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Chris Douvos

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95

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2017-07-03

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2017-07-03

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1

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1. “A year and a half, and I called him up. We had an amazing conversation The reason I stopped is you end up talking like an hour, hour and a half. It's just go, go. And then all of a sudden, you're like, oh my gosh, the reality of the day intrudes. And that's kind of sad.”

   2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

2. “Now again, this one might be a little bit cliche. But I really think that we don't make enough time for the people that are important to us. And so my needer's resolution this year was I actually made a spreadsheet. This is like so overengineered. I made a spreadsheet. I downloaded all my friends from Facebook and looked through my contacts and thought about people I knew in college, in high school, and Brooklyn and all the stops I had, Tiff and Prince and wherever, and made a list of people. I actually spent like a whole day on this. And I put people in buckets. Like, this is sad. There was a group of people I wanted to talk to once a week. There's a group of people and it wasn't a lot of people, a group of people that I wanted to talk to once a month, a group of people I want to talk to once a quarter. And I was like, every day I'm going to make a phone call that lasted like three days. But at least now I have the spreadsheet. And so there are a lot of people out there who should be expecting calls. But it's great. Like the people I call, like I called my best man. I hadn't talked to my best man. I love him madly. We're like, we're like brothers. I didn't talk to him and like.”

   2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

3. “I'm very agro I need things to happen yesterday and my mom always would say things like this too shall pass or everything kind of works out in the end and I didn't believe that ten years ago And now maybe this is what we call wisdom here in the summer of my forty-fifth year. I've actually come to believe that things actually work out. And whether that's all of our cognitive biases and what have you. There was a lot of stuff that I used to really stress about and what's that old cliche don't sweat the small stuff and it's all small stuff, right? And I feel much more at peace today, which is tough in the Bay Area, which is an always on 100 miles an hour FOMO ridden environment. It's important to kind of find that piece. I'm not there. I'm thinking about taking up mindfulness and this and that.”

   2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

4. “Wow, you know, there's the obvious answer, which is I'd love to be a ball player, but alas, talent and genetics and lack of inclination to bust my ass that hard all conspire against me.”

   2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

5. “standing to see it land and then below the deck, and I didn't know if it was gone. And so I looked over to right field instinctively to see how their reaction was, the people in the stands, and everybody started jumping up and down. And so we started jumping up down. And I looked to see Boone trotting around the bases. And I've never been, I'd been at, you know, kind of Mariana Rivera closing out World Series games, ALCS games. sheer exaltation, you know, 55,000 people cheering as one. It was like a religious experience. I cried.”

   2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

6. “So, my good friend P. Kingston is now at Prime Cap Management. He's a great guy, really smart guy. He worked with me at Princeton. His brother at the time worked for the Padres, and so he got some awesome seats on a lark like we just went into this game. And we were in the upper deck. And I just remember Wakefield through the pitch and Boone hit it. But because of where we were, we were in the third base side and left field about halfway, halfway up the left field line. Because of where the ball was hit, we lost sight of it because it came flying out on arc and it was clear that if the ball was fair, it was a home run. And we saw the white ball arcing high against the dark night until we, you know, kind of hit its aperture and hung there just for a second like the moon in the distance and, you know, kind of paused almost as if to tantalize us and then started falling in this kind of low graceful descent. And then it fell first below the kind of line of the people who were all.”

   2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

7. “I'm going to give two answers to that question. My first answer is actually being a spectator at a ballgame of my sons. So here's my son. He's a great ball player, but he doesn't look like a ballplayer. I'm like, I don't know how many times I have to ask him to tuck his shirt in or tie his shoes or what have you. And he's standing at home plate in a tight game, you know, runners on first and third. And this mom was just saying to me, she's like, can you ask your son to tuck his shirt in, please? And on the very next pitch, he had a double in the gap to knock in two runs. Vindication.”

