David Teten: Versatile VC

In this episode, Joel Palathinkal chats with David Teten of Versatile VC about his career journey and founding Harvard Business School Alumni Angels of New York. David shares insights on transitioning to venture capitalism, addressing founders' challenges, and starting Versatile VC. They discuss emerging manager trends, co-investment strategies, sector-focused funds, and understanding LP motivations. David also offers advice on mentorship, public speaking, and crafting compelling pitch decks. The episode wraps up with a comparison of equity rounds and SAFE notes, tackling high startup valuations, and guidance for syndicate managers.

Episode Transcript

(00:00):
Square is well aware of that, right?

(00:01):
And so they use their influence to allocate tothe people that they want to build
relationships with that they think are additiveto that particular company.
I also see this dynamic where in venture, ifyou come out of central casting, right?
So you're a white or Asian male who majored inCS at a top school and worked for one of the
top five tech companies, people are giving youcrazy valuations.

(00:21):
And that's sort of the equivalent ofalgorithmic trading in public markets because
everyone's automated system is saying, wow,companies at this profile have become unicorns
in the past that throw money at them.
Welcome
to The Investor, a podcast where I, JoelPalofinkle, your host, dives deep into the
minds of the world's most influentialinstitutional investors.

(00:45):
In each episode, we sit down with an investorto hear about their journeys and how global
markets are driving capital allocation.
So join us on this journey as we explore theseinsights.
Should give me a button here.
Okay, so we are live here with a good friend, agood mentor, which I've known for several

(01:07):
years.
I'd like to consider him one of the OGs in NewYork City for being a venture capitalist.
Really good friend of mine, David Teton,welcome.
Thanks for offering up your time and beingsuper generous with it.
And just all the things that you've beenhelping me with for the last five to six years.
So super excited about today.

(01:29):
I think this is gonna be one of our bestsessions.
But David, he's currently a new fund managerand has just been at some very well known
venture funds in New York City.
So I'll let you go ahead, David, and just kickit off with maybe your intro.
Talk us through your career, your education.

(01:51):
I know you spent some time in Israel for sometime.
So walk us through kind of your wholeeducation.
I know you went to Harvard as well and how youbroke into venture capital and now your new
journey of starting Versatile VC.
So Joel, thank you so much for having me on theshow.
Looking forward to conversation.
Appreciate the great work you've done buildingup Sutton.
And I am a member, or I guess I should say agraduate, of the last Sutton cohort.

(02:14):
So I think you've put together some greatcontent and a helpful community.
So briefly, I'll give the background, but Ithink people will be more interested in the
future than the past.
From California.
My father's from France.
Went to Yale, did consulting investmentbanking, went to Harvard for business school,
then I moved to Israel, which is not a verycommon move after finishing business school and

(02:36):
was CEO of a startup there.
Came back to New York, I've been here in NewYork since 02/2001.
I started another startup and another one hadtwo exits.
And then I joined FF Venture Capital as thefirst outside partner besides our founder, John
Frankel.
And I joined when we were just $10,000,000 AUM,just kicking off our Fund II.
And I was fortunate to be at FF when we raisedseveral funds in a row.

(02:59):
We grew to $150,000,000 25 employees, topquartile returns across three funds in a row.
And then I joined Hoff Capital as a managingpartner, which is another early stage New York
VC fund.
Again, we're fortunate to do very well there.
And we're happy to launch a new venture capitalfund, And VersaVal for some reason, my voice is

(03:22):
being heard twice.
I think someone on may not have their mutebutton on.
So hopefully, they fixed that.
So I just put in a link to that.
So I also, along the way, I founded HarvardBusiness School Alumni Angels of New York,
which is now the largest angel group on theEast Coast.
We're part of the global Harvard alumninetwork, their sister angel organizations in

(03:45):
NORCAL, SoCal, Sao Paulo, a number of othermajor cities globally where Harvard alumni
congregate.
But I emphasize that we invest blind to schoolaffiliation.
If anything, there is a bias against theHarvard grads because of the opportunity cost
and ego issues associated with the Harvardalumni community, with due respect to my
friends in the community.
And lastly, I've also, in the past, consultedto a lot of other investors.

