Investing Billions - E30: Alan Feld, Co-Founder of Vintage Investment Partners on How to Handle Succession in VC

Episode Date: January 4, 2024

Alan Feld sits down with David Weisburd to talk about his experience founding Vintage, the significance of product-market fit in VC, and how Vintage has thrived over two decades. They discuss the impact of personal history on investment decisions, building an enduring VC firm culture, and engaging with General Partners. They also touch on successful GP cultures, investment allocation, and VC-LP relationship transparency. We’re proudly sponsored by Bidav Insurance Group, visit lux-str.com if you’re ready to level up your insurance plans. The Limited Partner podcast is part of the Turpentine podcast network. Learn more: turpentine.co -- X / Twitter: @alanf_feld (Alan) @dweisburd (David) -- LINKS: Vintage Investment Partners: https://www.vintage-ip.com/  -- REFERENCED SOURCES: "Post-Traumatic Growth: Positive Changes in the Aftermath of Crisis" by Richard G. Tedeschi and Lisa M. Calhoun (2004) -- SPONSOR: Bidav Insurance Group The Limited Partner Podcast is proudly sponsored by Bidav Insurance Group. Today's episode is sponsored by Bidav Insurance Group. Bidav Insurance Group is run by my close friend, Ahmet Bidav, who insures me both personally and at the corporate level. Most people are not aware of the inherent conflicts in insurance, where insurance agents are incentivized to send their clients to the most expensive option. Ahmet has always been an incredible partner to me and 10X Capital, driving down our fees considerably while providing a premium solution. I am proud to personally endorse Ahmet and I ask that you consider using Bidav Insurance Group for your next insurance need, whether it be D&O, cyber, or even personal, car, and home insurance. You could email Ahmet at [e-mail]. -- Questions or topics you want us to discuss on The Limited Partner podcast? Email us at [e-mail] -- TIMESTAMPS (0:00) Introduction and Alan's journey to founding Vintage (6:37) Importance of product-market fit and sector-based fund structure in venture capital (8:57) Sponsor: Bidav Insurance Group (9:46) Lessons learned from managing and growing Vintage over 20 years (17:05) Role of personal history in shaping successful entrepreneurs and investment decisions (21:29) Building an enduring venture capital firm: Culture, succession, and economic sharing (28:27) Regrets, reflections, and Vintage's approach to engaging with General Partners (33:40) Cultures at GPs that consistently return alpha and importance of humility and honesty (41:30) Allocating investments, follow-on investing, and the value of transparency in VC-LP relationships (46:36) Wrap-up: Reflections on building a lasting venture fund

We do the diversification at our level. You know, we'll be sufficiently diversified across our different relationships that we want you to go and pile in to the companies that you believe. I'm not suggesting you put in 30 or 40 percent, but I don't have a problem. If you are very totally convinced this is going to be a massive winner, objectively, you know, you really believe in this. Your other partners are just as excited as you are about it. You know, 15 percent of the fun goes into or 10 of the fun goes into a company i'm perfectly fine with this is about elephant this is about selecting gigantic winners and giving them the capability to become the gigantic so alan I've been really excited to sit down and chat with you. Welcome to Limited Partner

Podcast. Thank you very much, David. It's an honor to be here and I'm excited to join you for this. The honor is all mine. You've been in the space for several decades. You were one of the really pioneers in the fund of fund space and investing space in this asset class. How did you come about founding Vintage? So I had been a VC before that. I thought there was a really interesting opportunity to take the approach that I had as a VC to the fund of funds and to the secondary space, which is, at the end of the day, it's all about companies. And I want to take the perspective of when you look at a VC, you should really understand the entrepreneurs that they're investing in. I think to do that effectively, having some direct investment experience is really important.

So the perspective we were taking was what are funds essentially? They're basically building themselves on the building blocks of the underlying companies. And so we thought we want to take a different approach to how you look at a venture fund. How do you look at a secondary deal and really dig deep into the underlying companies and to the entrepreneurs those funds are attracting? You have a very interesting structure in terms of the secondaries, the directs, the fund of funds. Tell me a little bit about how that interplays with each other and why do you structure Vintage in the way that you structure it? Really, the building block for us is the underlying companies. Most other groups that have models similar to this have a team that focuses on the fund to funds business, a separate team that focuses on the secondaries, another team that focuses

on direct investing. We actually divide by sector. So I have a partner who used to be a senior executive at Palantir. She does all the AI related stuff, whether it's a new fund commitment, whether it's a secondary or whether it's a direct investment. Another person who deals with cyber, another person who deals with medical, another person who deals with climate. We think that to really do effective due diligence, whether it's on a secondary, whether it's on a fund, you have to understand what, you know, the underlying companies, like what are they investing in? Are they attracting really good entrepreneurs? And to really ask the tough

questions to those entrepreneurs, you have to understand the space we believe, rather than taking sort of a standard form checklist and asking some standard form questions. And so we divide by sector, not by strategy, but we believe that the three strategies are complementary to giving us better visibility on a sector and being effective then across all three strategies. Let me push back a little bit on that. There's a lot of firms that are only secondaries or only growth and only early stage. And they would argue that these are fundamentally different asset classes that you're optimizing on different things. For example, secondary funds do not optimize on power laws. They're optimizing a lot of times on downside and diversification. What are the inherent trade-offs

