David Zhou’s Post

As a Cal alum, this is music to my ears. Such a great opportunity to be a part of an intimate cohort of builders!

This is by far one of the marketing and product videos I've seen to date. I've been fortunate to learn about how Siqi thinks about storytelling in the past, and THIS is it in practice. Moreover, Runway is just a world-class product.

“There’s a huge discount for illiquidity, and there’s a huge discount for a lack of buyers.” Listening to Dave McClure break down company and fund secondaries is like watching Cirque du Soleil perform their magic. This is definitely one of Superclusters most tactical episodes. And you don't have to take my word for it. Before the launch of today's episode, I shared the episode with a small test audience of GPs and LPs, as I do quite often. And their feedback was that this was a must-bookmark. Out of all the things that were shared, here are my top 3: 1/🥡 The 3 Bucket Method All companies in a portfolio fall in 3 categories: unicorns, centaurs, and horses. 🦄 Unicorns - companies that could go public and worth $1B+, high likelihood of a big exit to return the fund 🏇 Centaurs - companies that are worth $100M, high likelihood of a non-zero exit 🐎Horses - companies that are worth less than $100M, less than $10-20M in revenue, and no guarantee of exit In general, you want at least 1 unicorn, and the price is anchored around that value. 2/ The further an asset is from liquidity, the greater the discount. LPs looking to sell in Year 4-5 of the fund have to sell on a larger discount than LPs selling at Year 8-10. 3/ GPs buying an LP's stake becomes complicated when the price that the GP buys the stake (if not market price, and on a self-proclaimed discount) is not revealed to other LPs, and other LPs don't have a chance to buy more stake in the fund itself from the LP that is selling. Also, for the fact, that it becomes tricky to report on fund reports and accounting. For the full episode, I'm including it in the comments

What are John Felix's non-negotiables when looking at emerging managers? 1. Right to exist - are you building something different and unique that no one else (or very few others) can also do 2. Long term vision - where does your firm go from here? Are you thinking about institutionalizing? Are you fund-building or firm-building? Each LP is of course different, but at the same time, I know a lot of LPs echo what John says. Full Superclusters episode on YouTube

Couldn't think of a better person to kickoff Season 3 of Superclusters! John is a legend, and by minute 30 of the pod, if you didn't know before, you'll know now!

“The biggest leverage on time you can get is identifying which questions are the need-to-haves versus nice-to-haves and knowing when enough work is enough.” So lucky to kickstart Season 3 with my buddy John Felix at Allocate! Wish we had more time in this episode. We covered the art of the cold email, balancing over- and under-diligencing an emerging GP, what he learned from 3 different CIOs while he was at Wash U's endowment, and so much more. Just to give a sneak peek, here's John below sharing what some GPs think are unique to their firm, but really aren't. But even after all of that, my biggest takeaways are: ✅ The 2% GP commit is flawed. For many institutions, this is just a check box that they check off, but depending on the GP and the size of the firm and that GP's own net worth, is not the best indication of aligned incentives. 🗻 The people who often have the hardest time starting their own firm are long-time partners and GPs at multi-stage funds because you go from only investing and supporting the portfolio to doing everything. And my personal favorite... 🏇 How a large endowment pivots from a diversified portfolio to a concentrated one. And fast. What do I mean by fast? Turning over a third of the endowment in 5-6 months fast! Every team member there had to force-rank every manager in the portfolio, explain why, and the re-ups would only go into the highest ranked (top 5-10). An extremely aggressive approach that became Wash U's forcing mechanism to stay concentrated to this day. Shoutout to Erica Wenger 🏕️ for the ultimate podcasting tip which you'll hear around minute 17. And shoutout to the amazing Samir Kaji for the intro last year! Full episode in the comments below

Chatted with a lot of emerging fund of funds managers recently & a lot of them are really smart Definitely excited to see more of these This post is more/less why + how I think about underwriting Fund II GPs: There's a complexity premium to be paid for underwriting Fund I/IIs Fund I fundraises are at an all time low That said, I don't think anyone who can be a GP should be a GP At the same time we're potentially losing out on some of the best vintages since 2007 Most Fund IIs fundraising today have a Fund I of the 2021/22 vintage, meaning most of their portfolios have yet to raise subsequent rounds The memo in '22 was also raise so you won't have to again for a long time, aka longer runway IRR is near zero for the most part & too early to fit into the 25% IRR underwriting for VC Even if they aren't, too early to tell for overall portfolio health It takes 5-7 yrs for a fund to fall into its respective quartile Same for DPI & TVPI (negligible) So LPs need to look beyond the IRR, TVPI, DPI metrics to get to conviction around a Fund II GP Largely around 2 things: 1/ discipline 2/ quality of the portfolio 1️⃣ Discipline - Did the VC do what they'd say they'd do? (ie # of investments, pacing, chk size, ownership, verticals, stage) then compare/contrast current portfolio to Fund I pitch deck 2️⃣ Quality of portfolio - while not all encompassing, this is what I use - rev growth rate YoY (loose proxy for IRR) - speed to 1M ARR, speed to 10M ARR - net rev retention (if the co never got another new customer, how much can rev grow) aka can founders upsell -customer satisfaction - rev/employee (how cash efficient are they) - burn rate or burn multiple (how much is needed to gain $1 of rev) Having a VC background is super useful for point #2, which frankly is a large part of the complexity premium that justifies imo FoF and their diligence/underwriting Most LPs don't have a team with robust direct investment exp & mostly follow signal on co-investments Sometimes an investment into a FoF is cheaper (in terms of fees) than building up one's own FoF practice

2 LP 🔥 takes from institutional LPs this week: 1️⃣ The max age that an institutional LP will invest in from a Fund I (or whenever they enter) is 50 yrs old VC funds are underwritten as 15 yr fund cycles within 1 fund cycle, GPs are already at retirement age, likely reduced cognitive ability and/or hustle Hard to realistically plan to re-up on another 2-4 funds 30-40 is the prime age for just enuf experience + network. Gen Z GPs are interesting, but many large LPs have yet to pull the trigger to invest. 2️⃣ Adding a prospective LP to a newsletter is the laziest way to build a relationship A fitting line - People don't care how much you know until they know how much you care. - Zig Ziglar, but personally heard it from Mark Suster in a pod first A newsletter is based on what you wanna say, not what the LP wants to hear/read ~~ As a disclaimer, you don't have to agree, and I'm not sure I fully agree with (1) That said, I find hot takes that can be backed up fascinating.

Unfortunately, very true!