E254: How to Build a 100-Year Venture Firm

Mark, so you have one of the most fascinating and impressive careers in venture. You've had over 200 portfolio companies, including nine unicorns.

You've also co-founded 15 companies and had five exits on those companies, which we'll get into. And you manage over half a billion across the ecosystem.
You've also wrote a book, Fundraising Rules.

So maybe we could start with there. How is your philosophy as an investor and your basic principles of investing evolve over your prolific career.

I've been doing venture investing for the better part of 20 years at this point. Venture is a complicated asset class in part because it takes so long to see the full cycle.

It takes typically 10 years to see an investment from beginning to end.

So until you're 10 years into the venture game, you still haven't seen kind of the back half of how things operate, how to manage exits.

Over time,

you know, having seen this now for a while, you do start to think about the business differently. Liquidity strategies and the realities of exits start to frame how you invest up front.

You start thinking about trades on risk and reward in a way that is a little bit more vague and amorphous when you're just playing in the first half of the game.

So I think how it's changed for me is trying to see

the outcomes at the point of entry and assess risk in a way that doesn't mitigate getting exposure to power law and big outcomes because you're kind of in this particular asset, there are a lot of unknowns.

And so, if you over-manage risk, you can find yourself with low yields. So, the balancing act is a little different than in some of the other asset classes.

And what are the most counterintuitive lessons that you've learned about maybe how venture is different than other asset classes? I think when I started in the business,

I call it the tech crunch punch. People get drunk on the optimism and hope of what all of the companies might become.

And that feeling of optimism and kind of blind investing is a byproduct of having so many unknowns.

When you compare that to a real estate transaction or an LBO, where you can see a set of cash flows that you can pretty much sharpen a pencil on and they're unknowns still, but they're fewer and further between, you have a more of a lens of the future.

In these businesses, everything is in the terminal value. Everything is in the future outcome.
So the investing psychology at the front of the game

is very confusing in the beginning. I think for a lot of investors in the first five years that they're in the venture seat, they're really investing

in these concepts of hope and ambiguity.

And what tends to happen though after a while is you start to see the patterns of the outcomes, even if they're not your portfolio companies watching the exit market, when a lot of early stage investors are going into deals, they're underwriting everything to, you know,

the outcomes that get written up on TechRunch. That's why I call it the TechRunch punch.
They're thinking all about unicorns. And unicorns certainly are part of the game.

But the reality is a huge chunk of the venture outcomes sit in that eight-figure or nine-figure zone, and they can constitute part of a yield.

So it's important to understand what those outcomes might be. on the way into the initial bet.
And is this when you're investing at the preceding seed?

A lot of VCs will say the exact opposite, which is the only thing that matters are your winners. So how do you reconcile these two worldviews? The dependence on the outlier,

the power law, is justifiable logic. The one twist, though, is the winners do carry the day when you have the mega hits.
We've had a lot of those.

But what you see in a lot of fund managers is huge variance in yields across vintages.

So in the first vintage, they might have a big unicorn outcome that'll offset all of the other great performers in the portfolios. They won't matter.
And that's why the outliers do matter, right?

This idea that the winners carry the day. They might get to their next vintage and they might not have a unicorn.

And if they haven't done any risk management on the way up to create a higher hit rate or a success rate or taking money off the table through those cycles, those vintages may not perform as well.

And so what you see in a lot of managers is these huge swings in performance between vintages. And a lot of LPs mitigate this by investing in a lot of managers.
As a GP,

that's hard to stomach. Having a great fun one, a bad fun two, a great fun three, a bad fun four, there's a lot of roller coaster in that.

And so for me, I personally wanted to try to architect a model and an approach that would pursue the outlier outcomes, pursue the power law, but do so in a risk-managed way to the extent possible to increase the consistency of those performances across vintages.

Part of that story is not just chasing the outliers.

It's when companies end up not being outliers, thinking about how to seek liquidity in a reasonable way to make sure there's still performance and they're still contributing to the portfolio.

In that mindset, it's not just the top 10% of the portfolio that carries a role in contributing to a yield. It's the top 80% of the portfolio.
And how do you practically do that?

In other words, who are these buyers that are buying the 80% of the portfolio that are not the outliers? And how do you manage liquidity in your portfolio?

The twist is when you enter into the venture business, most of the opportunity sits in M ⁇ A and IPO. Those are the two passive layups.

If you as at EC, you kind of sit around and want to say do nothing, but in theory, do nothing. The entrepreneurs will typically drive towards those outcomes at some point.