   2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

8. “My dad always said something. My dad's a taxi driver, and he lived a hard scrabble life and kind of understood interpersonal dynamics as well as a lot of people I knew. And he said, he said, my son, in life somebody always has you by the balls. All you can control is how hard they squeeze. I'd sit there and go, wow, you know, and I think about that a lot, it actually helps me understand kind of. In New Haven, economics class might have given us kind of more fancy Ivy League lingo for that. But it's a really important insight.”

   2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

9. “Well Waste of time is all relative. I will say the thing that takes up a lot of time because I don't want to call it a waste. I coach Little League, which is, as we say in California, hella fun. And particularly I pitch batting practice. I think I'm going to be the first little league coach ever to require Tommy John surgery. But it's like this great, like here I am. I'm like all stressed out about company X that's flailing or company B that's getting traction, but it's going to get overpriced the next round or the fact that we're going to bow before our robot overlords in 10 years and will we have universal basic income and how are people going to live? Who even knows? And, you know, I get to throw strikes and that just clears the mind like nothing else.”

   2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

10. “Railroads Well, you know, so this is the advice actually that I'd give. You know, most people are so animated by career risk. And I was a consultant, so everything's a two by two matrix. And if on one axis you have, you know, kind of being wrong or right, good decisions sometimes have bad outcomes, right? You're sometimes unlucky. So that's a distribution. So you will sometimes be wrong. Acknowledge that. And then on the other axis, you can be with the crowd or you can be alone, right? And so many people are afraid of being wrong and alone, right? This is what David Salem really reinforced me. They're so afraid of being wrong and alone and taking that career risk that they migrate from being alone and having conviction to being with the crowd. But when you migrate towards the crowd side, you take the right and alone box out of play. And that's where fortune and glory reside. And if you can be right and alone, that's where you can, you know, kind of invest courageously, invest heroically. So that's the bit of advice I'd give people.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

11. “I can talk about different issues, and I can educate people because I was hearing from a lot of people. A lot of people had come into the business in 0102 kind of following Swenson's book. A lot of people had kind of built out their teams. And so there were a lot of people coming in. And it was a way for me to kind of mentor the next generation. And so I really had a lot of fun doing it. I started doing it a little bit less just because it's a little bit time consuming. But every now and again, the spirit moves me and I try to kind of capture that voice and that spirit and really kind of educate and cajole and inform. And it's a lot of fun and it builds great kind of community engagement.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

12. “So, if you can capture that voice in your writing, he's like, you'll get an audience. And I thought, you know, I did have some to say because there weren't any people in the LP world blogging because it's a very kind of quiet business because nobody wants to say anything dangerous or controversial. So I thought, you know, I can be edgy but not scary.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

13. “It's funny, and I have to say beforehand, you know, it's called Super LP, not because I have any aggrandized vision of myself, but rather because I was once in London and I underpacked and I went to a meeting and I rewore my suit and the shirt, but I was gentlemanly enough to change my undershirt and I was out of white t-shirts and so I had this red t-shirt that I was going to work out in and I went to this meeting and I had the top button open. I didn't have a tie on. And somebody saw my red shirt underneath and they said, what are those? Your super LP underwrows? And I said, and a nickname was born. So, you know, it's funny, you know, blogging, as you'll recall, was huge in like 0506, you know, it was really on the front end of 05, but like by 0708 was huge. And so I was talking to Josh Coppelman, and he was like, you know, you've got a lot of interesting stuff to say. He's like, but importantly, like, there's a lot of people saying stuff. And he's like, you're not any smarter than the next guy. Thanks, Josh. He goes, but you're at least 20% funnier.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

14. “Same time, like one example that was really instructive to me was we got when I was at Princeton that Sequoia raised a fund in 2003 and they sent docs around and we were very diligent. We sent our docs out to our law firm and they came back with like three pages of comments and we sent them to Sequoi and we got a call from the lawyer and he just said, I just want you to know the documents are as is. So for the top firms and you're kind of going back to something I said before, if you put 50 LPs in a room, there'd be and ask them to list their top 10 firms, there would be four or five that were kind of acclimated this as a top, but the list would probably encompass 40 or 50 firms, right? Because everybody's got their own favorites. And a lot of those funds can, because they're oversubscribed, they can set the price.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

