Minisode: Knowing What Great Looks Like & Venture's AI Macro Risk

0:00Miles Dieffenbach: I really appreciate Miles as a speaker and as a tweeter because he's very good at the synthesis and explaining very complicated concepts pretty directly. He mentioned having a 20x fund as part of their portfolio and then knowing what great looks like. And I think as a picker, I'm assuming there is a very similar analogy as far as entrepreneurs and also for LPs. If you've never been exposed to a great fund and firm, it's harder to understand what they look like. And they don't all look the same, which is awesome.

0:41Miles Dieffenbach: This podcast is for informational purposes only and does not constitute investment advice. Please see full disclosures in the show notes and in the end of this episode. Welcome back to Origins, our Minnesota edition. This is 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. And I'm Beezer Clarkson, your LP co-host, Managing Director at LGT Capital Partners. We just had a great conversation with Myles Dieffenbach, Managing Director of Investments at Carnegie Mellon University.

1:16Miles Dieffenbach: And this mini-sode is Nick and I digging into the topics we covered with him. Nick, do you want to kick us off with what's the first thing that popped into your head when you thought that was a really cool episode? Because I think it was a pretty cool episode. It was good. I mean, he seems like a sober mind. I think maybe that was the first. We talked about this actually with Nicholas from Trinity about, what was it called? Skeptical optimists or something like that. Is that right? Is that what we called it? I think that sounds familiar. So he sounds like one of them. You know, maybe that's true for a lot of LPs in venture funds, but he's sort of like, my takeaway was like, yeah, a lot of this doesn't totally work, but we can always find the ones that do.

2:06Which, by the way, is what a lot of managers say. You know, yeah, the market's crazy, doesn't totally make sense, but like, we'll figure it out. So, I mean, I guess maybe if I were to tease that out, the emphasis would be on picking above all else, which is also probably true for venture managers. Like, you just need to be really good at picking. There's so many options now. There's a million companies getting started. There's a million venture firms, and you just need to pick right.

2:40Miles Dieffenbach: Yes. Whereas, like, 10, 15, 20 years ago, it was like, I need access to venture and there's 20 firms and whatever. They're all similar. Whereas now there's so many different flavors and so many different options and different sectors. And so you just need to be really, really smart at picking the right folks. I think for the kind of portfolio he's constructing, yes. It has to drive returns given the size and the endowment. and given their tenure and their access, I would assume they can be a lot more selective than a lot of other LPs that don't enjoy that privilege, right? Or to his point, he's not trying to write a$400 million check.

3:28Miles Dieffenbach: So I think he's a great example of what a very savvy, smart, thoughtful endowment LP looks like. And I love the fact that he came from a very non-traditional background. And I'm just going to continue to say this because my son's in college and there's just a lot of like, here's the path. You need to be an investment banker. Here's the six things that you need to do. And then you look at people like Miles and you're like, yeah, I mean, no, you can. I did. Right. I had a stereotypical path. But then, you know, Miles, Nick, like other people have different paths and it all works out. And maybe that's part of why it works in venture too.

4:05Miles Dieffenbach: Yeah. Yeah. The other thing that maybe stuck with me was just, um, like how deeply correlated all these markets are to the AI trade. Um, and like the biggest public names are both the suppliers and also the investors and the biggest private names. And, well, maybe also his, like, his concept that like, or at least thought experiment, Is there a world in which public markets shit the bed and like private still somehow magically continues to do well? I think his conclusion is no. I think that I would agree with that. But just how closely these markets are intertwined now. And how is that as an endowment?

4:54I guess you don't have this same challenge, Beezer, but as an endowment, like just how across every single asset class they're now like massively exposed to AI. And I assume that's true for every endowment.

5:06Miles Dieffenbach: Yeah, I mean, the part that gives me concern as just as a human is that this is the world that we all live in, right? That right now, all of the macro is just very interrelated into these things. And if the stock market goes down, I know everyone in the US does not have exposure to the stock market, but it's gonna have a lot of knock-on effects in other aspects because it's coming from energy and it's very core infrastructure. So that's a little bit terrifying. And it, yes. But so yes, a little scary from a macro shock standpoint, but. Yeah, like historically in venture, I feel like the canned response from most early stage folks is like, I'm not a macro person, you know, whatever.