(04:10):
I've been a consultant to Goldman Sachs, LLOPartners, Carl Icahn, Right Side Capital, Real
Ventures in a variety of capacities, justdrawing on my experience having now grown two
different VC firms, 10x in both AUM and numberof LPs and with fortunately good returns during
my tenure.
So a fun fact, I had the privilege of meetingDavid's mom.

(04:32):
We had a little event, like a mentorship eventa couple of years ago and was honored to meet
his mother.
So tell me a little bit about your family andhow that kind of influenced your career and
your ambition.
I know you went to Harvard.
So maybe start with your early days and yourupbringing and how that shaped who you are.

(04:53):
And then I'd love to hear your take on justbusiness school in general.
I mean, the conventional wisdom is if you wantto get an adventure, go to Harvard.
Which you're like the perfect example of that.
So I'd love to hear a little bit of that andthen just kind of context on an MBA.
Sure.
So my father came here at age 25.

(05:15):
He had dropped out of school at 16 toapprentice in a handbag factory.
This is after World War II in Paris.
And he built a successful business in Americaselling handmade leather goods and artisan
products mainly out of leather.
And then he moved into fabrics.
So his materials are in Back to the Future III.
They're used in Mick Jagger's concerts andGrateful Dead concerts because he made very

(05:38):
exotic, beautiful materials.
And my mother trained briefly as a dancer, thenshe realized when you're a dancer, you take
orders.
So she didn't like that.
She's also four foot ten, which limits yourcareer options as a dancer.
So she became a choreographer where youactually give orders to tall, beautiful people,
as she herself would observe.
So she ran a dance company for several decades,and then she became an Internet entrepreneur.

(05:59):
There are not many female senior citizenInternet entrepreneurs who exited their
business in their 70s, but that is my mother.
And so she sold it to someone else, took overat danzetimepublications.com.
My father passed away about two years ago.
My mom lives in Upper West Side and is superactive and is single.
So if anyone wants to be an 80 year old balletdancer, be in touch.

(06:20):
So what I hear is the entrepreneurial spirit.
So I'm sure that carried through, but you endedup becoming a venture capitalist and then you
also did start a couple of successful companiesas well.
So walk us through how that inspired you tobreak into venture and how those things kind of
fed into that excitement to kind of break intothe industry.

(06:44):
So I started one business in Israel, whichdidn't work And then I started a technology
enabled recruiting business that was bringinggreater speed to the recruiting industry, and I
sold that to a venture backed startup calledAcolo.
And then I started an expert network, which weworked with large hedge funds, private equity

(07:05):
funds, VC funds, in identifying domain experts.
And I sold the business to Value Serve, whichis out of India, which is the largest pure play
knowledge process outsourcing company.
It was started by the former head of McKinsey'sIndia based research team and the former head
of IBM's research team in India.
So if you think about the stack of theprofessional services industry, you have your

(07:26):
junior people who gather data and crunchnumbers, and you have your senior people who
understand the industry deeply and know thedynamics of it and know all the players.
So EvaluServe had the lower level people at lowcost out of their offices in India, China,
Chile and Romania, but they didn't have thesenior people.
So they acquired my business to syntheticallyreplicate the stack of a McKinsey at a lower

(07:50):
cost.
So I worked for them for a couple of years as amanaging director before I became a VC.
Do you have question about how I became a VC?
So I met John Frankel, founder of SFVC, and Isaid, I'm interested in joining you.
And he said quite recently, what can you do forme?
And so I made a spreadsheet, a three pagespreadsheet, saying, here are all the things
that I think I can do to grow your organizationand to be an effective investor and have me

(08:13):
join as a partner, and I will do that.
And so if you look post facto at what Iactually did at FF, I executed and just read
everything on that spreadsheet.
So and that's basically what happened when Ijoined Hoff Capital as a partner.
I said, these are the ways in which I think Ican help grow this organization.
So given my background as an operatingentrepreneur, I don't look at VC as just a deal
business.

(08:33):
I look at it as a business that needs to bemanaged and organized just like any other.
And that's core to the DNA of Versal VC.
We are a fintech startup, just like the fintechstartups that we have backed and will continue
to back.
So we're always thinking about how we can usetechnology as a differentiator.
So getting a venture is always hard, but Ithink having a clear value prop that you can be

(08:56):
held accountable for that says these are yourKPIs is certainly helpful.
Yeah, and you and I have brainstormed on justthe VC tech stack.
And as you know, I'm building something as wellon the tech side.
So where do you see technology heading tosupport venture?
Where do you think the main pain points are?
I mean, obviously it's tough to find greatdeals with all these Tiger Globals and Co2s.

