How I Invest with David Weisburd - E408: HarbourVest: Why Venture Capital Is Chasing Trillion-Dollar Companies

Episode Date: July 27, 2026

Venture capital isn't about avoiding losses. It's about owning the handful of companies that change everything. Scott explains why HarbourVest has built its venture strategy around power laws, why secondaries have become essential to modern venture investing, and how institutions evaluate managers, partners, and companies across thousands of investment opportunities.

Today, we're joined by one of the world's largest private investor. Harbor Vest manages over $160 billion. We discuss why venture capital is strictly a power law business, how Harbor Vest identifies exceptional investments, what they learn from investing into SpaceX, and where they see the next generation of outliers. Without further ado, here's my conversation with Scott. When it comes to the power law and venture capital, how important is it?

It's everything. It's the business model. I have this conversation with investors, the time who look at venture capital the same way they look at their public market portfolio or their private equity portfolio. They have a hard time getting their head around the losses, but the reality is it's the wins that drive all the performance. And I think as you and I both know, those wins are very concentrated. It's not the wrong intuition if you're a private equity investor, a private credit investor.

You should be thinking about that down to that. That's right. But we use the word shooting the moon. Venture Capital is shooting the moon and you've got to play your deck, your hand, the right way, right? I've heard multiple people say that some of the best portfolios actually had significantly more losses than the average portfolio. Is that true? I think every great portfolio looks like that.

I recently created a theoretical portfolio that used both our data and third party data, extended it back two decades. I'll think 15,000 companies, 15 billion of cost basis. And the reality is, of those 15,000 companies, one company returned 10% of the entire value, 3x portfolio on that 15 billion, 10 companies returned a third of all the value, and the top 10% of the companies return 90% of the value. That's the assumption, right? That's the business model. As a venture capitalist, what do you do when you hear these kind of numbers?

I just accept it. I realize that is the model, but in order to win, I think you need to be. thoughtful about where you concentrate your capital, how you diversify your capital, how you not only make investment decisions, but also how you make divestment decisions. What do you mean by divestment decisions? We all talk about the origination and the original investment, but the way venture capital and private markets in general have evolved over the years is there are points of exit that you can take that are not your traditional exit.

It's not the MNA event or the IPO. seen the secondary market evolve. And that's created liquidity decisions, sell decisions for investors that own positions in some of these market-defining companies. And getting that decision right or wrong is consequential. And you invest into some of the top venture capital funds in the world. How do you advise that they use the secondary market in order to divest from some of their positions? There are mechanics that are in place because of how this industry has been built that trigger decisions around liquidity. The reality is most venture funds are 10-year closed-end draw-down funds. So if you own an amazing asset, but you're getting to the end of

your fund, if a natural liquidity event is not there for you to take, I think you need to create one. And that's where you might tap into the secondary market to do it. Nearly $3 trillion is locked up in venture funds that have gone. over their 10-year limit. So essentially, they've expired their funds, and now there's three trillion sitting around. What options do venture capital funds have in terms of getting liquidity? So this is where I think that the innovation around the secondary market has been critical and important, and it's become kind of a tool and fundamental to venture and venture capital. You now have an opportunity to continue to hold your interest that sits in a fund that's now

passed its 10-year term, but either wrap up the fund that has a 10-year term and move your interest into a new vehicle or give your investors the opportunity to take a liquidity event or stay in the fund and extend the life of the fund. I mean, there are funds that are in companies that we can talk about that have been in existence for over 20 years. And the managers consciously went to their LPs in year 13, 14, 15, and extended the life of the fund for 10 years, making it a 25-year fund, which is a bit of an outlier. It's an anomaly. But when you think of the case, it absolutely made sense. When I talk to a lot of LPs, that's almost the playbook, which they want their managers to take some chips off the table, oftentimes one X their basis or maybe two, three X their

basis. Get those chips off the table and let everything else roll. Going back to power laws, you don't want to cut your winners. It seems obvious in hindsight, but the reality is when you're making those decisions, the dispersion of points of views is very broad. And that exists not only like inside investment committees, but it also exists when you have to look your LPs in the eye and tell them what you're doing when you've kind of clearly gone beyond the regular term of your fund. It's interesting because at the same exact time at the $100 billion valuation, 137 Ventures, which ended up owning roughly a percent of SpaceX at IPO, $20 billion position as reported. They were going around telling investors there was this free ride to this trillion dollars using kind of a bottoms up model.

