This is a great lesson to learn. I've had people disbelieve me when I've told them some of my most memorable and important conversations have started off with someone telling me I was wrong. Being able to discuss, defend, and articulate a point a view with someone who passionately disagrees with it teaches you how your point of view is perceived and received by others.
It is of course a less useful experience when someone disagrees with you but they cannot articulate why. I will try to probe disagreement to understand their point of view at least as well as they do in order to understand why we disagree.
A hard raise is just such a protracted disagreement in some sense.
>my most memorable and important conversations have started off with someone telling me I was wrong
OT: I just had a conversation like this that was one of the most enjoyable conversations I or my partner had had in a long time. We sort of had an unspoken agreement where she was just going to challenge everything I said and force me to explain / defend all of my positions as we wandered all over various political and cultural topics. It was a blast!
We were at a party, and people kept checking in, like they were worried we were in a fight or something, which was kind of funny.
13.91x return. It doesn't appear all capital was called, but assuming it was, on a $100m fund the return is is $1,391m.
Assuming 2/20 economics for the partners, that's $278.2m returned to the partners.
2% MGMT fees would be 2m/year over 10 years ($20m), but that probably had nuance (drawdown after $x years, or % of called capital) and/or had to be paid back, so let's ignore that.
Assuming Brad and Fred each split the carry 40% 40% (and 20% for other people) that's about $100m return to each of the two major partners.
Nice return for delivering a great LP shareholder return on a reasonable timeframe.
Whenever I read such things I like to think about what a seriously contrarian investment thesis would look like today. My guide is always what I, personally, would consider completely insane. Here's a few:
- Bet on large-scale increases in employment in the USA and other developed countries in the next 10-15 years.
- Bet against Apple and the Apple model (very polished vertically integrated silos) and its dominance in the market.
- A big long bet on the music, film, or media industries.
I don't have the spare cash to make significant plays but if anyone else is looking to lose money (or make tons) betting on something looney there you go. :)
Here's one I remember thinking about years ago and considering crazy:
- Betting on oil prices going down, or on energy abundance vs. scarcity.
Years ago I was convinced that energy was going to get more expensive for the foreseeable future for fundamentally inescapable physical reasons. Obviously lots of other people were too because lots of people proceeded to lose their shirts on it. Fortunately I was not in any way invested in this thesis.
I think we will see a general increase in the power of the media industry over the next 10 years. Prices have bottomed and as AI gets better at predicting individual tastes we should see an increase in perceived value by consumers which should increase both consumption and prices.
Oil is going to go down in price as other sources of energy become cost competitive and start to dominate the energy mix. There might be an energy shock due to supply disruption, but oil will never reach $150 a barrel again unless we get some massive inflation.
At this point everyone has given up on the idea that central banks printing lots of money causes inflation. If you want to be contrarian bet on massive inflation occurring in the next few years.
The important thing to keep in mind here is that the contrarianism of a bet is very obviously not a sufficient condition to make it a success. It's just that being contrarian AND right will usually be a more valueable bet than being right AND doing what everyone else does.
Thus a successful contrarian would invest in things that everyone else considers insane, but where she herself has a good theory on why they are actually not insane.
>But that fund, USV 2004, has been one of the very best venture capital funds ever put together. The numbers are public because many (most) of our investors are public pension funds who have freedom of information act (FOIA) obligations to report the performance of the funds they invest in. At that time (early 2000s), the big VCs in the bay area were kicking out FOIA obligated limited partners out of their funds. That was a huge win for us and we got a bunch of those FOIA obligated LPs into our fund.
To contrast, Sequoia Capital is a famous example of a VC that doesn't allow LPs with FOIA obligations.
Wow, I looked at Fred's linked pdf from the Oregon Public Employees Retirement Fund and saw some amazing IRRs:
+ Union Square Ventures 2004 fund +67.0%
+ Union Square Ventures 2008 fund +22.2%
+ Union Square Ventures Opportunity Fund (2010) +63.8%
+ Union Square Ventures 2012 fund +27.2%
The Oregon table doesn't have the funds' total sizes. Fred volunteered that info in a different comment:
That's really inspiring. Sometimes, in the middle of a hard raise, you question it all. In the middle of the dark night, sometimes the worst part is not the darkness but the feeling that it may never end.
Fred deserves where he's gotten, not just because he's a great guy and a smart VC, but for having the fortitude and persistence to take it to the end. It makes me recommit, rededicate myself to my own hard raise, which may not end as well, but I can ensure won't end from giving up.
