# Gavin Ezekowitz on AI Valuations, Asymmetric Returns, and Why Great Investors Fail

Markdown copy of https://realalpha.app/v/-aC4qH9eMsM/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

Gavin Ezekowitz argues that venture returns come from backing adaptable teams, sizing for power-law outcomes and pacing investments rather than timing markets.

- Show: How I Invest
- Hosts: [David Weisburd](https://realalpha.app/people/david-weisburd/)
- Guest: [Gavin Ezekowitz](https://realalpha.app/people/gavin-ezekowitz/) is co-founder and chief investment officer of BFA Global Investors.
- Published: Oct 28, 2026
- Length: 1 h 13 m

## The best minutes

- [9:07](https://realalpha.app/v/-aC4qH9eMsM/?t=547) [Underwrite the team and milestones, not a distant market forecast](https://realalpha.app/s/underwrite-the-team-and-milestones-not-a-distant-market/) (6 min)
- [29:19](https://realalpha.app/v/-aC4qH9eMsM/?t=1759) [Venture returns require convexity, pacing and position sizing](https://realalpha.app/s/venture-returns-require-convexity-pacing-and-position-sizing/) (6 min)
- [48:09](https://realalpha.app/v/-aC4qH9eMsM/?t=2889) [Avoid letting macro timing override your investment mandate](https://realalpha.app/s/avoid-letting-macro-timing-override-your-investment-mandate/) (5 min)

## Also worth watching

- [1:49](https://realalpha.app/v/-aC4qH9eMsM/?t=109) [Early AI markets can produce more than one leading company](https://realalpha.app/s/early-ai-markets-can-produce-more-than-one-leading-company/) (5 min)
- [26:59](https://realalpha.app/v/-aC4qH9eMsM/?t=1619) [SpaceX's compute buildout shows the value of anticipating shortages](https://realalpha.app/s/spacexs-compute-buildout-shows-the-value-of-anticipating/) (3 min)
- [37:28](https://realalpha.app/v/-aC4qH9eMsM/?t=2248) [Small funds can turn a focused founder network into an edge](https://realalpha.app/s/small-funds-can-turn-a-focused-founder-network-into-an-edge/) (5 min)
- [43:18](https://realalpha.app/v/-aC4qH9eMsM/?t=2598) [Small initial stakes can dilute a fund's biggest winner](https://realalpha.app/s/small-initial-stakes-can-dilute-a-funds-biggest-winner/) (3 min)
- [1:06:49](https://realalpha.app/v/-aC4qH9eMsM/?t=4009) [A manager's response to a mistake can end an LP relationship](https://realalpha.app/s/a-managers-response-to-a-mistake-can-end-an-lp-relationship/) (5 min)

Skip the roughly two-minute Juniper Square and AlphaSense sponsor reads and the closing career-advice exchange.

## Full analysis: Gavin Ezekowitz says Anthropic looked good at $17 billion

- Weisburd said BFA entered Anthropic at a $17 billion valuation after FTX's forced share sale.
- Ezekowitz's method pairs near-term milestones with a return test, while leaving the price assumptions largely undisclosed.
- For venture budgets, pacing and follow-on reserves determine whether a rare winner can matter.

Its 6 sections, what it means for you and what to watch are on [the page](https://realalpha.app/v/-aC4qH9eMsM/#analysis), free with an account:

- [3:15](https://realalpha.app/v/-aC4qH9eMsM/?t=195) Anthropic's entry reflected room for multiple leaders
- [13:37](https://realalpha.app/v/-aC4qH9eMsM/?t=817) Revenue forecasts fail, but Ezekowitz still tests returns
- [28:01](https://realalpha.app/v/-aC4qH9eMsM/?t=1681) Compute bottlenecks reward teams that build ahead
- [34:21](https://realalpha.app/v/-aC4qH9eMsM/?t=2061) Venture needs convexity and survivable position sizes
- [43:35](https://realalpha.app/v/-aC4qH9eMsM/?t=2615) Follow-on reserves determine whether winners matter
- [1:09:07](https://realalpha.app/v/-aC4qH9eMsM/?t=4147) LP trust depends on operations and candid reporting

## Summary

Gavin Ezekowitz is the co-founder and chief investment officer of BFA Global Investors, an alternative investment firm focused on private-market opportunities. He describes how BFA used GP relationships to gain exposure to Anthropic, OpenAI and SpaceX.

Ezekowitz says early investors should allow for multiple winners in new markets and back teams that can adapt as products and markets change. He describes BFA’s Anthropic investment at a $17 billion valuation and argues that revenue forecasts alone cannot capture a company’s potential. He and Weisburd discuss venture portfolio construction, follow-on bets, manager selection and why pacing and position sizing matter more than calling market cycles. Ezekowitz also emphasizes integrity, strong firm operations and candid communication with LPs.

### Minute by minute

- [0:43](https://realalpha.app/v/-aC4qH9eMsM/?t=43) **BFA accessed three private companies.** Ezekowitz says BFA first invested in Anthropic and built LP momentum around the prospect of generational companies, later gaining exposure to SpaceX, xAI and OpenAI. He says BFA accessed Anthropic, OpenAI and SpaceX through GP relationships rather than holding direct positions on their cap tables.
- [1:49](https://realalpha.app/v/-aC4qH9eMsM/?t=109) **Anthropic looked like another winner.** Ezekowitz says FTX’s bankruptcy sale of Anthropic shares created an opportunity after a round valued the company at $30 billion; BFA invested at $17 billion. Before Claude, he thought OpenAI might win everything, but saw room for multiple leaders and believed Anthropic had a strong chance to become one.
- [3:36](https://realalpha.app/v/-aC4qH9eMsM/?t=216) **First movers do not always win.** Ezekowitz says investors often try to identify the eventual leader too early, even though several companies can emerge as winners. He says AI’s rapid changes also made it possible for disruptors to be disrupted. He regrets passing on Cursor at a $10 billion valuation, having missed how often its team could iterate and adapt.
- [6:41](https://realalpha.app/v/-aC4qH9eMsM/?t=401) **Teams matter as AI markets evolve.** Weisburd says his Anthropic thesis included AI’s transformative potential and OpenAI employees moving to Anthropic. Ezekowitz says investors can form a base case for a company’s next few years, but should allow for markets to expand beyond familiar categories, as Uber enlarged the transportation market. He argues that adaptable teams matter because products and markets can change dramatically.
- [11:37](https://realalpha.app/v/-aC4qH9eMsM/?t=697) **Valuation relies on milestones and judgment.** Ezekowitz says BFA did not rely on revenue metrics when it first invested in Anthropic; the company seemed capable and well supported, and he says some naivety helped. For later investments, he looks at revenue uncertainty, milestones, customer acquisition and sales execution. He describes using a company’s product and observing its sales process as ways to assess the team.
- [14:37](https://realalpha.app/v/-aC4qH9eMsM/?t=877) **Capital magnets need execution and integrity.** Ezekowitz says founders who attract capital can also attract talent, creating a useful flywheel, especially in AI. But he warns that fundraising ability does not guarantee honesty, good execution or good character, and private-market investors may have few exits after committing capital. He says integrity matters because employees often know whether a company’s claims match reality.
- [20:15](https://realalpha.app/v/-aC4qH9eMsM/?t=1215) **SpaceX pairs mission with entrepreneurial timing.** Ezekowitz says former SpaceX employees describe strong mission alignment and clear performance standards, even when people were dismissed abruptly. He says SpaceX shares looked attractive over a three-to-five-year view and even more so over ten years. He also points to Elon Musk’s data-center buildout, including at a time when few were building at a scale of 100,000 GPUs, and says he passed on an early xAI round at a $25 billion valuation because he could not understand it.
- [29:19](https://realalpha.app/v/-aC4qH9eMsM/?t=1759) **Venture returns require diversified exposure.** Weisburd says venture should deliver asymmetric returns, not behave like public-market benchmarks, and describes a portfolio of roughly 20 positions. Ezekowitz calls venture a 20-year asset class and says broad indexing can lose the convexity investors seek. He recommends a planned program across funds and years, with position sizes that allow investors to survive losses and keep investing.
- [34:52](https://realalpha.app/v/-aC4qH9eMsM/?t=2092) **Small funds can win through early access.** Weisburd argues that simply investing across many managers does not guarantee access to the best companies. Ezekowitz says well-connected seed and pre-seed managers can still find strong companies early, while the size of a large fund can limit the return even when it backs a winner. He says allocators should assess a manager’s network and sourcing process, including whether the advantage can last.
- [43:18](https://realalpha.app/v/-aC4qH9eMsM/?t=2598) **Conviction shapes follow-on bets.** Ezekowitz describes a fund that realized its early allocation to Cursor was too small to affect fund-level returns and changed its approach to reserve more capital for later investments. Weisburd says venture managers often concentrate follow-on capital in a few winners. They also discuss the trade-off between selling shares in secondary markets to return cash and preserving exposure to a company’s potential.
- [48:09](https://realalpha.app/v/-aC4qH9eMsM/?t=2889) **Pacing beats market prediction.** Ezekowitz says managers should invest according to their mandate rather than wait for a perfectly timed market entry. He suggests adjusting check size when a market seems expensive while retaining the ability to invest more during a downturn. He says managers are often wrong, even when they have conviction, so they need humility, company knowledge and the capacity to act on their views.
- [55:59](https://realalpha.app/v/-aC4qH9eMsM/?t=3359) **Strong managers need people and process.** Ezekowitz says manager quality rests on exceptional people and a process for sourcing, assessing and diligencing investments. He cautions that strong returns may reflect market conditions that are not repeatable. He also expects successful IPOs to create succession challenges as senior partners become wealthier and firms work out how to bring in new leaders and share carry.
- [1:02:31](https://realalpha.app/v/-aC4qH9eMsM/?t=3751) **Fund operations support institutional trust.** Ezekowitz says allocators assess a firm’s operations as well as its investment process, including whether its auditors, administrators and custodians meet institutional expectations. He also stresses clear LP communications and says managers should be ready to explain their worst decisions, especially when the news is bad.
- [1:08:54](https://realalpha.app/v/-aC4qH9eMsM/?t=4134) **Candor preserves investor relationships.** Ezekowitz says mistakes are part of investing, but he has ended relationships when managers would not acknowledge their errors or explain what they would change. He says investors can build trust by being candid about what went wrong and how they will respond. Asked what he would tell his younger self, he advises listening more and finding mentors who give honest feedback.

