Optimizing fund structure, GP market fit, & more with Screendoor’s Jamie Rhode | Episode 1917

0:00the Coinbase's, the Airbnbs, the Ubers, they created brand new sectors. They created brand new areas of the market. So for us, we need to be willing to roll up our sleeves and find venture managers that have been overlooked in the ecosystem because there's such untapped potential by the networks or the ideas or the founders that they can fund. And that can allow us to break this virtuous cycle and get more capital out to a lot of what I view as the edges or the tails or truly the untapped potential in the ecosystem. This Week in Startups is brought to you by Miro. Working remotely doesn't mean you need to feel disconnected from your team.

0:45Miro is an online whiteboard that brings teams together anytime, anywhere. Go to Miro.com slash startups to sign up for a free account with unlimited team members. HubSpot YouTube Network. Whether you're a marketer, a sales rep, or an entrepreneur, HubSpot has you covered with its tutorials and AI-powered tools. It's all guaranteed to make your workday easier. Check out the links in the description to learn more about HubSpot's AI content writer. And start using HubSpot's tools for free. And Gelt. It's time to take control over your taxes. discover how guilt can help you to manage and optimize your personal and business taxes visit join guilt.com slash twist now all right everybody welcome back to this week in startups excited to have jamie rode on today jamie recently joined screen door for those who don't know screen door is a fund of funds what's a fund of funds as you know if you've listened to this pod before it's a vehicle in which lps give a bunch of money to a group of partners who then invest it in venture funds why would they do this well they may not have the acumen the time or the want to go evaluate hundreds and hundreds of general partners at venture firms to pick a range of them and so it's sort of like outsourcing to somebody who could do a better job for you screen door has a mission to support underrepresented voices in the venture capital space managers often deemed an investable by conventional standards we'll get into that uh and they do so by backing these investors on their first rounds of investment um satya patel uh who was recently on this week startups episode 715 and hunter walk man he was on the show years ago i can't remember the episode um and uh they founded the firm back in 2021 and before joining screen door jamie spent eight years plus as an institutional alligator with a data-driven approach holding her skills at Bloomberg and then Virtus Investment Management welcome to the show Jamie thank you thank you so much for having me excited to be here especially a couple weeks into being at Screen Door yeah so you had done some research I want to start with this on early stage fund managers and getting enough surface area to hit unicorns you and I traded some emails and dms about it because I was like hey wait a second i came to the same conclusion at the same time but when i talk to potential lps unlike yourself they're very confused about what in our industry is derogatorily referred to as spray and pray in other words uh some gp a general partner a venture capitalist at a venture firm making a large number of investments and hoping for the best in our first fund we did 109 names i believe uh don't quote me on it but i think it was 109 and we had four unicorns and so that was like one every 25 and you came to some conclusions about this uh you know large surface area of investing and then we can get into fund structure optimization which is you know fund architecture my current obsession but what did you learn about sort of surface area investing, getting a wide surface area at the seed stage specifically and pre-seed stage.

4:14Absolutely. And I think it all comes down to understanding that early stage venture is parallel driven. And it's the tails or the edges that really drive those returns. And so first off, you have to gain exposure to those edges, those tails. And so from my perspective, you need to be investing in the new. Many of the big winners that created brand new sectors came from those edges or from the tails. And so how do you go about building a portfolio that properly covers those edges, but also understanding that only 2 % of startups become the big winners? So it comes down to really portfolio construction for the LP at a high level, do enough fund managers that give you that proper sampling of the edges of the tails of those first institutional check in while recognizing that 98 % of those investments aren't going to be a venture-like return.