in structuring your fund by sector versus by asset class? Well, in venture, if you look at it, even as a venture secondary, let's say you're buying into a venture fund. At the end of the day, and it goes to the power law, relatively few companies generate the vast majority of the returns. So you have to be able to identify what are the value drivers in that portfolio and then understand those because how else can you price them right how can you decide if it's a good company with a lot of opportunity other than if you don't understand where the sector is going right what the environment is what's happening in the market you know what are the risks to that company you know growing

because at the end of the day you're not you may not see the exit of that company for a number of years, you know, going forward, right? So you need to understand what's happening to that business and the environment that business is in. You know, at the end of the day, unlike say a secondary in the buyout industry, where you'll have very few companies that will fail in a typical portfolio of venture, there'll be just very few companies that will really succeed. So you have to be able to identify what those are going to be in the portfolio and get to know them well enough. Otherwise, how do you price? Taking garbage at a discount is still buying garbage, right? And you got to, you know, some companies, frankly, are, you know, the upside is so significant, you can buy the position without taking a significant discount.

There are some situations where the portfolio is really not good. And any follow on capital that somebody would call from you would be frankly, good money after bad. You know, we don't think there are any shortcuts to understanding what's in a portfolio. Similarly, when a fund comes to you, most people raise money every two, three years, right? Well, how do you know if that fund, you know, their previous funds are going to be successful, especially if it's a relatively new team? You really don't know. So the only way you can do that is, again, talk to the entrepreneurs. Are these interesting companies? Well, how are you going to decide if they're interesting companies that they've done in the past if you don't understand what's going on in their space, especially because it's early, right? So we think that specializing in venture, specializing in sectors allows you to look at

both the primary opportunities and also to price the secondary opportunities well enough. Now, the natural inclination, we don't do early stage investing because we don't want to compete with the funds which we're invested in, right? If anything, the tail for us is the direct investing. The dog is the fund to funds and the secondary because our core relationships in many respects are the funds themselves. So we don't want to be competing with them on deals. We're much more of a co-investor with the funds in which we've invested. But even then, if you're shown a co-investment opportunity, how do you make a decision whether it's interesting or not? Like if you don't know the space.

And again, we're focused much more on growth opportunities, joining them, but we still want to be able to do our own independent due diligence. So having that domain expertise allows us to do that effectively. At which stage does it become more about protecting your downside versus looking for power law outcomes? From a mathematical standpoint, it seems somewhere around the Series A, you no longer have this kind of infinite return potential. How do you look at that? And how do you underwrite your later stage investments? The reality is you really don't have a lot of visibility until much later than Nate. The question really is going to be, what's the point at which the company has found product market fit, but not just only found product market fit, has been able only found product market fit,

has been able to build a team that can execute effectively. And, you know, typically it's actually much later than that before you really genuinely know that you've got a massive winner. There's a lot of, you know, questions along the way, right? And it takes longer to find product market fit. Also to know that you've got a massive category at the end that you're capturing. You know, if you look at it, our experience at least has been, it's rare that you're able to bring an external CEO on top of a startup who can really build the company out significantly. You know, we're big believers that if you don't believe the entrepreneur can scale, you shouldn't make the investment in the company. It takes a while in many cases, especially if it's a first-time entrepreneur, before they find their stride. And you have to be relatively patient and be supportive as they find that inflection point

where they can really bring it to the next stage. At the end of the day, it's much less at what point financially, it's much more so what's happened to the business. What do you define as product market fit? What we define at least as product market fit isn't the absolute dollars in revenue. It's a very repeatable business model. So you're going to the same kind of persona with the same business case, it resonates very strongly. What we like to see is that there is the team that if you can execute to that group with that business case, with that value proposition, putting some gas into the tank, that company can really launch. So we're looking for that kind of situation. Repeatability is really important. So a company that may, for example, has 50 customers and $3 million in revenue, but with

a lot of expansion opportunity, is, in our view, a later stage than a company with $10 million in revenue and two customers. Today's episode is sponsored by Badaw Insurance Group. Badaw Insurance Group is run by my close friend, Amit Badaw, who insures me both personally and at the corporate level. Most people are not aware of the inherent conflicts in insurance, where insurance agents are incentivized to send their clients to the most expensive option. Amit has always been an incredible partner to me and 10X Capital, driving down our fees considerably while providing a premium solution. I am proud to personally endorse Amit, and I ask

that you consider using Badaw Insurance Group for your next insurance need, whether it be DNO, cyber, or even personal car and home insurance. You could email Ahmet at ahmet at luxstr.com. That's A-H-M-E-T at L-U-X hyphen S-T-R dot com. Thank you. You founded Vintage over 20 years ago.

