Carnegie Mellon's Miles Dieffenbach: Can Mega Funds Still Produce Venture Returns?

0:00How do you evaluate the people stuff? I mean, there's a couple very easy ways. Are you putting like your own cash into the fund? Ventures and asset class seems like pretty allergic to that concept. Would it hurt for you if this fund didn't do well? Do you experience the pain that we do? Or are you just getting a free call option on our money? And if it hits, you win. If it doesn't, you've collected$30 million in management fees.

0:41Welcome to Origins, the podcast that dives deep into the business of venture capital, where we learn how the people behind the capital, both GPs and LPs, make decisions. I'm Nick Turles, GP at Asylum Ventures.

0:54Miles Dieffenbach: And I'm Beezer Clarkson, your LP co-host and managing director at LGT Capital Partners. Today's guest is Myles Dieffenbach, managing director of investments at Carnegie Mellon University, where he oversees CMU's roughly$4 billion endowment. Myles' path into venture is distinctly unusual. He played Big Ten football at Penn State, a run in the NFL with the Pittsburgh Steelers, and now at Carnegie Mellon. I think that makes him the unofficial Mr. Pittsburgh. Oh, I think it does. And behind that unusual path is more than a decade of experience allocating capital across venture, private equity, and other alternatives.

1:34Miles Dieffenbach: Venture alone accounts for nearly a quarter of CMU's total endowment, a notably larger allocation than you'll find at many peer institutions. That stat alone makes Miles read on where things stand in venture right now even more interesting. More so, he argues that 90 % of LPs shouldn't even be in venture without real access to top decile managers, and that today's mega funds may not be able to produce venture-style returns at all. Math, he's actually run the numbers on. This is a topic that we've seen trending in multiple places. We're going to dig into exactly why Miles feels this way, what, in his opinion, separates the LPs and managers who are actually set up to win, and what it takes for a venture firm to endure.

2:18Let's bring him in.

2:19Miles Dieffenbach: Let's do it.

2:25Miles Dieffenbach: Miles, thank you so much for joining us on Origins today. And we want to start with how you got into venture. And your story is unusual and I love it. So I want you to help us unpack it. You were a team captain at Penn State before making it to the NFL with the Steelers. And now you found yourself managing billions of dollars with Carnegie Mellon University. Tell us how you went from football to Carnegie Mellon Billions. Yeah, I mean, it started with a big, I'd say, life failure, you know, getting cut from the Steelers. So we'll start it on a high note. Yeah, I mean, I, my whole life was, you know, my whole life goal was to play in the NFL.

3:02I was hoping to get drafted out of Penn State. I didn't, I got signed as a priority free agent. And so I had like six offers and one of them was from the Steelers. I was with them through preseason, played in four preseason games and then got cut. And so at that point, you know, one, like I needed a job. I didn't have any money. I was 310 pounds at my peak. And I had up until that point in my life, like, you know, how fortunate I was. I had never paid for myself to be that large, right? My, you know, my parents paid for my food growing up. In college, I was on scholarships. Like all my food was paid for.

3:40And then at the Steelers, like all your food is paid for as well. And so like I was spending like in, in Santa, I was eating like 7 ,000 calories a day. So that was like draining my bank account very quickly to say that large. So yeah, I didn't get picked up in two months and needed a job. So I would have taken any job that anybody gave me. So I joined CBRE, which is a brokerage company. And then kind of quickly thereafter joined a real estate private equity firm. So that was like my foray into the private markets and investing. And so I was at the private equity firm for a couple of years. It was my awakening to the world of finance.

4:19And so, as you know, two years ago, I saw a job posting at the CMU endowment. I didn't know what an endowment did. I knew that my scholarship at Penn State came from the endowment, but I was reading the job description and it seemed like very, very, very intellectually stimulating. It was a small team, it was a global mandate, so we invest across the world. The role was a generalist role, So you invest across asset classes and a relatively large portfolio. So I thought, man, that would be the best learning opportunity for someone in my space, in the world. And so thankful I got the job and have been there since.

4:56Miles Dieffenbach: You said in professional sports, you're either good or you're not. There's nowhere to hide. Not sure you feel the same way about venture, given some of your spicy comments on X. But help us square the circle. Venture represents a quarter of the endowment. And you previously said that your private equity portfolio at CMU can be self-funding even through difficult years. Is all that still true today? And just give us a little bit of a flavor about this. Because you have a significant allocation to venture in a world which you can hide, right? Sometimes people get lucky and they're not necessarily good.