5:13And I could go buy the S &P 500 and get 10 % CAGR. I could go and invest in buyout and get a 14 % CAGR over 12 years. And so to really capture that early stage venture portfolio construction to maximize the alpha. It's investing in GPs that cover the first institutional check that cover the tails and doing enough managers at an LP or allocator level that you have that broad swath of diversification. So mathematically, 98 % of startups don't give you a venture-like return. 2 % of them do. So 2 % times 50 deals, one outlier. 50 deals is my sweet spot yeah you know it's so interesting when i wrote my book i asked a lot of people what do you think the number of investment an angel investor needs to have in order to have a chance no guarantees of hitting an outlier and i asked this to a bunch of angel investors and the lowest number i heard was 10 but most often numbers quoted were 20 and 30 and some people said 40 or 50 and so i think angel investors maybe who i asked were the successful ones so maybe they had of bias to their own experience and they thought yeah 30 is the right number but you're saying 50 based on a little more data-driven approach to this and that speaks well to me that first fund i did is a 5x fund on paperish and it hit four unicorns so okay yeah that means i was double or quadruple the industry average whatever it is you know 3x who knows exactly what the industry is here but you did mention that you need to have startups that don't fit the mold i'm not sure the word you used for that, but that were edge cases?

6:57Yeah, it comes down to, if we look at that emerging manager ecosystem, or if we look at the true funds that are investing in that pre-seed seed or first institutional check, they tend to be emerging managers. I mean, there's still some brand name investors, established firms that absolutely play in that first check-in, but more often than not, they tend to be emerging managers. And if you look at the data, there have been over 4 ,000 emerging managers since 2015. And so for me, when I'm parsing through that, I'm looking for GPs that are bringing new perspectives, new networks, new ideas, new strategies that are really going to capture the edges or the tails of the distribution, the big wins.

7:47And when you think about the companies that have been driving the big wins, it's really around the ones that have created brand new sectors so finding gps that can play in the tails the edges the new is really really important to harnessing the power law yeah and so if you were to think of names like that uber airbnb coinbase come to mind when coinbase and people made that investment fred wilson over flat iron partners i think gary tan did it y combinator did that that was like a really weird idea like a you know mount gox type situation how is that ever going to make money how is that even legal sure it did have those issues how is it even legal came up then you look at airbnb how's that even legal uber how's that even legal so you know if you just look at those three they all face legal issues so maybe that is actually a little bit of a telltale sign is people are trying to stop them legally maybe they're doing something truly disruptive and i think i would put them into the disruptor category um and you know if you think about the wave before that it probably would have been tesla spacex facebook meta would have been that cohort before it and yes tesla did get sued for the dealer network right trying to go direct that got them sued uh i don't know about facebook getting sued they didn't get sued but yeah um tons of controversy around that company as well so is Is that what you mean by the tail and the edges?

9:15And is there a difference between those two terms or just using them, you know, as interchangeably? Yeah. Yeah. And I think it really is when you look at a parallel distribution, you know, it's the small percentage. It's the 2 % of the startups that really drive the return. So when thinking about how to build an emerging manager portfolio to access those tails or the edge of the distribution, the big winners. It's important when you're looking at a GP to really kind of understand what their network is, what their access is, the GP market fit. Is their fund one plus one equals five or is it one plus one equals two?

9:57Because I'm really looking to build a portfolio that's giving me access to those tails, to the disruptive technologies that are going to drive the power law return. Founders always ask me for pitch deck punch-ups. Well, I have some great news. We worked with the team at Miro, that awesome whiteboarding software, to create an amazing pitch deck template for founders, which you can see if you're watching the video. This will help bring your pitch from zero to VC ready. And our Founder University participants love this template. They use it all the time. So head to Miro.com slash Miroverse and search for Pitch Deck to check it out.

10:36If your team is hybrid or fully remote, Miro is incredibly useful. It's like an old school in-person whiteboarding session, but distributed and asynchronous. Miro lets you brainstorm ideas and collaborate on projects from anywhere in the world. When you think Miro, think zero to one, but faster. And Miro is so much more than a simple digital whiteboard. Your team can collaborate on planning, research, design, and feedback cycles. And remember, faster inputs equals faster outcomes and product velocity is how startups win so here's your call to action to access our new miroverse template and thousands of others sign up today for a free miro account at miro.com slash startups that's miro.com slash startups miro.com slash startups to sign up for free so when you say one plus one equals five you're referring to leverage so let's maybe talk a little bit about what can give a general partner at a venture firm and what can give a venture firm leverage.