That's about 200 years in most industries. I'm not trying to age you, but what have you seen over the last 20 years and what has it been like growing Vintage as a business? Well, there are a few things I've learned from it. And one is to look at the long game. We always, every time we raised a new fund, it was slightly larger than the previous one. We

try to not to scale too quickly. You know, in my venture career, I was in a fund in 2000 that was way too big and it generated a terrible return. And what I learned from that is walk before you run. And very much, I know it sounds like a classic cliche, but this is a marathon and not a sprint. And if you want to be building a successful business across multiple environments, across multiple cycles, and this is a very cyclical business, you've got to play for the long game. We gradually expanded, gradually increased fund sizes, added additional strategies very slowly. It was really important that every fund we managed was successful. In many ways, you're only as good as your most recent fund. So we realized, let's focus on making sure what we're doing is right, is good, is successful. If it takes longer

for us to put money to work, so we just don't put money to work for the sake of it, it will take us longer. We want to make sure we find good deals that we can look at the, you know, in the eyes of our LPs and say, hey, you know, we feel good about what we've done. The approach was every deal has to be great because that's, you know, we're going to be judged essentially on what we do at any given moment. Fundamental bottoms up analysis on a company level versus on an asset level. Look, you know, I mean, you know, we've been fortunate. Our funds have been, you know, have done well at Vintage, but I've been in funds that, you know, before that were, which were not successful. And I, you know, there's nothing like being in a fund that's

lost money to bring a little bit of humility to, you know, understanding being self-reflective, right? Like what did I do right? What did I do wrong? You know, what are my winners looking like? What am I, but also what are my losers looking like? And what conduct did I, was I taking that, was I running too quickly? Was I reacting the same way as the crowd was reacting because I felt the pressure of the crowd? You know, something that comes with experience and there's no better experience than actually having lost money. It's kind of like playing poker with fake money. You got to use real money in order to gain the lessons. You know, and we certainly are investors in our own funds.

But beyond that, I think it's extremely important that you really take it very personally. Like, you know, you are managing the public's money. I mean, we're managing pension money. We're managing insurance company money. We're managing people's money. We take it extremely seriously. Now, that's not to say every investment we're going to make is going to be good but we we don't want to be putting money to work just for the sake of putting money to work we want to be

putting money to work because we genuinely believe in the company in the terms of the deal in the potential of it um in the entrepreneur etc um and if sometimes it will take us less time to put the money to work sometimes it will take us longer but to put the money to work, sometimes it will take us longer. But I think the important thing is we never let anybody else pressure us to put capital to work. We go at our own pace. And we've told that to our investors and we're proud of that. Easier said than done. And I think a lot of people could benefit from being first principles and from being internally focused versus externally focused. But speaking of being internally focused, and you mentioned

being self-reflective, you've been in this business for over 20 years. Obviously, you've learned a lot of lessons through those 20 years. What are some of the mistakes that you made early on on Vintage that you've since corrected? So number one, this is a people business. Well, first of all, I've made a ton of mistakes. Usually the mistakes I've made have been around, centered around a couple of things. One is I misread people, whether it was bringing certain people into our firm or, and we've had relatively few partners who, you know, over the 20 years who have left. So we've been fortunate in building, you know, long-term stability. One of the things that's interesting about the venture industry is we're all very good at telling entrepreneurs what to do. But if somebody actually put that same flashlight

on how we manage our own firms, you know, a lot of us would become rewanting. So one of the things I realized as I was building Vintage, which was incredibly important, is the culture we want to build in the firm. How we relate to one another, our ability to challenge each other honestly. You know, one of the things that we do a lot

is we go offsite three times a year. And I always start the offsite with the crappy investments that I made as founder and managing partner so that everybody else will do exactly the same thing. And we've been able to create a culture of collective responsibility for the losers and giving people credit for the winners. You know, if you take that view, right, i'm going to be honest about the mistakes i've made and then everybody you know chimes in that wasn't only you we were all on the same committee that approved it it's a different dynamic that hey these are the crappy investments you made so one of these approaches of sort of looking internally and trying to create a culture of

responsibility a culture of self-reflection i think is extremely important you know i think another aspect of it is following your gut. I mean, if you think, hey, this is somebody who I don't want to be investing in long term because, you know, you don't feel totally comfortable. Every time I did an investment where I didn't feel totally comfortable, you know, my large gut usually was right. And, you know, sometimes I was too focused that, geez, wow, look at this guy, you know, this fund is in there. I mean, if this fund's in there, I gotta be in there. Mistake.

Right. At the end of the day, people aren't paying us to, you know, follow X. They're paying us to make our own decisions. And, and, you know, X fund can also be, can make mistakes. And so, you know, believing in your ability to, you know, assess things and taking, as I say, the responsibility around it. I'm very curious, in your opinion, when a Sequoia and Andreessen, a benchmark does a poor series A or series B, why does that happen? Is that just a statistical anomaly? Is that just a partner that doesn't understand the space? Well, they're also going to get companies wrong. I mean, you know, our data shows that 10% of the companies yield, you know, 75, 80% of the returns. It's true even for the, you know, well-known groups. At the end of the day, you know, this is ventures about elephant. Let's be quite frank.

There's only so many spectacular entrepreneurs who can build enormous companies that are sustainable long-term. There aren't that many. For us, that's why, again, getting back to the strategy that I mentioned before, where we're looking at a fund. We want to invest in funds that can attract phenomenal entrepreneurs, which is why we spend so much time of our due diligence talking to entrepreneurs and understanding, wait a minute, where are the great entrepreneurs really wanting to go? And who's, you know, who's attracting those entrepreneurs? Who's giving them the support, but also getting out of the way when they need to get out? You know, the Andreessens and some of the names you mentioned were LPs and they also

make mistakes. We're all human. We all misread situations. You know, they've been successful in attracting enough phenomenal entrepreneurs to build enormous companies and letting them build those enormous companies and supporting them in building those enormous companies because they also have the power law. So you mentioned phenomenal entrepreneurs. You've probably talked to thousands of entrepreneurs in your career. What, in your opinion, determines whether a phenomenal entrepreneur could build a lasting, enduring unicorn company?