The twist is for the companies where those opportunities aren't presenting or aren't presenting soon enough, there are a couple of other avenues that are not as often pursued. One is secondaries.

And there's a couple different flavors of secondaries now in the market.

And increasingly, there seems to be a little bit more of this mid-market private equity M ⁇ A coming after venture portfolios where the growth growth is stagnated, but the cash flows are robust.

That's been a walking dead category in the venture ecosystem for quite a while.

And now that the business models in venture have materialized, it's really wonderful to see that there's a bit more of an ecosystem and a viable pathway there.

But touching on the secondaries, there's a couple of different categories of secondaries. There are secondaries that GPs face where they're selling a position at a 30%, 40, or 50% discount.

These are the downground secondaries. More interestingly, there are secondaries that come when a new lead investor is trying to buy more than 20% of the company in the next round.

There are these mega funds out there, and when they want to get ownership in a great company, typically these are the best companies in the portfolio or ones that are doing pretty well, that can underwrite,

these large investors will show up.

They'll write a check to buy the 20%, but if they're trying to get to a 30%, 40%, or 50% ownership in the company, which is in some part a byproduct of their fund size,

they'll issue a secondary tender for existing shareholders. The novelty of these offers is significant because they typically do not come at a discount to the current round.

They're typically priced at the current round's valuation.

So if you're an earlier investor that's either been holding a position for quite a long time and wants to put some DPI on the board for your LPs,

or you think that the current valuation might be in excess of what the company can grow into in a reasonable timeframe, Those liquidity moments are really significant opportunities.

It takes some time in VC to learn to take those deals, but those generally are pretty interesting moments to evaluate, taking some of the chips off the table in a deal.

I used to have a rule that if Sophbank comes in and they were famous for doing this in 2021, I would sell via secondary.

The idea being that they have so much capital to deploy, their cost of capital is lower, which is a nice way of saying they're probably trying to earn 8% or so on their portfolio.

So if I could beat that 8%, I should be selling, especially if I'm selling secondary into this kind of primary pricing, which is they were known to do.

What if it's a top quartile fund, call it a Sequoia, Andreessen, Excel, et cetera, that's the buyer? Shouldn't you keep your chips on the table?

And if not, what are some rules of thumb that you go about deciding whether to sell or not? It's one of the harder decision sets that VCs face.

You're still weighing the unknown upside of a business in many cases.

And you know that the company...

you know, is a real business and one of the companies that is likely to deliver some real upside in the portfolio. So you don't want to sell too early.

The way we've kind of figured going about it is we've tried to actually underwrite the current business. So we look at what the actual business fundamentals are at the time of the round.

Try to back into expected IRR ranges.

If we think they're accretive to the portfolio, what we think the outcomes are from this point, meaning the valuation is low enough to where we think the exit horizon is, we will sell less typically.

If we think it's very hard to underwrite to a high net IRR, as you said, some of the new investors might have a lower target, lower threshold, we'll typically lean into the cell.

The rule of thumb, though, where this all gets abstract is what if it's a tweener? And the tweeners are really hard in business decision making with imperfect information.

Where we've landed is in most of the tweeners, we're going to end up taking half the money off the table. That has been a good rule of thumb.

So you're still participating in the upside, but we're generating DPI proactively for LPs.

Thing I would say on this is these are incredibly challenging decisions, and we look at each bespoke deal as a unique opportunity and redo a complete underwriting as if it's an initial entry into the company.

At this stage, buying at this valuation, can we get to a yield level that's going to make us happy with the performance?

In brass tax, most VC firms do not have a preferred rate that they have to be in order to get carry.

So on average, VCs are highly incentivized to maximize their moik or their multiple versus their IRR in the short term at least. In the long term, you want to keep your LPs happy.
And

talk to me about that. And aren't VCs essentially their incentives misaligned with their underlying LPs in these specific cases?

I think there are a number of scenarios where VC incentives can be a little bit out of whack with their LPs. We are in an asset class with extremely long hold times.

To be extreme about it, one could say that some GPs might come into this business knowing that if they can raise a couple of large funds in a row, they'll be retired before the results are in on those funds and they'll have made money in the process.

So, the critical success factor there is access to capital, not performance. Every firm is different.
There's a lot of wonderful ethical players in this market.

So, I wouldn't want people to be discouraged by VC. I think they should be thoughtful about who they're partnering with.

For us, the ambition is a little different.

We wake up and think about how to build an enduring New York institution.

