business card, um, you gotta stand out. And, and so we think that's part of the equation for us when we're looking at seed managers is it's evidence of strong investment judgment through a track record, this unique approach and/or angle that generates proprietary deal flow or a right to win, and its ability to build a personal

  10. 24:59 – 30:12

    Big wins and big misses

    1. MW

      brand.

    2. JA

      If you think back to sort of... It doesn't have to be seed managers, but, like, first, second, third, like early in their-

    3. MW

      Yeah

    4. JA

      ... fund life managers, can you share any stories of either like, like couple great decisions that were like hard to make and like how they played out, and also like a huge miss where you were just like-

    5. MW

      [laughs]

    6. JA

      ... "I read that wrong, and I missed out on a lot"?

    7. MW

      Sure. Um, so we've been lucky enough to make a number of affirmative decisions at TrueBridge that have worked out well over time, that have had positive impacts for our portfolios and our returns. Um, you know, um, investing with Sunil Dhaliwal when he left Battery, uh, to form Amplify Partners-

    8. JA

      Right

    9. MW

      ... was not an obvious decision. Um, we had known Sunil while he was at Battery. Um, he was running their seed portfolio. We liked him as an investor. Uh, when he left Battery, his seed track record was a little unproven, um, but we liked the portfolio he'd put together at Battery. We liked his approach to the marketplace. He had a very... Once again, going back to an approach, he was focused on internet infrastructure at the time-

    10. JA

      Mm-hmm

    11. MW

      ... um, which we thought gave him both, um, a chance at proprietier- proprietary deal flow and a right to win in a competitive situation, so we backed him in his first fund. It was a $45 million fund. It was not obvious, and that's turned out to be a double-digit returner, um, for us. You know, backing Jason Green at Emergence early was not obvious. Um, an individual with a great track record, partners with good track records, um, once again a unique approach in terms of SaaS software specialization, um, but it was not obvious. Um, you know, their second and third funds have turned out to be both double-digit returning funds.

    12. JA

      Wow.

    13. MW

      Um, so those were both, you know, not obvious or not conventional decisions when we made them that turned out very well. Perhaps our best decision in the history of our firm that was, um, largely unconventional was the decision to back Peter Thiel and his partners at Founders Fund when they raised their first institutional fund back in 2007. Peter, um, at the time was recognized as a good investor. He was recognized, probably had more credits being the first investor in Facebook-

    14. JA

      Mm-hmm

    15. MW

      ... than he did anything else. He was running his hedge fund, Clarium. He had put two partners, you know, Ken Howery and Sean Parker beside him where, who had, um, backgrounds as good operators. Um, Peter's first fund was largely his own personal capital. He went to market in '07 to raise an institutional fund. Uh, we met Peter and Sean and Ken at that point in time. There were as many reasons not to invest in Founders Fund II as there were to invest in Founders Fund II, but we made the decision to invest. Um, you know, we didn't know at the time that Peter would become one of the singularly exceptionally best, or sing- singular exceptional best investors-

    16. JA

      Yeah

    17. MW

      ... in the history of the venture industry.

    18. JA

      Yeah.

    19. MW

      He has built a firm at Founders Fund and a track record that is second to none in the venture industry. Um, and today we're one of the largest investors in Founders Fund, so that's probably the best investment we've made that's been-

    20. JA

      I guess also when you go that early, it gives you the right to put huge amounts of dollars-

    21. MW

      It does. It does

    22. JA

      ... into the platform later.

    23. MW

      And we've been very lucky to establish a very good relationship with them that's been mutually beneficial for both-

    24. JA

      Yeah

    25. MW

      ... both sides, so.

    26. JA

      Are there any situations where you, where it went the other way?

    27. MW

      Yeah, yeah.

    28. JA

      Where you like turned out somebody was phenomenal or just it went great and you didn't see it?

    29. MW

      Yeah. So I'm proud to say that today we're, we're, um, we've been longstanding investors with Josh Kopelman and his partners at First Round. But when Josh was raising his first fund, we were just getting started.

    30. JA

      Mm.

  11. 30:12 – 33:06

    It’s hard to kill a good brand

    1. JA

      So there's these buckets of big platforms that dominate. There's, you know, sm-smaller firms, you know, whether they're emerging or established. There's also then obviously this long tail of venture firms that you mentioned that wouldn't fit into either of those, but keep getting funded and seem to be on a path to keep growing their funds even.

    2. MW

      Mm-hmm.

    3. JA

      And I'm curious what the dynamics are of, um, from your seat as an LP, why is it so durable? Why are venture firms so durable?

    4. MW

      It's hard to kill a good brand in venture. [laughs]

    5. JA

      Even a regular brand, I feel like.