## Transcript

How I Invest, hosted by David Weisburd, with Gavin Ezekowitz.

From the transcript How I Invest publishes with the episode.

[0:00](https://realalpha.app/v/-aC4qH9eMsM/?t=0) When you're very early in a long cycle, people try to predict who the eventual winner will be. And most often, it's not that company. It's not Yahoo. There are multiple winners or they could be different leaders. And so it has turned out with Anthropic, our view is quite simple. They look like they've got tremendous shot at being the other company or one of the other major companies. You're recently sitting down with Top 10 Fund with... He said that they look for companies that are capital magnets. Mhmm. Do you agree with this strategy? I would observe over my entire thirty year career in the investment world, there are really special people that can accumulate capital, that can generate investor confidence.

[0:41](https://realalpha.app/v/-aC4qH9eMsM/?t=41) They are not always honest people. They're not always good people. Occasionally, they're exceptional at all of these things, and they're wonderful entrepreneurs. But this is certainly... There's a pattern that we can observe over time, but it is not a terrible strategy. So, Gavin, you're one of a small group of investors that are in OpenAI, SpaceX, and Anthropic. How did you become an investor in all three companies? Oh, it started out with Anthropic, and then we, built some momentum largely with our LPs of saying that these are generational companies and, subsequent investments in, first of all, in SpaceX, XAI, SpaceX, OpenAI.

[1:24](https://realalpha.app/v/-aC4qH9eMsM/?t=84) And, you know, I think along the way, what we began to recognize was that not only were these likely to be generational companies, we didn't expect the kinds of returns that we've had, obviously, But then investors want to own these in their portfolio. Right? That they didn't... And they had very few ways of accessing those companies. And it was really an out... It was an output of relationships that we had with GPs that gave us the confidence because, you know, obviously, we're not on the cap table in any of those three names. They're all GP relationships. I'm curious because you mentioned iAnthropic.

[2:06](https://realalpha.app/v/-aC4qH9eMsM/?t=126) You invested originally at a $17,000,000,000 valuation. What was your thesis there, and how's how's that evolved? Well, my my thesis there was very, very simple. I'd observed Anthropics appreciation up to... It was valued at 30,000,000,000 in the in the the round that had just occurred. But, of course, the the FTX had this bankruptcy, and the bankruptcy had to sell their shares of Anthropic. And to me, it just seemed obvious that this was an amazing opportunity. We fortunately had formed a relationship with a guy who we've done a lot with. They were bidding for, I think at that time, dollars 10,000,000 or $15,000,000 worth.

[2:55](https://realalpha.app/v/-aC4qH9eMsM/?t=175) We were there in size. We had to really convince people because it was not... The company didn't look anything like it does today. It was really pre Claude. And it looked like OpenAI was just going to win everything, if you think about that period. And I think that there were a couple of views that we held at the time. One was, and it's a view I hold today, was that when you're very early in a long cycle, people try to predict who the eventual winner will be. And most often, it's not that company. It's not Yahoo or whatever it is. Multiple There winners, or they could be different leaders. And so it has turned out with Anthropic, And our view is quite simple.

[3:42](https://realalpha.app/v/-aC4qH9eMsM/?t=222) They look like they've got, you know, a tremendous shot at being the other company or one of the other major companies. This feels like a really great price. Let's give it a go. Yeah. This first mover advantage, I've thought a lot about it in technology because very few of the companies were first movers. Google, I believe, was the eleventh search engine. Facebook was maybe even further along in the twelfth or thirteenth search engine. But yet, this first mover advantage persists. And I think the reason for that is, first of all, the first mover advantage is quite persistent in other asset classes.

[4:19](https://realalpha.app/v/-aC4qH9eMsM/?t=259) So outside of venture capital, the first mover advantage tends to tends to hold much more strongly. And secondly, of course, people invest for two reasons, fear and greed. And I think fear more than greed, and people just get afraid of losing that that number one player. And even if they passed on OpenAI for one round and two round, three round, some some people... At some point, those investors capitulate, and they they wanna go and go into these momentum investments. I think that's that's true. I think I don't know that it's different in in AI, but one of the observations that I would make is that it is very evident from the early days of the the AI phenomenon that this was there there was gonna be multiple disruptive events, whether you can recall even recently the deep sea.

[5:11](https://realalpha.app/v/-aC4qH9eMsM/?t=311) You know, suddenly, we had these Chinese open source models, and you have all of these events that were gonna take place. And I think my thinking from the earliest days was this is neat, but it's very structure suggests lots of disruption and even lots of disruption of the disruptors. And, you know, you can observe a company I I missed. I had lots of I had lots of opportunity at ten billion on Cursor. It was like going once, going twice. And they all like, Oh, no, I don't think so.

[5:43](https://realalpha.app/v/-aC4qH9eMsM/?t=343) **Gavin Ezekowitz:** And what I missed, it's so clear in that company now, is that that was a company that iterated multiple times on their journey.

[5:52](https://realalpha.app/v/-aC4qH9eMsM/?t=352) And in fact, even now, I was with the leadership team some time ago. They're iterating again within their current x AI environment. I miss the fact that some of those really special companies are able to innovate, disrupt themselves, watch the new, new thing, catch on. They've got the quality of the team. They're not married to a singular thesis, that this is the only way, and we're just going to plunge ahead. They've got a very flexible mindset. And I think that if you look at that approach, you can see that, yeah, we may see vast differences in the kinds of companies that emerge out of businesses that start very differently.

[6:44](https://realalpha.app/v/-aC4qH9eMsM/?t=404) Presented by Juniper Square, the operations partner for private markets. It's fascinating that you said team and this evolution of products. I invested in Anthropic as well, $4,100,000,000 valuation. And I had a relatively simple thesis. One was that AI was gonna be transformative. I had the benefit of actually having a few friends at OpenAI, and they were like, this is it. Because people have been talking about AI, I think, going back to fifties. I can't confirm that firsthand, but they've been talking about AI for so long. And so many really smart people have been talking about AI for for so long.

[7:20](https://realalpha.app/v/-aC4qH9eMsM/?t=440) It felt like it was actually gonna come. Nobody could predict how quickly or or to to what degree. The second part of the thesis, I knew that a lot of the top OpenAI investors were... I knew that a lot of the top OpenAI employees were actually going over to Anthrop. Mhmm. Mhmm. Yep. Including, of of course, Stario. And that to me was the strongest signal. Yep. And then I had a relatively simple underwrite, which was, okay, if AI is gonna be big, there's probably gonna be a consumer version of it and an enterprise version of it. And I I just, like, licked my hand finger, put it in the in the sky, and thought it has to be a $100,000,000,000 plus company.