Free ride meaning no economics on the deal? Free ride meaning essentially even under conservative assumptions this was going to be a trillion dollar company. One of the themes across hundreds of conversations with GPs is oftentimes they pick these parallel outcomes, but they almost always underrate how big these companies are going to be. Why do you think that's the case? I don't think they always underrated. Look, this plays both ways. So you can look at some exits that happened last year that were very notable. Clarna, $15 billion value at IPO.

I think it trades below $10 billion now. There was a private market financing in Klarna that valued it $50 billion. And there were investors that sold into that financing. So that was a 10x decision, but it was a 10x. And the other direction. Yeah, exactly. So this is where I honestly feel investors like us, really earn our keep. These are hard decisions and they're super consequential. I can go back at my 27

years at HarborVest and I can honestly say I've probably made thousands of decisions, investment decisions along the way. But the ones that are like super consequential, I can count on two hands. SpaceX is this overnight 24 year success where people just started tracking in the last six months, 23 and a half years in. One of the most underrated aspects of some of the these best calls, like 137 ventures, Antonio Gracius reportedly invested 30 times into the company, is just how bottoms up their analysis was. These were not hyperbolic statements that they were making kind of from the outside or reading a headline and wondering whether retail is going to bid it from $1.75 trillion to $2 trillion. This was fundamental bottoms up analysis that they were doing.

SpaceX, unlike many companies, was systematically doing tenders every six months for probably the last five years. So there was price discovery that was happening. It's my understanding that the liquidity that was being provided in those tenders was actually coming. A lot of it was coming from insiders. So when those that are closest to the company are the ones that are buying up the shares, I think that sends another positive signal beyond just the fundamentals of the underwriting. Speaking of these high conviction investments, tell me. about Roblox and the high conviction investment that was made there?

I would have never guessed Roblox could have become what it's become, but I'm familiar with investors that were in that company early on. It was their power law deal, and they kept re-upping to the company through either new investments or continuation vehicles, moving all of their earned economics into the continuation vehicles. And I was amazed at what they were doing. And I'm friends with one of the partner and we're actually going surfing together. And I told him, you got to take some money off the table. Your wife is going to kill you. You need to put some money in the bank.

And his answer was like, look, Scott, this keeps us aligned. It keeps us hungry. I've seen too many venture investors who, when they had that big monetization event, they lose that edge that they had that allowed them to become great. I thought that was interesting. And I don't think that that's a universal thing that applies. to everyone. But I thought it was fascinating how this individual knew what motivated him and his partners to generate just phenomenal returns for their LP. Why is it so hard for investors

to internalize this concept of the power law? In the end of the day, I think many investors are truly fundamental investors. And if you're doing true venture capital investing in the entrepreneur and the idea, you just have to assume that the mortality is going to be super, super high. And that's hard for a fundamental investor to get their head around. And then further, as a fundamental investor, your valuation is not based on a revenue multiple or an EBITDA multiple. It's what is the size of the total addressable market going to be and how much market share can I have in that market? And those are things that not a lot of us are conditioned to do. It's probably 15 years ago.

I kind of broke down the venture model and I called venture capital as two types of characters. There was the right brain and the left brain investor. The right brain investor, who I characterize as someone like a Vinod Kossela, is a futurist, right? They can see into the future. They see a market that doesn't yet exist. And then they find an amazing entrepreneur that's going to go own that market. The left brain investor is more like a Mary Meeker, right? You're using fundamental investment criteria to inform yourself on which investments you should be investing into.

In venture capital, it's, okay, I can look at revenue. growth. I can look at other metrics that define scale that are unique or similar to deals that I've done in the past that have turned out to be great deals. But those are two different DNAs that are tapping into the same sandbox of venture companies at different stages, right? And is it only the Vanot type of investor that's able to capture these power laws? I call it the futurist, the person that can just see something that no one else can see. And there's a lot of great futurists out there that exist. But if you kind of do a personality profile on them, they're different than the ones that are kind of doing the late stage pre-IPO type investing.