(09:20):
So obviously deal flow could probably getsourced and screened better, but what are the
pain points?
And then what do you think needs to becatalyzed with technology to improve those pain
points if you were to rebuild the tech stackbecause you are a FinTech company as well?
Right.
So I just put in a link in the chat to mydetailed roadmap to answer your question.

(09:41):
Briefly, if you think about the world of publicmarkets, we've seen a clear trend towards the
use of greater technology and analytics.
D.
E.
Shaw, Two Sigma, very, very successfulinvestment organizations, which internally look
more like software companies than like WarrenBuffett going through a 10 ks with his pencil.
Although Warren Buffett seems to have done justfine for himself, but that said, this has been

(10:02):
a very successful model in the public liquidmarkets.
If you look at how these sort of firms spendtheir calories, they are spending most of it on
what we in venture call origination.
They might call it trade selection and tradeweighting.
They're trying to figure out what trade to puton, how long do you hold it, how do you hedge
it, etcetera.
And that's because most of the other parts ofpublic securities are relatively push button.

(10:26):
Literally, you can press a button on yourterminal and you can buy 100 mil of stock.
You can't do that in our world.
And so I would argue that at every stage ofinvesting, from sourcing to DD to deal
execution, portfolio acceleration, there areways to use technology to do your job better.
And a lot of people I because they're taking apublic markets mentality, but I think that's

(10:47):
the wrong mentality.
And in fact, one of the things I really likeabout private markets is in public markets,
once you go long to Apple, what can you do?
You can pray, you can hedge, you can sell, andthat's about it, right?
In our world, there's a lot of other things youcan do.
You invest in a private company, right?
You typically can help introduce clients, helpintroduce talent, have impact on strategy,

(11:09):
right?
Depending, of course, on your experience andyour equity stake, do you have a board seat?
But nonetheless, you typically have a lot moreinfluence than you do in the public markets
world.
And so you can use technology to use your poweras effectively as possible.
So I see ways to use technology throughout.
I'd say the best solved problem in terms ofmost technology solutions is around

(11:34):
origination, but it's not fully solved, right?
It's still a very manual process.
And so I am eager to be a early beta client, asI've been in the past, of people who are
working on the problems, the addressableproblems in this industry.
Yeah, one thing that I've seen recently acouple months ago was somebody that could

(11:55):
follow top tier VCs and track who the foundersare that they follow and try to triangulate
signals.
Do you think that with Twitter, with havingTwitter VC and these social signals, do you
think some of those could help provide someindicators similar to the public markets?
I see the public and private markets alreadyconverging as we look at these crossover funds.

(12:22):
So, do you think some of that hedge fund webscraping technology could provide some signals
in the future?
Absolutely.
And I know a number of folks who are doingthat.
I will just caution that any strategy involvingscraping what the major investors, the well
regarded VCs are doing, you're running thisproblem that everyone everyone is fighting to

(12:45):
get into those deals.
Right?
It's very difficult to join the syndicate forthe round led by Sequoia.
And Sequoia is well aware of that.
Right?
And so they use their influence to allocate tothe people that they wanna build relationships
with that they think are additive to thatparticular company.
I also see this dynamic where in venture, ifyou come out of central casting, right?

(13:05):
So you're a white or Asian male who majored inCS at a top school and worked for one of the
top five tech companies.
People are giving you crazy valuations, andthat's sort of the equivalent of algorithmic
trading in public markets because everyone'sautomated system is saying, wow, companies at
this profile have become unicorns in the past.
So throw money at them.
Well, that could work, but there's a vastuniverse of founders who don't come out of

(13:28):
central casting.
They're actually great founders who you canactually get better returns with.
And so I'm particularly interested in how touse technology to systematically source, add
value to founders who may not come out ofcentral casting, who ironically need the least
help and work with them, because a lot fewerpeople are paying attention to folks who may
not trigger the automatic filters of theautomated systems.

(13:53):
What do you think are the biggest pain pointsthat founders need support with?
I mean, the coming month, over the last coupleof months, I had a lot of founders just ping me
because things weren't working out well.
So I've just kind of served as a sounding boardto brainstorm and come through problems.
And that's something that is not always easy toprogrammatically support.