15. “It's very much despite my raging against my shouts into the wind, we're still very much price takers. Now there's some groups that are kind of pushing, groups like ILPA, but they tend to push on a larger funds, the Black Sons, the people that tend to take a lot of money from the state plans. But in VentureWorld, you tend not to see much pushback. In fact, what you're seeing is a lot of people are now kind of going to hire carries after hurdles. So there'll be a 20 carry up to a 2.5 or 3x, and then it'll kick up to a 30 carry. And I fought that for a while, and it's sort of become market. And the reality of it is if somebody can deliver me a 3x fund, I'm glad to. So then the discussion becomes around, okay, well, what are the catch-ups and what have you? So I try to, you know, they've already breached the line. Now I'm just trying to make sure that we get our wounded away. But like at the”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

16. “The total net returns are high enough, there's a big pie, and everyone can eat from that pie. Is there much discussion in the venture world today about fees or are people still more concerned with access that they're willing to pay, that they, the investors in venture capital funds, are price takers and not price makers?”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

17. “I want to talk a little bit about fees. Now, we've gone through this sea change in the public markets where if you looked at the returns from the last 10 years compared to the 10 years before that, particularly in the hedge fund world, what used to be a low mid-double digit net return became a mid single digit net return and the fee structure didn't evolve. And as a result of that, the fees that hedge fund managers charged 10 years ago. And then for the most part, still charged today are just too high as a percentage of what's being delivered. You look at venture capital, we've started to see it. You could look at Yale's numbers from the last 10 years compared to the 10 years before. You had astronomically high returns, which meant that, as you said, as long as there's demand for the right venture funds, they can charge more and more as a fund of funds. There's a layer of fees. But we also are in an environment where things might be a little more expensive. And again, as long as”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

18. “Really talking about is you're talking about portfolio as community, right? And that became kind of Josh's watchword for a while. Portfolio as community. So how do you build a community around what you're doing so that the resources available to each entrepreneur are greater than those of the venture capitalists themselves? And that was a real animator for my investing for a long time. Now it caused me to miss some people because there's some great Lone Rangers out there, right? But I look at first round true data collective, these guys that kind of form the backbone of my portfolio and those guys all bring resources kind of greater than themselves to bear.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

19. “So one of the great venture capitalists ultimately are great conciliaries. They've seen everything. They can help. But one conclusion I came to is that no person has a monopoly on wisdom. And so kind of in 0506, I was spending a lot of time with Josh Koppelman at first round, and he was articulating his vision for what he called the first round platform. Like, how do you help a venture firm punch above its weight? And so, you know, rather than the venture capitalist being the hub in the middle of this kind of hub and spoke network, could you push, you know, he called it the napster adventure, right? Could you push the interactions out to the frontier? where entrepreneurs are interacting with each other and the venture capitalist is removed as the bottleneck. And in fact, what I want to go in my tombstone is I said to Josh, and this is now kind of posterized in first round's offices, there are three offices around the country. I said, you know, what you're”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

20. “And are your preferences for a venture capitalist that has kind of the right network of companies and the ecosystem to help an entrepreneur build their team? Or is it more their insight once a company's launch to know strategically what markets to go to and how to make changes on the fly?”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

21. “Well, to simplify it, I need to understand the people. I need to understand are they distinctive, outstanding? You know, how is it that they have a competitive advantage that's somewhat durable? Understanding that that's a wasting asset. Understanding the strategy. So the strategy has to pass my smell test, but also needs to be interesting and additive. And importantly, there needs to be a resonance between the people and the strategy. Out of the people in the strategy follow their portfolio. And the portfolio is the people in strategy and action, the proof of the puddings and the tasting. So that's where I spend time with entrepreneurs. And kind of, that helps me, that gives me a window into kind of how these people behave.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

22. “So there's a fund that's coming back. Fund three was great, but now it's Fund 4. What are the kind of critical factors that ultimately go into that decision of whether you're going to back either a new fund or the next round of a fund you've been with?”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