5:33Yeah, I mean, I think the points you put up on the scoreboard, right? like DPI and performance numbers, there's nowhere to hide from that. Now, certain firms are maybe haven't put up the same points on the scoreboard as others and continue to raise large funds. So maybe you can consider that the hiding. So I don't think it's maybe as truth-seeking as like maybe the NFL as an organization, just given like the relationship nature of business and venture. But like in general, I still think it's pretty efficient. The difference is venture has changed as an asset class from its scale perspective so drastically over a short period of time that it's very hard to look at those returns from 10 years ago and then pattern match that to work and expect those returns today.

6:25That's the really hard part of an LP job, brutal, frankly. And so, yeah, for us, I mean, venture is still, you know, a quarter-ish, maybe a little bit less of the endowment for us today. And so it continues to be an important part. We think, you know, we at CMU have advantaged access just from the brand of the university being so strong in artificial intelligence, robotics, you know, everything in between. like you still need to pick. And like I said, past performance and, you know, we think is not maybe the same strength of forward indicator it used to be just given the drastic change in fund sizes.

7:09So we pretty intensely are trying to underwrite in diligence and do as well as we can to predict what we think the future returns for these funds can be.

7:19Miles Dieffenbach: So you're still bullish on venture and think even if the returns look different from what it was a decade ago, So you're still, I don't want to put words in your mouth, so I'll throw out a statement and then please correct it. That venture is still maybe not the only alpha, but a significant alpha to put that much of the endowment in it. And you've also made some pretty bold statements that you think 90 % of LPs shouldn't be in venture at all. So starting from today, when you look forward, what assumptions are you all making gives that reason to be a quarter of the endowment? Well, no, I would say like the beta of venture is going to be much worse into the future than it was in the past.

7:58The fund sizes and the asset base has increased 10, 15 X over the past 15 years. And so like we're pretty sure of that. Where we're so bullish is venture itself, like in my opinion, like the true nature of early stage venture capital was like there's always going to be somewhat. of a protected moat around that business. Cause it's like by its nature, it's like unconventional, right? Like you're backing ideas and companies that are adherent to like the world today. Like they don't make sense. And they're not flashy or hot at that time. And then you look back at like 90 % of the greatest venture backed companies of all time, right?

8:44That usually most of them are extremely not conforming to the world in which those companies were born in. And so we like that being true venture capital. We think there's still extremely fat right tail returns to be had. It's just there's very few managers that are going to be able to execute on that and produce those returns going forward. The difference is 10, 15 years ago, there was 15 or 20 firms that you could go to if you were a founder and you wanted to raise you know a couple million bucks from and they basically all had two to 400 million dollar funds and like that was it I mean that was probably 95 percent of the capital like seed wasn't really a thing back then you obviously had angels but that was it right and so you know flash forward to today, like the multitude of, you know, places that you can raise capital from and just how much those 15, 20 firms 10 years ago have shaped and changed to today.

9:50It's just a very different asset class. There's like very different forms of capital, right? Within that with very different, you know, risk adjusted returns. Yeah. There's probably a topic for way later, but while we're on it, so how the hell do you pick? Yeah, I mean, that's the million dollar question. And so for us, there's some like base level math assumptions that we look at, which is like, can we believe in fat right tail outcomes? like if something really magical happens within that portfolio are we going to get paid in a really big way that's going to make up for maybe a couple of other funds for us that don't do great that's really hard for the multi-stage firms today for us to pencil that like our simple math is kind of what's your your dollar weighted entry ownership when we commit to those funds how big is the fund what's your enterprise value that you need to deploy those funds and then pick some like magical number of like an anthropic or a databricks coming out of that fund and you know what's that going to return to you on a net basis if that's the magical number if the magical number is a trillion can't you justify investing in any phone size no what what would your guess be on what the what the price per share moic is on anthropics 18 billion round to today right which is like when there was only basically one venture firm in before that which was spark the rest of that was very non-vc capital so 18 billion dollar round 20x yeah so 20x so like that's i mean that is not gonna multiple fund return any of these multi-stage funds right menlo right they had a smaller fund right so that's gonna be a big outcome for them but like the multi-stage firms i mean this is on a net basis i mean it might return like 1x net a couple of other funds but it's it's not gonna be a 10x fund because i'm philanthropic at a at a two trillion dollar outcome and yet people are still investing

12:05Miles Dieffenbach: yeah at a trillion my guess miles is you probably underwrite an early stage fund to a three to five x but maybe in this market no that's insufficient and it should be at something bigger do you can you share like just sort of yeah i mean our arguably a big size like your ideal fund size your ideal return for early stage just to give folks a sense of what you're looking for yeah so So like our PME is the cues. Like when we think about like, what's the cleanest risk-free factor exposure that we could take in a liquid public vehicle to match what we're doing in the private markets. And so that's compounded at call it a 17 to 18 % net since 1998.