One of the reasons hard raises can turn into great performers is that they often mean you are doing something others aren’t doing, you are early to an opportunity and others don’t see it. That certainly was the case with USV 2004. That’s the contrarian bet in action.
and way too early...[1]
Beware of "way too early". It hurts and it keeps hurting.
One of them, which the OP was about, is about investing. “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" as Warren Buffet said. It's the contrarian timing - it's investing when nobody else wants to (because everyone thinks that the tech bubble burst and tech is dangerous and/or tech has been captured by a few big players in the 2004 case).
Then there's the timing of a specific product, which requires hardware, software, etc, to be just so. My favorite example there is video streaming (which YouTube came to dominate). Google Video was what, 6 months later? And there were how many before that were sunk because of the tangle of codecs and other things required to view video over the internet before there was enough flash penetration? (Or consider Apple Newton vs. Apple iPhone).
Is it possible to get at least some wins, either on the technical side (subproblems that you can successfully solve or libraries that have already solved them) or on the market side (early customers you can sign up)? Are there enough of them that you can regularly feel like you're making progress, or is it one hopeful blip and then years of slog?
Having hard technical problems or few customers is not a killer: problems can be solved, and new customers like your existing ones can be signed up. Having impossible technical problems or no customers is; at this point, your options include "hope, prayer, and random chance", and it's time to do something else.
This articles how information transparency (FOIA) can boost overall market, even if individual players may not find that compelling (e.g. Sequoia Capital).
Similar past examples:
1. Employment at will. Individual company may be in disadvantage, but it is one of the main advantage of Silicon Valley ecosystem.
2. California Labor Code 2870. Tl;dr: Any IP created in your spare time on your own equipment in area unrelated to employer is always yours. A lot of companies may prefer simple assume all IP is their while you work there, but it can't hurt startup creation.
Future hypothetical examples:
1. Information transparency of VC market. It gotten better, but still a lot of things are private. It creates informational asymmetry that favor incumbent power players than newcomers.
2. Limited access to investment opportunities. Very, very few people can invest to VC. Likely way less than 0.01% of global population can do it. Even if you are wealthy individual there is no way to give $10k for 10 years to any top-tier USA VC.
What if there would be equivalent of stock exchange for VC/startups. Likely it would have very limited liquidity and very different rules, but it may bring economy growth on next level.
Seems almost tautological that if there's not a ton of frothy money chasing a limited pool of assets, it will both be hard to raise money, and you'll get better returns because of less investment competition.
It's not tautological, because there is normally a good reason for the raise being hard. Obviously, there are exceptions, such as in this case. However, I'd be surprised if the returns are particular strong if you look at all VC funds that had a hard raise. In many of the cases that ended badly, one would look back and say, "Well, of course that was a hard raise. The thesis was flawed." But that's exactly what people were thinking who turned away USV, before they had the benefit of hindsight.
[+] [-] ChuckMcM|9 years ago|reply
It is of course a less useful experience when someone disagrees with you but they cannot articulate why. I will try to probe disagreement to understand their point of view at least as well as they do in order to understand why we disagree.
A hard raise is just such a protracted disagreement in some sense.
[+] [-] r_smart|9 years ago|reply
OT: I just had a conversation like this that was one of the most enjoyable conversations I or my partner had had in a long time. We sort of had an unspoken agreement where she was just going to challenge everything I said and force me to explain / defend all of my positions as we wandered all over various political and cultural topics. It was a blast!
We were at a party, and people kept checking in, like they were worried we were in a fight or something, which was kind of funny.
[+] [-] davidu|9 years ago|reply
Assuming 2/20 economics for the partners, that's $278.2m returned to the partners.
2% MGMT fees would be 2m/year over 10 years ($20m), but that probably had nuance (drawdown after $x years, or % of called capital) and/or had to be paid back, so let's ignore that.
Assuming Brad and Fred each split the carry 40% 40% (and 20% for other people) that's about $100m return to each of the two major partners.
Nice return for delivering a great LP shareholder return on a reasonable timeframe.
[+] [-] api|9 years ago|reply
- Bet on large-scale increases in employment in the USA and other developed countries in the next 10-15 years.
- Bet against Apple and the Apple model (very polished vertically integrated silos) and its dominance in the market.
- A big long bet on the music, film, or media industries.