23. “That's basically what I do. And then I'll drive up to San Francisco to my favorite robotics lab and go see what's going on with one of my favorite robotics companies. And then I'll drive down to San Jose and see what's going on in AI. It's just like being out there. Like I don't actually sit still and part of it is because I have ADD. But mostly I just can't sit still.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

24. “Manager to talk about their portfolio, try to understand what's going well, what's going poorly. I'll make some mental notes about where can I cross-reference the things they're saying to see if they're kind of full of it or if they're actually being authentic and clear-eyed. Very often I'll have investors come through probably like two or three days a week I'll have an either existing or potential investor come through and I do this great Palo Alto walking tour which is like a tour there's some great stops on it. I was a tour guide in college so I can do the storytelling and walking backwards and what have you but you know the history of Palo Alto is very much the history of the American electronics industry and so there's some great stuff so that'll be an hour and a half I'll meet an entrepreneur to talk about their business and understand their venture capitalists I'll hopefully have had you know kind of a neuron fire from a conversation three days earlier with a venture capitalist that invested in the company to kind of triangulate how they're doing”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

25. “You know, it's funny, it takes a lot of patience to invest in venture capital funds because the average venture partnership lasts twice as long as the average American marriage. Isn't that crazy? Average venture fund goes 10 years plus kind of three, four, five, one-year extensions. That kind of, that has some implications for partnership dynamics. So you've got to be on top of what's going on inside the funds and are there tensions. It's this microcosm of organizational behavioral dynamics. And then you've got to understand what they're doing in the portfolio and how they're adding value and how the companies are progressing and what have you. So in a typical day, it's funny if I were to look at an average week. I'll take an average week because it'll be lumpy. But in an average week, the kind of classic day, I'll have a meeting with an existing”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

26. “The reality is when you have a high valuation, it starts to limit your options. And I think we're starting to see companies that were highly valued, that had a moment where they could have been acquired or gone public if they were less richly valued, but that moments passed and now either the company is kind of plateaued or they've got a disruptor themselves. The disruptors are disrupted. And I think that's going to be the sad story for me that I'm worried about kind of two to three years out. Like we had companies A, B, C, and D. There were great businesses that could have really done something, but their valuation really tripped them, you know, tripped them up. And that's a self-inflicted wound.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

27. “The same as we were in 99, which is when John Dore said, in the short term, the Internet is overhyped and in the long term it's underhyped. And I think we're at that moment where we're overhyped in some areas, but underhyped in the long term, right? And I look at areas like robotics and AI and stuff that are really hyped up now, but long term will be fundamentally life altering innovations. The question is, in the short term, do both venture capitalists acquire and public markets allocate that capital appropriately? I often talk to entrepreneurs and say, you know, once you take venture capital, the venture capitalist business model is your business model. You've got to get liquid at a number that makes sense for them. And entrepreneurs love vanity valuations, right? They love having the billion dollar company makes them feel good, they have something to talk about at the battery or what have you. High valuations are good because you take less dilution, et cetera.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

28. “I think one thing that's really critical is that the venture ecosystem continues to produce companies that fundamentally change the world, right? That's almost cliche where I'm from. But if you look at it today, you know, the largest transportation company in the world, Uber, does know any transportation assets. The largest lodging company, Airbnb, by some metrics, owns no real estate, right? The largest retailers own no inventory, right? This is actually a world change, and some of these companies are private. Now, the question becomes, what are the valuations? I think overperceive this stuff. The reality of it is, and you ask an interesting question because you say, you know, what conversation are we having two to three years from now? I think I'm going to take the easy way out and I'll say, what's the conversation we're having ten years from now? Conversation we're having 10 years from now is”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

29. “And there's a notion that the private market companies, particularly in later rounds, are rich, maybe richer than what the public, you know, that might be a down round to go into the public market. We've seen a version of this before that didn't end well in the early knots. If you fast forward five years from now, of what are the two or three different outcomes that you think we might see a few years down the road?”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

30. “The Mula in the Kula because nothing counts. At the end of the day, we can have these markups and kind of flout, you know, great quote unquote performance. But until the money comes back, it's just not.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