Reminds me, I got invited to the Airbnb Series A party. And back when I lived in San Francisco and I went into their office. It was also their home. So the party was both their home and their office. And I still have this email. I wrote an email to my dad saying, I just met the most amazing. amazing founders. This is going to be a billion-dollar company one day. And as all great investments, unfortunately, I didn't invest. I didn't have capital at the time. I was both the right and also

off by an order of magnitude of 100. Is this not what you see in some of the top futurists, the underpricing? If you did have the capital at the time, would you have invested? I think given the right portfolio construction, I think for sure. I think also at the series A, I believe it was Andrewson Horowitz, if I'm remembering correctly. I think it was starting to be kind of this early stage consensus. I definitely would not have invested as an Air Bedin Breakfast, the original pitch, this whole idea of backing founders, going after kind of ridiculous startups and just backing the team was not something that I believed in at the time. But it was certainly an expensive round. And most people thought that was overpriced at the time.

Is that something that you've seen? Any great idea with a great founder in venture capital is going to be perceived as overpriced. If you go in any underprice, you're not going to win the deal. And then you win when that company exceeds all of your greatest expectation. So in hindsight, it may look like it's underpriced. But at the time, I feel like everybody who invest probably thinks you're paying too high a price, right? The best companies always look at too expensive. I think so.

I think so. Yeah. And that's the beauty of investing early because ultimately you will outgrow that valuation at some point. I mean, if you want to bring recency into the discussion, right, Anthropic is top of mind. I think my reaction when investors were investing in Anthropic at just under $20 billion was like, wow, that is a rich price. Well, that deal looks phenomenal right now, right? Most investors don't lose because they lack information. they lose because they can't separate signal from noise. Every day, thousands of earnings calls, SAC filings, expert interviews, and market updates,

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I thought certainly there's going to be a consumer, AI, and there's going to be an enterprise, and it's going to be worth $100 billion. And again, I was asked by an order of magnitude, hopefully by an order of magnitude of 10. I mean, I have to invest with you, man. That is phenomenal. Congratulations. So speaking of consensus versus non-consensus deals, there's a view and venture today that all the deals are becoming consensus. Do you share this view? What I love is the investment thesis of be short-term

contrarian, long-term consensus. That's how you win. You invest in things when everybody doesn't see it. But if you want to bring the power law back into the discussion around consensus versus non-consensus, and you just look at the current venture market, before SpaceX went public, there was one company that was valued at greater than a trillion dollars. If you go below the trillion dollar mark and pick a universe of a $100 billion valuation to a trillion, there's roughly 10 companies in that universe. And then 10 billion to 100 billion, there's 100 companies in that universe. I define those 100 companies or those 120 companies, whatever they are, that is the consensus, right? And there's a lot of capital, both venture capital and other types of institutional capital, that's chasing all of those same companies. I think where you start to move out of the consensus is when you move to those companies that are worth, let's call it, a billion to 10 billion.

It's the unicorn club, but I think there's 1,500 of those. And how many of those companies are actually going to matriculate? They're going to move north of $100 billion or maybe even a trillion if they're really ambitious. So as an investor, a great venture capital who's a great investor, I think the money around is if you can go find those companies in that 1,500 company universe that are going to matriculate to the 100 company universe. And then look, when you go beyond that, you're talking tens of thousands of companies. And that's where traditional venture is really how we've all defined it, right? It's probably more the futurist that's investing in those types of ideas. Is this a question about picking or is an access game at that point?

It's probably a little bit of both, right? So I think the best brands in Silicon Valley are going to see the best deals and their challenges to select the best deals, right? There are some venture firms that just will never see the deals. And this is where brand matters, right? but there's lots of great firms that have missed. They saw the deal and they passed and they missed, right? And at Harbor Vest, you have three sides of the business.

You have the primary business which you're investing into funds. You have the secondary business where you're investing into companies via secondary and you also have the direct part of the business where you're picking and choosing different companies. What's your strategy across those one to $10 billion companies? So first of all, in venture, when you combine those three things, it's a bit different than when you define them in private equity, for example, where I think they tend to be more verticals and are sometimes more mutually exclusive. On the venture side, your goal is just to access the

cap table of the companies that matter, the power law deals the best way you can. And you can do it through those three entry points. If you look at our fund investment strategy, that's where we're heavily indexing towards the early stage with the firms that have proven to be the firms that have defined success in the venture capital market. I want to double click on something you said that essentially you're structure agnostic on how you access these companies. Why? I think you have to be, right? What you want is economic interest in the short list of companies that matter. So if it's the 10% of companies that are going to return 90% of the market over the next decade, how do you kind of gain access to those companies? The profile that lives in your portfolio is going to look very different.