And if we want this firm to outlive its founders and continue to be a valuable contributor to this ecosystem, we're not going to be measured by how successful we are financially as individuals when we're on the beach and retired.

The firm is going to be measured or by how much money we've raised. We're going to be measured by our actual yields, our performance.
So our motivation is to actually nail the returns for the LPs.

And I think that makes us uniquely aligned. And it's a philosophical alignment.
There's no

quantifiable way to get someone to want to build an institution, right? It's probably not always in my economic best interest, but it is what inspires us and gets us all out of bed.

So we're trying to build this long-term hundred-year firm in New York. And we may or may not succeed, but we're going to give it our best.
But if you're trying to do that,

if you're trying to do that, the calculus is very different because what you want to do is create product and results that's going to make LPs want to come back and partner with you.

And so it creates this implicit, very deep alignment.

Yeah, I think about this challenge of VCs being arguably the best narrative creators in the world by virtue of requiring, by virtue of needing to be.

If you're a private equity, you might have a sale in three years. If you're a VC, you might not have one X your DPI until you're eight, nine, 10, sometimes later.

So you have to, in order to survive, you have to be great at these narratives.

Really paying attention not to what narratives VCs are spinning. I kind of think about narratives like sales or like plastic surgery.
You only know when it's, when it's done poorly.

If somebody does a really good job selling you, you don't think of them as a salesperson. It's another way that people that people think are great salespeople are actually like B salespeople.

The A salespeople just sell and just align. But on the narrative side, it's so hard to really disentangle what's real and what's not.

You have to really almost ignore the narrative or take it with a significant grain of salt and then look at the underlying behavior. How big is the fund size getting? How big is the GP commit?

What are the actually financial skin in the game signals that the GPs are doing in pursuit of LP value and LP returns? I would add to that.

I think also simply evaluating VCs on the underlying strategy and operations.

There's kind of two versions of this business. There's what I consider more of a brokerage model.

It's a pool of capital, a group of partners, and each partner is running out, doing their deals, and you get what you get at the end.

And then there's businesses, there's venture firms that are run a lot more operationally, where there's thoughtfulness and effort put into customer service for entrepreneurs, how happy the portfolio company CEOs are, how the LPs are being serviced.

And those differences are not trivial.

So there's this shift from merely kind of moving money around to building an institution and an organization that's going to have durability and depth in its value proposition. That is accessible.

It's one of the few things in venture that is ascertainable from the LPC because you can get into it through the fundraising materials and conversation.

Now,

there's... I have a bias, obviously, for the more institutional operations.

The brokerage model VCs can do very well if the partners are really good investors. But I think there is

more inherent volatility and risk in that model long term. And in that vein, talking about essentially the success metrics and the customer satisfaction of the portfolio CEOs,

second-order effect of that is the top founders will come to you as a VC firm and you're going to, on average, perform better than people that are getting second or third tier founders.

When you're competing against Andreessen Horowitz, Sequoia, that are building these war chests of services, services, how do you go about doing that in this hyper-competitive venture market?

And how do you know, how do you track internally whether you're on that path? So everyone's got a different approach to how they play in this market.

And it is a hyper-competitive market and a market in which the surplus of capital has been increasing over time.

And I would say the negotiating leverage has shifted over the two decades I've been in the business in favor of the entrepreneur.

So the VCs are in a weaker position now than they were in 2006 when I started in the business.

Our approach to it is we've had a very high success rate at getting into extremely competitive deals.

For us, the solution to that, what's enabled that success, is we have carved out a really unique niche in the space.

We seek to be the dominant value-add institutional non-lead partner for Series A founders.

Now, that's a mouthful, but what it means is Most of the VCs who are chasing these deals are seeking to lead the rounds. They're going to write the largest check, set the terms, and take a board seat.

And that is where most GPs want to apply, and there's a simple reason for it. When you're in that seat, you get to write a larger check.
That backs into a larger fund and a larger management fee.

It's good for business. We have decided to stay in the non-lead category.

And the non-lead category is the litany of smaller firms that are trying to fill out the remaining $3 to $5 million in a $10 to $15 million Series A round.

Most of the firms who compete within the space are family offices, small angels, angels or or small VCs. There's very few institutional players.

Most of the firms that become institutional try to graduate from this back seat of the deal to the front seat, again, so they can write a bigger check, manage a bigger fund, and have bigger management fees.

The strategy for us is by staying in that back seat, we're trying to be an NBA player in the high school basketball league. If we can position ourselves, which I believe we've done, to be...

this institutional value partner for entrepreneurs in the back seat of the car, it's a very big differentiator. A couple things.
One, we're not competing with any of the lead firms.