11:32You mentioned a couple of items there. You mentioned deal flow. I think you sort of talked a little bit about decision making or unique access through networks. When evaluating a firm that you think has that kind of leverage, that one plus one equals five, give me the top three things you're looking for in order. Yeah. And I would say a simplistic word that we use at Screen Door is GP market fit. I mean, we all talk about founder market fit when you're not talking to venture capitalists, but at Screen Door, it's all about GP market fit. So does their expertise align with their go forward strategy?

12:10Is there a path to building an enduring firm? And by that, I mean, long term vision, moat, competitive advantage. And then is there a clear understanding and self awareness of what it takes to go from investor to a fund manager because those are two totally different things and then i know you said three but it's me so i have to say portfolio construction that's that's like a number one for me yeah and i too am obsessed with portfolio construction and so let's double click on that since we're both into it um there has been one philosophy concentration in winners i just had brian singerman on the program you probably saw the episode where he talked a bit about backing up you know 10 15 of a funds dollars into one just outlier bet they did airbnb palantir and spacex as their three um in the history of the firm and then there's spray and pray ron conway you know hit 200 you know 100 200 names in a fund uh which was the model we were taught when i was coming up um and then you know those are the two main models and there's always the classic four or five partners putting three or four hundred million to work in 30 companies and then hoping for one outlier maybe a second if they get lucky so maybe talk about what you see in terms of construction and what you think optimal construction is in 2024 yeah i think that there's a lot of different ways to slice the venture pie and make money but at the end of the day, going back to what I said earlier, if you want to level set it, industry averages, 2 % of startups become an outlier, 98 % don't become an outlier.

14:01So when you're an emerging manager and you have limited track record, I always lean more towards the 50 deals. You want to deploy as much of that capitalist as you can into that first institutional check-in. It's the cheapest entry point possible. Any dollars that you use for follow-on capital into series A, B, and C, your dollar cost averaging down your multiple. So it comes down to simplistically the math piece and your fund size. Because I really think, and you've had other guests talk about this, your fund size is your strategy. And so I think it's really important to make sure based off your own network, your own experience, your own track record, that you're doing enough deals in a fund to have a high probability of capturing a winner.

14:55Because you can own 20 % of a company, but if it's not a venture-like exit, I don't care. I can go as an allocator, consider other opportunities that can get me that 14 % type return that you can see in buyout. we're here for venture capital. And so it's really important for GPs to do enough deals in a fund to have a high probability of capturing a winner and then deploy enough capital in that first check in to make sure they're grabbing as much ownership as possible in that cheapest entry point. Before we go back and talk about reserves and follow one strategy and doubling down into the winners.

15:36Yeah. And that really is why I think people have become attracted to seed stage. the seed stage just historically versus series a and series b maybe you just educate the audience as to the return profile multiple on cash that people see in those different uh verticals or different stages rather definitely and it's it's so interesting because in this type of market environment i think as a venture fund manager if you're investing in a serial entrepreneur or repeat successful founder or anything that touches AI, the first entry point price is way higher. I mean, like 30 million post money valuation versus first time entrepreneur that's doing probably some boring company, that entry point might be$10 million post.

16:28But when I think about the return profiles of early stage venture versus late stage venture, late stage venture returns look a lot like buyout and growth equity. It's why I mentioned the private equity returns of around a 14 % return. But when you're at the early stage, I looked at some Cambridge data from about a year or so ago that talked about venture capital producing around a 28 % CAGR over the past 25 years. So if we want to level set that into multiples, if you can compound your money at 28 % for 12 years, that's a 19x. Now, most allocators, endowments, family offices, they have the capital in the ground for long periods of time.