31. “Lack of research and all this stuff was fundamentally changing market structure in ways that made it harder for small caps to go public. So the whole emerging growth market that brought us Apple and Microsoft and all is gone today, right? These companies need to be $100 million in revenue with three quarters of growing or shrinking losses or growing whatever. There's a whole kind of rubric now that's much different than it was in the old days. And as a result, there's the whole bottom decile of the market is gone, right? So it makes sense. And historically, the Ibotson data would show that that was where some of the best returns were. If your whole microcap public market has gone, where are you going to go for emerging growth companies? So it makes perfect sense for Fidelity and T-Row and all these guys to come in. The question is, how do you get liquid? How do you put the Mula in the Kula, right?”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

32. “Traction, right? And I think part of the problem is that the end buyers, i.e. the acquirers or public markets, haven't been as forceful with enforcing price discipline. And so you have this inversion where like public private companies are worth much more than they'd be worth in the public markets. Some days I look at my portfolio and the successful companies where we've got nice markups, but like the later stage investors have come in have paid higher prices. That sometimes looks like the S&P mid-cap 400. People look at Silicon Valley like, oh my gosh, why are all these startups so richly valued? And why are kind of fidelity and Wellington, all these hedge funds playing in Silicon Valley and such a head scratcher and people think it's a momentum play. I actually think it's a reflection of a deeper market reality. There's this great article that the accounts at Grant Thornton wrote about 10 years ago, which was really formative to me. The phrase was the great delisting machine. And they talked about the market structure changes. So, you know, kind of decimalization.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

33. “I think in the main, most venture capitalist day are price takers, not price makers. Bill Hellman from Greylock said to me a long, long time ago, he said, you know, we don't feel like there's much of a charm premium left anymore, you know, with our winning smiles, we can't get even being one of the best firms we can't really get great discounts. Sometimes entrepreneurs will take discounts to be in deals, but there's such fear of missing out. You know, FOMO is really driving the market. And by the way, the pendulum of power's really swung toward the entrepreneur. And the higher a price, they get, the less dilution they take. So the pricing environment is really quite tough to my great dismay. It tends to be more rational in the very early stage because risk tends to be so high and these companies aren't fully formed and don't have as much proof of concept or product market fit, you know, validation, what have you. And so retraction, people are paying crazy prices for when something is”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

34. “Let me tell you why Timber's awesome. I just get it. How do you think about pricing? It's a little bit different because you're investing in funds. You talked a little bit about what happens when funds have success and they charge more. As you're talking to the venture capitalists that you invest with, how much is pricing just a function of the supply of capital chasing venture opportunities? And how discerning can a venture capitalist be?”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

35. “Know, so that it's a fair question just for perspective in those four managers, you know, on average each of those managers will have 40 to 50 companies. We'll have several hundred companies. There'll be some duplication because they'll co-invest with each other. But I've got a lot of company exposure. That said, you know, my own personal money, I've got a lot of my net worth levered to innovation. Not just my investments in my own funds, but my real estate in Palo Alto, right? In fact, if I could do anything, you know what I might buy? I might buy some timber. Let me tell you why Timber's awesome. I just get it.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

36. “There are a bunch of reasons why you might do that. One is that your clients have other investments. And so the concentration you take gets diversified away in their portfolio. That's a different question if you said, hey, this is just your money. Would you make the same allocation then or would you spread it out a little thinner? Or would you say, no, I'm going to be concentrated within venture, but I'll diversify outside of venture.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

37. “Advocate of concentration. I believe that concentrated portfolios, if you're a little inside baseball, and this is, I think generally true about portfolio construction, like people kind of vacillate between kind of optionality and diversification and diversification on one side versus kind of conviction on the other, right? And people always ask this, like, at Princeton, did we use sizing as a proxy? And I don't remember what answer Andy gave, but the answer I invented my own head that I continue to ascribe to Andy, so I apologize if I've got it wrong, is like, we shouldn't pick and choose among our managers. Once we decide to hire them, the bar is so high that we should hit them hard. We shouldn't take these like little, you know, hesitation marks, right? Like, I know a lot of people are like, I'll throw a million dollars in that sale because you're not diversifying when you're deversifying. And so that led me in my”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