[8:02](https://realalpha.app/v/-aC4qH9eMsM/?t=482) Although, at that point, a $100,000,000,000 companies were just insane. In fact, it was the exact same time where Founders Fund was going to their LPs and pitching this whole concept, which was very controversial at the time, which is in order for us to get the kinds of returns that we're gonna continue to get from previous vintages, we need $100,000,000,000 outcome per vintage. Every three years, we need a $100,000,000,000 outcome. And I remember because LPs would would ask me, do you think they could deliver $100,000,000,000 outcome for three years? And my answer was, a, it's Peter Thiel. So maybe.

[8:37](https://realalpha.app/v/-aC4qH9eMsM/?t=517) And b, it sounds absolutely crazy. There's no way they could do that. So I was kind of conflicted myself. Yeah. But if I was to re underwrite Anthropic today or a new company today, I think I would actually take one of those legs of the stool. The whole idea that it would be an enterprise business, I think that's... It's so unpredictable to predict what a company will be like on evolution version number 93. I think you just go back to market, and is the team good? And I know that's not that rocket science, but I feel like in the age of AI, the team becomes so much more important because the evolution and the iterations are just so much greater.

[9:16](https://realalpha.app/v/-aC4qH9eMsM/?t=556) It's almost impossible for the human mind to predict where the company itself is going. Interesting how you think about that underwrite, because I think it's maybe not dissimilar to how we think about it. You take your best judgment, your best judgment of how the company will grow in their market, how their opportunity is set. You try to get a few years out, maybe get three, four, five. Of course, you've got less and less probability of being correct as you get into out years. But you can't... You kinda get this base view of where things might go. And I think that you say, well, look, if if it went like that, you know, are we satisfied with the starting point of that that return profile?

[10:01](https://realalpha.app/v/-aC4qH9eMsM/?t=601) Right? If it goes something like that. But then what I think you've... And I do feel that this is an opportunity set. I think it's also how people will get things wrong, but that that's okay too, is that you've got this potential for truly convex exceptional outcomes that you can't possibly predict. That is how larger market may become, how much of a market a company could inhabit. And currently, it would just be crazy speculation that a market might shift. But cast your mind back not too far to say Uber. A very intelligent way of underwriting that company may have been, here's the taxi market, here's the black car market, here's how big they are, and here's how much market share they can take.

[10:51](https://realalpha.app/v/-aC4qH9eMsM/?t=651) What none of us... I didn't underwrite Uber, but you didn't predict that you were actually... Once you made vehicles available in this manner, you were gonna grow that market massively. That reference point was irrelevant. And I think, you know, we maybe were seeing this with the Anthropic, with their new wet labs, with their ability to innovate in biotech with new molecules, be more predictive of what might be successful. And we could end up with this really incredible outcome for that company out of a part of the business that nobody really thinks that much about today. I think we... We're always hopeful that we'll get one of those those outcomes.

[11:34](https://realalpha.app/v/-aC4qH9eMsM/?t=694) But the core underwrite has to be, you know, do we actually think if this company just delivers, do we think it... Are we gonna... You know, does it meet does it meet what a sensible return? We were talking about before we started recording valuations Mhmm. How hard it is sometimes to invest in these companies because they always seem overvalued, the best companies. How did you go about thinking about the valuation of Anthropic at the time? How do you go about underwriting such a transformational company? I would be... Have to be completely honest that we didn't think about revenue or any metric of that kind, probably a little like you.

[12:15](https://realalpha.app/v/-aC4qH9eMsM/?t=735) We we said, this is clearly a well funded, well supported, very capable business that given the scale of these businesses, this feels like a good next bet. So that... In in that case, it's not a good analog for our for our process around most companies. Right? That is... There's not a good good process in that regard. It was also one of the first companies in the space that we invested in. And so I would say that our our overall underwriting process was... I would say that we benefited from being naive. Right? We benefited from being naive. When the company accrested a 100,000,000,000, you know, I was like, oh, I'm not sure, but this seems a little crazy, right?

[13:07](https://realalpha.app/v/-aC4qH9eMsM/?t=787) And and it took me a little while to sort of catch up in my own understanding from the 170 to the $3.80 to kind of go. Alright. We're seeing something completely different. I have to think about it differently. Today, I don't underwrite quite that way.

[13:26](https://realalpha.app/v/-aC4qH9eMsM/?t=806) **Gavin Ezekowitz:** But what what I try to do and what we what we do understand, I think, quite well is that the current revenue and revenue projections are so imperfect both on the part of ourselves, other investors, and the company themselves, that that you you have to say, you know, what what

[13:53](https://realalpha.app/v/-aC4qH9eMsM/?t=833) is the circle of of probability around the next couple of years? What are the milestones? What's the likelihood? What are the unlocks? What are the challenges we see if it's an enterprise company going after new logos? Scale of the the new contracts. What do we see the go to market team look like? There's a company we just recently underwrote. It was quite interesting. We knew the management really well, but we actually started using the the product within our within our firm. And the company had arranged for their head of sales and and one of their sales folks to get on the phone with us. And they weren't...

[14:31](https://realalpha.app/v/-aC4qH9eMsM/?t=871) We said, look, this got nothing to do with us an investor. It's our CFO making the decision. But I was on the call And I was just so impressed with their sales process. I was like, well, these guys are killers. They're amazing. They're prosecuting this call extremely well. The way they followed up was exceptional. I was like, this is a fantastic team. Like, this gives me tremendous confidence in their ability to deliver in the enterprise space, which is where they're focused. You're recently sitting down with what would I call a top 10 fund with one of the partners that runs the fund. He said that they look for companies that are capital magnets.

[15:06](https://realalpha.app/v/-aC4qH9eMsM/?t=906) Mhmm. A, what does that mean? And b, do you agree with this strategy? The quote from the individual was they look for founders that are capital magnets, and and those individuals that they think have have that incredible fundraising power. I would observe over my entire thirty year career in the investment world, there are really special people that can accumulate capital, that can generate investor confidence. They are not always honest people. They're not always good people. They're not always even good at executing. Occasionally, they're exceptional at all of these things, and they're wonderful entrepreneurs.

[15:56](https://realalpha.app/v/-aC4qH9eMsM/?t=956) This is certainly... There's a pattern that we can observe over time that it is not a terrible strategy. The challenge, of course, is that in the private market, when we make a commitment to one of these companies, we have very few exits. In the public market, you can put a stop in if you like, or you can do all sorts of things. Most often, we need to commit a relatively sizable amount of capital at a period of time, and then we got to play it out. Your conviction around that singular point relies on a certain capital markets dynamic persisting over the time period that the company will have to execute.

[16:39](https://realalpha.app/v/-aC4qH9eMsM/?t=999) You're making a macro bet. I think you're making more of a macro bet. Now, I think if you've got that individual, those special individuals, and you talked about talent, I agree with you. They can attract talent, they can attract capital, that does have a flywheel effect, particularly the scale of capital that we require in the AI space, very important. But you better make sure that those folks are able to shore up the rest of their business. And I would I would say that as an investor, I tend to be very focused on integrity, whether it's a venture manager or a founder. Maybe I'm a little quaint, but I very much value honesty, integrity, transparency.

[17:28](https://realalpha.app/v/-aC4qH9eMsM/?t=1048) And sometimes those folks who are exceptional are not exceptional in that regard. Yeah. I don't think you're quaint at all. And just take away the moral lens on integrity. I just think it's an efficient market. And when you're a top space x engineer and you have the choice between working... Continuing to work at... For Elon Musk, so obviously this great high integrity founder literally sleeps on his sleeps on his factory floor, or Brian Argus, former SpaceX guy, just like highest integrity guy, or somebody else, they're gonna go... All things being equal, which they're not always equal, they're gonna go with a high integrity.

[18:03](https://realalpha.app/v/-aC4qH9eMsM/?t=1083) I think there's an efficient market. They hit up three of their friends that work there, and they're gonna get the truth. Even though some investors may not get the truth, the employees, the source of truth, the ones that are actually building the foundational value in these companies, get to the right answer very quickly, and it's an extremely efficient market. I think that's actually a fantastic point, David. And and I think you make it really, really well. The market for talent at this... At the sort of at the at the tier of talent we're talking about, these are always the top folks, whether it's space There's tech hundreds of them.