17:17So if we can compound at 28 % for 25 years, that's almost a 500x versus 14 % compounding at 25 years, that's a 26x. So if you can get the average seed stage, just anything average, it's a pretty amazing business. But the issue is, and the reason more people don't go into it, is why? Why do more people not operate on the seed stage? Why don't more GPs choose to do that? Why do they drift to Series A, Series B, Series C, doing less deals, larger deals? what is the dynamic if you if you've identified one you may not have of what is the gp psychology i think it's really hard to stay grounded in seed stage investing because you have to keep your fund size small so when i look at uh the managers that i've backed historically and at screen door the average fund size is around 40 million the average fund size of um emerging managers today is 43 million, you're playing purely off carry, which when I look at historical data, it takes about eight to nine years in early stage venture to get to a DPI of one.

18:36So you can have great paper markups, but that carry is not kicking in until probably somewhere around year 10 plus. So it's a marshmallow test is what you're saying. Would you like three marshmallows in nine years or would you like a marshmallow right now and that's you know and i it's so interesting that you frame it the way you did because that's exactly what i've experienced and i had the opportunity to join a later state two different later stage funds wanted to absorb our firm into theirs because we have good deal flow etc and you know the pitch to me was hey listen dummy you could put you know 25 million into a series d and in five years 10 exit or five exit who knows and you know hey you could get start getting paid quicker i've already made some money already so i didn't need to i can go for the long game but it is hard because you don't have the management fees of those larger funds so you don't get to live the cushy lifestyle that you thought you would so you're taking a vow of jedi monk deferment of rewards being in the seed stage aren't you exactly you're playing the long compounding game and that compounding it doesn't really show up in the multiple until the very end of your fun life so it's a long game and that can be hard and it's why i've seen a lot of fun managers have their fun one and two be more pre-seed seed a little more diversified and then around fun three they start to shift and go bigger and build greater firms and raise the management fee.

20:15And it's an evolution. And it's really, really why one of the key questions we ask at ScreenDoor is, can you build an enduring firm? And are you focused on precedency? What is that long-term firm vision for? And because as LPs, we're not just backing you ideally for one fund. We want to back you for multiple funds. Yeah, our first fund was 10, second 11. So basically the same. and then the third was 44 million the average you almost the exact average you said 43 i think and then this fund you know i planned for between 50 and 100 and i think we'll land somewhere right there and i specifically had some lps who were like hey if you were going 150 you know our minimum check size is 25 so this is the other pernicious thing about trying to stay small small is the big lps don't want you to stay small they want you to put more money to work and it's you know i've had to say you know sorry no because i'm five million dollars of this fourth fund essentially um you know my money so like i'm all in on this like uh and i can't make it that big if you make it bigger then i've got to up the average check size and we're writing 25k 125k and 500k checks you can't drown to five million dollar company in three million dollars they just the founders won't take it so yeah it's it's conflicting market dynamics and you really need to be disciplined if you want to make the seed stage work you also have to want to work with those style of companies and i think my observation i can say this you can't just you know a lot of my peers are lazy and they just look at how hard i work and they're like you're dumb you work too hard just do one investment every you know six months as opposed to we do two a week we do 100 a year you know when you have an incubator it's slightly different obviously right but you know it's it's a lot more work it is it is and i think that can be really challenging as an lp or an allocator when you're underwriting a gp to kind of truly understand what their value add is and kind of what their key strategy is in the market.

22:29It's also helpful. Now I have the resources in this GP advisor network at Screen Door to underwrite emerging managers, not only as an LP, but I tap into my GP advisor network and ask Homebrew or ask Precursor or ask Cowboy Ventures to come and help me underwrite this GP to kind of truly understand what their vision is. Do they have the capabilities to build an enduring firm, stay true to the strategy that they're looking to deploy and have the actual expertise to be the best manager possible for the type of strategy that they're looking to invest. All right, listen, I am addicted to productivity and efficiency, because time that's the most valuable resource we all have.