Unfortunately, there's no checklist because if I had a perfect checklist, I'd get it right every time. At the end of the day, it's really understanding who that person is. First of all, I think one of the things we don't do as an industry effectively, in many cases, we talk to the entrepreneur about where did you go to school? What's your career? We rarely talk to entrepreneurs what happens before you were age 18. And you learn a lot about an entrepreneur and their ability to deal with adversity about things they went through in their childhood. Did they grow up poor?

Did they go wealthy? Did they have a job as a kid? Did they play competitive sports? Did they, you know, what did they do? Like, you know, how did they deal with crises when they were a kid? Did they have to deal with crises as a kid? You know, we found, for example, that, you know, several entrepreneurs we found had some family crisis as a child, either a very bad divorce or, you know, lost a parent or something like that. By the way, that's what happened to me. And, you know,

my father passed away when I was 11. And the reason I did some of the research that led me to that was because last year was, this past year was 50 years since he had passed away. I know it affected who I am as a person. I said to myself, wait a minute, I can't imagine the childhood of entrepreneurs. If it affected me, why must it affect them? And I got to understand them much better as people and their family histories and their own personal experiences as children to better understand how they themselves develop. Because, look, it's not easy being an entrepreneur. Every single day, look, I've, and all the companies I've seen, and you said thousands, and I have seen thousands.

I don't think I've seen a seed company that actually did the model that they talked about in their first presentation. This is something that, you know, the business constantly changes. You've got to constantly adapt, right? You need somebody who is incredibly resilient, at the same time knows how to listen, knows how to understand, knows how to question themselves. Am I assumptions correct? Constantly questioning themselves, but at the same time, be able to make very tough decisions and realize that the buck stops with them. A lot of times where people had personal crises, in many cases, they had to learn how to be

independent and be self-reliant. And that was incredibly important to their building the ability to make decisions and to adjust after the crisis to how they themselves develop. You're mentioning there's research on how trauma is personally correlated with extreme success and also, unfortunately, extreme difficulties as well. There is actually research on that. We'll link it in the show notes. You brought up that seed investments rarely don't evolve and don't pivot in some form, whether a hard pivot or just an evolution. Why do you think the conventional wisdom by top VCs is that you bet on the industry, not the entrepreneur? This has been the conventional wisdom for several decades. Why do you think top VCs believe this?

It's interesting you mentioned. I think a lot of VCs, at least that I've spoken to, who have been through multiple cycles, will tell you they don't want to invest in a market that's not significant if somebody's going after a small market. But if they don't believe that the entrepreneur, they know the entrepreneur is going to have to pivot. And if they don't believe that person can pivot effectively, they won't invest in it. It's one thing to be investing when you started, say, investing in 2010 and you'd only been throughout markets. It's another thing to have been investing in 2010, and you'd only been through up markets. It's another thing to have

been investing in, you know, hey, I started my career in 86. This is either my fifth or sixth downturn, depending on what you count, right? If you've been through multiple cycles, you realize how important the entrepreneur is and their ability to find how the market is adjusting and where the market will be. The really great entrepreneurs will be able to have that. Again, I know very few people who said in their first presentation, this is what I'm planning on doing. This is exactly what the product's going to look like. This is exactly my pitch.

This is exactly who I'm pitching to. And that's what happened. By definition, anything that's disruptive is going to itself could be disrupted, right? So, you know, this is a constantly changing industry. If you don't have the ability to understand those changes and to adjust your business, you're finished. So I personally, my number one criteria,

and frankly, I think a lot of the VCs that we've invested in, their number one criteria is what's the quality of the entrepreneur. I have to say I have a bias towards that as well, especially at the early stage. Maybe at some point the business and the market becomes solidified and it's very difficult even with a top entrepreneur to pivot. But my assumption is twofold. One is the top entrepreneurs will always navigate to a top outcome. But secondly, I'm actually investing in the person. I want the person's next deal. I am thinking about it through multiple startups. And I'd rather take a great entrepreneur into a bad business and partner with them on the next project than to take a good

business with a mediocre entrepreneur. But I did want to double click. We were talking about, you know, one of the themes of this podcast is personnel and people. And you mentioned that you made multiple personnel and management mistakes at Vintage. Reflecting back upon your illustrious career, what mistakes did you make and how have you corrected for those mistakes moving forward? I mentioned the issue of culture, right?

