Very True by Verissimo

Alex Oppenheimer (00:06.754)
When I started in venture capital in 2013, NEA, it was really hard to call venture capital an asset class. NEA was the biggest game in town. They invented the idea of a single kind of mega venture fund, but internally being there, it still operated like it was in a cottage industry, which frankly I was an amazing beneficiary of. I think it's easy to see how over the last 12 years, it's evolved into its own asset class rather than just being this subset of private equity.

And it's evident just if you look at the pure volume of capital that's poured in, you know, it used to be just like you'd look at maybe the endowment allocations, you'd see this small chunk for venture capital. But that was it. Other than that, it was kind of this backwoods and hill road vibe. And

When I was at NEA, that's how it operated, right? It was all relationship driven. It was early stage. was, hey, here's the seed and angel investors that we know. They send us companies. We build relationships, very inbound oriented, very relationship oriented, and very hands on. The ethos around it was very much that

You got to learn how companies operate. You got to build relationships with founders and then you have to develop this wonderful skill called picking, which would drive and that's what would drive returns ultimately. And that's what it took to be a partner. And that's what I learned from Harry Weller and Peter Barris, which I'm extremely, extremely grateful for. So obviously the industry has changed a lot, but I think there's still a cottage industry inside this venture capital.

asset class and it's not just based on stage. If I'm going back to when I started Verisimo, my background at NEA was in series A, B and C investing. And I'll use the term, I've used it privately, I'll use it publicly here now, what I call the insightfication of venture capital. Now I have a tremendous amount of respect for Insight and what they've built and their portfolio and the people who work there, but it's just a different style.

Alex Oppenheimer (02:15.97)
And that kind of sourcing heavy chasing, figuring out what's hot methodology has taken over because if enough people are doing that and you kind of have no choice, you got to compete. And it's a very competitive oriented thing, which there's no argument against. Frankly, there's none. Like if there's a scarce asset that drives a lot of value, let's all go for it. The problem is that we're living in the future when we're doing that.

for early stage venture capital. And we don't actually know what the great things are. We know what the signals are. We know what the heuristics are, but we don't actually know what makes something great. And so, you know, I'll outline what I believe are the two fundamentally different approaches in making venture capital investments. So the first one is this old school cottage approach, which is high relationship quotient. And it's about building companies with sustainable revenue growth. You work closely with the companies on company building.

You know, that one of the first entrepreneurs that I had the benefit of working with going back, she's 12 years almost is Andy Palmer, who's a multi-time successful founder. And he has hammered this point to me for the last 12 years that it's all about company building. And I couldn't agree more. And the goal of the industry is not like other parts of investing where, you know, you've got to figure out.

Okay, what's fundamentally going on here? And then what's the perception of the market? And how long do I need to hold it? And what's the upside and the downside? It's actually a much simpler approach where you just want to accrue value by delivering value to customers and doing that in a, you know, we'll call it unit economics, profitable fashion. And then the liquidity comes either from strategic or financial M &A, and IPOs. Now, IPOs 10 years ago happened at, you know, 100 million of revenue. Now they're happening at a billion of revenue. And when you

map that onto fund life cycles, you you got to kind of change how you approach it, which I'll discuss later. The second approach, which I'll kind of oversimplify as

Alex Oppenheimer (04:15.564)
the hundred billion dollar exit or bust and then the hype chasers. Now it was for a while and I'll point to a specific moment in time, which was the inception of the soft bang vision fund where they said, we're going to write nine figure checks into companies. We're going to try to be a kingmaker for success, make things move as fast as possible and go swing for the fences, right?

massive exits, industry changing. And you can't argue that that's probably been very good for the world overall and for innovation, but it has its strengths and weaknesses. So it is a different approach to investing though. And it's definitely a different return profile. Now, when you're doing it at the later stage, a company's at, let's say 20 million in revenue and you're like, all how do we get this thing to 500 million in revenue? That's a different muscle than saying, hey, how do we get from zero to 5 million?

And I believe, this is just my opinion, that there's a fundamentally different approach to working with those companies and investing with those companies when that's the case. I know for sure that there are people that disagree with what I just said fundamentally, and I respect where they're coming from. And my entire point of this piece is, different strokes for different folks. The most important thing is just knowing which one you're getting into. And there's another concept to which I've talked about, which is the human capital shift in venture, where, you know, what I referenced earlier is that skill set of being an investor.