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24:16It's all guaranteed to make your workday easier, check out the links in the description to learn more about HubSpot's AI content writer and start using HubSpot tools for free. That's right, it's the HubSpot YouTube network. How many managers are you going to invest in as part of this process? And then how do you get from 4 ,000 down to that number? Yeah, I think that the market is taking care of the 4 ,000 down to a small number for me. I mean, I think that there was some pitch book stack that came out that of the 667 first-time venture managers that closed between 2019 and 2021, over 247 of them won't be able to raise a second fund.

25:02Sounds great. About half. Yeah. Exactly. And I think the market's taking care of it for us. So I really think it's important to be looking for venture managers that are really bringing the new perspectives, the new strategies that have been overlooked in the ecosystem, and then just invest in the best athlete possible to get my broad diversification of those edges or those tails. And so for us, with me joining and my partner Lane joining, it's really expanding the mandate to invest in the best emerging managers that we see in the ecosystem. And it started as more of a DEI fund of funds, if I understand correctly and remember correctly.

25:48But I hear you communicating very clearly, you're going after the best athletes. so is that a little bit of a change in strategy or just very precise language here because dei has gotten a really uh bad name or you know a lot of um negativity around dei right now in the marketplace how do you go about the original mandate versus the reality of the game on the field today when it comes to dei uh and the contentiousness about it yeah i think it's such a challenging part of the market to navigate. But Screen Door was started in 2021 by leading early stage venture capitalists. You mentioned earlier, you had Satya and Hunter on.

26:32And it really was started in more of this experimental idea of, you know, there's a lot of overlooked managers in the ecosystem that needed backing. And from my prior experience being very, very data-driven, and that helped remove a lot of the behavioral biases of investing, especially on the private market side. It had led to a highly diverse portfolio. I do think in venture, you can't be so restrictive and selective. That tends to lead to missing out on the big winners. It's expanding the mandate to really look for managers that have been overlooked in the ecosystem, uh, managers that bring that new perspective, new network, new ideas, new strategies.

27:19And it's up to the GP to come to us as screen door and tell us why you have been overlooked and what new edge you're bringing to the market. So I could be like, Hey, I'm a white guy from Brooklyn. Didn't go to Stanford. I'm overlooked. You would consider it. You could be a white guy from Brooklyn and you could tell me that you've had one tough operating living in the bronx and i'm willing to listen absolutely yeah it's a it's an interesting world we live in right now you know it's um i i do agree with the premise and i had this talk with arlen hamilton a couple of times on this podcast where you know she was had a very specific mandate she wanted a female underrepresented founders awesome and i said well what if you meet you know like an amazing you know i don't know the founders of airbnb or coinbase both happen to be white males like the ceos would you not invest in him she said yeah no i wouldn't invest in him i'm like that's a mistake because if you're meeting with all these founders anyway and you happen to find a diamond in the rough you you should grab it oh there's plenty of diamonds in the rough of the other ones and i was like yeah that's not how this works you might happen to stumble upon a giant diamond and it may not fill the specific narrow mandate that you set for yourself and then you're doing yourself and your lp's a disservice because you're not going to be able to raise the next fund because you missed out on a 5 000 x or a 1 000 x once in a career opportunity yeah um yeah i think just the the key piece too is that a lot of those companies the coinbases the airbnbs the ubers yeah they created brand new sectors they created brand new areas of the market.

