LP Roundtable with Chris Douvos (Ahoy Capital), Beezer Clarkson (Sapphire Partners), Guy Perelmuter (GRIDS Capital) on opportunity funds, red flags they watch for, and the state of the market.

Follow me @samirkaji for my thoughts on the venture market, with a focus on the continued evolution of the VC landscape.

As we move towards the end of 2021, we wanted to record an episode that focused on the LP perspective on current capital and ventures. To that end, this week we are joined by joined by Chris Douvos, founder of Ahoy Capital, Elizabeth “Beezer” Clarkson, Managing Director of Sapphire Partners, and Guy Perelmuter, founder of GRIDS Capital.

The three of them have spent decades investing in venture funds and companies across multiple cycles. While we didn’t come into the discussion with any set agenda, we ended up covering everything from emerging manager views to global capital trends.

This was a fun one to record, so hope you enjoy.

A word from our sponsor:

Vouch Insurance is a new kind of insurance platform for startups. Built by founders for founders, Vouch’s fully digital coverage takes minutes to activate. Vouch is trusted by the biggest names in the startup economy — such as Y Combinator and Silicon Valley Bank — who partner with Vouch because everything from onboarding to claims is designed for startups by experienced founders. Because Vouch is an insurance platform, and not a broker, it works with its clients to manage, mitigate, and avoid risks.

 http://www.vouch.us/ventureunlocked

In this episode we discuss:

02:22 Complete this sentence: Venture today is "[Blank]04:51 How are they as LPs navigating the seed and early-stage market for manager selection15:39 View of the late stage boom and potential for returns24:40 Perspective of Opportunity Funds and whether they represent a good product for LPs34:29 Returns Beezer is writing to on a multiple cash on cash basis on different types of managers40:05 Things they look for beyond track record in emerging managers44:41 Common mistakes and red flags for emerging managers that can scare off LPs47:15 Tangible characteristics that they look for in emerging managers53:15 How non-traditional and non-mainstream managers can attract institutional LPs56:08 What emerging managers should lead with when they don’t have a track record beyond the last few years60:22 The investment category each are most excited about

Mentioned in this episode:

Episode 013 Chris Douvos

Episode 021 Beezer Clarkson

(Guy’s episode will drop in early 2022)

I’d love to know what you took away from this conversation with Chris, Beezer, and Guy. Follow me @SamirKaji and give me your insights and questions with the hashtag #ventureunlocked. If you’d like to be considered as a guest or have someone you’d like to hear from (GP or LP), drop me a direct message on Twitter.

Transcript:

Samir Kaji:

All right. So I'm super excited about bringing the first LP roundtable to Venture Unlocked, where we dive into a number of different topics that relate to venture. And we'll look to dive deep. This will be an unscripted conversation, so we'll let it go where it goes. I want to first introduce three of the best LPs in the business, Chris Douvos from Ahoy Capital, Beezer Clarkson from Sapphire Ventures and Guy Perelmuter from GRIDS Capital. One of the things we were talking about before this podcast started was how fascinating a time we live in right now. And within venture, it certainly seems A Tale of Two Cities where it's the best of times, and it's the worst of times. And we'll get into that during the scope of this discussion over the next hour or so. But let me first start with an icebreaker for the group here. If you were to complete this sentence, how would you complete it? Venture today is X. Chris, why don't you start? What is X today?

Chris Douvos:

To get hype for this is discussion I watched some TikTok so I'm feeling like I've been around a long enough time that I got to stay current and stay youthful to be relevant in venture. So if I had one word based on what I've been hearing from the kiddos it's "lit," this market is lit. And that's both a good thing and a bad thing. I mean, we can go into that, but hey, for the moment, we're lit.

Samir Kaji:

All right, Gee, are you going to top that? What's your description of the market today?

Guy Perelmuter:

Top Douvos? Never, sir. That's impossible. I will say that, for me, the current venture market is extraordinary. And I mean it literally, right. I mean, it's beyond ordinary. We're now a few standard deviations from everything we've seen before. And again, as Chris said, this could be good and could be bad. So for me, in one word, it's extraordinary.

Samir Kaji:

That's a great word. Beezer?

Beezer Clarkson:

I think I'm going to go with "spicy," "spicy."

Chris Douvos:

Oh, caliente.

Samir Kaji:

I like it.

Beezer Clarkson:

Caliente.

Samir Kaji:

I like this.

Beezer Clarkson:

I was going to say fuego, but I'll say "spicy."

Samir Kaji:

So between spicy, lit and extraordinary, it's very clear that all of you think this is a very heated marker with a ton of momentum. And I would agree with that. And I was looking at the Q1, Q2 numbers and roughly $300 billion went into venture-backed startups, two-thirds of that, as you can imagine, was late-stage. And it seems like the venture market has, or at least the capital market for tech companies, has moved into a barbell where on the right side, you have large aircraft carrier type of firms that are investing across stages, have the ability to pump a lot of dollars in at those late stages, let's say series B and later and series C and later. And then on the left side of the market, you have a ton of seed funds, which by number, are quite high, by dollar amount, are still pretty low.

Samir Kaji:

I feel like from an LPs perspective, it's harder to navigate than ever before to figure out where can you place capital to get the best risk-return? And we've all talked about this, it, feels like managers are coming back really quickly. There's not always that much differentiation that matters, and it makes it really tough. And so, I'd like to start with, maybe, Chris on this question, how are you navigating in today's world?

Chris Douvos:

I'm old enough to remember, as we all are, but I started at Princeton's endowment back in '01. And I remember I became a venture guy because our then venture guy left. And at a Monday meeting, somebody was like, "So who wants to do venture?" And it was like that nose game where everybody touches their nose and last person not touching their nose gets stuck with whatever task. And that was me, and I became a venture guy. And I remember like 2002, 2003, 2004, the wreckage. And those were years were like $5 billion, I think, in 2003, went into startups and like 20 billion... I remember Bill Helman at Greylock was like, "What is the rational size of the benchmark? Is it $20 billion a year?" It's like those numbers seem quain. But in fairness, the scale of exits has made those numbers seem reasonably quain. It's not like this is an outrage and people are just spending like drunken sailors.

Chris Douvos:

But what I'll say is, there are a lot of risks that have been taken off the table, and like a main risk is financing risk, right. And it's because there's so much like plentiful capital out there. I come from like a classically trained institutional investor standpoint, you're always thinking about risk-adjusted return. Well, how do you adjust return when there's like actually no risk and it's been like such a one-way market for so long? And I think people have forgotten that actually the trees don't all grow to the sky.

Chris Douvos:

And that's something that for the last, maybe, year and a half, has really influenced my own thinking, which is why, maybe to my great detriment, I've doubled down on what I call the "grownups" in my portfolio. So we're doubling down on firms where the investors are really kind of seasoned. Maybe seasoned is a fancy word for geriatric. Whether they're established groups that we've backed for a long time like First Round, or True, or newer groups like Neil and Trae over at Defy that have a long kind of history of investing. But I wa…