12:45And that gives you kind of a three, five to three, seven, you know, net DPI on a rolling tenure basis. So that's kind of our go-view. So like we're expecting, you know, mid twenties IRR and, you know, depending on when they call capital and distribute back, right? The IRR math is always a little messy comparing public vehicles to privates, but like a 4X net is our goal for all of our funds, right? So that's, you know, going to be a six to 7X gross, right? So, you know, the quantum of capital needed for the big firms to deliver that is huge, right? And frankly, I do think one or two of them maybe will be able to actually deliver those returns.

13:30It's going to be insanely magical if they do, but it is plausible. But to think that we're going to invest in six multistage firms charging us two and 20 who've all raised over 6 billion, it's very hard to pencil the clean risk-adjusted returns that we could just have investing in a public market vehicle that's done a 17 or 18 percent net okay uh you called um we have a note here you called dan levine's tweet we'll we'll we'll we'll post to it about ventures declining return targets the best tweet of the venture campus and that lps are subsidizing bad returns so like what what does that mean maybe let's dig into that well yeah i mean it just goes to the point of folks most uh maybe not most but i think there's a lot of LPs that are investing in venture because they are either mandated to, they are told to whether that's from their governance or from their asset allocation, or they want to because they think it's fun and cool and kind of the hot thing to do.

14:32And just look at what you could achieve in a passive public vehicle with relatively the same factor exposure, with the same themes, cloud computing, AI, by semiconductors, robotics, that you're gonna get in the private vehicle, that's done a 17, 18 net, like I said, since 1998. The question we have to answer in any LPS to answer, if they are on my side of the table, that we've thought about deeply is, could the public markets implode while private growth continues to rip? right and so like i am of the take like a simple financial heuristic would be how tied at the hip are these big venture-backed companies to the large public companies because the queues are very concentrated but the 10 largest companies represent 52 53 percent of you so it's quite easy to underwrite as a vehicle and so let's think about like the cost of goods sold and capex of like the 10 largest companies private backed, right?

15:40You've got Databricks. So like all of their cost of goods sold goes to the hyperscalers. You've got Anthropik and OpenAI. Majority of their cost of goods sold goes to the hyperscalers and all of their CapEx goes to Broadcom and Nvidia, which are the two largest semiconductor companies in the Qs. Revolut, you name it, like all of these ramp, like all that they are financially tied at the hip. Their cost of goods solds and OpEx is going to these companies. So they're financially tied. And then who's the largest shareholder in Anthropoc? Who's the largest shareholder in open AI? Yeah. So it's hard for us to imagine the queues imploding while those companies continue to rip in the private markets.

16:28And so then you think about, all right, so we're getting like relatively the same factor exposures. the private companies are growing faster, but maybe valuations are a little bit out of whack with what they'll trade in the public markets. It's really the fee structures, right? Like if you took the Qs over the last 10 years, I think it's on like a six X, and it's like a 19 or 20 IRR. If you put a two and 20 on that, you'd have the same exact return as the S &P 500. So you strip away all the alpha, right? Right. And so the fee structure of what modern venture capital has been today, which is like not venture, it's like large scale growth equity.

17:08It just doesn't make sense from a risk adjusted return perspective in, in, in my slash. How'd they get away with it? Bezer, you might have a view here too, but like, yeah, do you see that changing? If that ultimately is the difference between a firm doing great and not so great like why hasn't that changed my two cents would be feedback loops in venture are remarkably long but like i think if ai would not have happened if chat gpt would not have launched at the end of 2022 i think you you would have seen it because the returns from those you know from call it yeah i always think like the soft bank moment is like the flag in the ground where like everyone scaled vision fund and like the returns from you know that era are poor like they're they're not great and um ai saved the day um and i think the really hard part um you know going back to past performance is not equal future the returns that they that these multi-stage firms did from you know 08 to 17 18 are epic returns are awesome And so as an LP coming in, you're going to look at past performance and their performance is amazing.