29:00So for us, we need to be willing to roll up our sleeves and find venture managers that have been overlooked in the ecosystem because there's such untapped potential by the networks or the ideas or the founders that they can fund. And that can allow us to break this virtuous cycle and get more capital out to a lot of what I view as the edges or the tails or truly the untapped potential in the ecosystem yeah and this is where the gross margins of the business and the nature of the businesses matter you know one of the things we saw over and over again uh was some of the businesses that communities that weren't as funded were aligning with were lower gross margin businesses cpg services type businesses non-traditional vc businesses and so we need software businesses marketplaces those have high gross margin and this was a lot of the tension in the marketplace you know over the past decade i think it's changed actually over time where we're seeing more you know underrepresented founders as a as a broad catch-all pursuing software marketplace fintech high tech high margin gross margin businesses and that was one of the problems 10 years ago is you know if you were talking to female founders maybe half of them were pursuing something like cpg and that just was a non-starter for a while there did you see that in the and how do you think about the sectors that the gps are going after yeah you know i attended up front a couple years ago and i can't remember who spoke but it was a founder of a highly successful company and he recognized that um only 20 of his customer base let's call it was a typical white male and the other 80 % who had a lot more of a diverse background.

30:52And he recognized that his C-suite needed to match that of the customer base to truly serve that customer. And so that really resonated with me where I think for me, it's up to the GP to decide based off their networks where they should be deploying the capital. But overall, I think to build a highly diversified and a highly successful portfolio, it's on me as an allocator or other LPs listening to this to really build out a portfolio that covers all the sectors that exist today, but all the sectors that exist tomorrow. So going back to 2012, there was no blockchain focused funds. So if you only did sector focused funds and you make very specific sector bets, you likely missed out on Coinbase because there really was no Coinbase before then.

31:46Yeah. Or you could miss out on Tesla and SpaceX because they were doing hardware intensive things. Deep tech, that was like, how is that possible to do a car company, right? Like people had lobbied Elon to make it a software company and just a technology company that sold components to ford and mercedes and in fact if you go back and you look mercedes and toyota did make an investment in tesla i think it was a series b or c and it was under the concept of sharing technology etc and the early model s's had i think the drivetrain and the stick shift looked oddly familiar to the mercedes and it was because they used the mercedes um you know drive shift or whatever are you grinding hard to grow your business i bet you are.

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34:12I think every GP that we're looking at, we're underwriting back a 3x net net is what we're really looking for. And so when it comes to raising your first institutional fund, I think asking for premium carry personally is aggressive. Unless you have a track record where I've been seeing a lot of people looking to spin out from established firms. And so if you have a track record to prove out the premium carry, can get comfortable with that, especially if the premium carry shows up around a 5x. If there's a hurdle involved in there, the discussion around that becomes a lot easier. But I think around the space where you have to prove that you can pick well and you can prove that you're a successful investor, it's really challenging to add hefty fees or hefty carry.

35:06In terms of management fees, I look at what the management fee is over the life of the fund. So maybe if it starts at two and a half or three, but it drops down and turns into an average of 1.75 over fund life, totally comfortable with that. But when people throw up this premium carry based off of some short track record, I'm not exactly sure that they recognize that for early stage venture, it can take seven to nine years before a fund settles in their ultimate quartile ranking. And most of the time, I think the stats around 90 % of the funds shift three or four quartiles through their fund life.

35:50So when you're adding that premium carry to the fund, think about the track record and if that track record really has settled out because it takes such a long time so let's talk about the percentage of a fund that you're willing or targeting so somebody said 43 million was like the average let's just say 40 million dollar fund how much would you ideally want to be and what's the minimum in the max that you would be feel comfortable with being an LP and a$40 million emerging managers fund? Yeah, so it's green door where minimum 10 % of fund size, we want to be a cataclysmic check. So we want to go in early and really sit there and underwrite you and help you build your LP base.

36:42We also have 14 GP advisors. And so every GP that we back gets paired with a GP advisor. And I would say for me, this is a huge value add. So those two pieces are really, really crucial to the underwriting process and even post-investment process. Also, we partner up with endowments and foundations, even family offices, and they view us as an extension to their team. So we are not only minimum 10 % of your fund, but we also have the network and the access with LPs that are looking to double down on some of our fund managers or back you when you move up and out of the core emergent manager space.