[18:33](https://realalpha.app/v/-aC4qH9eMsM/?t=1113) There's hundreds or maybe thousands. There are very few of these people. Those folks know what's happening in those companies. I mean, they they really know. And and I think that there is no question that if the company in their view is not seen as... Is presenting perhaps an incorrect or overly audacious or or potentially untrue reflection of its capabilities and timelines and so forth. I think that they will look at both their own moral compass, their own economic reality, and ask the question, do I really want to be here through the part where reality meets? Having said that, when you speak to people from SpaceX, they will tell you that Elon Musk went around for many years saying, We're going to Mars.

[19:31](https://realalpha.app/v/-aC4qH9eMsM/?t=1171) People would repeat that over and over again. And there were plenty of times where the things that they were hearing in the public market didn't conform to where they were at. But the difference there was that they genuinely believed they were going to get there. Right? They they genuinely believe they had the skill set. They saw the talent around them, they said, well, look. Even if we're not gonna get there in three months, like I hear him saying, we're gonna get there. We like... You know, or I will die trying kind of thing. And I think that that that's a difference maker in that kind of company.

[20:12](https://realalpha.app/v/-aC4qH9eMsM/?t=1212) And it is one of the things that you do hear most often from those employees about kind of why they loved it. Personal responsibility, absolute commitment to a goal, and some of that other stuff that was, you know, a little bit optimistic was sort of forgiven. I've talked to some of these lifers at SpaceX, and the thing that you hear over and over again is essentially, they can't find a bigger mission. They can't outframe the mission of making human beings multi planetary. So Mhmm. They're inevitably, on some level, they're stuck in this mission. They're mission maxed, and now they can't find the the next great...

[20:47](https://realalpha.app/v/-aC4qH9eMsM/?t=1247) Bigger mission. I was sitting with a couple of folks who've started a business former... Both formerly worked at SpaceX. I think the the thing that's really interesting is that they would observe that coming out of that experience, there's actually lots of stuff to now do that builds on the the platform that that company built. And I'd... I always ask the question of, like, what would you... What are you doing in your business today that takes away directly from SpaceX? And what are you doing that is absolutely not, you know, what you saw at SpaceX and you would do completely differently? And I and I think that fundamentally that you've got it exactly right.

[21:37](https://realalpha.app/v/-aC4qH9eMsM/?t=1297) I think you've got to be mission driven. And in large part, when we were in the innovation world that we're in, there there is almost an irrational alignment to your and commitment to we will make something happen here. Like, we will crack the code, figure it out, build it out, get the customer. We will do what it takes. And I think that that is... That's something all of them take away. I think interestingly, from a people management perspective, one of the observations they they often make is it was... The quote was, I think Elon cares a lot about humanity. I'm not so sure he cares that much about humans.

[22:24](https://realalpha.app/v/-aC4qH9eMsM/?t=1344) I wasn't there when Elon may have said anything of that kind, so I don't know that to be true. But let's take it at face value. The one thing that they mention is that people could get marched out the door at any time. But they quickly follow that up with, But it was never confusing to us. It always seemed like that was the right thing. Was very rare that the wrong It's not ego driven. Was the right decision. It was the right decision. And and I think it's such a a powerful such a powerful business and so so difficult, but such a a powerful business mindset to say, our mission really matters. And if these people or this person isn't of the level, isn't of the capability, it's better for both of us that you're gone today, and we'll both move on with our lives.

[23:18](https://realalpha.app/v/-aC4qH9eMsM/?t=1398) We'll both be fine. But we need a certain thing. And if you don't have it, I'm gonna go get it elsewhere. And everybody understands that those are the the rules of the game. One thing I've learned from talking to hundreds of investors is that great investment firms aren't built on investment returns alone. The firms under are great at the things most people don't see, their operations, their relationship with LPs, and the quality of information they use to make decisions. And here's what AI has changed. Every firm now has access to the very same models, so the intelligence isn't the edge anymore.

[23:52](https://realalpha.app/v/-aC4qH9eMsM/?t=1432) The edge is what you could feed it. Firm with its fund operations and data in one connected record can actually put AI to work. A firm running on able that make opportunity to working with LPs, and building your firm. This episode is brought to you by Juniper Square, the operations partner for private market GPs. Learn more at junipersquare.com/howiinvest. That's junipersquare.com/howiinvest. Everyone I talked on the show is chasing the same thing, an edge, and more and more of the edge comes down to your information, not just having it, but being able to trust it when the stakes are highest. AI is doing more of that information gathering for you every day, and most tools are very good at sounding right.

[24:47](https://realalpha.app/v/-aC4qH9eMsM/?t=1487) The summary reads claim, but can you trace it back to filing the transcript, the specific passage that drove the answer, or are you just trusting the confidence of the output? For investors, that's not a minor concern. A miss filing, miss weighted source, context that got lost somewhere in the retrieval chain, those aren't edge cases, they're how decisions go wrong. AlphaSense is the AI market intelligence platform built specifically for this. They own the content, over 500,000,000 curated documents from broker research and expert transcripts to filings and earnings calls, and they own the retrieval layer on top of that.

[25:19](https://realalpha.app/v/-aC4qH9eMsM/?t=1519) So every answer links back to an exact verifiable source because the answer is only as good as what's underneath it. And with AlphaSense, you know exactly what that is. The edge goes to whoever can trust their information and prove it. See it for yourself. Start your free trial at alpha-sense.com/howiinvest. That's alpha-sense.com/howiinvest. Said another way, SpaceX is a company, not a day care. Absolutely. Yeah. And we're not here to entertain you. Yeah. We're not a fan. I have to I have to disclose as well. Also, investor in SpaceX, I think I have something like 90% still in my position. Good for you.

[25:53](https://realalpha.app/v/-aC4qH9eMsM/?t=1553) And I have a crazy thesis on SpaceX and in terms of data centers, but also asteroid mining, all this. I'll I'll spare spare the audience. I love it. I love But I I do think there's still this asymmetry that's embedded in the stock. I'm not telling people to buy the stock, but it is interesting how today you have these trillion dollar plus companies that seem like they're still early. I would agree with you. I mean, I I often say, again, this is not investment advice. To our investors, many of whom are taking the SpaceX shares that they've owned a long time. We distribute cash or shares depending on what people wish to.

[26:32](https://realalpha.app/v/-aC4qH9eMsM/?t=1592) And I've said the three to five year view here is fantastic. The ten year view is even better. So why... You know, what other asset are you going to replace that is going to potentially give you that kind of incredible return. Like, I don't know what else you would buy instead of that. And also, what is it correlates? It seems like a great asset to have you in your portfolio. What is core... What is SpaceX correlated to? Is it correlated to gold Something different every day. Something... I I guess now it's correlated to AI. So if you have some AI concentration, you might be But I think, you know, let...

[27:08](https://realalpha.app/v/-aC4qH9eMsM/?t=1628) Let's observe, like, some really incredible dynamics. And and I... And it... And it's not like I came at this as an adherent of the AI Elan approach or that was my thinking.

[27:23](https://realalpha.app/v/-aC4qH9eMsM/?t=1643) **Gavin Ezekowitz:** In fact, I passed on XAI in that $25,000,000,000 early round. I just couldn't understand it.

[27:33](https://realalpha.app/v/-aC4qH9eMsM/?t=1653) But what I would observe in that business, and I would observe in that we can take away from many others, is that there is an incredible capability of great technology entrepreneurs, great entrepreneurs in other sectors, but great technology entrepreneurs, to just figure out that there's a moment and they can swoop in. And I look at what Elon did in building out all of those data centers incredibly quickly, at an incredible scale, at a time where nobody was building 100,000 GPUs, and no one was doing anything like that. And then he arrives at this moment where we're just massively short compute and is able to charge a super premium to all these other companies to go and utilize that incredible asset.

[28:36](https://realalpha.app/v/-aC4qH9eMsM/?t=1716) And I see this. You can look at it with the leadership of a number of technology companies. There is an incredible ability to understand where the world might be going and how to make some really intelligent bets on on that future state. These folks are not... It's not everybody, but it's also what I look for in venture managers, frankly, is that that ability to say, I... You know, it's great. You can tell me about, you know, what might happen in the next year or whatever. What's happening now? Kind of where do you see when you look at your portfolio? Where do you see the things that are going to work in three to five years?

[29:13](https://realalpha.app/v/-aC4qH9eMsM/?t=1753) Five to ten years when the world arrives in the with your vision or how does that company play in? What are the factors here? Because to me, that's super interesting when when folks have that kind of mindset. That's most often where I get really excited. When people ask me about what venture funds should I invest in, what startups should I invest in, I always first make sure that they have the right framework. And the way that I do my venture investing is you have to really understand the role of venture capital in your portfolio. Venture capital is not treasuries. It is not the S and P 500. It is not real estate.