We are the, like to say, the humble Robin to everyone else's Batman. So we never compete with Sequoia or any of the great firms in the market.
We are their partner.

Two, the entrepreneurs are choosing between us and typically a litany of smaller firms that really aren't set up to help them. We act and operate like a lead investor, even though we don't lead.

We do our own diligence. We have a very deep operational experience within the partnership and a lot of operational capabilities across our platform.

And we keep reserves to support companies after we've invested. The only nuance is we don't issue the term sheet and take a board seat.

So when you put that framing together, our competitive set is really appealing. And we get picked a lot of the time, nearly always, by the entrepreneur to be in the cap table of the deal.

The reason we do all of this is while it limits us from, prevents us from managing larger funds, This high access rate to the most competitive deals allows us to keep our standards very high for what we're investing in.

The net result is portfolios at the Series A level that are denser than typical with winners. And that's translated into very strong performance.
How do you accomplish that? I mean, that sounds great.

Sequoia Andreenson's leading around everybody in the world, including, like you mentioned, family offices, but other VC firms want to get that allocation.

How do you put yourself in a position to win that allocation? One, we've been in this market now for a better part of 20 years. Just through my career, you build a lot of relationships.

And this is a goodwill karma industry. More you give, the more you get.
We're constantly helping people and have been now for a couple of decades.

And that comes back in proprietary deal flow and opportunities that may not be on the market.

Second is we've developed a team that has deep expertise in evaluating the opportunities because you have to know which ones are worthwhile.

Simply having a great lead firm at the helm of the deal doesn't mean it's going to work out.

Every wonderful firm in the market has dogs in their portfolio. So we do our own diligence and our own underwriting to evaluate it from our heuristics and our perspective.

But when you get to this point of access,

again, most of the firm names we know are fighting it out for the same lead seat.

So if a really hot deal has 10 interested lead parties, that entrepreneur is going to pick one, maybe two to participate. That means up to eight firms just got cut loose and didn't get in.

By not competing in that fight, by coming in in the non-lead,

we're just in a different set. Now, again, in these deals, we might have 20, 30, 40, maybe even 50 small firms that want to compete for the non-lead seat of these deals.

These are very attractive deals that we're targeting.

But uniquely, we're one of the few institutional operations in that category. And in addition to that,

we've built out a very robust operating capability and probably more importantly,

a tenure of goodwill and operational support to the markets that we reference really well. And entrepreneurs do that work usually when they're in these seats and that gets a set.

And the timing, you mentioned these 10 lead VCs competing for the deal. Are you talking to entrepreneurs before that process, concurrently to that process, or immediately after that process?

Yeah, it depends. The market's imperfect.
About half the time we're there before the leads issue a term sheet.

Half the time, other leads will come and say, hey, we just signed a term sheet with this great company.

We'd love to bolster the cap table and bring some more operating support on, some more smart people around the table. Have a look, and we'd love to have you come in to the non-lead seat.

That's how how our portfolio comes together. But just to focus on the first part, we have developed a proprietary deal flow.
Again, we operate like a lead firm.

We do all the non-scalable content production. As you know, I have my own podcast, not to your scale, but it's out there.
We do blogging. We host community dinners.

We're just giving a lot to the ecosystem. And that generates goodwill in deal flow.

When we get to the deal first, We act and operate like a lead investor. So we'll go ahead and do our own underwriting.

If we like the deal and we've we've done the work on it, call customers top to bottom, we are a diligence heavy shop, we will commit to the entrepreneur pending lead and terms.

So we give a soft commit. Entrepreneurs love this because one, they get to walk into all the leads they're already talking to and say, hey, interplay's in.
They've edited it.

Call them, hear what they think.

They're in and it's a source of market validation. But two,

once we make that commitment, we'll typically help the entrepreneur meet other lead investors that we think are well suited to their particular company.

It might be talking to three, four, five wonderful lead VCs that are interested, but they may not know the industry as well.

Or there might be different matches at other firms that might be really unique to them. So we try to help be a steward of that.

And if you're a lead investor and we knock on the door and say, hey, we've done the work on a deal. We think it's fantastic.
We'd love for you to have a look.

That usually gets to the top of a firm's list, right? They usually kind of accelerate to a meeting. And for the entrepreneur, That's wonderful.
It saves them a bunch of time.

They go from being an unknown to getting a little bit of a red carpet.

And for the VC, it's great because hopefully we save them some work and shown them an opportunity that's worthy of their investment. We've all heard horror stories.