38. “That's a really interesting question to which my answer has changed radically even the last day and a half. You know, I'm kind of constantly cognizant of this question of Buffett's equation, you know, opportunity equals value minus perception. And I tend to get really skeptical of areas that are overfunded. And as a result, you could very easily build a portfolio if you went and invested in the kind of the top 10 brand name funds. You'd have a lot of the same kinds of deals. Now they're clever folks and they...”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

39. “So let's turn a little bit to portfolio construction. So today you manage a venture fund of funds. And so endowments, foundations will entrust you with capital, and you are going to find different venture firms. Your tech bug, you could easily drift, especially in the valley, to just investing in kind of the same types of firms or maybe the same types of companies. How do you think about portfolio construction? How much does it matter when you're investing in venture capital, or is it just the chase of great ideas?”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

40. “Challenge. Well, we've got food rope. We have portfolio companies that are berry pickers. Like they're these robots that can tell optimum ripeness, et cetera, and pick berries. That's really, really crazy. That starts to change the economics, right? And people, you know, in the future, hopefully we won't have scarcity, we'll just have maldistribution. And that's kind of the Silicon Valley mentality that I love. There's a problem with solve it.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

41. “On that portends this really interesting future, people in Silicon Valley talk about the future of plenty, where scarcity is gone. Things that were 10 years ago unobtainium are today kind of commonplace, and you've got these parts libraries and open source hardware and all this stuff. Robot operating system, the ROS, right? That's open source. It's amazing what's going on, right? And so one thing that somebody said to me is they said, and this is Albert at Union Square, he wrote a great book and he talks about how on the internet content is free, information is free and the marginal cost of delivering it is zero. What if we could, you know, make the marginal cost of delivering foods zero, right? Now it'll never be that because there's still some fixed cost, but what if we could bring that way down? Like, you know, right now we have all kinds of issues, both economic, but as well as kind of sociological issues related to picking food, right? So, you know, immigration, like that's a big, you know.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

42. “It's amazing the amount of the advances in computational biology, right? There's this melding that's really kind of portending this amazing future, right? And I think about some of the portfolio companies, we've got kind of some interesting stuff going on in soft robotics, right? Like right now robots can hurt you. Like they don't really feel that well around their space. They can sort of see, but if they knock you, you know, the joke is if you're in a factory, either the robot or the operator has to be in a cage so somebody doesn't, you know, the person doesn't get hurt. We have these soft robots that are actually, you know, kind of made of nylon agitated by air. Like think of Baymax in the, what is that, Disney movie Big Hero 6, right? So now robots can work side by side with people, or you can actually maybe strap these things on and they can be kind of human augmentation. Some of the things we're seeing going on in AI that allow us to kind of process the world around us much faster and much more kind of in real time way. There's so much amazing stuff going on.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

43. “Oh my gosh, I almost think of it in a thematic way. And here's how I think about it. A friend of mine says that hardware is getting soft and software is getting hard. And what we mean by that is that hardware is basically commoditized, right? And software is everywhere that's driving. The hardware in a phone is getting cheaper and cheaper, but it's a software where the value really resides and allows you to do kind of many things. And software is getting hard. Like, you know, we're sitting here, we're looking out at Midtown Manhattan, and it's, you know, kind of a dark day because it's a little bit drizzly, which is very foreign to me being from California, sunny and magical land. But, you know, we've got startups that are working on, you know, kind of reactive glass that kind of tints, you know, with the brightness. Somebody once said life is code, right? DNA, the AGTC sequence, right? Like that's just code.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

44. “So, one of the things that I've always been fascinated by venture capitalists, I remember this in my early years in the business, they're like the eternal optimists. So we're sitting here in New York and financial markets, active management's been underperforming. Everyone is sort of pessimistic. There was always, to Michael Lewis's phrase, the new new thing, right? Palm-based computing, and then it was the internet and the cloud and personalized healthcare. So as you look in your portfolio of the new companies getting formed today, what is the new thing?”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