I don't have the spare cash to make significant plays but if anyone else is looking to lose money (or make tons) betting on something looney there you go. :)
Here's one I remember thinking about years ago and considering crazy:
- Betting on oil prices going down, or on energy abundance vs. scarcity.
Years ago I was convinced that energy was going to get more expensive for the foreseeable future for fundamentally inescapable physical reasons. Obviously lots of other people were too because lots of people proceeded to lose their shirts on it. Fortunately I was not in any way invested in this thesis.
[+] [-] danieltillett|9 years ago|reply
Oil is going to go down in price as other sources of energy become cost competitive and start to dominate the energy mix. There might be an energy shock due to supply disruption, but oil will never reach $150 a barrel again unless we get some massive inflation.
At this point everyone has given up on the idea that central banks printing lots of money causes inflation. If you want to be contrarian bet on massive inflation occurring in the next few years.
[+] [-] unknown|9 years ago|reply
[deleted]
[+] [-] fab1an|9 years ago|reply
Thus a successful contrarian would invest in things that everyone else considers insane, but where she herself has a good theory on why they are actually not insane.
[+] [-] jasode|9 years ago|reply
To contrast, Sequoia Capital is a famous example of a VC that doesn't allow LPs with FOIA obligations.
Wow, I looked at Fred's linked pdf from the Oregon Public Employees Retirement Fund and saw some amazing IRRs:
+ Union Square Ventures 2004 fund +67.0%
+ Union Square Ventures 2008 fund +22.2%
+ Union Square Ventures Opportunity Fund (2010) +63.8%
+ Union Square Ventures 2012 fund +27.2%
The Oregon table doesn't have the funds' total sizes. Fred volunteered that info in a different comment:
https://www.cbinsights.com/blog/union-square-ventures-teardo...
[+] [-] ejcx|9 years ago|reply
It looks like they put 25m in to the USV 2004 fund, and it became 294m. The financial terms are not familiar to me at all.
[+] [-] david927|9 years ago|reply
Fred deserves where he's gotten, not just because he's a great guy and a smart VC, but for having the fortitude and persistence to take it to the end. It makes me recommit, rededicate myself to my own hard raise, which may not end as well, but I can ensure won't end from giving up.
[+] [-] AndrewKemendo|9 years ago|reply
One of the reasons hard raises can turn into great performers is that they often mean you are doing something others aren’t doing, you are early to an opportunity and others don’t see it. That certainly was the case with USV 2004. That’s the contrarian bet in action.
and way too early...[1]
Beware of "way too early". It hurts and it keeps hurting.
[1] http://avc.com/2009/04/only-ten-years-too-early/
[+] [-] JimboOmega|9 years ago|reply
One of them, which the OP was about, is about investing. “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" as Warren Buffet said. It's the contrarian timing - it's investing when nobody else wants to (because everyone thinks that the tech bubble burst and tech is dangerous and/or tech has been captured by a few big players in the 2004 case).
Then there's the timing of a specific product, which requires hardware, software, etc, to be just so. My favorite example there is video streaming (which YouTube came to dominate). Google Video was what, 6 months later? And there were how many before that were sunk because of the tangle of codecs and other things required to view video over the internet before there was enough flash penetration? (Or consider Apple Newton vs. Apple iPhone).
[+] [-] nostrademons|9 years ago|reply
Having hard technical problems or few customers is not a killer: problems can be solved, and new customers like your existing ones can be signed up. Having impossible technical problems or no customers is; at this point, your options include "hope, prayer, and random chance", and it's time to do something else.
[+] [-] jakozaur|9 years ago|reply
Similar past examples:
1. Employment at will. Individual company may be in disadvantage, but it is one of the main advantage of Silicon Valley ecosystem.
2. California Labor Code 2870. Tl;dr: Any IP created in your spare time on your own equipment in area unrelated to employer is always yours. A lot of companies may prefer simple assume all IP is their while you work there, but it can't hurt startup creation.
Future hypothetical examples:
1. Information transparency of VC market. It gotten better, but still a lot of things are private. It creates informational asymmetry that favor incumbent power players than newcomers.
2. Limited access to investment opportunities. Very, very few people can invest to VC. Likely way less than 0.01% of global population can do it. Even if you are wealthy individual there is no way to give $10k for 10 years to any top-tier USA VC.
What if there would be equivalent of stock exchange for VC/startups. Likely it would have very limited liquidity and very different rules, but it may bring economy growth on next level.
[+] [-] random28345|9 years ago|reply
[+] [-] ryporter|9 years ago|reply