We've heard about sharp elbows of different VC firms. In your 20 years of doing this, what percentage of the time when you introduce a VC to a deal, do you get yourself cut out from that deal?

That never, that has not happened to us when we introduce.

Look, in the deal set we're working on, these companies where I don't know what percent of the Series A market they are, but I want to say they're kind of in the top five, 10% typically.

We We always obviously believe they're top 1%, but you're not always right in venture.

These entrepreneurs have access to capital. They are oversubscribed.
That puts a lot of decision-making power with the entrepreneur, not with the VC, about who gets to participate in the round.

So when we make these intros and commit early, the goodwill it creates with the entrepreneur usually is significant. So almost always we not only get into the deal, but we get our target allocation.

There's some magic to being quick and helping the entrepreneur in their journey that comes back in goodwill when you look to write a check.

That hasn't happened to us.

So just to double click on that, because these are hot deals and there might be four or five lead term sheets, not only does that create a different dynamic where the lead investor can't say, well, you entrepreneur need to do A, B, and C, the entrepreneur also doesn't feel pressure to cut you out.

in any form because they they they're not thinking from a place of scarcity. They get to pick their lead, whether they pick ABC firm or BCD firm.

It's not going to make or break the company necessarily. So they're not in a situation where their back's against the wall.

So they're able to act more in accordance with their values than if they had this kind of binary decision. Very much so.
And it's a different dynamics.

For us, the customer, if you think about it from this side of the business, is the entrepreneur. It's not other venture firms.
We love partnering. We try to be a good partner with everybody.

And that's one of the luxuries of not being in a lead seat. You can kind of stay out of most of the hairy conflicts.
But the

entrepreneurs are getting to kind of write their own ticket within reason. There's still a market for valuation and terms.
And we're, I would say, on the more valuation sensitive side of the market.

But they get to pick their partners.

And that's really important for just their happiness, mental health, and also for them getting real operational support that's going to unlock value in the company. Curious,

is there ever a parallel universe where? When you want more for your business, start with Northwest Registered Agent.

You could build your complete business identity in just just 10 clicks and 10 minutes. Everything you need to launch and protect your business is all in one place.

Your business identity is more than what your customers see. It's also legal paperwork, website security, and compliance behind the scenes.

With Northwest, you get more, more privacy, more tools, and more guidance. Northwest Registered Agent has been helping entrepreneurs for nearly 30 years.

They're the largest registered agent LLC service in the U.S. with over 1,500 corporate guides who know your local laws.

You could form your business for just $39 plus state fees, get an LLC, domain name, business, email, phone number, business address, registered agent service, and compliance tools.

Again, all in 10 clicks and 10 minutes. Northwest also protects your identity by letting you use your business address on state filings.

And with mail forwarding in 20 states, they'll scan your mail and upload it securely the same day. Privacy is automatic.
They never sell your data. Don't wait.

Protect your privacy, build your brand, and get your complete business identity in just 10 clicks and 10 minutes.

Visit www.northwestregistered agent.com/slash paid invest and start building something amazing. Get more with Northwestregistered Agent at www.northwestregistered agent.com slash paid invest.

You might have gone with the same firm, but because you have competitive tension, forget about valuation, but the support post-investment is better.

In other words, different partners or different infrastructure that gets unlocked by negotiating with the same VC.

Do you ask that a different way? So let's say there's two situations. Let's say there's ABC Top Decile Fund and they're the only ones that are interested in the company.

Another one, they're one of five firms.

Outside of valuation and terms, which obviously are very important, is there other ways to unlock special resources at the same top decol fund that you would have not had.

had if they were the only on terms you on two?

No, I think it's really it's not really tapping into different operational resources.

Firms that have operational resources are usually leaning in and leveraging them for all the portfolio companies, at least in theory.

The more nuanced part of it, though, when they have five options, they might get to think about non-economic terms and considerations.

So, look, venture deals aren't the most complex structures, right? There's kind of eight-ish

variables. They're all A, B, or C toggles, and then there's a valuation.
It's pretty simple.

But the entrepreneur might get to pick pick who they feel is a good actor, who other entrepreneurs liked working with.

A person, maybe they might get to prioritize integrity with their partners in a way that they couldn't have if they only had one option. They might get to partner cultural or prioritize cultural fit.

You know, if they laugh with a partner, that matters. These are stressful journeys, right? Entrepreneurship is not for the meek.

They're highs and lows all the time. So picking your partners and having the human dynamic well aligned, very important.