(14:15):
So for me, it's really just been moral supportand brainstorming.
I'm not here to tell them how to run thecompany, but you've spoken to thousands of
founders, right?
So what's the common thread that you normallysee founders needing help with?
Is it fundraising?
Is it a go to market strategy?
Is it all of the above?
I don't know if there's any patterns thatyou've been seeing.

(14:35):
There are lot of patterns and I've writtenabout this.
I wrote a detailed research paper around howVCs can systematically add value to their port
coasts.
So when founders need help in fundraising,that's a second order problem.
If the business is doing well, fundraising isnot a challenge or you're profitable, and
therefore, you're not in dire need offundraising.
Right?
So I always try and focus first on can we helpon the revenue side?

(14:57):
Can we recruit talent that will up the game ofthe company?
Because that solves the fundraising issue.
That said, I was pointing at my two prior firmson helping our companies raise further rounds,
and typical founders certainly can benefit byexpertise in finding the right investors.
An area of particular weakness for manyfounders is understanding the dynamics of
different types of investors.

(15:18):
Once you graduate from the seed stage, youbecome eligible for venture debt, for revenue
based finance, for MCA, lots of other options.
And I have particularly been doubling down onunderstanding the trade offs between those.
Another huge pain point for companies isrecruiting, right?
Because what do they do with the money we givethem?
Number one use is recruiting.

(15:38):
And so we make a systematic effort to helpthem.
Lastly, your question was about currentfounders, but I will highlight there's a
related population, which is founders intransition.
So one of my learnings over my career is thatfounders as a bucket, including me personally,
we're a different part of the labor market,right?
We are not eligible for a lot of thetraditional jobs you get as you work up the

(16:00):
corporate ladder because a lot of employerssay, Great, you're a founder.
Wonderful.
You're gonna quit this job in a year to gostart a competitor.
Why do I hire you?
There are different sorts of options availableto you.
And so we have launched on our website a suiteof free resources for founders who are in
transition, meaning they're thinking about thenext company they're gonna start, or maybe they

(16:20):
say, The last one shut down.
I really would just like a stable job withhealth insurance.
They maybe wanna become an angel.
And the resources are all free.
We then have a gated community where you haveto verify that you're a serial founder,
achieved some traction to join, where we sharemore sensitive resources.
So for example, we recently shared twodifferent startups with traction that we're

(16:44):
seeking new CEOs to take them to next level andsome of the people in our community are, I
think, gonna be a fit for those two startups.
Is that the founders
Yeah, exactly.
Founders next Next move?
Move.
Great.
So our ambition is to be a hub for founders intransition, particularly at that point, that
liminal point where they're moving betweenroles.

(17:04):
And some of them we're going to invest in, someof them we're going to co invest with them
because founders tend to get good deal flow.
Some of them will recruit for a Pertcos becausefounders, by definition, are people who get
things done.
And I want to make sure our portfolio companieshave access to that talent.
Yeah.
I mean, even thinking about the tech stack, Imean, there's a lot of cool things that you can

(17:25):
do with APIs and services.
And I don't see that available right now, butit would be really cool if you can add
integrations to your cap table with Carta, abetter data room.
I mean, I don't know if you've seen amazingdata rooms, David, but I mean, I normally just
see dropbox and box.com.
And I think there's just better ways to kind ofmake it easy for VC's to get your information.

(17:47):
So I think there's still a lot of ways toinnovate.
I haven't seen amazing experiences yet, butyou've probably seen more than me.
But I think there's still opportunity in thetech stack for founders too.
Absolutely.
No, that's great.
Yeah, so definitely check that out.
If anybody's looking to start a business, we'vegot that we'll post all those links there.

(18:09):
So what I'm most excited about is hearing yourjourney into starting Versatile.
And I think what has been interesting too isyou've already had this franchise of content
and community, but it seems like you're alsoleveraging that to build your brand at
Versatile.
So walk me through the day that you decided tostart Versatile and what was going on through

(18:31):
your head and why you started the firm and tellus about that journey and where you are now.
Well, from when I was young, people who know mehave said that I was going to be a founder.
My parents were both founders, right, not intech, but that's sort of the DNA of the family,
not to mention my grandfather and other people,so both grandfathers in tech.