18:27Most of those multi-state terms, the performance is incredible from those decades.

18:31Miles Dieffenbach: I agree with all of that. And then just to draw forward some of the points, when you have to invest in the top percent of the top 10 % to get those returns, you have a default scarcity. And so you, I think a lot of allocators end up thinking, well, maybe I'll get not lucky, but maybe I can find that wedge in. And so you, it just keeps pulling money into venture. Even if I also agree with Miles' statement, I think the go forward, the average return is going to be even worse than the past. And the average return in venture is not good. Like you do not want to, this is not an industry where you want to be average.

19:06I also think there's other benefits to a lot of the other really large LPs to investing in a multi-stage fund. Because my belief is the multi-stage firms will continue to capture 95 % or more of the big powerful outcomes that come from the asset class. And that's like, if I am a large sovereign wealth fund in Saudi Arabia or anywhere, Europe, I mean, a$400 million check is relatively small for some of those pools of capital. If I can get a$400 million check and then they say, we'll give you$400 million of co-invest to invest directly into the next Anthropic or the next OpenAI, folks, those groups will sign up for that all day.

19:49They'll pay those fees if that's the case. So 25 % of the endowment, there's maybe a couple of multi-stage firms that you think are going to be the outliers. how do you navigate the rest of the universe? Like, how do you break it up? Is it sector size, geographic diversity? Like, how do you, you said there's, you know, or whatever, we've talked about this, there's thousands of firms. Like, what are you actually, aside from outlier outcomes, like, what are you actually looking for in these firms or these people? Yeah, I mean, we're looking for great pickers. I'd say, like, that's probably our guiding North Star.

20:29But it's really like, how do we find investors that can back and find incredible companies that I'd say in general, they're finding before they're legible to the broader beta of the industry. Right. And then growing and selling into that either via an IPO or secondary or the other varying liquidity options that these managers have. That's our goal, right? And so we spend kind of all of our time trying to find managers that fit in that bucket. That's a very high level, but there's many other facets from the net.

21:04Miles Dieffenbach: How are you deciding what counts as a great picker in AI? It's extremely hard. I do not have a framework for how to think about how people pick differently in the age of AI versus not. I think, you know, particularly at the early stage, you know, I'd say I, you know, try and really understand with the founders they're backing. Like, are you finding, you know, missionaries or mercenaries? I think like there's probably a lot of mercenaries just that I just given it is natural, right? It happened in crypto in 2021. Like there's just so much money flying around. and like will that will will that lead to long-term durable returns for those companies probably not who knows like i could definitely could be wrong there but um like are you around like the really special people that this is like their life's work and irrespective of a bubble or not a bubble or chat gpt like they would be doing this how do you evaluate the people stuff does that matter for like could you apply that same argument to the vcs that you're working with a lot of opportunists in VC land too not just founders undoubtedly how do you do it I mean there's like a couple like very easy ways like are you putting like your own cash into the fund which is like you know venture as an asset class seems like pretty allergic um yep to to that concept compared to to others so that's like the easiest yeah they sell the now like for sure we take into account everyone's past financial situation so it's not like we need x percent a GP commitment from a 30 year old with$500 ,000 to their name, who's now going to have to mortgage three houses to do two.

22:51That's not what we want, but we understand, conceptually understand how wealthy some of these people are. So would it hurt for you if this one didn't do well? Would there be pain? Would you experience the pain that we do or are you just getting a free call option on our money and if it hits you win if it doesn't like you've collected 30 million dollars in management fees so we spend um a lot of time thinking and and working through that um with managers um and the other is is really understanding what in their past has shaped them to where they are today and and why do we get conviction that they're going to stick around for 15 to 20 years you know doing the same with the future is that important to you like would you underwrite a manager for a fund or two if you think they're special enough no no no no why i mean it's going to take 15 years for us to get our money back if it's an early stage venture fund and you know you parachute and leave after four or five years right who's you know who's going to drive that home for us it's i mean that's not our job right how do you figure that out because you know man you know venture capitalists have heard this before so they go in they look you in the face and they say miles my life's worth last job i ever had everyone says that everyone yes it's like there's a talk track so like um so how do you actually figure it out i i think it's like really do they love the job and so like how do you how do you like like we'll talk to founders we're not going to take like 10 hours of their time, but like, Hey, like, what was it like your first conversation with Nick?