[29:56](https://realalpha.app/v/-aC4qH9eMsM/?t=1796) It is not private equity. It has a singular role, and that is to deliver outsized asymmetric returns once in a while. It is the most bipolar asset classes, the most bipolar underlying portfolio companies. So the the way that I look at venture is you have to be both paradoxically bold and have the right portfolio construction. What does that mean? You wanna be bold. Every company should be this 100 or a thousand x or zero. Of course, depending on what stage you're on. But even today, I think the reason Benchmark is raised or is is raising a growth fund is because they believe that's... There's there's their power laws at the growth stage.

[30:37](https://realalpha.app/v/-aC4qH9eMsM/?t=1837) Yep. I don't think Benchmark woke up and suddenly became greedy. They've been one of the most disciplined investors in the world. But regardless of stage, you wanna take these highly asymmetric bets. A 100 x or zero. Just think about it from from an oversimplified... Companies like Anthropic, companies like Instinct, which was Mhmm. This this personal AI app, which, you know, I don't know. Some probability, it'll go up to $500,000,000,000, and some probability, it'll go to zero. Right. And probably nothing in between. And then... And this is the thing that people get wrong. A lot of people get excited by that.

[31:11](https://realalpha.app/v/-aC4qH9eMsM/?t=1871) A lot of people have this gambling compulsion. They're like, okay. Great. This is great. I wanna put all my all my money on, you know, the number 31 on the roulette table. The next and most important thing is you need to have the right portfolio constructions. You need to be diversified. You know, in our fund, we have roughly 20 positions. So wanna take these very aggressive bets, and you wanna be diversified across different verticals. If you're an LP, you wanna be across multiple funds. So now you have, let's say, five funds of twenty twenty companies per vintage. So now you have a 100 companies, and then, you know, you you have one Anthropic, and one of your 100 portfolio companies across your five managers, you're doing well.

[31:48](https://realalpha.app/v/-aC4qH9eMsM/?t=1908) What do you think about that, and how would you improve upon that model? It's very, very similar to the way we we think about the world.

[31:55](https://realalpha.app/v/-aC4qH9eMsM/?t=1915) **Gavin Ezekowitz:** So I think that the very difficult part for investors is to understand that venture is a great twenty year asset class.

[32:06](https://realalpha.app/v/-aC4qH9eMsM/?t=1926) In any given period, in any... With any given fund, you you may have a flat spot. Even the best managers, it is it is not as perfectly predictable as as people might like. What some folks do... You mentioned five. We use 10 in in our strategy. But what some folks do is say, well, great. Well, I'm gonna go and buy an index of the... A venture of some kind. And so what you lose in that, which is the problem, is because of the dispersion, you you end up losing all the convexity. And the only reason to do venture is convexity. It is you want the shot at an anthropic. You want to make sure that the potential is that the weight of that anthropic, ideally, will be great enough that even if it was in one of your funds, that it would still give you a...

[33:04](https://realalpha.app/v/-aC4qH9eMsM/?t=1984) An an exceptional return. You would still have a much better return than you would have if you'd been invested in Nasdaq or or some other benchmark asset. And I think that's the first key. I think the second key that's really hard for investors, and I'm sure you've seen this in your portfolio, we see it in our own, is that it's always tempting to think there's a right time and a wrong time. Right? I shouldn't invest in the benchmark fund. It's the top of the market. AI's in a bubble, whatever. Yeah. Or or it's a terrible time. Companies are having trouble raising money. This doesn't feel like a very good time to be investing in venture.

[33:51](https://realalpha.app/v/-aC4qH9eMsM/?t=2031) Or I've just lost a bunch of money. Now's a terrible time. Pacing and sizing. Pacing and sizing is what Matt Cortola, my partner, and I talk about all the time. It's the great advantage the individual investor has because they can set their portfolio. So pacing, develop a program, multiple funds, multiple years. Sizing, ensure that the size is adequate, that you can continue that program over time. And then if you're sizing individual positions, you know, size them on a on a matrix that that allows you to take sufficiently sized bets over time such that no one bet wipes you out. You know? As I say, the dead don't compound.

[34:38](https://realalpha.app/v/-aC4qH9eMsM/?t=2078) So, you you know, you can't get... You gotta survive. And so I think when people think about that corner of their portfolio, then they can start to make probably what I would consider more appropriately aggressive allocations with the recognition that they... It's gonna have a very different return profile than perhaps what they're they're used to. So so many great points there. On the indexing point, I think the biggest myth in venture capital across the last ten ten or so years is that ever... Any manager could get lucky and to get into the greatest companies. And not only was I think this was a myth a decade ago, today, it's almost impossible.

[35:23](https://realalpha.app/v/-aC4qH9eMsM/?t=2123) These these companies become so consensus so quickly Mhmm. That unless it happened to be that you... Your Stanford roommate just happened to be, you know, Evan Spiegel or or something like that. Like, that... That's the level of luck that you need today to get into a company that you don't deserve to be in Right. From a brand perspective. Even a decade ago, I think that was much more likely the case. We just know the counterexamples are just so memed sometimes for Uber. Everyone knows that Uber was going around and and raising in 25 k checks, a lot of people that weren't even, you know, restaurateurs and things like that got into got into the company.

[36:02](https://realalpha.app/v/-aC4qH9eMsM/?t=2162) But how many stories are there like that? Not that not that many, especially in the last ten years. And on top of that, you learn, and frankly, I I was heartbroken to learn that Airbnb itself was also... You know, people love this, like, story of the David versus the Goliath Airbnb. Nobody loved them, and, you know, they... It took ten years for them to get all this attraction. When you actually look at the facts, and I was told this by by early investors because my my interpretation of the story was wrong. Yes. It is true. Airbnb, when they went to pitch to Paul Graham at YC, he didn't really like it.

[36:35](https://realalpha.app/v/-aC4qH9eMsM/?t=2195) And then they're like, well, what do you have there? And they had these cereal boxes and that that Obama owes and the McCain, and he's like, holy crap. You guys are selling cereals in order just to, like, make make it and kind of the tenacity that you need as a startup. But they were hot at their vintage... At their y c class. In fact, Sequoia, I believe, invested. They didn't even go to Demo Day because they got that investment from Sequoia. So even these stories that are supposed to be these great counter examples, these great examples that anybody could invest in these great companies that they are on the lookout enough, even they themselves are not are not true.

[37:12](https://realalpha.app/v/-aC4qH9eMsM/?t=2232) So I think that's the problem is when people hear indexing, sometimes they start to think, okay. Let me just say yes to every manager that I get, and I'll get exposure to that. And that has not been done well. And I I think that's a trap that you fall into if you if and when you start to subscribe to this indexing style. I think it's true. I... You know, you bring up a lot of a lot of things that are really curious in the... In that conversation. Because I think one of the pieces of that puzzle that is super interesting, certainly in in Silicon Valley, is there are these amazing super angels. And they are they are real taste makers at at the seed and pre seed level.

[38:00](https://realalpha.app/v/-aC4qH9eMsM/?t=2280) Now, we're in a very crowded time in the market. I think it's always we need to be really careful that we're not just sort of judging that it will always be thus and and so forth. But I think that there is no question that well connected folks with really a good sense of what makes for good companies can at the pre seed and seed level still do important things.

[38:27](https://realalpha.app/v/-aC4qH9eMsM/?t=2307) **Gavin Ezekowitz:** And small funds, early funds, well, managers with a very clear network can produce really incredible outcomes by being close to founders.

[38:42](https://realalpha.app/v/-aC4qH9eMsM/?t=2322) And I think one of the one of the myths that is also goes around is that, you know, well, Sequoia is gonna see all the best companies, and recent Horowitz is gonna see all the best companies. And I'm like, well, let's imagine they do, and let's imagine that they, in fact, even invest in them, which they don't. Neither is true. But given the scale of the funds, the scale of the investment, what it would require in order for them to to carry that through and so forth, may not even be the case that that really great or good company delivers kinds of returns that you might like at a fund level, unless they really prosecuted it well.

[39:21](https://realalpha.app/v/-aC4qH9eMsM/?t=2361) Whereas in a manager with really great taste and network precision of process, maybe network to some angels, maybe network to some communities that can be the communities can be varied, can find these really interesting companies at an early stage. And I think that there is a bit of a myth that, look, if you're a third time founder, you know the market, you've got, you know, you got lots of acts, you got a team, you got access to all the pieces, and you get called by one of the big firms, you're just gonna go with them. It's just simply not. I don't... It doesn't bear out. Founders choose VCs for all kinds of reasons that we we make choices.