(18:54):
So that's just my heritage.
So it's not surprising just for variousreasons.
I was excited about what we're building at FS.
I was excited about what we're building atHoff, but I saw an opportunity to build a very
differentiated firm.
And so Versatile is the culmination of skillsthat I've built, networks that I've built,
resources that I've built over the course of mycareer.
And I already, although we're a very youngfirm, we've already invested a lot more energy

(19:17):
in our tech stack internally, on our websitethan a lot of VCs that I think are much older
and better developed.
And that's because this business is more thanjust writing a check, right?
It's about how you add value to companies.
It's about how you surround them withresources.
People like Harry Stubbings have shown themedia aspects of what we're doing.
So I have to learn from all those models and doit, but in a way that leverages my particular

(19:41):
focus and expertise.
So I've made a point along the way of sharing alot of my learnings, And that's maybe just
personality, but it's also because a lot of myresponsibility as a manager has been figuring
out what is the process that people around meare doing, documenting it, iterating the

(20:05):
process, and making sure people are trained onit?
And so I've developed various trainings that Idid in house and process documents that I
developed in house at my two prior firms.
And I've sanitized those and published a lot ofthem because that's helpful to the broader
community and speeds up cycle time for others.
So that's the genesis of the material that I'veshared.

(20:26):
I just put in a link to a whole syllabus that Ipublished around the different aspects of
building a firm.
Yeah, that's really helpful.
What should people think about as they'redeveloping their thesis?
So if somebody's brand new starting a firm, andI know it's probably in your syllabus as well,
but what are some of the critical skills thatmaybe somebody should start building and kind

(20:50):
of developing as they're kind of thinking aboutstarting a firm?
So I think that the first thing to understandis what is your unique competitive Right?
Technologies you understand, the networksyou're part of, and focus on that.
I see a lot of people who aren't really beinghonest with themselves about what is their
edge, and they're trying to position themselvesas something that they're really not.

(21:15):
Now they might grow up to be the next Sequoia.
Great, wonderful.
But you don't get there without a smaller fundalong the way, right, and proving yourself
along the way.
LPs don't trust you usually with tons of moneyon day one.
And so encourage people to pick the low hangingfruit based on your particular competence, do
well there, and then you can expand to be ageneralist firm.

(21:37):
I also think that founders of VC firms need tobe well aware of how the industry has changed,
right?
Obviously, the bar for starting VC fund hasdropped.
The bar for building institutional caliber VCfund has gone up, I would argue, because we see
this stacks of capital going to the largeplayers, right?

(21:58):
And then this long tail of small players andfewer firms in between.
So if you wanna graduate and be a multibilliondollar VC fund, you should work today to set up
the infrastructure to get there.
And most firms aren't doing that because theydon't have that long term view.
Yeah.
That's really good advice.
So, you know, with with you you and I spendingtime together the last couple months and just
all of your research, what are some recenttrends that you've been seeing with the

(22:21):
emerging managers?
I mean, one thing that I've seen, and I'vetalked to you about this, right?
Families are raising capital.
So the LPs are also raising money.
And then another big thing is, with thepandemic, I don't know if you listened to Mac
the VCs episode with Harry Stebbings, but itwas really, really good.
And VCs are taking a lot of LP positions intofunds.
So we're seeing smaller minimums to get intofunds.

(22:44):
We're seeing tech platforms like Allocate allowretail investors to invest in funds.
So I think that allows a lot of opportunity formore people to become emerging managers.
There's people that are using unique technologyplatforms to not have to always do the 1% GP

(23:04):
commit.
There's creative ways to get around that.
So I think with everybody being virtual andthen people having to break the rules because
they don't have a million dollar GP commit,I've seen some of those things.
But would love to hear any kind of high leveltrends or observations that you've observed
from maybe our cohort or maybe just all theother people that you've been speaking with?

(23:29):
Well, I'll highlight one trend that I think isdangerous, but yet a lot of people do it.
So in the public markets, are highly regulated,highly transparent, almost every academic or
financial advisor will tell you, don't buystocks direct.
Put your money into a hedge fund or mutualfund, let the professionals do it.
You're an amateur, right?
You're gonna get taken advantage by theprofessionals.