24:36Like, what was that conversation? Like, why, why did, why did he want to speak to you? What was that conversation like past coworkers, past firms? What did Nick said? He, you know, when Nick used to work for you, like, did he ever give you any, any sense for like what he wanted to do in the future or, or kind of his goals or aspirations? Like we will try and collect as much information as possible on the people we're partnering with to, to understand what is kind of the long-term goal and driver for you and like money should be a part of that right like you're not like nobody's in this for free like um uh but like understanding is is this the place that you know that you want to work and is this the form factor of which you want to be doing your life's work uh is very important but it's it's art versus science i mean the the the cleanest piece of science is gp commitment right like are you going to lose a bunch of money because like, if you've got a bunch of money tied up in the fund, you're not going to leave after three years, right?

25:35Like, that's like, I don't want to lose$10 million, right? Yeah.

25:38Miles Dieffenbach: In a similar vein, sort of taking the negative view on that is, sounds like potentially people issues, but what specifically, because I think the audience would love, always wants to know, why would you rotate out and not re-up with a manager, assuming the performance still looks strong? Because obviously if performance deteriorates, like that's a gimme as to why LPs don't come back. If there's a key investor on the team that we know drove a lot of fabulous performance that is now leaving, like we're going to spend a lot of time thinking hard and deep about that. So that's one team change, right, which happens a lot.

26:16We're always going to reflect on that for a decision. The other would be the funds shape and form and strategy is very different than what we underwrote five, six, seven years ago. And we can't pencil out the same returns that we did prior. But that's that's that's everyone. Yeah. Hence, I mean, we are we are I mean, I'm frank. We're not active with multistage firms today. right now I mean part of it is like I do believe exits will be bigger in the future it's not like I don't believe yeah like exits will be bigger right like clearly you just had an M &A cursor at 60 billion you just had yeah hugging face at 13 like exits are gonna be much bigger into the future yeah do I think we're gonna get 20 trillion dollar IPOs in 10 years no yeah yeah and if we do like we're all gonna be so freaking rich because GDP growth will be 8 % and the S &P will be at like 10 zillion in 10 years if that's the case, right?

27:14But like exits are going to be bigger for sure. And so like franchises like, you know, should a seed be 50 million today versus, you know, 15 million four years ago? Probably not. But, you know, exits will be bigger into the future. Yeah. Yeah. I'm curious, like, so, yeah, let's just take a second and talk about AI. We've been talking about it in various different forms. um i'm curious uh well maybe your take i mean i'm assuming you have a lot of exposure to it some of these companies are going to start to go public um questions about where we are in the cycle i'm curious well one curious just how like you manage that exposure if you can through your managers i mean this is this is a very fun one i think it's it's extremely hard to manage out AI exposure today at any pooled, diversified piece of capital, right?

28:09Like even the S &P, you take semiconductors, hyperscalers, energy, right? And utilities, which are basically all tilted to AI today. You've got to basically 60 to 70 % of the S &P is AI CapEx related. So there's like not really anywhere to run. Oh, let's go to emerging markets, publics. more more concentrated the S &P you've got Thailand semi you've got SK hynix you've got Samsung they represent like 35 40 percent of MSCI emerging markets it's like we're gonna like just do like a broad-based Africa ETF like is that kind of our like saving grace for non-aix but there's nowhere to run right um and then it's like okay but like let's do a value till Nvidia and Micron on our value stocks.

28:57And they do trades at 14 times 27 earnings. Micron trades at five times. So it's like, where do you go? Right, I think it's very hard to outrun it broadly speaking. How much do you think about that at the endowment level? A lot? A lot, yeah. I'd say like your cleanest diversifier, it's very hard to diversify on equities, right? but call it i'd say like private equity like value to governmental market services industrial companies like that's probably our cleanest tilt away from ai they're ai beneficiaries they're not related to ai kind of expand um broadly speaking um uh that and like bonds like tips or or other bond exposures are going to be like your your cleanest diversification away from and i today it's hard for me to outrun the statement of like every major technological change in the history of the world has produced a bubble uh and an over investment cycle so it's like hard it's hard to outrun that it's probably just not going to happen this or next year but like the really really big gigawatt gigawatt editions are coming at late 27 and 28.