[40:14](https://realalpha.app/v/-aC4qH9eMsM/?t=2414) Relationship, the help they need, the kind of person that they want at that time of their firm, their knowledge that perhaps some of these larger firms made very early checks are not as helpful as they may advertise or differently helpful. There are plenty of reasons that different kinds of founders choose different kinds of kinds of managers. And so I think for us, it's always about what is the likelihood in this environment that the network and the process of a manager will lead them to very likely find the quality of company that can be that, you know, outstanding returner. And that, you know, I think that that is a very interesting very interesting assessment process.

[41:17](https://realalpha.app/v/-aC4qH9eMsM/?t=2477) And because there's so much qualitative that goes in there, there's so much about understanding the meaningfulness of that network, about how they how they build out those relationships, how much of that network needs to stay current. You know, I think if you... Let's use SpaceX as an example. If you left SpaceX today, I'm not sure what the half life of your relationship... Your your network might be. Might it be a few years. It could be shorter. It could be longer. But it's probably not forever. Parts of it might be. But right now, it's very meaningful. So if you left today and you start a fund and you're well networked to all these people who might also be leaving certain companies or whatever, that could be really powerful.

[42:04](https://realalpha.app/v/-aC4qH9eMsM/?t=2524) Is it really wonderful today? Well, where are you three funds down the line? Like, how you may have evolved that? Is your advantage sustainable? Is your process and that advantage sustainable? Are the things that you did to generate... Because, you know, if you get to a fund two, you've probably done okay in your fund one most often. And fund ones are wonderful because there's there's always these two or three companies that folks have in that fund one that are like their profound observation. They do empirically perform really well. They do. Yeah. And and it's it's interesting because it's the most difficult thing to to find and to underwrite those funds, and there are some exceptional allocators out there that And they're all almost by definition unbranded.

[42:50](https://realalpha.app/v/-aC4qH9eMsM/?t=2570) Yes. Oh, I First first ever there have been Yeah. And often, you know, it's a single individual. And it's more difficult than people might perceive, not only to find these folks, but to correctly judge that they can do the job properly. Because it's not a simple job. And often quite interesting. I'm sure you find it yourself. You'll meet someone at Fund two or three, and you'll ask them about fund one. And they may have done... Had some amazing returners, and they'll tell you all the things they did wrong. Yeah. Because invariably, they've done a ton of things wrong. And the things that they've evolved and processes and so forth.

[43:30](https://realalpha.app/v/-aC4qH9eMsM/?t=2610) One of my favorite stories in that regard is a fund who had an exceptional performance in Cursor. And the manager only afterwards realized that part of the challenge of their allocation

[43:44](https://realalpha.app/v/-aC4qH9eMsM/?t=2624) **Gavin Ezekowitz:** process was that mathematically, if they didn't get enough of the company in that pre seed stage, because of the nature of how they were investing, their returns just got so diluted

[43:57](https://realalpha.app/v/-aC4qH9eMsM/?t=2637) even when you got these massive winners at a fund level. Like if it was your individual investment, it'd be great. But at a fund level. And they had to adjust their whole allocation methodology, say, Look, we've got to rethink this because we need more capital weight slightly later. We don't want to put it all super early. Their approach is different. But we need to be able to rebalance some capital slightly later and to follow on because otherwise, when we do have these asymmetric returners, it's just not meaningful enough. That's almost a mark of all the top venture funds as they've evolved now into their follow on capital is it's much more concentrated.

[44:39](https://realalpha.app/v/-aC4qH9eMsM/?t=2679) Founders Fund is famous for doing it to the extreme, putting, like, half of their fund into one company, like a SpaceX or Airbnb. But on a on a lesser scale, they'll take a third of their follow on capital and put it in one of three companies. Mhmm. They'll... Instead of... They might have twenty first first checks and, you know, three three follow on checks. We land closer to that, which is like, okay. You try to get 20 really good asymmetrics. Some of them take off, and you put it in kind of those those rockets. We pay as allocators for conviction. Right? I mean, we're we're buying conviction.

[45:15](https://realalpha.app/v/-aC4qH9eMsM/?t=2715) And I think that that's fantastic. I often say to our venture managers that the real magic is that you're willing to bet, you know, your business, your reputation on on on, like, meaningful portfolio returners. Like, it's a big deal. Like, it's a really big deal. I mean, getting them wrong is very painful. But for that, you deserve an excellent return for yourselves and when you get it right. I think there's nothing wrong with that at all. But I'd rather have that outcome, the outcome where you have conviction, you have a big winner, you make a monstrous return out of the carry, then have folks who are trying to cut the middle ground, not get it too wrong.

[46:11](https://realalpha.app/v/-aC4qH9eMsM/?t=2771) If we do it this way, can we then go and raise another fund? I am seeing, you know, it's a good process. I'm not sure about it over time where with the focus of DPI, folks are selling more positions in the secondary market a little earlier. Some of that I really like. Some of it concerns me that we're effectively cutting off the potential in our portfolio. You you did all the work to get your... This incredible thing to hear. Now you're gonna go sell half of it. Yes. We appreciate getting the capital back, but we can't necessarily go, you know, replicate that position ourselves. How do I feel about it?

[46:55](https://realalpha.app/v/-aC4qH9eMsM/?t=2815) I I mean, I get torn. I get torn because, of course, we want DPI to do other things and so forth. That goes back to what I was talking about, like, venture being this singular asset class. You have to know how to use it. And it's on the GP level, it's on the LP level. There's this concept that I've been talking about, LP capture, which is an otherwise good manager. If you have the worst LPs in the world, they could end up making you sell your anthropic position at this, you know, at a five x or or sell your space x out of three x. And you would have... All you had to do was not sell, but because you have these LPs that are pressuring you, because they're misusing the asset class, either they're overly concentrated.

[47:33](https://realalpha.app/v/-aC4qH9eMsM/?t=2853) We didn't... We haven't talked about this, but you shouldn't have too much money in venture because lo and behold, if you're having a bad vintage, you might do you might do the dumb thing because, you know, your other part of our portfolio is struggling and you need that capital. To be very careful on how you look at venture and how you use venture out of portfolio. And then on a GP level, in many ways, the GPs should be encouraged to take more risk because they have this n of one. They have this one fund. In many ways, you should want them to be more risk on because they're doing all this career managing.

[48:04](https://realalpha.app/v/-aC4qH9eMsM/?t=2884) They're trying to get to at least a two x Mhmm. Ideally three x returns so that they could raise another fund, get more management fees, and they're kinda managing their career. But oftentimes, you have the GP that's trying to be more bullish, and LPS are kind of asking them to cut back, and then that that could be highly counterproductive. I was on a call early this morning with a very significant LP, and she she asked a really great question. She said, well, look, given the macro environment and so forth, and we know a little bit about that. Given the macro environment, like how are you, you know, how are thinking about allocating capital in your fund and so forth?

[48:44](https://realalpha.app/v/-aC4qH9eMsM/?t=2924) I said, This is a really big question. Because I think what LPs want is you to perfectly predict the future and not buy the overvalued stuff, wait six months and buy it all cheaper, and so forth. It was all wonderful if we could get it so perfect.

[49:07](https://realalpha.app/v/-aC4qH9eMsM/?t=2947) **Gavin Ezekowitz:** I said, Whether or not I've got an absolutely precise and perfect view of the cycle, if I am taking too big a macro leg view, too big a macro view on allocating capital, I'm doing you a disservice because you've given us capital to invest with a very specific agenda.

[49:37](https://realalpha.app/v/-aC4qH9eMsM/?t=2977) And if we are not delivering that capital allocation, to the extent that I'm completely wrong, let's say I'm bearish and the market continues to travel, I haven't done the job for you. And I'd say on the flip side, your sizing should be sufficient such that I know that Gavin is gonna go and allocate capital to these kinds of companies with this kind of underwrite, and not in a sloppy way, but he's allocating in this environment, in this current environment. And I need to size accordingly. I need to size because I think it might be a toppy market. So maybe my check will be half as large as it might have otherwise been.

[50:27](https://realalpha.app/v/-aC4qH9eMsM/?t=3027) And if it turns out that there's a a downturn and, you know, there's a maybe that'll be a chance to re up and do other things and and so forth, and I can take advantage of that. But I think that it's very tempting to get overly manufactured around macro views to become very embedded in having a conviction that certain things absolutely won't work, or this is going to be the way. And I think one of the things that being in the investment industry for a long time has taught me is that we are wrong a lot. As investment managers, we are wrong a lot. At least half the time in venture, 70% of the time.