37:29Have you announced how large your fund to fund is and which fund to fund you're on and you know how many names you'll have in it on average yeah i would say you're asking me this question three weeks into the new job love it um just ballpark yeah so people can get an idea yeah yeah so uh we would say that we're expanding the mandate to not only back first institutional funds which is what we've done historically expanding that mandate to invest beyond just first institutional check, especially with the addition of Johnson and I, you know, all of us are all hands on deck. Lane has the experience of understanding truly what established successful fund looks like.

38:13She also comes from the world of Texas teachers and Goldman and constantly reminds me about what it's like to write large checks where I came from family office world and having more entrepreneurial spirit to writing the smaller checks um and so for us we're really looking to build out a portfolio that can cover um a significant portion of emerging managers amazing uh and so qualitatively gps are unique individuals in the world in my experience what do you think are the qualities that make them perform at a high level consistently what do think are the qualities that maybe lead to hubris and poor returns in your experience yeah i would say starting with the red flags it's capitalizing on the theme of the moment going from web 3 to ai to whatever's hot um and i would also say this this one kind of flows into the good and the bad As an LP, I underwrite people who underwrite people.

39:20So this is really a relationship game here. And when GPs become very transactional, it's a huge red flag for me because we're entering a marriage. One fund will likely be 15 years. And if we back you again, and again, this starts to extend out. So that's a really important piece for me is the relationship-centric part of the underwriting process because at the end of the day at pre-seed and seed you're really talking to people underwriting people um and then the other piece is not understanding portfolio construction i mean that's a huge part of setting yourself up for success at the early stage and if you just say well i looked at some of the the best firms and i saw they did it this way so i figured i would just do it this way sometimes i just want to say did you look at all the firms that failed and did your portfolio construction now you tell me jamie not where were you 12 years ago i'm gonna use your help 10 years ago no i mean when i came into the business it was like set up a 10 million dollar fund make 100 investments 100k each and hope for the best which is what we did then we look back on it and this was the weakest part of my game you nailed it we had four unicorns in that first superhuman which was the second time i'd invested in raul we knew it was a rocket ship calm we knew it was a rocket ship the stats showed it very clearly um robin hood we knew it was a rocket ship again the stats showed it clearly and then density density was unclear because they were building a hardware density.io they're building a hardware product that allowed you to do people counting and it was taking a long time to build this hardware like hardware companies uh you know sometimes do so three out of the four it was definitively clear that they were going on to unicorn decocorn status something in in that range we would have easily put a second bet into any of all three of them and we have the emails where i passed on doing it because we were one and done constructing my fourth five and then we didn't so we didn't have the ownership percentage we owned i think two percent of superhuman it was like four percent went down to two we didn't take our prorata we could have or we took minimal yeah then robin hood well under one percent ownership density five percent ownership and calm five percent ownership with our syndicate so we started to realize ownership percentage mattered now we regularly get to 10 to 15 ownership in our winners and we have a definitive strategy like a because you need to build process that's what i've learned about a firm you need to have a process and then you need to look at your decision making process and you have to constantly refine it so every year at our offsite we look at our anti-portfolio pro ratas we passed on that we shouldn't have you know and then we came up with an architecture this year or last late last year earlier this year on when we doubled down and when we double down a second time so we try to do two double downs likely winners definitive winners we made that architecture we implemented it man it's been working well and getting that ownership percentage up but i when i architected this fund i said 50 of the dollars into the top 5 of the fund and then 50 into the accelerator companies the programs and the directs which roughly will translate into maybe 200 names and then 10 names so if it winds up being a 70 million dollar fund let's say 35 million into the first 200 35 million into 10 names 15 names maybe 20 who knows we'll see you know and we think that this is the first time any fund has ever any seed stage fund has done that aggressive of a reserves and so yeah this is the architecture i think could crack the code on early stage i don't we'll see you know because it's taken primarily from my experience being an lp and the whatsapp fund that did four investments and then watching brian singerman but i think this will be the the new strategy that i think a lot of people are going to copy is can you get i don't know 10 of your fund into the best name five percent into the second best name and then 35 percent into the other you know 10 best names and then have the first half of the fund going to that what do you think of that strategy you and i talked about it offline but i think i think we did at some point um what do you think of that strategy too aggressive percent for reserves uh you can be permission to be candid you know so i'm gonna close the fund either way yeah be candid you think it's too aggressive you think i'm crazy you think it's crazy like a fox you think it's an experiment worth watching i i totally think it's an experiment worth watching because i think for me you check the box of you're doing enough deals up front that you have a high probability of being in the winner i think um ownership absolutely matters but it only matters if you're in a winner and i think the challenge is, and this can also come from experience as an investor, but the challenge is when you have to make that follow-on decision, is running the probability math to understand the opportunity cost of the dollar?