And one of the challenges with trying to maintain a culture is lateral hires are not always easy. And if you start hiring, you know, somebody that could, you know, has a fundamentally different outlook on things, you can, you can muck up your culture. What we did at Vintage, and this is the way I've been trying to build Vintage is every partner with exception of me started off as a non-partner and became a partner over time. We're now seven partners, we're an equal partnership. And I think one of the important things is, I've always taken the view, again, thinking of the longterm, what do I do to build vintage

as this longterm sustainable business? I'm gonna be 62 next week. I feel both an obligation to our LPs, but also to our GPs and of course, to every employer that this business be sustainable for long-term. When I was trying to build Vintage, I wanted two generations down of succession. Frankly, my job is to recruit people way smarter than me, which if you ask my kids, it's a pretty low threshold. I'm very proud of the team that we have. And what's great about it is I wanted them

to develop a relationship that wasn't a hub spoke, that wasn't dependent on me. And I think that's what's great is that they have a great personal relationship. The culture was a really good fit. It's very diverse of men and women in diverse and may respects. By the way, I'm very proud of the fact that while we're based in Israel, we have Israelis and Palestinians in our team. And I think that's extremely important. But it was important for me that people gelled as a group, right, without me being the one causing the gelling. And unfortunately, we have now two generations down of people who can take this firm to levels

that I wasn't able to take. What are the keys to building an enduring organization that survives the leader such as yourself? How are you operationalizing that? And how are you setting up the firm to succeed after you retire? One of the things that I did seven years ago, I saw a lot of firms that were falling apart. And I was very concerned about it. And again, you know, I started this from zero. This is my baby. You know, I didn't want this to fall apart. And so what I did is I interviewed 15 venture funds that had done succession successfully. And I asked them, how did you do it?

So a few things came across. One is don't overstay your welcome as the entrepreneur, as the founder. There's a lot of guys who just never let go. And you've got to have a very clear process for letting go. Second, devolve your responsibilities. Start making an equal partnership, especially if it's been around, you've developed, et cetera. Get an equal partnership out faster rather than later, not just only in decision-making, but also in economics. Now, that was another important thing.

A third important thing was giving people the room to make mistakes. Just like you don't want to micromanage a startup, you can't micromanage a venture fund. And, you know, you've got to give people the room, you know, grow great, great people, but give them the room to make good investments and bad investments, just like you did. Right. And a lot of that, you know, I focused on really, you know, that kind of building, that kind of infrastructure to allow us to, you know, to grow. And I really, as I say, was really making a big effort to get outstanding people. I thought were great, way smarter than me,

much more talented than I was to build this thing out. You mentioned something somewhat obvious, but clearly not followed by a lot of firms, which is sharing economics through generational transfers. I'm not aware of a single generational transfer that was done without significant economic sharing, whether it's Benchmark, whether it's Sequoia. I'm not aware, a single generational transfer that was done without significant economic sharing, whether it's a benchmark, whether it's Goya. I'm not aware. I'm sure it's out there. But I think that's one of the very obvious but difficult things for legacy founders to do in the space. And it hinders their ability to build multi-generational firms.

So what I, you know, what I did is I said to my partners, look, you know, fortunately, Vintage has done very well. You know, we've had some very successful funds. You know, I've done well, right? So I said to my partners, look, I don't want, you know, my ownership to be a negative in your ability to recruit people. So I had this actually, you know, and I think it's a nice statement about my partners. The debate was when we were putting these agreements into place, they were trying to give me more than I thought I deserved. And I think it's actually a nice statement, but my partners do incidentally. I call it reversing of negotiation. But that's what happened. Like, I mean, you know, my partners are spectacular human beings. I mean,

but, you know, I think the important thing is, you know, you've done well, it's time for other people to do well, right? Like, and, you know, at the end of the day, you want your business to succeed. And look, you know, we all know this is, you know, it takes a long time for a lot of these companies, a lot of these funds to finish. You want somebody there to manage it. You don't want to be, you know, frankly, going to annual meetings and assisted living. You know, you want to be, be in a position where, you know where there's great people who can take the firm going forward. And if you don't act accordingly on the economics, you're never going to be able to do that. Great people deserve to benefit economically from it. So speaking of great people, you hire a lot of operators, much more than funds of your type.

A, why do you hire so many operators and how does that help manage a fund to fund structure? So again, we have the fund to funds, we have the secondary and we have the direct. But the operator part again goes to the point I mentioned before. This is all about entrepreneurs. Our perspective is when we price a deal on a secondary, we want to understand the quality of the entrepreneur. Obviously, when we're looking at a direct deal, we care about the entrepreneur. And again, as I mentioned, when we look at a fund, we want to make sure they're a magnet for great entrepreneurs. Well, to really understand, is that person a great entrepreneur? We believe having that operational experience helps a lot. Being able to ask the right questions,

being able to understand the business more effectively. Now, don't get me wrong. That's not to say people only have financial backgrounds. and I only have a financial background until I, you know, I guess until I founded Vintage, right, can't make good investments. I'm not suggesting that. But I think the combination of that operational experience together with the financial background has allowed us to, I think, do better due diligence on, you know, entrepreneurs on funds, because, you know, we can ask because hopefully we can ask the right questions. If you had to do all over again, how would you have structured Vintage from the onset? We've been very fortunate. It's grown nicely. The funds have done well.