And our multi-manager fund of funds, you're clearly going to have higher loss ratios, but your earlier access is going to drive upside when you have a breakout company. There's liquidity that's available to you for whatever reason. And then your decision is, is this a good valuation for me to enter the cap table of this company? And if you can do that, you might have the primary portfolio, that invested in, call it, WIS that had 100x return, and then you have the direct portfolio that had a 3x return in the secondary portfolio that had a 2x return.

Said another way, if you're in the company's cap table, you could have access it via a pre-seed investor. You could have accessed it via co-invest from one of your Series A funds that don't have the capital to deploy into the Series B. You could have accessed it through a secondary. Essentially, you're getting access to the same asset, And then the question becomes fees and what are you paying? Yeah, that's right.

On the fees, you're paying, the highest fee in the market is on the LP commitment. It's a two and a half and 25 is kind of where it starts and it goes up from there. Yeah, I've heard two and a half and 30. You're getting a better deal. Yeah. So it's really, look, on that topic, I learned a long time ago from the guy that hired me and trained me and ran our group 25 years ago. A good term sheet does not make a bad deal good.

And a bad term sheet does not make a good deal bad. And I think that's true, right? But anyway, on the primary side, that's where you're paying two and a half and 25, let's call it. As a direct co-investor, the terms vary there. Sometimes as a co-investor, we will get fee-free, carry-free access. Sometimes it's fee and carry. Sometimes it's just carry. And then on the secondary side, there is a fee for the manager that manages the secondary fund,

but there's usually not a fee associated with the interest that you're buying. If you're an executive who's looking for liquidity, you're selling out and who's ever buying it might be charging their investor a fee, that you're not paying a fee to access that. Goes back to a SpaceX situation. Some LP wants liquidity or the GPs are past their fund life. You're coming in and you're solving their problem of liquidity and return you get access to the asset. That's right. An underrated trend that I see sitting right where you were sitting a couple of days ago was Michael Gilroy from Marathon Venture Partners. And they have a $400 million fund by no means, a small fund. And in order for them to get into the very top opportunities, they're also partnering with their LPs for co-invest.

And part of their sales pitch to companies is that we're going to be a capital partner at scale as the company gets bigger. Is that something you see in the market where some of the smaller funds, maybe not two, three billion? dollar funds, but in the hundreds of millions of dollars, are partnering with institutions like Harbor Vests in order to close that gap? It is. And if you think about it, it's a really, it's a very elegant solution. So if you have a $5 billion fund, you have to run a certain type of fund model to satisfy the portfolio construction and volume that $5 billion fund requires.

If you've got a $500 million fund or a $300 million fund, but you have sophisticated LPs around the table who have hunger for co-invest and are predictable and how they'll behave with that co-invest. It allows you to run your fund in more of a boutique way, like a $300 million fund. But when you need to scale up, you've got that optionality available to you through your limited partners. Support for today's episode comes from Square. It's all in one way for business owners to take payments, book appointments, manned staff, and keep everything running in one place.

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manned staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique, or managing a service business, Square helps you run your business without running yourself into the ground. It's actually thinking about this the other day when I stopped by a local cafe here. They use Square and everything just works. Check out as fast. Receits are insets.

and sometimes I get loyalty rewards automatically. There's something about businesses that use Square. They just feel more put together. The experience is smoother for them and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are, in store, online, on your phone, or even at pop-ups and everything stays synced in real time. You could track sales, manage inventory, book appointments, and see reports instantly whether you're in your shop or on the go.

And when you make a sale, you don't have to wait days to get paid. Square gives you fast access to your earnings through Square checking. They also have built-in tools like loyalty and marketing, so your best customers keep coming back. And right now, you can get up to $200 off Square hardware when you sign up at Square.com slash go slash how I invest. That's S-Q-U-A-R-E.com slash go slash how I invest. With Square, you get all the tools to run your business with none of the contracts or complexity. Run your business smarter with Square. Get started today.