And there's also, look, you know, you mentioned earlier, there are some bad actors in the market.

Bad actors who go against kind of the grain of the cultural norms of how venture is done, which are well established for a reason, can destroy value, blocking future rounds, threatening lawsuits at inopportune times, just behaviors that kind of lock the company down and prevent it from accessing resources at critical junctures where it might need that.

So picking the partners is important. The good thing is most of the players are great in the market.

And so as long as you avoid those edge case bad actors, you're probably in okay hands by getting to be picky. That's always wonderful for an entrepreneur.

And to explain why this dynamic might happen in an efficient market, one partner might be a very good operations partner and very good board member for the underlying startup, but they may not have the same Rolodex as another VC that might have gone to Harvard Business School, been a Sequoia spin out.

They just have more capital and they have more reputational capital to bear.

So it's not really an efficient market in that the people with the best integrity and the best operational support are not always the ones with the most money.

Oftentimes that could be one and the same, but it's not an efficient market as you would imagine, kind of the public stock market. I think it's short-term and efficient, long-term efficient.

That's my view on it. And so there's tell me more.
Yeah, I think it takes a long time for LPs to figure out, look, there's a lot of GPs out there.

They're all going to show up. They're all going to have a similar stick.
They've all been involved with some great companies along the way. It's a lot of large numbers.

And how do you tell who the firms are that are going to have longevity, be high-integrity actors, be good stewards of capital, be good partners to all the other players in the ecosystem, and kind of stay the course, not do it for a couple of years, see a payday and retire?

There's nothing wrong with any of those, like a lot of those choices. Like retiring is perfectly fine for people who that's priority.

But the

market, I think the entrepreneurs have an opportunity in a way that LPs typically don't.

When they have options, which they don't always, I would say most of the time, they're just scrambling to get a deal done.

We're playing in this small subset of the market with many of the most attractive companies where they do really typically have options, but it's not the norm.

When they have options, they're typically doing some homework if they're a good entrepreneur to figure out who's going to be good to work with, who's going to be helpful.

Some VCs have deep operational expertise. They can help them make business decisions that are difficult difficult and nuanced.
Some have good Rolodexes. Some have industry domain knowledge.

Some have none of that, but are just great investors and are good at picking. And maybe can be a bit of a beacon to attract other capital.
So there's different things on the menu.

When an entrepreneur is constructing their syndicate in an optimal way, what they're doing is they're typically picking a team, a team that can kind of represent those different capabilities.

all and completely in aggregate. Where we try to really help is our team is really dense with entrepreneurs and the partnership.
So we can be very helpful on the entrepreneurial side.

We also have a litany of capabilities in the platform that are very unusually robust in the market. We're constantly helping the people in the portfolio, the founders, find talent.

We're making tons and tons of intros in a way that I think is fairly abnormal in the market. We're helping with PR.
And then we've got a litany of operational capabilities from companies.

that we have around the platform. You put all this together.
It's a pretty compelling part of the equation, but it's not the only part of the equation.

You know, they'll typically look to a lead investor to have deep pockets to be able to fund them for future rounds. We can help with that, but you want to have a strong lead with a big fund as well.

So proper portfolio, citica construction, if the entrepreneur really has choices, which many of the portfolio companies we're talking to do,

can be a little bit more nuanced. And you can be bringing in different players that in collective as a group, make a really strong team to help the company.
I start out the interview highlighting you.

You have a venture studio. You've co-founded 15 companies, you've had five exits.
What are some non-obvious ways that that helps you be a better venture capitalist?

You cannot learn entrepreneurship in a classroom. Unfortunately, you can learn a lot of the ways to frame out certain decisions, but the emotional stresses, the human dimensions, it's complicated.

We have been, our team is comprised of kind of lifelong entrepreneurs across the board. And so as a group, we haven't seen every dynamic, but we've seen a lot.

And that helps us help entrepreneurs and help them navigate through complicated decisions.

Additionally, the companies we started before raising outside capital, we built these companies before we brought in capital for the venture fund, many of them were services for venture-backed companies.

So things like commercial and health insurance, marketing, leadership training, accounting tech CFO.

That group of companies scaled and became one of the largest collective providers of services to venture-backed companies in America.

At our peak, we were servicing about one out of every 10 venture-backed company in the country.

Why that matters is when we partner with a portfolio company and they wake up and they've got some sort of obscure operational issue, which is kind of almost a weekly occurrence in the fire pit that is entrepreneurship, we're often their first call because same day we can get them on the phone with someone that maybe works for one of our companies.

