Jason Lemkin & Rick Zullo: How "Mark to Market" Corrupted Venture Capital | E1052

I don't mean to be patronizing but I mean to be a little bit patronizing. As a founder, your job is not to run out of money. If you got eight million instead of two million, it's not to spend it all. Why are they spending it all? The great founders are going big. Why can't they use a spreadsheet and do the math and say, "I got a gift from heaven, why can't the best founders take advantage of this?"

(instrumental music) I am so excited for this. This is gonna be such a fun discussions today. Now, we're gonna dive right in because I got teed up by a comment from Rick First who said that, uh, we need a Jerry Maguire moment in venture. I love Jerry Maguire but I was intrigued. What did you mean by this, Rick?

So, Jerry Maguire is one of my all-time favorite movies. Like, part of me really wishes I was a sport agent. Um, you know, and for those who don't know what this movie is about, Jerry is this kind of soulless sports agent working in this big agency that has come ... And he has kind of a come to Jesus moment and he realizes that they're working with too many clients, they're trying to scale too much, you know, that they've lost the kind of, like, hands-on connection with their clients and that they need to go, like, back to the core business, focus on the clients over making money. He writes this big ma- manifesto, Catch On The Rise style, uh, and then he ends up getting fired for it. But all ends well that ends well. You know, he ends up developing a close relationship, helps his client through a bunch of these struggles, and, you know, hilarity ensues a- all along the way. And, you know, in many ways, I think this is what venture used to look like. It was a really hands-on connection between a board member and a ma- and the founder. Uh, and then you guys talked a little bit on your last round table about this factory model, and I think that's really torn that a- all out of whack, where it's become about how much we can be an asset management business, how much we can scale the capital that we have, and that's really taking VCs away from the founders, um, and really focused on some things that I think are some really unhealthy behaviors. But make no mistake, the asset management business is a better business than the venture business. You know, fees are guaranteed, carry isn't. For me at least, early in my career, like, we had these... I had two big nine-figure exits that were founders that didn't take a lot of paid-in capital and the relationships that I had with those folks was really, really intimate. And, you know, one of those founders made close to 100 million dollars on it, changed his life, it changed, you know, uh, his family's life and, uh, as I went back to some other venture capital firms, like, you need another zero on that for that to matter. Like, when are any of these deals that you do are gonna, uh, are they ever gonna m- move the needle? And certainly it moved the needle for that founder and that was kind of like my Jerry moment of realizing there's an opportunity to go back to basics, do less companies. We have 15 companies at Alpha Fund.