It's just changed, right? People, lot of parts of the business has become frankly commoditized in terms of, is this a good company or not? Now, how accurate that is for a company at 25 million of revenue versus, you know, just two founders, the kind of precision and fidelity of that projection goes down a lot when you're, you know, two people with a PowerPoint presentation stage versus a hundred person company with $25 million of revenue. But

Again, there's always the inability to use heuristics to figure out what's going to happen in future. That's arguably investing 101. My point is that maybe there's something different at the earlier stages. So it's just a fundamentally different approach. The issue is that with the second approach, the kind of, I'll call it the 100 billion robust approach, is if you're a company that's in a portfolio,

Alex Oppenheimer (06:40.384)
where that is the goal and that is the approach of that fund and that is what they've sold to their LPs. And it becomes clear that you're not going to be one of those winners. You know, let's say a billion dollars, $5 billion, $10 billion enterprise value. The economics are such that the partner cannot remain motivated and the fund cannot remain motivated to meaningfully support that company's journey. And there aren't a bunch of

there's a handful maybe of funds that will say, you know what, that's fine. We're going to come in, maybe we'll have to recap it. Because again, if you're going for 100 billion, and it becomes clear, you're not going to go there, you're actually your multiples actually compress. It's not a point in time. it's growing this fast. What is that vision? And you kind of start there for valuing these companies. So maybe you have to recap it. Maybe not. Maybe someone just comes in and kind of takes it over. And that can work out great. But

That happens, I think, much less frequently than the alternative, which is a company's kind of just, for lack of better term, left for dead, which creates a very uncomfortable situation for both founders and for early investors. again, different strokes for different folks. I'm not going to say one of these approaches is better than the other, again, and better for who, better for the GPs, better for the founders, better for the LPs. You can run down each of these scenarios, but they are different.

And I think that the issues happen when there's crossover and confusion between these two approaches, whether it's inside the actual startup or inside a portfolio or even inside a partnership inside a firm. and maybe even, you know, inside a single partner's mind of what am I really trying to do here? And obviously again, the hold period on these things is long and things change. And that's something that's, that's hard to account for as well. So where it gets complicated is for early stage founders.

Um, they don't really know which one they're up against, right? Like, yes, everyone wants to be that massive success, but usually I think what most early stage funds again, I'll point out one massive exception to this and what many founders again, there's plenty of exceptions to this too. One is, Hey, I'd love to generate like 20 to $80 million of personal wealth in the next five to 10 years. Um,

Alex Oppenheimer (09:03.054)
And Hey, if there's an opportunity to do the billions thing, let's do that. And I'd love to have that kind of single step option. And then, Hey, if the market opens up and act two gets really interesting and or act three, now we're talking like, you know, 10 figures, 11 figures, and that gets crazy. Um, but it's really hard to know what you're going for as an early stage company. Now you could argue that they're, you know, the founders that are starting companies that are swinging for those 10 and 11 figure and 12 figure.

Exits they know who they are. They're not raising seed rounds These are these are the ones that you see that are raising what they're calling a 50 million dollar seed round or a hundred million dollar seed round It's not again. Maybe that's how they structured it. I don't know why they use that terminology It's really a seed and a a B maybe even also a series C all wrapped into one and that's fine because I would argue that's that makes sense and it goes back to my concept of overpaying versus paying ahead when you've got one of these amazing teams

and they raise around like that. The question is not, they going to definitely be a multi-billion dollar success? The question is, will they definitely get to series B or series C? And with a high degree of confidence, you can say like, we know what they're going to build and how they're going to do it. And they know. so let there, why don't, why do they have to raise 2 million at 12 cap right now? when they are who they are and the answer is they don't. And the market supports that. And I'm not against it. It's not for my fund, but it has its place.

But when you go to a first time founder or a younger founder who has, you know, a much, I would, I don't know what to call it, a much more level headed approach to the market. That's where you run into conflict. And so that exception that I talked about is YC it's Y Combinator, right? Now their approach to these days seems to be well back. We have areas where we have theses where we think massive companies can be built.

And we're really just looking for like the next Airbnb, the next Dropbox. And so we're going to back, you know, five teams, we're going to encourage them to take as little dilution as possible. We're going to have options and decent sized chunks of all these companies. And they're either going to swing for the fences and strike out, or they're going to swing for the fences and go really big. And that's evident when a company takes, you know, a million dollars at a $30 million valuation, like they're either it's either going to work out really well, or it's just going to not and they're going to fail fast.

Alex Oppenheimer (11:30.284)
Now again, that has a clientele and that's right for some companies and for some founders and for some VCs and for others it's not. And the main point I'm making here is just go in eyes wide open, look at the economics. Most of this data is public. You can see what people are doing investing wise and how they're doing it. Founders should also be asking their investors how they think about this and company trajectory. Just make sure there's alignment. That's all. Because economics don't lie.