    6. MW

      It's hard to kill a regular brand in venture.

    7. JA

      Just a firm.

    8. MW

      Yeah.

    9. JA

      Yeah.

    10. MW

      Yeah.

    11. JA

      Yeah.

    12. MW

      I think it, um, has to do with the structural, um, makeup of the venture industry and the kind of the, the supply and demand of capital in the venture industry. And so venture capitalists are raising capital from a highly diversified supply base. I mean, there are, I don't know how many institutional LPs or individual LPs there are in the world, but there are tens of thousands of, of supply sources to, or supply of capital to venture firms, where they're raising from a highly diversified supply base.

    13. JA

      And probably growing quickly.

    14. MW

      And growing.

    15. JA

      Yeah.

    16. MW

      It's really difficult for LPs to distinguish, distinguish between luck and skill.

    17. JA

      In the managers?

    18. MW

      Really difficult, right? Um, s- because ev- b- by the time a intu- a, a venture capitalist gets to our doorstep, um, they've got a good story for every winner in their portfolio. Um, we're lucky in that we have a good network, and so we can go figure out the difference between luck and skill, but I'd say 90% of instituti- institutional limited partners can't figure out or can't distinguish between luck and skill.

    19. JA

      How do you figure it out? I mean, like, I'm, I'm sure you're not saying you figure it out perfectly, but you figure it out to some extent.

    20. MW

      Um-

    21. JA

      When you're saying we go figure it out, what does that mean? 'Cause I think it's so hard to tell.

    22. MW

      What that means is, um, that we have one of the best networks in the venture industry. And so when we're trying to figure out the role that a GP played in a company or a winner in their portfolio, um, we have a, we have a large network of people we can go call to figure out-

    23. JA

      What really happened

    24. MW

      ... was it luck or was it skill? [laughs]

    25. JA

      Yeah.

    26. MW

      Right?

    27. JA

      Right.

    28. MW

      And so I think that's the other component is it's hard for investors to distinguish between luck and skill, and so they see a positive track record, and they attribute, they misattribute it to skill when it may have just been luck.

    29. JA

      Mm-hmm.

    30. MW

      Right? And it may... And if it's just luck, it's not repeatable.

  12. 33:06 – 36:53

    Building a concentrated portfolio

    1. JA

      You talked about how, um, for venture firms, concentration, you know, you, you believe is correlated with success. Have you felt your own desire to concentrate your own book with managers over time? You know, as we talk about these power law companies and power law managers-

    2. MW

      Yeah

    3. JA

      ... to an extent. Does it make you, relative to, say, five or 10 or 15 years ago, ch-change your own thinking about how you wanna allocate your own funds?

    4. MW

      It has, and we do. Um, you know, we started our business in '07 thinking that, um, that building a concentrated portfolio of the best performing managers in the business was the best way to generate outsized returns for our investors. Um, our first fund was invested across 18 core managers. Um, we are investing fund eight today, 18 years later, and our, um, our eighth fund will be invested across 11 or 12 core managers. So we've consistently concentrated our portfolio over time. Um, and we think of our jobs as simply investing as much of our limited partners' capital as we can with the best performing managers in the business. And we force rank our portfolio every year. Managers that are at slots 10, 11 and 11 are always at risk of leaving our portfolio. Um, and the reasons why managers leave our portfolio are, number one, we can put more of our limited partners' capital to work with managers that we rank numbers one through six.

    5. JA

      Mm-hmm.

    6. MW

      And that happens a lot. We've been very successful at increasing our allocations to the Sequoias and the YCs and the Founders Funds of the world. We see new entrants come into the marketplace that we think can perform at a very high level, um, and if we think a new entrant can perform better than the 10th or 11th or 12th manager in our portfolio, we make the tough decision to put the new entrant into the portfolio.

    7. JA

      Yeah.

    8. MW

      So Founders Fund was a new entrant into our portfolio. Andreessen Horowitz was a new entrance into our portfolio. YC was a new entrance into our portfolio when they started to raise outside capital. Um, and then the third thing, uh, third reason why managers exit our portfolio, um, is a result of, um, something specific to the manager. So it's either, um, a team change, good investors leaving, um, strategy drift, changes in fund size that we think, um, exceed the capabilities of the firm. And so those are the three reasons why managers leave our portfolio.

    9. JA

      That makes sense.

    10. MW

      But we've concentrated over time.

    11. JA

      Yeah, makes sense. And I'm sure those are very hard calls to make.

    12. MW

      Very difficult, yeah.

    13. JA

      But, um-

    14. MW

      Very difficult decisions

    15. JA

      ... it's probably very important for the ecosystem, and also just, like, to, to the point before, there's a lot of money out there, and people can... There, there's a lot of sources of capital for all these firms, I'm sure.