5:53Like, do you think that matters maybe in a different way now?

5:56Miles Dieffenbach: I think so. I mean, you and I have had this conversation. I remember when the internet went down, right? When no one believed the internet was going to work in 2001 and everyone I knew in tech, including me, in venture land got laid off. And the rest of the world was like, don't care. We're good. And I don't think that is true if the data centers and the credit, because it's at the bond level in the market. And bonds are really, you can explain bonds better than I'm going to, given your past experience, but that is an integral U.S. economy thing. And so everyone's going to feel it in some way, even if they're not necessarily working anywhere close to a startup, right?

6:38Yeah, and it's, I mean, the sheer size of the buildout blows the mind many, many trillions of dollars. I mean, that's real. You know, this is not like cottage industry. And then you also just look at it like it's basically responsible for all the GDP growth without AI basically be flat. So, I mean, this has a blip or, you know, goes through a rough patch at some point. It has, I think, real economic effects.

7:06Miles Dieffenbach: Yeah, I think it's sort of global recession TARP type issue, right? Hopefully not Great Depression. But I think it's at that kind of level, which makes me really hope that all these wonderful bright minds working at it will be like, no, no, we're going to figure out how not to do that. maybe things slow down, there's digestion, there's some of the innovation you're seeing, how we can manage costs differently. Because that's like the beautiful world where, didn't Miles say we're all going to be super rich if something happens, right? Remember his comment? He says if it keeps going and the outcomes are tens of trillions and GDP growth is 8%, the stock market crushes it, then yeah, we'll be all fine.

7:44And the United States will be able to afford its$40 trillion debt. Oh, yes, that'd be good too. That might actually be the only way out for the United States. So they've got to figure that out. Takeaways for you?

7:59Miles Dieffenbach: I really appreciate Miles as a speaker and as a tweeter because he's very good at the synthesis and explaining, right? Very complicated concepts pretty directly. And one of the things he said, which is very simple, but I actually think very few people get to see it is, and you've seen it in your career. He didn't say it this way, but he mentioned having a 20x fund as part of their portfolio and then knowing what great looks like. And I think as a picker, I'm assuming there is a very similar analogy as far as entrepreneurs and also for LPs. If you've never been exposed to a great fund firm, it's harder to understand what they look like.

8:40Miles Dieffenbach: And they don't all look the same, which is awesome. Same thing with entrepreneurs. but you sort of, once he has that, I think it's part of what makes them a good LP is that they know what it looks like. And so you can say no to a lot of things that don't have what that looks like. And I failed to ask him how early they go into funds, but I think they go in from a vintage cycle pretty early on is my guess. But I could, only because he's not doing multi-stage funds. So he must be, there's not that many ones that are not multi-stage. So my guess is they refresh and do that, but I could be guessing wrong.

9:11When's the first time you saw a great? You, Nick. Stop it.

9:19Miles Dieffenbach: I do remember sitting in on a USV LPAC and thinking, wow, these minds are really extraordinary. And the consciousness of not just how one is thinking about the technology they're investing in, but how are they thinking of what they want to be as a firm and all that. And there was just a real deliberateness as well as really fun watching people ideate. Right. And then Unisquart talks about this a lot. They are a conversation. And so when you experience that as a conversation, I don't think that's a model every fund or firm should or should or can copy. But being in the midst of it, for me, it was very much like, oh, this is I see what makes you special.

10:00Miles Dieffenbach: Because you kind of get to swim in the water a little bit. What about you as an entrepreneur? I've seen some of these USB meetings. And the other thing that I think has rang true is with that partnership historically is also just seeing them, they like enjoy each other, they laugh together, you know? And not true for every partnership and firm. So that's also special to see. I maybe would take it from like a slightly, like, my first experiences were great, were more like product experiences. So like seeing the founder of Tumblr think through what that product should be and represent and feel like.

10:44Or one of the founders of Venmo worked at Betaworks many, many years ago and seeing him ideate and think through like early versions of the first product of Venmo. So my experiences, early experiences of, And this was, you know, before they were big things. Just seeing like the level of product detail, product care, care for the customer or the user. Those two examples were definitely like a level of depth that I had not experienced before, which obviously I think is a decent leading indicator of success. So those are probably my earliest memories. Venture? Um... She'll never listen to this, so I'll...