Support for today's episode comes from Square. It's all in one way for business owners to take payments, book appointments, manned staff and keep everything running in one place. Whether you're selling lattes, cutting hair, running boutique, or managing a service business, Square helps you run your business without running yourself into the ground. It's actually thinking about this the other day when I stopped by a local cafe here. They use Square and everything just works. Check out as fast, receipts are instant and sometimes I get loyalty rewards automatically.

There's something about businesses that use Square. They just feel more put together. The experience is smoother for them and it's smoother for me as a customer. Square makes it easy to sell wherever your customers are. in store, online, on your phone, or even at pop-ups, and everything stay synced in real-time. You could track sales, manage inventory, book appointments, and see reports instantly, whether you're in your shop or on the go. And when you make a sale, you don't have to wait days to get paid.

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with none of the contracts or complexity. Run your business smarter with Square, get started to stay. And that, frankly, is a benefit for the limited partner because they're probably getting similar access to companies

at reduced economics because of the co-invest that they're deploying. Co-invest in venture capital is significantly more difficult than private equity because oftentimes with private equity, private equity fund is investing for the first time. They're investing $50 million.

They go to their LPs for another $50 million. Everyone's aligned. Everyone's coming in with the same entry point. And oftentimes you have much more time. How do you solve for these different issues when it comes to venture co-invest? First, in venture co-invest, you have to be, have much more of an informed point of view before you even see the deal, right? So it's not like KKR is bringing you a buyout deal.

You've never seen it before, but you can underwrite the fundamentals. I think in venture, yes, the fundraisers are shorter. You have to move quicker. So in order to do that, you need to be informed on the universe of companies that you have interested. That's at the company level. Yeah, I think so. So if you pick those hundred companies that we're talking about, let's say that's your universe,

you better have a buy list on those hundred companies before you ever see the deal. And then your decision is, do you like the valuation or not? And you also do something extremely unique in that you underwrite not only the firms investing, but on a partner level. Tell me about that. Yeah, you have to. I mean, there is a saying in the market. It's not necessarily the firm. It's the partner that you're investing alongside. And as part of our underwrite, obviously every firm has a great franchise and a great brand. But as part of our deal underwrite, we do partner attribution. So we can identify who the rain means. are in the firm, maybe who the emerging partners are who have emerging track records, and frankly, those that have been the laggards who have not produced the same types of returns as their partners might have. So maybe this is a dumb question, but why would some of these top firms keep those

laggard partners on board? So I think there's a few answers there. One, they may not, right, once you've been around long enough where you can measure. They might be having the same partner attribution seeing the same thing you're looking. I think so. But it takes a long time to figure out who's good versus who's bad. And sometimes you get it wrong. And I can share some ideas there. But yeah, tell me about that.

We've seen situations where partners have left firms and the reason that was given is their track records were lagging. And if you looked at our attribution analysis, it was justified. However, venture deals kind of are not, they take different paths. And sometimes over a longer period of time, that individual's portfolio might all of a sudden break out. And the reason for letting them go is no longer the reason anymore because their portfolio actually popped. And then your question there is like, well, was there a value add and was there a contribution from the partner that took over the deal that helped it inflect? Or was there something else going on there? But it's really hard.

Unless you have probably 15 or 20 years to measure, it's hard to make decisions on whether somebody is producing or not. And also, partners go through cycles, right? As an investor, you're probably investing behind a thesis, right? And if your thesis is wrong, your track record's not going to look good. And then you're going to move on to the next thesis and maybe you get that right. There was a period in time when I would sit in our investment committee, not too long ago, I think five years ago, where every fintech fund looked like it was phenomenal. And the question I asked in the room was, are these guys great investors or were these people great investors or are they just investing in the right thesis? or sector.