    16. MW

      Yeah. It's, it's, this, it's been very important to the returns of our fund.

    17. JA

      Yeah.

    18. MW

      Our returns are best in class.

    19. JA

      Yeah.

    20. MW

      And I think it's a result of-

    21. JA

      It's the same as a venture firm concentrating.

    22. MW

      That's right. That's right. And we've always invested from a capital constrained-Position. I mean, we've, we've always... We could put to work much more capital than we actually raise in our funds.

    23. JA

      I'm sure.

    24. MW

      But we actually like investing from a capital-constrained positioning because it forces us to make these tough choices, and it forces us to only invest in the best performing opportunities.

    25. JA

      To push on that, let's say that you could just get fifty percent more allocation in your existing managers and have a fifty percent bigger fund. Would you be totally neutral/happy to do that?

    26. MW

      That's how we've grown our business over time, right? So, um, you know, we've grown our flagship fund from five hundred million to seven hundred million to nine hundred million. Um, we'll go to market to raise, you know, nine hundred to a billion dollars. But we're delivering exactly the same portfolio and exactly the same exposure to our limited partners across all of those funds.

    27. JA

      Mm-hmm.

    28. MW

      Um, we're ex- we're delivering exactly the same portfolio construction today-

    29. JA

      Right

    30. MW

      ... as we delivered in Fund 5. And it's a result of our ability to increase our allocations to good managers. It's a result of our ability to put more capital with the best performing managers in the business.

  13. 36:53 – 40:33

    Advice to young LPs

    1. JA

      a final question, um, for, I don't know how big my audience of LPs is, but, you know, for any young LPs out there, could you share any, like, advice to somebody? 'Cause you've obviously had an amazing career doing this. What would your advice be to, like, a young LP, whether it's here's how to be great at it, here's how to carve your own path, here's how to make it sustainable, here's what you should spend your time on, here's what's a waste of your time. Like what-

    2. MW

      Yeah.

    3. JA

      What do you wish you knew?

    4. MW

      You know, what's become clear to me over twenty-five years as a limited partner in the venture industry is that you're only as good as your network. It's often said that investing in venture is like walking into a dark room. The longer you're there, um, the more you see. And so my advice to, um, individuals entering the institutional LP world within the venture segment is, um, really focus on building, building your network. Um, you know, really focus on connecting with the people that you think are important. Work really hard to make those relationships authentic. Um, work to make them personal when you can. Um, be aggressive about building your network because that's what's going to generate deal flow. That's what's gonna generate insight. Um, that's what's, that's what's going to, um, enhance your decision-making capabilities. Um, so that would be my number one piece of advice is, is really focus on building your network and building authentic personal relationships with people in the industry. And I think my second piece of advice would be follow the signal. Try not to be the signal. [laughs]

    5. JA

      [laughs] Interesting. Why?

    6. MW

      I think it's really hard. I think it's, I think it's really hard to be the signal.

    7. JA

      Hmm.

    8. MW

      I think, I think, um, you have to be exceptional to be the signal.

    9. JA

      Do you think you should-

    10. MW

      And-

    11. JA

      ... aspire to become the signal over time? Or do you think that you should-

    12. MW

      I, I just think, I think if you ha- if, if you have that mindset and you have, um, you think you have that ability-

    13. JA

      Hmm

    14. MW

      ... then yes, try to be the signal.

    15. JA

      Mm-hmm.

    16. MW

      But if you're not sure, uh, be very comfortable following the signal.

    17. JA

      Mm-hmm.

    18. MW

      Because I think that's the way the, the business works.

    19. JA

      And I guess maybe to the prior point in, um... as a VC, you get paid a lot more to see something early than as an LP because-

    20. MW

      Yeah

    21. JA

      ... to that point you miss a first fund-

    22. MW

      Yeah

    23. JA

      ... they're gonna be great for a long time.

    24. MW

      Yeah. The, the, the... There's, there's, um, there's not no cost, but the costs are low to missing the first fund.

    25. JA

      Yeah.

    26. MW

      And I've always said I would rather, I would rather cry over the, over the investments I, um, I didn't do than the ones I did put in the portfolio.

    27. JA

      It's such an interesting point 'cause, you know, when I think about a lot of my, you know, like favorite LPs that I feel like I've learned a lot from, including you, I think of, you know, the LPs who I think we, we would probably consider to be more the signal that other LPs look to and say, "Oh, if they're doing that, you know, I should do it."

    28. MW

      Right.

    29. JA

      But logically speaking-

    30. MW

      Right

Episode duration: 40:33

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