30:10yep so you know who knows but like I'm not a market predictor right like it's it's just it's impossible if I if I was I'd I probably wouldn't be talking to you guys. I'd be making a lot of money somewhere, but it's very hard to figure that out.

30:22Miles Dieffenbach: But that doesn't mean venture can't be very bubbly as far as a hundred, you know, a hundred thousand, you know, billion dollars seed deals. Do we really think we're going to see a trillion dollars seed deal next year? I mean, I isn't an end of one, hope not. So I, I think it's possible that these two different things can move separately just because in the private markets, they are somewhat untethered from the public in that level. Like I'm not disagreeing with what you said, Miles, about they do move together because if the public goes down and all the compute goes down, there'll obviously be an impact in the private.

30:56Miles Dieffenbach: But I do think venture capital deals can still look very bubbly, even if AI still has a long room to run. And that what I just don't know is how many of those up and down cycles are we going to have in the, you know, right now pacing. People are coming back into Nick. Do not feel like this is an encouragement. People are doing one year funds again, right? Pacing is very fast. I see it. Yeah. So do we. Yeah. Yeah. I mean, I, the difference is like, I, you know, broadly speaking, like I think the public markets have, have kicked a lot of that risk out right over the past 12 or 18 months. I, I, like, I don't think the private markets have, right.

31:37Like I said, like Nvidia 18 months ago was trading at 45 times for an hour, it's trading at 18 today. Oracle has gotten killed since they took on all the open-end down exposure right like Broadcom has gotten killed they just they just said Anthropic is going to be their largest customer and they're going to do hundreds of billions of dollars of basic service with them and the market said no thanks like we don't want that yeah right so like the the public markets are trying their hardest to price these varying risks in I don't think it's in the nature of venture to do that right you're you get forced right in venture like when you have to price that risk through like very bad things.

32:15They're not just going to naturally, you know, price that in. You're meant to keep the hamster wheel rolling.

32:21Miles Dieffenbach: Would you, Miles, want to chat for a few minutes about your thoughts about the secondary market? Are you looking at that as an option for liquidity? Are you not necessarily for the endowment specifically? Or do you use like the GPs to do it? Just sort of curious because it's become a bit of an alternative exit ramp in venture, which again, it didn't used to be M &A and IPO. And now there's secondaries and just curious to get your two cents on it. Yeah, man, I think it's a very important liquidity valve for GPs and LPs. We have not done LP at secondaries. We haven't been in a liquidity situation where we've needed to.

32:56Certain of our GPs have, which have been prudent, I'd say. But like, broadly speaking in venture, it's very, very hard for the multi-stage firms to at scale, take advantage of secondary, right? For like a couple of reasons. One, just like the brand damage of telling great founder, Hey, we loved, we loved you when we invested, you know, at a billion, but now it's at 20 billion and we want to sell half our stake while you're trying to raise your next round and by the way, like us selling half is going to return a 10th of our fund. Like is that, is that conversation worth it with that founder, that potential brand damage with the founder?

33:40Is that worth it to return a 10th of your fund? I don't think so. And so like the multi-stirited firms have to shoot for a hundred billion dollar IPOs for the math, just to work on, on their fund. So it just doesn't really make sense for them to at scale, take advantage of secondary. For seed funds, I think it's like paranormal. There's lots of conversations around early stage funds taking 15 or 20 years. Like if you don't have, I just sort of confused. Like if you don't, if you don't have opportunities through the secondary markets or whatever else to get liquidity before 15 or 20 years, like it's not coming in year 18.

34:20because there's no reason why there's certain portfolio companies that are doing great in the first whatever five or even 10 years that you can't find some liquidity and i find the founders don't care founders are selling secondaries too it's like not a big deal yeah i mean for from from a heart perspective like that 15 year number is in totality like we should expect all of our dollars okay okay 15 like we're clearly expecting money before the but even still like you're at like we've crushed the data like your average multi-stage firm you're not getting to a 1x net dpi till year 10 um which is long right but that makes sense to me in the sense that they is much harder for them to sell yes so i think you can actually argue that an earlier stage fund should have even though it's earlier stage obviously it should have liquidity before the multi-stage funds because the early stage funds can sell not you know you might not sell your whole thing or position or whatever but like i i'm surprised that isn't like starting to show in the data for like for whatever top decile um like in some ways liquidity should actually look better for earlier stage firms the big funds like you said can't sell i think it's a new muscle for a lot of these early g like this wasn't a thing up until 2021 right uh like you didn't need to The goal was wait 10 years and the company goes.