I remember with crypto funds for probably at least two years, the strategy was you come in to the seed. It's immediately sent to retail at a 10X. And people were printing these crazy TVPIs, which is Marx instead of actually capital return back to investors. And I just kind of thought about that. And maybe it was a signal at the time, but didn't feel like that was the right way to invest. I don't think so. And I'm not as familiar with that, but Web3. at crypto was its own unique animal. And there was a lot of retail interest around. It's

speculative interest. And the market was playing into that. So for us as institutional investors, when we would see those marks and who was setting them, I think you automatically have to discount whether that's a true value or not, right? So going back to the co-investment, so you get a co-invest opportunity. Talk to me about that process. Let's say you already have an opinion. How do you go about diligenceing that just in time? How much of your process involves the synthesis of information from different GP partners versus relying on single GP? A lot of it. As you can imagine where we sit, we get lots of points of feedback, whether it's from the

general partners that are investing, and sometimes they don't all agree on the things that they tell us. But also as part of our underwrite, we are actively, like, in the market referencing with CEOs all the time. And our references are more on firms and partners, but in those conversations, there's other signals that you get, which are probably the most valuable pieces that we get from the references. And so to be able to triangulate or gather all of that information so we can be more informed on how we underwrite an individual deal, I think, is definitely something that we use to our advantage. Even to your partner attribution question, I might be talking to a CEO about one firm and one partner, but on that call, that CEO, might reference another partner in another firm frequently, and that's a good signal for me to know that firm and that partner are value-added investors in the company. References are arguably the most

underrated aspect to the entire venture ecosystem. What are some of your best hacks to get good references? Yeah, so underrated in a lot of ways. I think there's a lot of nuance in a reference, and unless you do a lot of them, you missed the signal, right? Because I know when I give a reference on somebody, I'm never going to give a bad reference because it doesn't do me any good to do it. But there's probably some other feedback in that conversation that's very subtle, but very, very important. And what we typically have many of our senior people doing references, but we also train our mid-level people that are also doing references, how to kind of see through that just the black and white and understand the nuance of the call. It might be, is the person referencing another person on their board that you're never talking about? Or go into the reference knowing who the co-investors are.

You're calling about this firm, but you kind of bring the other investors or firms into the discussion to see what kind of feedback you can get. I've also seen some secondary funds. They'll never mention the company. They'll just give five different companies and just see which companies are most into the GP as well. That's right. So that's another tactic. So when you do a reference with the CEO, you don't tell them exactly who it's on. It's just on your investors, right?

And that way, you don't get a bias around an investor where he knows you're calling about that individual, right? You've been at Harbor Vest for 27 years. What is something that you've changed your mind on recently? I don't know if it's, I changed my mind recently, but there's two things. You need to be open-minded to the fact when you're underwriting a venture firm, for example, a firm, just like markets, goes in cycles, and there will be good funds and bad funds. And it's never kind of a direction of travel that's one way. It's a direction of travel that's going one way, but could go the other way.

So some of the hardest discussions we have is instead of just saying this is broken and we're out, it's making sure that we know that it's broken. And we've seen situations where staying in was actually the best decision we could have made because it was that next fund that turned out to be a great fund. How do you explain that? In this power law world that we live in where that's the business model, if you don't have a couple of those companies in your portfolio, your fund isn't going to be good. And then you'll look down to the partners and you'll look at their track records and

none of them have that company in their portfolios. So you wonder, do they have good investors? And the reality is there are periods of time that may be longer than the period of the life of a fund, call it three or four years, where your firm and your people are not going to access those companies that define deals. There are almost urban legend examples. Pick a company like Meta, which was part of Web 2.0 when a lot of investors were investing in Web1.0. And those venture funds that were leaning into 1.0 heavily, their track records were poor for two or three funds in a row, and it had you asking the question, did they lose their touch?

In this particular meta example, we went around the table in our IC and our founder. There were 20 people in the IC at the time, analysts up to founder. The founder said, I want to go around the table, one person, one vote. Are we going to do this deal? It was a majority voted to do the deal. It was like 55, 45, 45, something like that. And that turned out to be the Facebook fund. What are the questions that you're asking when there's a great investor that might be having one or two bad performing funds? What exactly are you looking for?

I think the question is the why. And if you're going to really kind of zero in on what could be the why, it's probably two things. Their strategy is not where they're investing is not where the market's going. If they're investing where the market is happening and they're not getting into the deals that matter, then I think it's a red flag. Other times it's leadership. Right? And have the founders or the current generation of leadership lost their touch for whatever reason? And have they failed to kind of hand the keys over to the next generation? And this holds true in both private equity and venture capital. Leadership can change the direction of the firm almost immediately. And so that's an area that we spend a lot of time focused on. Venture capital famously is the most persistent asset class on the planet, meaning the top funds. tend to be more top funds than any other S class in the world. So I'm very curious about how a fund could lose its touch. Is that something around networks? Is that something that the partner got too rich? How is it that a top venture fund, with everything going for it, could suddenly start

to have poor performing funds? It could be all of the above. And I don't think there's one sweeping answer. Probably the most obvious one, though, is like, people got really wealthy, and they lost that fire in their belly. And you probably know a lot of venture capitalists. That Ferrari syndrome. Yeah.