[51:12](https://realalpha.app/v/-aC4qH9eMsM/?t=3072) We're wrong even when we have conviction. And so, we need to have an open minded view about what the paths may be. I think all that we really need to lean on is digging deep and saying, Do I really have conviction here? Or am I just afraid that I'm gonna miss this name? That I won't be able to face my family because I didn't invest in the cursor $10,000,000,000 round. You have a tough family. My brother's an LP. But, you know, that reality, right? But I think, you know, where is your real conviction? Do you really believe it? We know we're gonna get them wrong. And then we invest in this market.

[51:58](https://realalpha.app/v/-aC4qH9eMsM/?t=3118) As a very wise investor said to me the other day, he said, There's going to be a cycle. The kinds of companies I buy going to get... He buys hyper growth companies, are going to get sold off. Even in the private market, they're going get sold off. And my playbook has been to know those companies well enough to go and be happy to buy, increase my position at a discount, and wait it out because I I believe in the fundamentals of the business. Right? That is... You know, you've you've just gotta be willing to do it. So you gotta have the dry powder to do it. You gotta have the knowledge of the company, the relationship with the company in order to be able to deliver on them.

[52:44](https://realalpha.app/v/-aC4qH9eMsM/?t=3164) I'm always so impressed when I meet people that have a read on the market and they're drinking their coffee. I'm always thinking about what's in this coffee? I need to put this in the coffee because I'm meeting with top people at Sequoia, at Andreessen Horowitz, at Thrive, on or off camera, and I'm like, what inning are we in? Are we in the second inning? Like, I have absolutely no clue. Yeah. I can't even tell you whether they were in the second inning or the seventh inning, let alone the second or the second And then I talked to macro investors in the public markets, and they're like, they could beat the market by 1% a year Mhmm.

[53:19](https://realalpha.app/v/-aC4qH9eMsM/?t=3199) On, like, thousands of trades. And yet these people are sitting down and telling me directionally exactly where the market's going. I'm like, how do you have... You're obviously a smart person. You've been around for for thirty years. So when when I'm sitting down with someone, I'm like, how do you have so much confidence still? You've gotten beaten down so much by the market, but you still have this level of confidence, and it's incredible. We are, to a great extent, in the predicting the future business. You get paid for having this confidence. You you have to have a measure of conviction. And I think and then I think what you've gotta balance that with, I don't know, I think it's the Kendrick Lamar song.

[53:54](https://realalpha.app/v/-aC4qH9eMsM/?t=3234) It's like, you know, sit down, be humble. Yeah. Right? You've got to be humble. You... You've got to have great humility. And that what is your ability to to predict the future across any set of parameters, including our own lives often. Right? It is very limited. And so in that environment, with that limited information, that limited window, how do we do it the very best we can? How are we great fiduciaries? People entrust us with their capital. They entrust us to to make a a good, solid, well founded decisions. And that's, you know, that's what we do. And to be careful. Right? And if you're thinking about you've got your 20 positions equally weighted, and you've invested in 18 companies, you got the last two, and you're sitting down getting ready to write that check for number 18, I think if you're not sweating, if you're not going, Am I convinced that this one is the deal I should do?

[54:57](https://realalpha.app/v/-aC4qH9eMsM/?t=3297) I wonder about what investor you are. I think we need to feel the weight of that of that decision. You know? And I also think we need to be aware that we're always gonna have limited information. And the the hard challenge for us is how do we, to the best we can, give ourselves an unfair advantage. What can we do to give ourselves more conviction to believe that we've got a more precise view, which which underpins the underwrite and and so forth? And then are we willing to say no? One of the hard things, you've done all this work, spend all this time, and you've got to be able to come to a no.

[55:49](https://realalpha.app/v/-aC4qH9eMsM/?t=3349) You've got to be able to say no. And it's not the easy no. The, you know, one call, you know, got... I'm not... That doesn't work. It's the no where you've put in tons of hours. And that's what we talk a lot... About a lot on our team is what level of conviction do we have. We can't be afraid to say no regardless of how much work we've done. I realized we started the podcast. I I didn't I didn't even credentialize the year. BFA, one of the top adviser. I think you just won an award in private equity, so congrats congrats on that. If you had to really sum up to what you're looking for in the best venture capital managers, how would you stack rank those characteristics?

[56:27](https://realalpha.app/v/-aC4qH9eMsM/?t=3387) There is our line, which is, you know, people and and process. I think fundamentally believe that the investment management world is driven by... And returns are driven by exceptional individuals. Sometimes they're they're in collections of teams. Sometimes it's just simply a person. Sometimes that person is in a leadership role. Sometimes they're deep in the team, and you you gotta figure it out. But I think it is all about people. Those people tend to have process that whether it's a very refined process that they, you know, they can write down almost like a script, or it's a little looser. It is a process for creating the opportunities, for spotting them, for working them through, and diligencing them, how they start.

[57:30](https://realalpha.app/v/-aC4qH9eMsM/?t=3450) Some people start thematically. Some people just take every meeting. Manager told me the other day, he said, the meetings I like are when somebody says to me that... That they come... You know, they're they're talking about their new idea. And he and he says, I... I've never thought of that. I never thought that was a business. I never even thought that was possible or whatever. He said, I get excited. Why? Well, because with those other businesses, if I've thought about it, there's probably 30 other people that are already doing it anyway, and I'm just meeting one of them. But this thing, I'm pretty sure there's not going to be many other people.

[58:05](https://realalpha.app/v/-aC4qH9eMsM/?t=3485) Right? And and that gets me excited. I start to do work. Think, oh, that's interesting. There there are a million ways to to assess, but I think it is people and then in that process. And then you've got to see some evidence of how that process has played out. And I think that there's an overreliance on it playing out with amazing returns. Mean, wonderful if it does. But sometimes returns occur because of market events. Maybe you had a bunch of companies that were ready to SPAC during that SPAC period in 2021. Wonderful. You got the returns. I mean, I think that's spectacular. And but but is that are those conditions repeatable?

[58:51](https://realalpha.app/v/-aC4qH9eMsM/?t=3531) Like with those... Can you go find businesses like that? And does that environment exist in that way? Yeah, maybe you've got a narrative, but maybe it's okay to get lucky. But maybe that was a bit lucky. And we need to look for something else other than just those It goes back to... How do you repeat that? I think the repeatability comes in a bunch of different areas. One of them is, can you create a team so that you can scale the breadth of your activities with your capital? Which is quite hard in venture because, of course, often you have to invest ahead of the fund closing and and so forth.

[59:28](https://realalpha.app/v/-aC4qH9eMsM/?t=3568) And we talk about the quality of teams in founding businesses, you know, with founders and so forth. The quality of teams in venture businesses, very interesting. Very interesting. It is so often the case that you have one or two, particularly in smaller earlier for one or two really exceptional individuals in in their own way. They don't all look the same. And then you'll meet the rest of the team. You got pretty ordinary group of folks. Right? Pretty ordinary. They... I'm not seeing a lot that's interesting here. Now that's fine if people are junior analysts and tasked with doing things like...

[1:00:11](https://realalpha.app/v/-aC4qH9eMsM/?t=3611) But if you... If that's your next level, in the same way as you you would assess SpaceX or or a founding company of the quality of people that they can recruit, I look at that and I go, oh, that's interesting. Is it they couldn't recruit someone who wanted to believe in the journey? Wouldn't we all love to be joining a rapidly growing venture firm? Is this what they think good looks like? What if the founder gets ill? Would any of these people be people that I'd want allocating capital? So you do see wide variety. And as an aside, I think we're gonna go through the most interesting period here over the next three to five years as we see, hopefully, all these IPOs that come to pass with tremendous returns, a number of firms have got senior partners who are between 40 and 60, 65, who are going to have made more money than they've ever made in their lives.

[1:01:09](https://realalpha.app/v/-aC4qH9eMsM/?t=3669) They may already be affluent, but they're now going to be uber affluent. And the nature of these firms is that it is often hard to bring new blood in to share the carry and so forth. And we could see some vacuums. And I think it's gonna be really interesting to see how firms deal with that that dynamic. And, again, you know, I think like any industry, it's there's there's often that really weird spot mid career for folks where they it's it's quite hard. It's quite hard to find people that would fit that slot. They're either happy where they are. They've started their own firm. Well, you gotta give up a lot of of economics.