(23:50):
That's a fact.
Yet there's lots and lots of retail investorsout there who think they're smarter than the
professionals and they go out and they put ontheir own trades.
Right?
That's a fact.
So let's look at venture.
Right?
Historically, most people didn't investdirectly in tech.
They couldn't, right?
There's a lot of friction.
They wanted to though.

(24:11):
So we see lots and lots of mechanisms likeSUVs, which are making it easier for people to
invest directly in tech companies instead ofgoing through a fund.
But the math of our industry is that thedispersion of returns is much greater in
private markets than in public.
So if you're investing 10 SPVs, you're payingcarry per deal, right?
And you're going to lose money on eight ofthem, maybe make money on two.

(24:33):
So the net of it is for your total portfolio,you may lose money.
You certainly pay fees on the winner.
If you invest in this send through fund, right,then you pay less carry because there's netting
of carry taking account of all the losses.
So I would argue that the incentives for you toinvest through fund as opposed to an SPV are

(24:53):
much greater in private markets and in publicmarkets.
And that's what I tell people ask me, how doyou think I should invest?
Because I'm so excited about everything.
It's going early stage tech.
Who listens to me?
Clearly, lots of people don't, right?
Because lots of people say, I wanna investdirectly in tech.
I don't care about the math.
I think that I'm a top quartile investor, andso I'm gonna go do that, right?
So that's the reality of how investorpsychology works.

(25:20):
And so I do pound the table that I think peopleshould be investing in funds.
I think they're better off doing it.
And it might sound like I'm preaching my ownbook, but I'm also, when I've been part of
putting together SPVs, which I've done at bothof my two prior firms, I was very cautious
because I knew if you advertise 10 SPVs to LPs,your LPs will lose money on some of them,

(25:41):
right?
That's a fact.
That's our industry.
And I hate losing money for people.
When people put money through fund, they're alot less likely to lose money.
So I think that's a better long term product tosell to LPs because you'll have a happier
client.
Well, you can solve both and make it a win winbecause people can invest in your fund and then
the perk is co investment rights.
And then you can also sell the pro rata.

(26:03):
So you can still let people double dip.
Look, another big trend that I've
been
seeing is people want to invest in funds foraccess.
Because to your point, like you said earlier,you can't get into any of these deals.
So we see that A16Z followed this really hotAIML company.
So what?
Like if I email them, they're never gonnarespond.

(26:24):
They'll respond if A16 does or some other wellknown fund that has access.
So I see a lot of LPs just investing in thefund.
They do a nominal check to get in.
But if there's co investment rights, they getbest of both worlds.
They get their risk mitigated, but with the 20to 25, whatever you think the IRR is, but the

(26:44):
risk is mitigated for a lower IRR.
If they have extra liquidity, they can alsoinvest in those direct deals and hopefully get
those hundreds of thousands returns.
So, you really can make it a win win,especially if you're a fund that has proven to
show that you have really high qualityproprietary deal flow.
Yeah.
And I've been the beneficiary of some laterstage VCs who invest for that access.

(27:07):
And that's part of the service that I, as anemerging manager, am happy to provide.
It's in my self interest.
That's separate from the people who say, well,I wanna double down and go direct on your best
companies.
So when people say that, my answer is, how do Iknow what are the best companies?
Right?
If I a priori knew, then I would put half myfund into one company, but that would be dumb
of me.

(27:27):
Right?
No.
No VC in the world can tell you a priori whichwill be the winners out of their portfolio.
There's always lots of unexpected ups anddowns.
Yeah, no, I totally agree.
And I think mitigating that.
I think another trend that I've been seeing isLPs also want to invest in funds that are
focused on a sector that maybe they don't haveexperience in.
It's exciting to them.

(27:48):
So Web3, there's a quantum fund that I've beenbuilding a relationship with.
Women's health, that's another big trend,climate change.
So a lot of times you're not gonna, there's somany different sectors and there's so many
exciting things in the candy store, but youdon't have the time to do the diligence and

(28:08):
source and screen every single one of thosedeals.
So why not just, if you want to get exposure toclimate change, or I you're doing
a
lot of B2B SaaS, FinTech, InsurTech.
So, you have a package and a product that kindof offers that.
And that helps people just, you know, scaletheir money faster because they're mitigating

(28:29):
their risks.
Right.
So I think that's a, that's a big pattern thatI've been seeing from LPs to just, they'll just
do it to get access and to also learn about thesector.
And I've done the same thing just to get intoWeb3.
I've been looking at a couple of Web3 andcrypto funds because I just don't have the time
and diligent time to go to every single Discordchannel and get to know all those communities.