And some never lose the fire in the belly because money is not the reason that they do this. But there are other situations where you just maybe get to a point in your life where you're going to go enjoy the finer things in life. And that takes you away from being 150 percent committed to finding the next great entrepreneur and an idea. But it has to do with lots of different things. Sometimes it's just luck, right? I mean, there is a saying in the venture industry, everybody needs to get lucky, right? the firm that I told you about before that kind of did the double down. A road locks.

Yeah. There was a prolific venture capitalist who sat on one of their boards who said, look, in the end of the day, if any venture capitalist tells you they don't rely on luck, they're lying to you, right? So is luck in your corner? And do you recognize it when it walks right in front of you because sometimes it's not obvious? The way that I explained it is venture capital is a high expected return asset class with very high volatility. In other words, even if there's manager skill, the volatility is.

so great, you need to at least stay in the business for long enough to capture that. How come? I totally agree. And I think you and I shared some of these statistics with you on our prep call. If you look at our entire venture portfolio over a period of time, call it 15 years and the amount of the largest manager relationships that we have, it could be hundreds of millions of dollars with each of these managers, who are the who's who of venture capital. The aggregate over that 15 years, you'd be shocked at the tight band. the limited dispersion around the returns that they've delivered. But the short of your time frame, that's where the dispersion becomes a lot greater. If you wanted to explain this return dispersion,

how would you go about explaining it? Yes, and it's returned dispersion based on time, right? So let's just pick a vintage. If the industry measures itself in quartiles, and if you looked at a single vintage, what you might see is the greatest dispersion is actually in the band that defines the top quartile. So the bottom end of the top quartile up to the best performing fund that defines the top quartile. However, if you extend that and you look at that same metric over five years, what you'd see, there's probably an evening out of that dispersion where let's just focus on the second quartile and the top quartile. It's probably more of a 50-50 split between the two. And I think that's important because Venture is a long-duration play. I

would tell any investor who's going to invest in venture capital, one, you want to index towards the top quartile, get as closer into it as you can get, but also be committed to the asset class over a long period of time because you can't be in and out a venture. And that's the second chart I would show. It's what is your return experience if you just systematically allocate to the asset class for 10 or 15 or 20 years, every vintage? That's going to be a better experience for you than if you're trying to pick and choose periods of time to allocate. And the difficulty was that is that oftentimes the very best vintages follow the very worst vintages.

Ventures on a good run right now and everybody wants in, but you needed to be in five or ten years ago. And anybody entering now, I tell them exactly that same thing. You've convinced yourself you want to be in this asset class. That's great. But convince yourself you should be in it for the next 20 years and don't change your mind. I've never met a single institutionality that did. didn't want more exposure to top quartal venture. It's probably one of the most consensus

investments. For that reason, it's extremely difficult to access, if not impossible, most of the top funds. For somebody looking to pick the next generation of top quartal funds or trying to replicate top quartal venture, what would be the best practice? If you want the best risk return experience, I think you have to focus on diversification, don't be overly diversified, concentrate capital with those managers that have shown persistence and performance, but also just understand through that diversification, probably if the industry performs at 15% as a median return, that's not a reason to invest in venture capital. If you can reach up to 20% returns, which puts you probably somewhere at the bottom end of the top quartile, but you can do that

consistently for 10 or 15 years or 20 years, that's the right way to play the asset class. And for those who just simply cannot access top quartal, no matter how much they try to get into benchmarks, Sequoia, Excel, etc., they're not able to access it. What's the best strategy for them? That's kind of an advertisement for what we do. But I think you can ask any expert, are you going to do it on your own or do you have to hire somebody to do it? The one area where it makes the most sense to hire someone who's been in the market is venture capital. because it is about serial relationships. And what you're doing is stepping into a relationship that might have existed for 20 or 30 years with an Excel or a Sequoia or whoever it might be with this partner that you've allocated capital to.

