1/ From a discussion with an LP (both of us heavily in agreement for this): Time allocation is more important than portfolio allocation. Ownership is a forward-looking proxy for how much mindshare you’ll get with founders. But sometimes (potentially oftentimes) smaller checks are way more valuable than larger checks, but unfortunately, have less political sway in in the organization/board, if at all. But also check size, depending on an individual’s AUM/net worth, is highly correlated with time spent.
Time spent isn’t the end all, be all. But it does increase the surface area for luck to stick. For you to be there when shit happens. When a founder most needs you, and will call you first before anyone else. Naturally, assuming you’re helpful then, will help you earn additional allocation and favor over time with a founder. Deal flow gets better in the future. References become stronger. More LPs want to co-invest with you. More impressive founders want you on their cap table, if not board.
All that to say, unlike portfolio allocation models, where across funds, the pie can grow, time allocation pies never grow. Aka, you, as everyone else, only have 24 hours per day, 7 days a week. 365 a year. So how much time do you spend on life outside of work? How much time for fundraising? How much time for investing? How much time for each of your underlying companies? How much time do you spend on hiring/training your team? And so on.
2/ From an LP: It almost always makes sense to hire a smart, well-connected person internally to run privates than invest in a fund-of-funds, if you can do it. Capital, responsibility, needs in life dependent.
3/ From Yohei Nakajima on shared discovery paradox: TLDR if you don’t read the article: In a game where there is one outlier outcome and X number of duds, for the chance at least one player finds the outlier/jackpot:
coordination given shared information > asymmetric information kept private > random guessing > info sharing without coordination
Yes, he was talking more about game theory with respect to multi-agent systems, but it holds just as much in venture/LP investing. Based on probabilistic outcomes, the worst outcome is when investors trade notes to better find the outlier, but the result is actually that everyone ends up reaching the same conclusion—for better or worse. And collectively, you have less of a chance for at least one individual to find the outlier than if everyone just randomly guessed.
But also, interestingly enough, both are still worse than if each investor kept their information to themselves to make an investment decision.
I still haven’t fully come to terms or decided which way I fall, but it’s an interesting thought experiment. That if we believe there are no other confounding variables, unless we turn into a socialist society (or realistically every allocator has carry in every other allocator’s vehicles), it is better not to trade notes with fellow investors/allocators than to do so. Also, assumes that collaboration between parties means everyone picks different deals but shares in the profits.
4/ Also from Yohei Nakajima: “Everything in moderation, including moderation.” Pick 1-2 things to go really deep on, without holding opinions/biases too close to your heart. Aka have a beginner’s mindset.
Point (3) has me in that mode right now.
5/ From an LP: Despite SpaceX’s IPOs (which has tiered distributions), DPI in venture is still 15 cents on the dollar.
6/ From an LP: First closes used to be 30% of target fund size. Now, they need to be 50-60% of target fund size or you’re not going to get a fund off the ground.