I don't think there's anything dramatically different I would do. I think there are certain things we probably would have done faster. We've opened up our first U.S. office,, in retrospect, I wish we would have done that earlier. You know, for the most part, again, we kind of built this very slowly and methodically. That was a good decision. Obviously, we made, you know, loads of investment mistakes along the way, but then we all did. But I think on the building part, I think it's gone very well. So let's switch to engaging with GPs. So how do you want GPs to engage with you? At

which point of their cycle and whether it's fundraising, tell me how GPs should approach working with Vintage. We don't do first-time investors, but we'll do first-time funds. So what does that mean? If somebody has been an active angel investor with a good track record, we'll look at their fund. If they've worked in another fund and decided to start their own fund, we'll look at their fund. We believe that investing at the end of the day still is a profession in itself and frankly, takes a while to learn how to do it. And so we'd love to see them have some experience as an investor, whether an angel or as a VC. But I think the important thing is we'd like to go early. If you look at our fund to funds, we're certainly in several of the leading groups. But by the time, if you constantly wait until those groups become leading groups, you'll never get access. We try to go early. We've done funds as small as $30 million, $20 million, again, to build the relationship and build a relationship for the long term.

Just as an aside, we have a very high re-up rate, probably one of the highest in the industries. And the reason is we do a fair bit of due diligence before we go in. But when we go in, we usually stay unless the fund gets extremely large, which we think sizes the enemy returns in venture. We can talk about that several if you want. Or they fundamentally change the model or the team breaks up or there's fundamental team changes. They never built succession well. In those cases, we'll usually terminate the relationship. Our core view is we're looking to be with that person for a long time. So we'll start maybe a little bit smaller, but over time, we want to be a significant investor. And in terms of cadence, how often do you want to be interacting with your

GPs? Obviously, you have the quarterly updates. What is the ideal cadence for you to build a relationship with your GPs? We don't want to bug them. We know that we're not the only investor there. And frankly, we want them to spend a lot of their time working with their companies and less time babysitting us. So, you know, we're happy with, you know, periodic updates, but we don't want to drive them crazy. What we do do, though, other than, you know, different than other groups, because we are sector focused and because we're also data freaks, we've created this free service where large corporate sales, where their pain points are. And then we help them meet startups in our indirect portfolio. So our VCs have been giving us a fair bit of information about their underlying companies for us to connect them to potential customers. And we've generated so far about 280 purchase orders, over $200 million in revenue that we've generated. We don't

take a penny for it. It's just a free service that we offer to our gps to help their companies that group that team within vintage is probably in more regular contact with say the business development people in the funds the other thing that we do is we've sent several deals that we see because we get consulted by entrepreneurs who are looking you know asking hey who do you think is the right person to go to for this a round? We will send them deals. We've, you know, we've been fortunate enough to send some very successful deals to GPs, which we've invested in a couple of cases, fund returners to them. And again, that's a free service where we're just trying to be helpful. So we don't want to be a burden, but we want to be perceived as helpful. So whether it's helping

their companies or sending them deal flow or maybe sending them candidates, we also do that. Yeah. I mean, that's the interaction. But on the reporting side, we don't want to drive them nuts. We think that's a mistake. And you mentioned off camera, people are successful. We want to build long-term firms.

Someone is spinning out for purely economic reasons. It's not as interesting. Can you explain why that is? Building a venture fund is building a business, right? So at the end of the day, it's like any, you know, entrepreneur that you'd be meeting at, right? Do you want an entrepreneur who's only motivated by the economics? Because if there's, you know, downside or there's down markets, maybe they'll walk away, right? You want somebody who's genuinely committed to fundamentally changing an industry, right? Who, you know, is passionate about that. Well, that's what we're

looking for. We're looking for somebody who's passionate about building a long-term sustainable firm, isn't just looking for the short-term economics. And frankly, that's what we've tried to bring, you know, or that's our approach to building vintage, right? So we're looking for people who have a similar approach. Look, again, you know, the way these relationships are with VCs, chances are if you cross three funds, you're going to be with them for at least 15, possibly 20 years. You want to make sure that when that portfolio matures, there's somebody there to manage it. That was always a head scratcher of mine. I started in 2008 in the tech as an entrepreneur in the tech industry. And I always didn't understand why purely financial entrepreneurs

can't have fund returners. And what I discovered is a couple of things. One is if it's a purely financial entrepreneur, they're going to sell too early. And two, and even more importantly, they're going to start, you know, a purely financial entrepreneur, somebody that's gone from VR to crypto to AI now back to crypto. And you just can't build enduring business at that point. Naval said that some of the best entrepreneurs have been people that have been curious about a space before there was even a financial opportunity, before it was a large market. And I think if you're truly looking for power law outcomes, the 100,000 X, you need to be so non-consensus, right? That it can't be purely driven by financial returns. You've also got to be passionate about the business, right? Because at the end of the day, look, and it happened in vintage too. We had ups and downs. Every business has ups and downs, right? And it's easy to walk away when there's a down,

right? If you're not passionate about it and you're easy to walk away when there's a down, right? If you're not passionate about it, then you're going to the highest bidder. For us, we really wanted to build a long-term sustainable business. And I want to invest in people who want to build long-term sustainable businesses. Speaking of long-term performance and cultures,

what are the cultures at GPs that return alpha consistently? As I mentioned, this is all about attracting the best entrepreneurs. So if you are not super aggressive to attract those great entrepreneurs, if they don't see value from you, whenever I hear a GP says, hey, I built this company, I get nervous because usually when the GP starts building the company, you may as well shut it down. You know, at the end of the day, it's about attracting great entrepreneurs, giving them the help that they need, but also not getting in the way and not