And what motivates people will come through and will impact the personal side of every aspect of the business. Now, if you switch over to kind of later stage companies, we'll say like $10 million of revenue and more. They usually know which category they fit into. There's been this thing called growth equity that's been around for a really long time, which at its inception was mostly investing in EBITDA positive companies. And the idea was that if you infuse them with

external primary and often some secondary capital, they can grow a lot faster and the enterprise value works out very, very nicely. Then there was this thing called venture growth equity, which basically just meant higher risk because the companies were EBITDA negative, sometimes a little bit, sometimes a lot. But the idea was that the upside was also higher. How you benchmark either of these things and measure it is very, very difficult.

I was actually just listening to Howard Marks latest memo podcast and he talked about how we don't really have a measure for risk. People mistake volatility for risk and volatility can be part of risk. But when you're going over longer periods of time, like volatility is not risk. There is another separate thing, but we don't have a good way to measure risk. We do volatility. It's called beta and it's a simple statistical formula.

which for private companies is impossible to calculate, but for public companies, there is a real formula.

Alex Oppenheimer (13:30.222)
So for later stage companies, you know, it's clear, okay, are we at 25 million in revenue and we want to grow to 50 next year or are we at 25 million in revenue and we want to go to 500 next year? And I think the identity just becomes a lot clearer as a company grows and evolves. And it's just a little bit easier. But as you go into the earlier stage, you know, I'm wondering and I'd be interested to hear from them, know, Sequoia just announced the $200 million seed fund.

which seems to be separate from their early stage fund, but these things are constantly in motion. It goes back to the broader question of how long should fund life be? How long should investment period be? Does any of this make sense or is it all just kind of tradition? So, you know, the one thing that I'll point out here is that as the venture has grown, it has basically grown on the laurels of these $50 billion outcomes. Now the problem with that is when you...

five to 10 X your fund size, because you say, well, now we're shooting for $50 billion outcomes and look how many $50 billion outcomes we've had, or at least the market has had. There's a couple of problems with that. The first is that if now that's your model, right? You have a fund model. It says our home run case, you know, we have 30 companies, our portfolio home run case on two of those companies is a $1.5 billion exit. Now all of a sudden it becomes a $20 billion exit.

and have some return profile. Now, most models probably don't show that the 30X fund case has one of the fund cases. But when you, so that's the whole point is if these $50 billion outcomes, 100X fund happens when one of those happens. Now that that's not how they modeled it. They modeled, you know, a $10 million average, you know, entry valuation.

Um, and they modeled a, $500 million, you know, a solid outcome. And that drives a four X fund return for a seed fund. And then again, you get a $50 billion, you get an Uber in there, you get an Airbnb in there. And all of sudden it's a, it's an 80 X fund, which I would say, you know, step one is the founders get rich. Step two is the GPS get rich. Step three is the LPs get rich. And, and that's what happened. But the problem is if you start modeling $15 billion outcomes to drive four to five X.

Alex Oppenheimer (15:52.684)
maybe fund returns. If you don't get one of those, you're in trouble. And if you do, it's very good. Now, the volume of capital also changes. And that's where again, the product shift matters. If you're saying I can invest $100 million in three years and have the potential to generate a 20 X fund, that's great. But if you're an endowment and you need to deploy $2 billion a year into venture or whatever it may be, $100 million fund doesn't help you. So

Part of it's just product market fit. If there's demand for this and that's the volume of capital people want to allocate, then that's what they need. a 5X on $100 million allocation into a fund is better than a 20X, which obviously has, in theory, higher risk, even though that may actually not be the case, on a $5 million allocation into a $50 million fund. So again,

Part of it, just comes back to these economics of understanding what are the motivations and what are the economic realities. And part of it is too, is I talked about, you know, five to 10Xing fund size going from a $500 million fund to a two and a half billion dollar fund, for example. Like the way fees work in venture, there's not a lot of argument that it does make sense, but there isn't a better model that people have really agreed on.

across the industry. But the way you get rich is, again, if you just do the kind of DCF math on a fund, you say, okay, we've got a guaranteed fee stream. And then we've got potential upside, which could take two, five, 10, 15 years, in some cases to realize the discount rates are vastly different. And therefore the NPV is vastly different on these income streams for fund.

As a friend of mine pointed out a couple of years ago, if you look at the publicly traded kind of management companies and private equity funds, that is what you see. That is really what you see. so, you know, I talked about, you got the LPs, the GPs and the founders. If you have a much bigger fund, you don't increase your cost basis. There's just a lot of money flowing into those management companies. And that's, you can't argue that that's not an economic motivator. And it's like, Hey, if we get a one X on this fund, but it throws off this much fees, that's a better trade for a GP.