Maybe we know, maybe we've built relationships with throughout the years that can typically diagnose the issue, help them resolve it personally, or point them in the right direction.

And, you know, look, most entrepreneurs are their first or second time founders or third.

There's so many types of issues that you might encounter in the field as a founder that having the ability to make that call, there's always something new.

I think it mitigates the odds that you're going to spend two, three, four, five days a week mired in the moment of uncertainty, of not knowing where to go or how to resolve the dynamic.

If you get to the person who has seen this before and has a framework for how to evaluate and solve it, it's a huge unlock, not just from an operational perspective, but an anxiety.

You know, people like to joke in VC about a third of the job is being a therapist for the founders. It's pretty real.

It's a hard go. So being able to take these friction points out of the equation very quickly, I think takes a lot of pressure out of the dynamic in those moments.

Gorov Jain of 4 taught me this concept of the 500 problems that every startup has. And these are evolving.
These are time-based too. So 2025 startup might have slightly different 500 than 2024.

But every startup thinks these issues that they're solving, and also every venture capitalist thinks that they're idiosyncratic, but there's a lot of patterns.

You mentioned this idea of not being able to learn concepts like entrepreneurship in school.

I recently actually just learned of a new concept called unlearning, which is in psychology means the process of letting go of old learnings. And it so happens to be that

our minds are structured in such a way, it's called cognitive restructuring, and that by definition, anything that we learn for a specific purpose, like school, we almost immediately unlearn.

So the whole process of our minds are so complex that it holds on to information that you learn in your own pursuit, and it automatically deletes or majorly deletes information that you learned for school because it knows the end purpose for that learning.

I don't know that philosophy, but it resonates with me. I would argue there's a final phase of it.

And again, I'm not a psychologist, so I'm sure the person who wrote that paper knows this better than I would, where there's a reintegration. I think about you learn these frameworks in school.

You know, I studied venture capital as I was starting out in the business.

I went into the field to start practicing the investing capability and definitely went through a period of unlearning, felt like I was breaking all the frameworks.

And when I could finally see the patterns in the underlying companies and dynamics, I started to realize over years that the frameworks actually worked, but I couldn't see how to put the frameworks into practice in reality.

So there was this integration period where things started to coalesce back towards the teaching, but with a deeper understanding where I could actually make use of it.

I had the same experience when I was in high school as a wrestler. You come in,

someone throws you into a, you know, a match. You've never been trained a thing.
You don't know what you're doing. On a one to 10, you're probably maybe a two or three, just innate, scrappy person.

You're holding your own. You start to learn the moves.

It breaks you down. You get worse because you're trying to move in ways that maybe are not instinctive or natural.

And then as you master them, all of the instincts and the and the prescribed motions start to recoalesce, integrate, and it allows you to hit new heights.

So I believe that these things can kind of come together. I do think there's an academic component to entrepreneurship, to be fair.
I'm going down to Duke my alma mater

next week. I do every semester I do some guest lecturing.
But I think you have to put them in practice to really absorb it and internalize it. And it's hard to do from the sidelines.

You have to be in the entrepreneurial seat, making some seemingly impossible choices on a daily, weekly basis to start to integrate these insights in a real meaningful way.

I spent one of my masters of psychology, and even today I'm still fascinated by it. I spend a lot of time thinking through these thought experiments.
There's two concepts that I really like.

One is an epistemology, which is knowing how do you know something.

And there's just unequivocally a deeper level of knowing on doing it versus knowing. So you can know academically, but you don't really know it to the same depth until you do it.

The other aspect about it is human beings are wired. Homo sapiens are wired in such a way where you kind of have to see it to believe it.

And you'll notice this year as an entrepreneur, a lot of your family members might not know what you were doing or like they saw this as like very esoteric until you got a new house or you got a new car.

They're like, oh, okay, now I see that this is real.

Every individual, including entrepreneurs, there's something about seeing viscerally with your own eyes that's very different than knowing it in your brain. And you can't shortcut that.

You must see it with your own eyes. You can't even see it through a video, but there's this like deeper level of knowledge that comes from.

dealing with something on the ground with your own hands that's not fully captured in how people think about.

I love that point. And I would say in entrepreneurship, it's further compounded in complexity because many of the challenges and disciplines that people are trying to learn patterns on are abstract.

Someone said something with a certain emotional undertone, and it's not the same as laying a brick where you can kind of intuit what you're seeing pretty objectively. You have to abstract out.