[1:02:00](https://realalpha.app/v/-aC4qH9eMsM/?t=3720) And sometimes folks who were, you know, in in the VC space were willing to do it and sometimes not. So I think we're gonna see a really interesting period here of transition. Generational transfer has been so poorly done in venture capital that people only know the cases where it's worked. Yeah. Yeah. It's a great point. It's it's like this powerlot outcome. You have Sequoia, third generation Benchmark, third generation. I think Excel has done fairly well as well, but I'm probably missing somebody. But the fact that we can't rattle off a dozen cases is itself a sign. You can see why it's difficult.

[1:02:31](https://realalpha.app/v/-aC4qH9eMsM/?t=3751) I mean, we can understand why it's difficult. But I think it does come down to something we haven't talked about, which I, you know, and again, maybe my character as much as anything. I'll often spend a bunch of time with a venture manager, even if they're at the early stage, about the business of how they operate their business. So, you know, it's a business. The business behind the the firm. Behind the, you know, other... Okay, great. That's the capital allocation and and what you do as an investor, but talk about your business. By the way, generally in the investment world, it is amazing how varied the business capabilities of people in the investment world are.

[1:03:12](https://realalpha.app/v/-aC4qH9eMsM/?t=3792) It is astonishing. What's an example? Let me give you an example that is not directly from venture, but it... To me, plays out. You've got a a manager that's raised some reasonable amount of capital to manage, and he's got really good returns. Really, really good returns. He's he's stressed out because he doesn't know how to grow his capital enough to really make it into now a real business. Right? He's got a couple $100,000,000, but it's not enough. Little team. So you talk to him a little bit about it. Then you flip to the back page of his deck, and you look at all of his supporting cast, the custodian, the auditor, and all of these folks.

[1:04:02](https://realalpha.app/v/-aC4qH9eMsM/?t=3842) I'm like... I said, I'm I'm looking down this list, and I said, I'm not, you know, here to judge anybody, but this is not an institutional page. You gotta have a big four auditor. Like, it's just the way. And there's a few administrators and custodians that you've gotta have for your firm. Of course, use Juniper Square, our sponsor. Wonderful. Is the number one sign of of an institution. of an institution. There we... Would be a wonderful choice for this this individual. Text me later, and I'll give you their name. You need to have that caliber. Not to say these aren't fine. They probably are fine, and that that was his argument.

[1:04:40](https://realalpha.app/v/-aC4qH9eMsM/?t=3880) But they're they're really great. I've been with them forever. They do a great job. The costs are lower. Like, all that may be true. It's just not gonna work. So so let's think about your business. Right? What is your business when you go to large family office or allocator? These are the factors that matter to them. So if you're gonna be in business selling to them, that might matter. Now That's your customer. That's your customer. That's what they... So that that would be an example. The other the other challenge I think we all face, investor communications. You know, at the end of the day Or lack or lack of.

[1:05:20](https://realalpha.app/v/-aC4qH9eMsM/?t=3920) Lack of. I mean, we we are all, to some extent, in the marketing and sales business. We are building up our cohort of LPs. We're hopefully getting some referrals from them. We're all doing the same thing. So how do you think about your communications? How do you write it? What do you write? What do your current LPs think of it? How do you think about it? It's incredibly, incredibly important. The the challenge, of course, if if you've got a small team is is how to do that. And then, of course, how do you apportion your time between capital raising for a new fund, particularly if you've a very small fund allocating to your current fund, you can very quickly see that people are quite stressed by by that.

[1:06:12](https://realalpha.app/v/-aC4qH9eMsM/?t=3972) There's a famous founder of a $200,000,000,000 plus private equity firm that is known to told many people that asset management is about generating average returns with exceptional customer service. Some... Yes. Well And that has worked to $2,200,000,000,000. So it's hard to argue with that that kind of strategy. I think investors deserve good communication. Especially when there's bad news. The ability to deliver authentically and honestly your case study from your worst decisions is something that I really... You know, again, we talked about integrity and so forth. That's something that I see that I hold dear.

[1:07:02](https://realalpha.app/v/-aC4qH9eMsM/?t=4022) Any investor who does a call with us, and not all of them ask, but anyone who asks, Can you give me your worst decisions, worst fund, worst company, learnings, observations? I will give them a thorough run through. I'll be honest with you, there are many things in there that I would say are not like a shines some beautiful, and it's not sort of recasting it as... That it's all wonderful characteristics, sort of slightly misaligned. About you be... Having no career, life balance, and overworking seventy hours a week. There there are some genuine mistakes. You know, there are genuine mistakes. Absolutely.

[1:07:43](https://realalpha.app/v/-aC4qH9eMsM/?t=4063) When I sat down with Jonathan Gray, president of Blackstone, I asked him, how do you manage LP relationships in a downturn? Mhmm. And he said, he goes on a plane, and he went out. And specifically, I asked him on 2008, how did he manage that? And he said, got on a plane, and he went and met with every major LP in person. And his peers were sitting and hiding behind their desk, and he went and did the thing. And in retrospect, it's obvious. That was the hard thing. That was the, quote, unquote, right thing. That was extremely painful and probably painful for at least a year. Just brutal. It's just like going going, visiting someone, getting yelled at, going...

[1:08:21](https://realalpha.app/v/-aC4qH9eMsM/?t=4101) Jumping back, staying at staying at a hotel. I'm sure his hotel was fine even then. Waking up in the morning, flying to the next place, getting yelled at, and doing this over and over and over and over and over again. And that is what it takes to build an org... Excellent organization. And the truth truth of the matter is most people just don't have that level of discipline, that level of conviction. They don't take their business to that level of seriousness in order to execute. It goes back to something that we talked about earlier, which is integrity and and taking seriously being a fiduciary.

[1:08:54](https://realalpha.app/v/-aC4qH9eMsM/?t=4134) People have entrusted you with their capital. And while no one's expecting perfection, they're expecting candor. They deserve it. And I think when you've made a mistake or we've made a mistake, you've got to own it. You you know, and it's just it's the human thing to blame someone or blame the market or whatever it may be. But but we make mistakes. We we miss things. We... No organization, no individual that doesn't.

[1:09:30](https://realalpha.app/v/-aC4qH9eMsM/?t=4170) **Gavin Ezekowitz:** But but I think you win you win trust when you are candid about those things, and then when you are clear about what actions you've taken and and what you're going to do to make it

[1:09:45](https://realalpha.app/v/-aC4qH9eMsM/?t=4185) right. If you don't come into the business that way, I'm not sure how you're going to handle what is inevitably going to be some pretty rocky spots. And I would say that my worst investment outcomes and situations have come out of a manager making a mistake. It was a genuine mistake, not only up to the mistake. I discovered the mistake sometime later, but they'd made a genuine mistake. Never really owned up to it. And it was the end of that relationship. It was... I mean, the mistake was what it was. Right? They had conviction, and they did a thing, and thing didn't work. I mean, okay. That's part of life.

[1:10:35](https://realalpha.app/v/-aC4qH9eMsM/?t=4235) But even at the time when it clearly didn't work, they weren't clear saying, look, here are the three things we really just missed. We just got it wrong. And we're gonna have to figure out how to, you know, go from here. But this was not... This was on us. Right? We we gotta own some of that. And and I think if you can't do that with me in that situation, I look down through the rest of the portfolio, and I look out over time, and I say, you know, life's too short. Don't don't need don't need to be Don't need to be wondering about that. Gavin, if you could go back to the beginning of your career, and you could give yourself one timeless piece of advice to younger Gavin, what would that be?

[1:11:22](https://realalpha.app/v/-aC4qH9eMsM/?t=4282) Doctor. Listen more. Find great mentors. It's the advice I can give young people today that there... And I see so many great young founders, particularly, who who really take this on board, that there is so much value early in your career to working for, or if you don't work for, finding in your world great mentors, people who will give it to you straight, people who you can ask, who don't have an impact on your direct career. It's rarely, you you get to work for great people, but that person often isn't the only mentor. You need other folks to give you perspectives, help you understand yourself better, help you evolve, push you to invest in parts of your toolkit that may be underdeveloped.

[1:12:25](https://realalpha.app/v/-aC4qH9eMsM/?t=4345) Know, I think it's fortunately, And, I see it so often in really great venture managers and founders that they inhabit this today, and maybe it's a time where people understand that better. But it is it is the thing that I I... There was, you know, probably a good decade in there where, boy, I I could have really used some really good, honest feedback. Well, Gavin, this podcast is my way to get mentored by some of the greatest minds in the world. So I really value you spending time, and thanks so much for sitting down. It's wonderful. I love the questions and really appreciate you having me on.

[1:13:04](https://realalpha.app/v/-aC4qH9eMsM/?t=4384) Thank you.