Alex Oppenheimer (18:15.174)
then if they've got to wait all that time to have a lot of risk to potentially get a big reward on the carry side, can't argue with that. So I'll switch over to now, Verissimo. you know, we've been around, you know, I kind of decided to start this fun six years ago. we did the first close on fun one in June of 2020 crazy time, but there's a couple of things that have been really consistent since day one. I talked about a little bit of the inception, my old school training, my old school mentality and that

has not changed. Now you've got to live in the reality on the ground and you got to play the field, play the game on the field. that's a big part of, of what we do and how we approach it. But you've also got to stay true to your identity. I think running venture as a momentum business is extremely dangerous game. You can do that in the public markets when you can just get in and out, you know, instantly for cheap in the venture market, whether you don't have that kind of constant supply and demand, it's, think a very, very dangerous game. So you got to stick to your identity.

As a friend of mine said it, you've either got to be the substance or the flash. I think there's a lot of flash in the later stage, especially like some secondary funds that just, you know, they want to create market liquidity like it's public. Great. And that can work. As an early stage fund, think, you know, if you're a high profile person who can just play the access and name dropping game, great. Do it. Like it's a great game. I mean, I think a handful of people have figured out over the last 10 years that being a

high level angel investor is a great place to sit. You know, the dream I think for a lot of people is own enough real estate that you have steady income from that and then deploy, I don't know, a million to $5 million a year into what are deemed the hottest deals because a lot of them will return massively and it's just a great, trade. But the three main things I look for in companies and founders and people I work with and partner with are Rotson, these are Hebrew terms.

Rotsone, which represents desire and willpower, you know, for founders, it's, that, that motor that's going to keep them in this for five or 10 or 15 or 20 years. It's the ability and willingness to run through walls and kind of frankly do silly things, which are required to build a company from zero. The second thing is Mazel, which is probably the hardest thing to kind of put your finger on, but it's, it's really luck. It's like, is this person, someone who has a history of good things happening to them and.

Alex Oppenheimer (20:39.778)
That is something that we care about and that I pay attention to and try to kind of suss out. It's not so easy, especially with frankly, first time founders, which is a lot of who we invest in. Third thing super important is midos, which are character traits. Is this a person of upstanding character and do they have the right character traits to be a founder? know, nice guy syndrome is not the best thing to have when you're a founder. You've got to have those moments where you got to be a little ruthless, but there's a balance to be struck and you know,

We've, we always lean into the Meadows piece and it's allowed us to build this incredible community of founders. And we believe there's a strong aspect of shared values across our entire pretty large portfolio. that's pretty consistent. And we're very, very proud of having built that. And really, you can just say that's a nice thing, but what it amounts to is that our relationships with our founders result in more founders who understand our identity by meeting those founders want to work with us.

And it creates this very nice self perpetuating brand and reputation that we have in the market. And there's another aspect of it, which is it selects out certain types of founders really automatically. And, you know, if you look at some of the most successful founders, they may fit into that category of frankly, bad meatos. and that's kind of okay because some of them, some of them have done really well, but, you've heard those stories, a lot of them have not done well and they've just wreaked havoc.

on their networks, they've caused destroyed a lot of value. They've resulted in a lot of heartache. And some of them, the ones you have heard about, have just gone to jail. And you could argue more of them have been massively successful and have gone to jail. But those ones in the middle are not without their pain and suffering that they've caused. And so that's all to say, you know, we're investing out of fund three. It's a wild market. We're very, very excited about what's to come. You know, we put our companies in kind of

Two main categories, one is like the AI tailwinds, which go into two subcategories. The first is vertical solutions that were just not possible before the advent of a lot of this core AI technology, or to do it economically, or to do it at all. And the second category is new problems that are brought about by AI. And most of those are horizontal solutions that, hey, now AI is a thing. We need a solution for X. And that's

Alex Oppenheimer (23:03.714)
Those are, that's, so that's one category. And then the second category is just weird stuff, stuff that no one's thinking about talking about. It's, you know, being true to our identity, looking for new business models in markets that people haven't double clicked on. and that's what gets us really excited. We believe that small checks early because of AI. People can build really cool stuff and do that really, really efficiently. And that, gets me really excited. and then overall the unit economics of some of these businesses are just different, in a, in a really good way.

than they were before. And so we've got this fundamentals driven philosophy. We always look at the people, we always look at the business model, and we sit in a really, really good place to capture a lot of upside for what AI has to offer. Happy to chat with anyone who wants to discuss any of the things I chatted about here, but hope this was interesting.