(28:51):
Yeah, I think emerging managers should keep inmind LPs have lots of reasons to invest.
So I've had LPs invested because they want tobuild relationships in the early stage
ecosystem.
They wanted to get board seats.
I had an investment banker invest because hewas hoping that some of our portcos would go
public, and he would be chosen to be part ofthat or do an m and a, and he would advise on

(29:12):
that.
There are people who just wanna help theiryounger, their next generation get internships
in tech because the next generation is sointerested in tech.
So you have to be aware of the goals of an LPinvesting, which is not only about returns in
the majority of cases.
I'm talking about retail at the institutionallevel.
Institutional are much more focused on justreturns, but even they have their own agendas

(29:35):
that you should be aware of.
Yeah, that tees up a good follow-up question.
And you probably have a blog on this becauseyou have a lot of really great premium content,
but should some of the people in this channelhere are looking to start their own fund.
As they start thinking about building their LPpipeline, what are some pieces of advice that

(29:57):
you'd have for them?
Maybe for setting up the tech stack, you and Ihave talked about different CRMs.
And then I think a lot of it just comes down towhat problem are they trying to solve, right?
So some LPs, they get a lot of deal flow,there's a lot of noise, but maybe the problem
is they just don't know about a certain sector.
So this is an opportunity for them to learnabout venture if they've mainly been in real

(30:19):
estate their whole life.
So for me, it's kind of like, let's profilethese people and figure out what they care
about.
But that's kind of how I would think about it.
But I love because you're kind of hot off thepress building these relationships and
pipelines and having a lot of conversations.
So what advice would you have to someone who'sjust getting started?
They got their fund form.

(30:40):
They know they have a thesis.
How should they go about meeting LPs and kindof engaging with them and converting them to
LPs?
So first off, I've compiled my recommendationsat the link I just put in the chat,
tedden.second,com slash my advice for anyonewho is in a sales role, right, and when you're

(31:02):
raising money, you are a salesperson, is figureout ways to make people come to you so you
don't have to spend six months having coffeeswith 100 different people.
That's very inefficient.
So what I've done in the past and I'm doingright now, there are three different
organizations I'm part of that are organizingfamily office events in the next one to two
quarters, and I'm helping them out.

(31:23):
I'm bringing in some speakers who are my LPs orother people with whom I have relationships.
And then I'll be at those events, virtual orlive, and that's a chance for LPs who know me
to hopefully say good things about ourorganization and for me to meet people in an
efficient and high credibility way.
So I always look for them.

(31:43):
It's one of the reasons why I write content anddocument my processes because it's recyclable,
and it creates inbound traffic from people whofind me and are doing work, have interest in my
areas of interest, and I connect with them.
We in VC are not gonna be competing with KimKardashian for clicks, excluding Harry
Stebbings.
But in my little niche, I have, I think, prettygood content and people find me online because

(32:10):
of that.
And those are the people I want to connectwith.
Yeah.
It reminds me of a piece of advice.
I think it was in one of our sessions.
There was a family office that said, stay ontop of people's news feeds.
There's an emerging manager that just got an LPallocation from a tier one fund because they
have just very unique content on the sectorthat they're focused on.

(32:33):
So it's just the law of attraction.
One thing that I really enjoyed, David, wasthat conversation that you and I had about LP
swaps.
And then you brought up that story about MarkSchuster.
So maybe you can tell me a little, maybe youcan share that with the audience about like the
confidence that was it Mark Schuster?
He had like his LP event.
And so a lot of times people are superprotective about their LPs, but maybe you can

(32:56):
share, I don't know if there's an article aboutthat, but I wanted to write about it.
But maybe you can tell the audience about thatstory and how he handles his LP community
building.
Sure.
So this is public knowledge.
So Mark is well known, well regarded VC, and hehas an annual conference where he invites all
of his LPs and he also invites his VC buddies.