micromanaging the business. So that's what, you know, that's one of the things we're looking for. One of the most important decisions a VC makes in many cases is the follow-on investment, especially you see this with, you know, A round, B round funds. The ability to be reflective on your investment and make a really good decision, not to be defensive. Hey, I got to put more money in to get that one X back. This is really about concentrating your money into your winners. And you got to be really honest with yourself and your partners about what your winners are

and not look at it. Hey, how is this going to be perceived within the firm? So the humility aspect is incredibly important among each one of the partners. But the ability to be honest with the partners, have an honest conversation with your partners and not feel I'm on the defensive. I have to defend my investments. That's incredibly important. So we spent a lot of time trying to understand the dynamic between the partners. We talk a lot to co-investors, to entrepreneurs, also to ask them about, hey, what's your experience been with the dynamic of the firm? And that kind of stuff is extremely important. I think humility,

you know, I don't think the VC industry has been accused of being particularly humble. But I think some of the best VCs I know, really outstanding VCs, are also outstanding people. And with a degree of humility and a degree of understanding and respect for the entrepreneur and for their co-investors, I think it's extremely important. You mentioned humility and honesty. If we're to double-click on that, what makes a GP humble and honest? What are the characteristics that lead to that psychological trait? Well, I see how it's manifested, if that's what you mean, right? So, you know, certainly in our relationship with them, we don't want people to constantly be selling to us, especially after we've invested.

Tell us the truth. You got losers in the portfolio? We all have losers in the portfolio. We've all made mistakes. Tell us. Write them down. Don't keep stuff alive for the sake of keeping stuff alive, right? We know that there's a power of law in venture.

It's okay to write stuff down, right? So that's like one thing, in my view, goes to honesty. Or keeping stuff at valuations that you know, the company could never raise money even close to that. We've seen gaps in valuations between funds that are enormous on the same round, which makes no sense, like, you know, the way they're holding, you know, be conservative on your valuations. It's okay. Like, you know, we'll look at what other people are holding at, or we'll be in touch with the company, we already know what's going on. You know, so I think, you know, being candid, you know, we'll look at what other people are holding at or we'll be in touch with the company. We already know what's going on.

You know, so I think, you know, being candid, telling people bad news when it happens early, it's fine. Right. Like if there's a problem with a partner and you think you're going to separate from let the let the LPs down. You don't have to hide. OK, so, you know, that kind of stuff, I think is extremely important on the VC LP. On the relationship with entrepreneurs, you know, again, at the end of the day, it's their business. Now you can agree or disagree with them on the strategy. There are cases where you have to change out the entrepreneur with the CEO. But I think at the end of the day, you got to give them for the most part, the benefit of the doubt. I'm not saying you got to agree with them. I don't

like the VCs also who are cheerleaders and don't ask the tough questions. But it's legitimate to ask tough questions. It's legitimate to... My partners ask me tough questions. I think that's good. It makes me a better investor. I think it's a good thing that board members ask CEOs tough questions, because it hopefully will make them better. One of my best entrepreneurs starts off the meeting, here's where I don't think I did a very good job as a CEO. This is what I got to go fix instead of trying to be the sales guy to his board. And like, what are your recommendations for me to fix this? I think that's fantastic.

But by the way, I applied the same thing to the VCs. Guys, we also make mistakes. Let's put our own views. Let's put our own opinions into perspective. At the end of the day, it's the entrepreneur out there, not us. They're talking to the customers. We may have our views, but at the end of the day, they have more information than we ever would have. So we've got to learn a little bit of humility ourselves.

And by the way, I'm as guilty as the next guy of trying to push a certain view in. And that's one of the things I've got to do better. I look at venture as three different layers, startups, GPs, and LPs. And I think there needs to be more transparency on the startup and GP side, but I think also on the LP side. And I think LPs such as yourself

that are great partners to GPs are a critical part of that. I had another interview. We were talking about LP value add. And to me, somebody that's LP value add is somebody that truly partners, that understands the asset class, that understands the different cycles, and will partner with you through those cycles. A lot of early time, first time GPs want special economics or SPV economics. That's what they see as LP value add. But if you're really growing a franchise to your point, you want somebody that's truly going to partner with you and somebody that will be an honest thought partner, and that's going to be an actual partner. There's a partner and

limited partner. I agree with you. And one thing that I gained from my own LPs, we've been fortunate, we have some very good LPs who are very experienced, you know, they ask me the tough questions. I actually view that as a plus. It's like any friendship you have, in a sense. The true friend is going to be the one who's going to give you the honest story and isn't going to, you know, sugarcoat it. And I love the LPs of ours who say, you know, hey, you know, what about this? What about this? It only makes us better, right?