35:43I think too, a lot of times, like what we've seen with our managers is like they just lose touch with the founder, right? Like you invested at Seed six, seven, eight years ago and the founder won't even answer your texts anymore. Like you haven't kept up because I mean, you need to sign off. Yeah, that's true. Right? Yeah. But we are seeing it more from our Seed firms to be honest with you. One other thing to add, which I'm just thinking about now is a lot of early stage funds raised opportunity funds.

36:14Miles Dieffenbach: Complicates it. I do, I think so. Like one of the challenges I don't think folks, many folks think through is like, you raise the opportunity fund, it's sort of hard to like be putting a lot more capital in out of the opportunity fund, taking money out in your early stage fund. It's impossible. We've, that's a big, I mean, cause that's a huge conflict of interest, right? I mean, how is it not, right? You're investing net new, but then you're selling out of a fund what if what if i what if i just invested in your opportunity fund what if i just invested in this last fund but you're selling out of your product fund takes a lot of optionality out yeah for management we should end but let's end on one positive note we've talked a lot of shade on the venture business let's end on a more positive note in the sense that um i imagine you will still look for new managers over time you will still invest in venture and um yeah curious what that looks like for you over time why you're still excited to do early stage venture and um and maybe uh maybe a slightly rosier outcome for what this looks like over the next five to ten years if you have yeah i mean we're absolutely still still going to be in i mean there's nowhere else you can go as an asset class that can provide you that fat that right tail optionality exposure, right?

37:35There's nowhere else. And that's what makes it such a hard asset class is how do you find the few that do that? Like going back to what I originally said, I think like true early stage venture capital finding against the grain, non-consensus today ideas and investing behind them before everyone else does. I think there's always gonna be a protective moat against that business because it's unnatural. It's unnatural to me. Like if I'm going to look at this company you're investing in and be like, what in the hell is this? You're investing in Airbnb? You're just like random people are just going to go sleep in another person's house?

38:12Right? Like these are unconventional ideas, right? So like inherently the consensus wall of capital of multisage firms, it isn't in general, right? Maybe a few investors at those firms, but like they're just not going to be able to play there. So maybe good AGMs are like, you walk out and you're like, what the fuck did that? Yes. Yes. You're like, that was great. I don't understand any of it. It's insane. Yes. That was awesome. And the fortunate part is I've only been here for nine, 10 years, but we've had a fantastic team over this time. So we've seen what 20X net funds look like eventually. We've seen it.

38:50We know what we're looking for, right? And it's really just trying to find those generational people that are very performance oriented that we think can pick at a very high level. Right. I mean, that's what it's about. And then like another positive, I've been sure, like no matter what you can say, if it's not the best risk adjusted return, right? Like that's it's a blanket statement, but it is a moat for the United States, right? Like the innovation engine of the United States is like, has to be the most coveted thing that any country in the world would want, right? Like the fact that you can be that okay with like losing money or failing as a founder or failing as a company, like that is why we have Nvidia.

39:34You know, that's why open AI was the first person to, you know, or Google was created the transformer model. Like why we have all of AI today, right? It's, it's miraculous, right? So like, sure, like we might be not getting the best risk you just a dollar, but it's, it is, you know, pushing out, the innovation engine of the world. Miles, thank you so much for doing this with us. We really appreciate, I know, I've been bugging you about it for a while. And thanks for Beezer, as always.

40:03Miles Dieffenbach: Oh, we're just thrilled to have you on, Miles. Thank you for coming and sharing your wisdom. That was fun. Thanks for listening to Origins, the show where we discuss the venture ecosystem through the lens of myself, a GP, and Beezer, an LP. Be sure to tune in next time for a bonus mini-sode where Nick and I debrief on today's conversation with Miles and the latest happenings in the market. You can find that right here in this feed. And while you're there, please rate and review the podcast. It's super helpful for other folks looking for venture insights to find our show. You can also keep an eye out for more by following Nick and I, as well as OpenLP on X and LinkedIn.

40:39Miles Dieffenbach: I'm Beezer Clarkson. And I'm Nick Churls, and we'll be back soon. Thank you for listening.

41:15Thank you. suitable for all investors. Listeners should make their own independent investment decisions. No funds are being discussed on this podcast.