45. “Not long after that guy's like Maples, which is now Floodgate and Soft Tech and baseline, these pioneers really figured this and they were like 15 or 20 firms that figured this out today, by the way, they're about 350 firms in this space trying to do this. And I think like 80% of them have an institutional backer, which is mind-boggling to me. But at the time, it was like totally open field running. And these guys could, with very little money, you know, validate, disprove, or de-risk an entrepreneur's hypothesis. And then you've had this huge value inflection that could help set the portfolio company's DNA. It was like working in a lab, like a startup lab. And it was amazing. Like I'm getting chills just thinking about it. And there was this golden era from like 2005 through like 2010 or 11. And a lot of great companies kind of came out of this time. You know, you look at like Uber and Fitbit. Some of these great companies that were like, you know, kind of tinkered ideas.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

46. “My friend Josh Koppelman had this realization that the first company started in 1993, it took them $7 million to get to first revenue. His next company started in nineteen ninety eight, took him seven hundred K. Today I would say that to get to first revenue is the opportunity cost of unemployment. Basically, that's your cost. But that's really interesting. The correlated to that, though, is that barriers to entry have come way, way down, which is a whole nother thing. But that said, at the time, nobody really got this. So there's this huge capital gap where there are these companies that were starting and didn't need that much money to get off the ground, but venture firms were coming to them and saying, oh, we'll do an A round with, you know, an $8 million check on $8 million pre. These guys are like, we don't need that much money. We don't need that much dilution. The capital gap was a really important thing. And there was a generation of funds. So first round and true were some of the really OATV.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

47. “That's right If that's true, right? And I've always had this hypothesis that fund three is like the optimal fund. It's where hunger and experience intersect. I've invested a lot of fund ones, and these guys make all kinds of mistakes, right? It ends up being really labor intensive for me, which I actually really enjoy because I enjoy helping managers kind of find, you know, being kind of a mentor and a conciliary to these managers. But the reality of it is people are always learning on your dime in Fund one, right? But by the time you get to fund three, they've learned a lot of lessons, but they're still really hungry. And that's where they make.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

48. “Yeah. And so, and actually, so you asked a question, which I didn't answer, but the answer becomes really important. There's always been this conventional wisdom that you invest with, you know, the top 10 name brands. Cambridge Associates did a study, and they looked at post-2000 venture funds. The core of top 10 funds in each vintage year typically more than half were funds with a Roman numeral lower than Roman numeral three.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

49. “They've got to create $15 billion in enterprise value to get a billion and a half in returns, right? For $500 million fund, we're seeing $700 million funds, $800 million funds. So there are levers you can pull. You can own more, right? You can invest earlier. There's some levers you can pull. But the reality of it is really, really tough to generate venture returns on large funds. So like I said, those funds will continue to do well, but some of the venture funds that we've seen grow quite large end up doing much better for their partners than they do for their investors.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source

50. “Value capture, I think, is fundamentally changing, except for benchmark, which has stayed small, kind of to their great credit. A lot of these firms have grown so large as to make the arithmetic difficult. I always would do this math, and this is one of the things that made me think about small funds. If you've got a $500 million venture fund to return three times that money, which is what we expect from venture because the risk is so high, they have to return a billion and a half dollars to their investors for having taken down five hundred million. But the reality is they don't own very large stakes at exit. So you look at Google, right? Kleiner and Sequoi each owned 10%. Or you look at, I'll give a company that just filed to go public, Blue Apron, right? The meal kit service, which is a fantastic service. First round capital owns 10%, Besmer owns, I think, 20%. So if you look at the ownership for a firm that owns on average 10% at exit, they've got to return 15, 1.5 billion dollars.”

    2017-07-03 · Capital Allocators · Chris Douvos – Venture Capital's Super LP (Capital Allocators, EP.14) · IDENTIFIED FROM THE TRANSCRIPT · source