44:27Is the dollar being deployed in that follow-on going to be as just as good of return as if that dollar is deployed in another startup in the portfolio? and it is the GP's responsibility to do the math and do that decision process exercise and make the choice and make the investment. If you tell me that you ran an analysis and said, it's better to make the follow-on here, I have insider information, I have a great idea that this company is going to be huge, go for it. But that's a choice that you're going to have to live with. And then when you run your anti-portfolio and you passed on one extra deal, was that one extra year airbnb or was that follow-on dollar airbnb yeah and this is the absolute terror that gps have to live with if you think about our accelerator 125k just like y combinator or texars for seven percent okay let's say we decide we're going to put 1.25 million into a company at a 25 million dollar post we think it's one of our breakouts and we want to own another two and a half percent of it right or no five percent of it 1.25 right 2.5 would be 10 1.25 roughly five percent okay we want to make that five percent bet well we could have made 10 more accelerator bets so is which is the better use of the capital and i can tell you one of the leaks in the game too was when we were starting out and we had a small team we would have people come and say hey we're raising our round we got a bridge we're doing a bridge can you just put 50k into this 500k bridge so we have your signaling and you know founders are very convincing we got a great relationship we want to be supportive of the founder it's like okay you know what it's only 50k of a 10 million dollar fund it's only 50k of a 44 million dollar fund and what i've had to reprogram the team and myself is explaining to the founders we only have reserved capital for the top 5 % of our portfolio we've defined the top 5 % of the portfolio here's where you are so here's you know 10 buckets of you know uh not court well here i could give you the quartiles but here's the quartiles you're in the second third fourth quartile in terms of performance not only are you not in the top five percent you're not even the first quartile so we can't even have the discussion of us doing follow-up funding we're a seed fund you you have to go make your way in the world and so we stopped doing those 25 50 100 k feel good support the founder bets because they were screwing up exactly what you're saying oh man we could have you know i look back on funds one two and three and if there were 10 of those bets that's 30 more bets maybe i get another superhuman in there and statistically i would have so god damn it you know like and this is what being a great fund managers is admitting when you made mistakes and then changing your game and i can tell you man i talked to a lot of other gps they do a lot of these feel good 50k 150k 250k follow-ons just be supportive and you got to be i hate to say it i don't want to say cutthroat but you have to be disciplined and you have the problem is communicating it to founders that's the hard part absolutely and i think that's something that at Screen Door, we have the capability to do meeting these GPs so early on in the process that we can just be like, listen, this is your fun.

47:49This is what you're thinking, but let's level set it from the beginning and say, when you make these follow-on decisions, this is my strategy. This is how I'm going to execute it. Don't be afraid to be, using your words, cut, bro. Be clear and communicative from day one. And then you choosing not to follow on with 100K is not actually not a negative signal in the market. It's just your strategy. And they took your capital day one and they know that. Yeah. Then you just have to communicate it to them from the get go. All right, listen, this has been amazing. Continue your success. If people want to reach out and they want to get evaluated, potentially for being part of your fund of funds, what's the best process?