And the fee you're going to pay them is going to more than make up for itself and your ability to move up into the top quartile. So another way, if you're even a billion dollar family office and let's say you choose to invest 50 to $100 million in venture, you're going to need quite a bit of a staff in order to justify the fees that you would pay somebody to access it. I think so, yeah, absolutely. Have you done that math? The payback, it's easy math. I think the average venture fund, multi-manager fund like ourselves, might be charging 50 or 100 basis points a year. And it's either 0% carry or 5% carry on the gains.

And if you can compound at 20 or 25 percent versus 15 over 10 years, that more than makes up for itself. If we have this conversation again in 10 years, what do you think is going to be true in 10 years? That's not true today. There's a direction of travel in the industry, right? It's venture at scale that was a journey we probably started on 10 or 15 years ago. And I think we're only going to continue to go in that direction. The market will probably become more concentrated at the scale end of the market. And this is true for venture and private equity.

It becomes an oligopoly where it's probably 10 players that dominate the scale venture part of the market. But then there's going to continue to be that traditional venture market that we all grew up knowing. It's the highly idiosyncratic, fragmented part of the market, targeting the entrepreneur and the idea, trying to nurture that company from zero to one. We're on that journey right now, and I think we kind of know what the industry looks like partway through that journey, and it's only going to get more exaggerated as we move on. I have a pretty hot take on this. I had Matt Wiltire from Wellington, who runs their growth business, and he gave me two numbers. There's roughly $2 trillion in the private markets. There's $127 trillion in the public markets.

and a lot of people look at venture how big it's gone, and they say, well, it's going to revert, it's going to be smaller in the future. But if you look at venture capital, it's an access class, meaning the very top founders pick the very top VCs, and the very top VCs pick the very top LPs. It's not driven by LPs.

It's actually driven by founders. All things being equal, founders want to stay private longer. One of the reasons why Anthropic, OpenAI, and SpaceX, went public is because they had to. They could no longer raise already those three companies raise something like 75% of all Q1, 2026 fundraising,

said another way most VC firms that would have invested were already too concentrated in those names. So naturally, it would make sense if the private markets was 50% or two times bigger, then Anthropic could stay private longer and maybe raise that $2 trillion valuation still deliver a good return to investors. So I think superficially you look at the market and you say, look at this growth, this is probably a bull market, this is going to return back to normal.

But when you look at the size of the companies and what these founders are talking about in terms of wanting to stay private, you end up in this bit of a contrarian position that actually the private markets is going to not only not revert back to the old market, but it's actually going to accelerate. Let's put some numbers around that, right? So private markets in general are scaling. In the world of Harbor Vest, we're raising and investing $25 billion a year across all definitions of private markets. We are a scale venture investor, but it's probably 15% of everything we do across all asset classes. And then just pick up on the point that I made earlier, we're kind of on a journey in a direction that's going to look very different. 10 years from now than it looks right now and right now it looks very different than it looked 10 years ago. So meta before SpaceX was the largest U.S. company to ever go public. 13 years ago, $104 billion valuation. That record stood for 13 years. And now a company like SpaceX is 15 or 20 times the size of that. I don't know that we can use SpaceX conthropic and open AI as our case studies. But I think they are a signal of how the markets are scaling and scale capital will increasingly be required.

There's no way that Open AI could have raised $100 billion in the private markets 10 years ago, right? The size of meta, the greatest of all time. We quickly forget what we once thought was these unobtainium numbers, famously in the Facebook movies. Sean Parker, played by Justin Dimmberg, says, a million dollars isn't sexy. You want a billion dollars. And today it's a billion dollars isn't sexy. You want a trillion dollars. And that's a thousand X difference.

And yet we renormalize the trillion and say, well, it could never be two trillion dollars. It just breaks the laws of physics for it to get there. And don't you even have to just come back and question what is the definition of venture capital, right? When you're a company that's doing $30 billion of revenue a year and growing at 300% and raising $50 or $100 billion in the private market, is that venture deal, right? We call it venture. And I think there's good reason to call it venture, but we have to revisit the definition of venture if you look at that profile of company, right? On that note, it's been absolute masterclass. Thanks again for jumping on and looking forward.

doing this again. Yeah, really appreciate it.