11:34I'll help her out. And many folks might not know her, but Shanna Fisher runs a small fund called Third Kind that I met earlier in my investing career. And, um... hard to describe what she does, but just insane... level of feel for talent. and a fearlessness that for me early in my career was a really good example of what you could do.

12:07Miles Dieffenbach: You know, I called her for a reference on you way back in the very, very beginning. And you know what she said about you? She said that you think independently, and for her, most people don't, and that really stood out for you. I can't remember exactly how she phrased it, but the paraphrasing in my head was, independent thinker that asks his own questions and things for herself and given to your point she's an extraordinary people eq and you were sort of singular for her and i thought that was i thought i think yeah it was really interesting they both experienced each other in a really similar way that's very kind yeah she taught me a lot of good lessons when i needed some mentorship trip.

12:48So grateful. She's good.

12:50Miles Dieffenbach: Can I ask you, I want to ask you one last question. Out of curiosity, and this is, you can see it's very top of mind for me because I asked Miles the same thing. What resonated as great pre AI, do you still feel some of the same things and maybe product looks different? Is it similar resonance when you see an entrepreneur in the digitally native AI world? Because my, my experience, the world is changing and like how much of what we learned in the past is applicable today in multitudes of forms. And I'm just wondering for you from an entrepreneur standpoint, does the past picking, whatever it was when you're like, aha, is it still true or are you learning new ahas?

13:28I think on the people side, it's the same. In terms of the people analysis, and it's some of the things we talked about on the episode. You know, is this person on a missionary or a mercenary? um, do they have the level of communication leadership to bring people along for the ride? Is there something about them that sees something really unique in a market or a product based on their life experience? I think all those, those are the same. And I think that's true for almost every category, cycle, et cetera, the people analysis. Perhaps one difference from a technical perspective now is a lot of the like founding teams or early teams are like researchers, like academics.

14:23And in many cases, multidisciplinary. We saw it. We did actually see this in crypto, in the crypto cycle, like a lot of academics with like cryptography and other. related skills going into crypto. And so you're definitely seeing that in AI now. So maybe that's not new, but it's a different type of skill set and educational experience. Like PhDs are valued in a new way, I think. And obviously, like, there's tons of tons. I mean, this is good and bad. I mean, academics, we all know the pros and cons of spending your life as an academic and going into startups.

15:09But, yeah, there's a lot of folks funding folks out of academia. So, and then I think the other thing that you could say about the market today is just a lot of really, really young founders again. Which you saw in, like, the Mark Zuckerberg era with, like, early social.

15:28And you're seeing that again now for sure. And then there's also, like, as you know, venture firms and funds that only fund like crazy young people. So also the capital, the capital ecosystem, I think that around that shape of founder is also way, way different than it used to be.

15:45Miles Dieffenbach: Yep. We're at that stage of the cycle. I mean, I actually funny enough. I think now, now it's like oddly contrarian to fund like an older founder, you know, like, I think in some ways it's probably harder for like a 45 year old to raise capital than an 18 year old. I can see that. Which is insane. Or maybe not. All right, well, let's end there. Thank you so much, as always, Beezer. And I always appreciate this time together. Of course. And let me know when your children need to be funded because apparently they're going to be the next generation now. right if we're getting into toddlers i don't think they're ever getting jobs i feel you i don't think there's gonna be any work left thanks for listening to the origins minisode the show where we discuss the venture ecosystem through the lens of myself a gp and and lp keep an eye out for more by following nick and i as well as open lp on x and linkedin I'm Beezer Clarkson and I'm Nick Turles and we'll be back soon thanks for listening

17:08Beezer Clarkson: Opinions expressed by participants are their own and do not reflect the views of LGT Capital Partners Asylum Ventures or their affiliates The content does not take into account your specific investment objectives financial situation or needs and is not intended as a recommendation an offer solicitation of an offer public advertisement or recommendation to buy or sell any investment or other specific product Information is based on sources believed to be reliable but no warranty is given as to accuracy or completeness, and it should not be relied upon. Alternative investments are speculative, involve complex instruments, and carry a high degree of risk.

17:33Beezer Clarkson: Investments and strategies discussed may fluctuate in value and may not be suitable for all investors. Listeners should make their own independent investment decisions. No funds are being discussed on this podcast.