You have to start to see the patterns. And so I think it takes even more reps to get to a level of mastery because so much of it is subtle, nuanced.

There's so much of these management roles, whether it's consumer psychology, customer psychology, employee psychology,

that is abstract and hard to pin down sometimes, that it just, it requires a lot, a lot of reps to get mastery. There's a concept in Japanese culture called Shaizin.
I'm probably

mispronouncing it. It's a tea person.
It's somebody that spends their entire life learning how to make the perfect cup of tea. It's a Zari-Heralded position.

And certainly, if you could spend your entire life perfecting tea, something, as you mentioned, as abstract as entrepreneurship and as dynamic and as constantly evolving with different market players, different, there's game theory between different parties, different narrative dealing and all this, certainly it's could take several lifetimes to master.

On that note, going back to before you started interplay decades ago, what is one piece of timeless advice that you would have given a younger mark that would have either accelerated your career or kept you from some very costly mistakes?

I think the main thing I didn't understand

was

the compounding role of care. Warren Buffett frames it much more eloquently.
He's got a HBO documentary special. We all know compound interest.

And he kind of takes a play on that and talks about compound decisions.

I took taking the entrepreneurial path and the VC path is one of the longer journeys in the business community. There are other ways to get to financial success more quickly, right?

There are other markets where paydays come more rapidly.

And maybe even the learning cycles are shorter.

So I chose what I consider one of the longer paths. I was passionate about it.
I didn't really have a choice in my mind.

And I think what I didn't understand as I was toiling through the journey was that simply having endurance and humility and a commitment to the craft of getting good at entrepreneurship and investing and constantly learning with enough time will give you success.

And so for all the people who are out there in their 20s and they know they have what it takes to go the distance, they're not going to give up,

the word of advice I would give them is that simply having the endurance to keep going will drastically, exponentially increase your probability of having good outcomes. Maybe you'll hit at 30.

Maybe you'll hit a 35. Maybe it'll be 45.
Who cares? But it's probably going to happen because if you just stay in the game, you're going to get these compound decisions working in your favor.

You're going to build goodwill and relationships. You're going to keep gathering information from all the lessons you learned.

And as other people who are maybe less passionate or committed about the role in and of itself retire for all good reasons, you might be eventually one of the wiser people standing who's still in the play.

So stay in, stay committed. And I think it's a story of hope for people who are kind of starting a longer journey in entrepreneurship because they're passionate about it.

Just to add to that, I think about always how do you operationalize things like staying in the game?

And that is leaning into perhaps the non-financial aspects of that that make it intrinsically valuable. What does that mean? Work with people that you like.
Perhaps you gain.

ego from being a VC and telling everybody you're a VC. Good.
You're aligning yourself with staying power. Perhaps do it in a city that you like and all these things.

So how do you stay in the game long enough? You find ways that are outside of a direct financial outcome or a huge exit that basically keeps you staying on that path.

Because while you stay on that path, especially with ups and downs of VC, you need to be able to weather that storm. And you weather that storm with the good times, not just avoiding the bad times.

A slightly different version, but I think relevant for this is work-life integration. It's putting the pieces together.
I adore the people I work with. That's huge.

It gives me psychological fulfillment to walk in the office every day. I'm not dreading it at all.
I love it. That makes it so much easier to keep going.

So having these, crafting the opportunity set

around things that give you meaning and purpose. I love the work we do.
I think it's having positive social impact in addition to creating value for all of our partners. That's massive.

We have companies that I literally think will save lives. So putting these pieces together, I think is very

for wanting to stay the course. And I do agree with what you were kind of implying.
It's really an exploration of yourself.

You have to figure out what motivates you, what you care about, and find ways to craft and architect an environment that makes that attractive.

Outside of reading your book, The Fundraising Rules, what are other ways that people could keep up with you and get in contact with you? I'm pretty easy to get to. You can find me on Twitter at MPD.

I have a podcast, which is Innovation with Mark Peter Davis. You can find it on the Enterplay website, interplay.vc slash podcast.

I'm on LinkedIn, and

I'm one of those who actually tries to respond to everybody. I have a 100% response rate goal in my life at a zero inbox.

So if you reach out, you're probably going to hear something back, and hopefully I can be helpful. Well, I've been looking forward to this.

I think we have 632 mutual connections on LinkedIn, which is somewhat of a vanity metric, but it is directionally indicative of your reach. That's it for today's episode of How to Invest.

If this conversation gave you new insights or ideas, do me a quick favor, share with one person in your network who'd find it valuable, or leave a short review wherever you listen.

This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.