At the end of the day, I think people have to take that perspective that they shouldn't be on the defensive they should say they should encourage this is one of the reasons we go off-site and we beat ourselves up and we start by being you know we really start each one of us beating ourselves up about the stupid investments we made that reflective process is the only way you can learn the best way in my view not the only way but the best way to learn and and i learned a lot from our LPs, right, who were asking me tough questions. And wait a minute, we should fix this. For your offsite, what is the psychological factors at play there? Is it just that it's out of the office and that it's different somatic and different context? Why are offsites so

effective? We have everybody in the investment team from partner to analyst, and everybody is involved in presenting. And every single person in the team is hearing myself and my partners beat ourselves up about our bad investments. So we're not afraid to be extremely open about what we did right and what we did wrong. And the reason is we want everybody to learn from our mistakes, right? If you take the view, which we do, which is we're trying to build a long-term franchise, right? And we're trying to build, you know, a team that two generations down that can take the firm forward, right? You want them to learn not only from their own mistakes, but also from

yours. And that honesty and the, you know, the ability to be self-aware starts at the top, right? And if, as long as you get that right across the be self-aware starts at the top. Right. And as long as you get that right across the entire firm, it has a huge impact. And so I want people to walk out of there depressed. Oh, my God. Like what just happened to us? You know, like in the sense of like, oh, my God, how do we make that stupid investment? But that's good because what it does is we learn what works and what doesn't work. And what do we do to go after that better investment next time? And what do we do to not go after that investment next time or make that follow on investment

next time? So let's say I have a fund of 30 investments. How many of those investments, let's say it's pre-seed and seed, how many investments should I be really leaning into? Should I be doing pro rata in each one? How would you allocate, let's say, one-to-one on 30 investments just to give you a number? How should you be allocating? Five investments are going to make the difference in that fund. You're not going to know always

what those five are early. Although I have to say, I've been on a bunch of boards over my career, several tens, if not over a hundred. In a lot of cases, you go to your first board meeting after you make the investment and you have that part of the expression, oh shit board meeting, right? Like, oh my God, how did I not see this when I went to do the diligence? You may realize that, hey, there's a problem here with this company, but you can see how the entrepreneur reacts and you can see the ones that kind of fall apart and the ones that are able to adjust. There's a tendency, some people don't want to write off stuff and they'll just keep you know an extra buck here and an extra well you know it was their

famous there was a u.s senator once who said a billion dollars here a billion dollars there producing we're talking about real money you know people at the end of the day that every dollar could be put somewhere else right so you've got to look at every investment as a new investment. And would I go into that follow on or should I be putting it into a different company? What we do in our firm to make sure that we have a discipline is a partner who did not do the deal looks at the follow on investment. And what that does is it gives a degree of not going native about the investment and, you know, fresh set of eyes or close, you know, something akin to a fresh set of eyes and looking at, does this make sense to follow? We all have a tendency, you know, you've built a relationship with the entrepreneur and maybe, you know, you don't, you're not being sufficiently objective. So, you know, putting some

infrastructure in place to be careful about the follow-on is important. But at the end of the day, if a lot of your money isn't concentrated in your best companies, then you've done bad follow-on investing. And by the way, we found, especially if you've got a follow-on policy that's significant, the second investment you make in a company is even more important than the first. Because if you make the second, you tend to make the third, fourth, and fifth and subsequent rounds. And making that decision, hey, wait a minute, these are the core ones I really want to focus on is really important. It's hard. It's really hard because you don't have a lot of information. Is there ever room? You've seen so many funds.

Is there ever room to kind of pile into one investment, let's say up to 10 or 15% of the fund? How have you seen that work out historically? Look, at the end of the day, we do the diversification at our level. You know, we'll be sufficiently diversified across our different relationships that we want you to go and pile in to the companies that you believe. I'm not suggesting you put in 30 or 40%, but I don't have a problem. If you are very totally convinced this is going to be a massive winner. Objectively, you know, you really believe in this. Your other partners are just as excited as you are about it. You know, 15 percent of the fund goes into or 10 percent of the fund goes into a company. I'm perfectly fine with that. This is about elephant hunting. This is about

selecting gigantic winners and giving them the capability to become the gigantic winners. There's an assumption that every company is going to be acquired. Do you know how many companies we still have in portfolios in our older fund, fund to funds, of guys who raised funds in 2005, six and seven, they're still active? There's not a buyer for everything. So, you know, at the end of the day, even if the company sort of still is around, doesn't mean you're going to get out of it. So again, it's really concentrated about, you know, the gigantic winners with the great entrepreneurs. And that's, you know, that's where you make your money. It's very helpful. And Alan, you've been in the space since 1986 when I was one year old.

So clearly shows in all your wisdom. And I've learned so much through this interview. And I know our listeners have too. What would you like our listeners to know about you, about vintage and anything else you'd like to shine a light on? I have no dramatic stuff. I think the important thing is be self-aware. Don't hold on forever. Expect of yourself what you expect of your entrepreneurs, which is you're running a business. And just like you expect that your entrepreneurs are going to recruit phenomenal people and give them the backing to build their businesses, you've got to do the same thing about the people you recruit. And you've got to build and just constantly,

constantly think about the future. Constantly say, you know, keep in your mind, I'm building something that's going to be last to last. You want your companies, the great companies are built to last. The great venture funds are built to last. Think long term. Thank you, Alan. Well, I look forward to meeting in person, either New York or Israel, or maybe even on the West Coast. And thank you for coming on the podcast and hope to see you soon. Thank you for listening to this week's episode. In order to make sure you do not miss out on next week's episode, please make sure to subscribe below. We thank you for your support.