(33:18):
And so his goal there, he said, is this aproblem?
I am exposing to basically my competitors whenit comes to capital raising to my best LPs.
Is that smart?
Why am I doing it?
And the answer is because it makes all of theother VCs grateful, right?
That they're in the room.
They're gonna be nice to him when it comes tofighting for room on a cap table because he's

(33:38):
helping giving them access.
All the LPs are gonna reference check mark, andsure, they might look at putting some money in
someone else.
But they they in the course of doing that,they're gonna say, so what do you think about
Mark's fund?
Right?
And he they'll hopefully say good things.
So his calculation is, look, no one's I'm not amonopoly provider.
Right?
There are lots of funds out there.

(33:58):
LPs can allocate to all of them.
Any competent LP has a choice of funds.
Right?
I have a good product.
I have a fund with a good track record.
And so I'm not hesitant to introduce my LPsbecause I'm confident that after meeting a
bunch of other LPs, they'll give me money too.
So that's, I think, a really healthy selfconfident attitude.

(34:19):
And it's easier, of course, to do that whenyou're on your fund for whatever and you've had
good returns.
But I I judiciously make intros to my LPs orsurface them publicly, for example, by
organizing events for the same reason.
Right?
Like, I'm confident in my product that my LPshave bought.
And I think I'm just being sort of foolish if Iassume that my LPs are so ignorant, they're not

(34:41):
aware there are other VC funds in the worldthat exist.
That said, you of course have to respectprivacy of LPs.
You have to not annoy them.
And introductions are a very scarce resource tohigh value people.
So you, I and other, I think, managers in myposition are going to be protective of making

(35:03):
intros.
Sure.
Yeah, that's super helpful.
Switching gears, going back to because wecovered a lot of great topics on the emerging
manager side.
Going back to career building and development,one thing that I see as a challenge is number
one, it's hard to get into venture capital.
But what's even harder is to stay in venturecapital.
So what could people do when they finally landa role in venture capital?

(35:26):
How can they stay in that role for multipleyears like you did?
What are some tips from a professionalstandpoint that you'd like to pass on?
Yeah.
So this is an interesting question.
If you come in at the partner level as I did,then you just have to keep good relationships
with your partners and do a good job, right?

(35:46):
It's very much like a marriage because you haveto be tolerant of differences, of errors, of
problems.
You have to change what you're working on basedon what your partners are doing and also not be
a pushover, right?
And sometimes you might have to raise a concernabout one of your partners where you feel like

(36:06):
they're not really carrying their weight.
So there's a lot of interesting dynamics aroundthis.
Ironically, business school, a 100% of my caseswere about CEO situations.
But in VC funds, there's often no CEO per se,right?
There are partners and they're spending time,sometimes a lot of time managing the partner

(36:28):
dynamic.
If you come into VC as a junior person, there'sa different sort of dynamic.
So I, as a manager of a firm, I want my juniorperson to think about the firm as a whole.
What can I do to grow the firm?
And I want them to think holistically.
Just like if I'm running a tech startupsoftware company, I don't want a new hire
thinking, how can I make the widgets go shipout the door faster?

(36:51):
They should be thinking holistically, how can Ihelp the firm?
And they should be willing to do whatever ittakes to move the firm forward.
Here's the problem.
If you go, you get hired as an analyst and yourise up and get promoted, but you don't see a
path to partner, you wanna go leave the firm.
So what gives you the opportunity to launch anew fund or to get hired as a partner by some
other firm?
It's your investment track record.

(37:12):
It's not, did you help with the website?
Did you add value to the port coast?
It's 90% did you write checks that produced agood return?
And is that an attributable track record?
So there's a conflict of interest here, right?
Because I, as a firm manager, want the personto not think just about writing checks.
I want them to about think all the other stuffyou have to do to grow the firm.

(37:33):
But the individual has an incentive to onlythink, how do I attach my name to a deal that
wins?
So I could say, I source such and such.
So how do you address that?
Well, for example, First Round Capital a numberof years ago, they promoted their head of
platform to partner.
And they said he's gonna continue as head ofplatform.
His job is not a check writing role, but he'sso value added that he deserves the title of

(37:55):
partner.
We're happy to give him title partner, and Iassume the economics of a partner.
And that was, I'm sure, done in part becausethey realized that to retain him, they had to
compensate him competitively.
And again, this is public knowledge, what I'msharing.
So that's certainly how I view the role ofpeople in the firm who may have roles that are
partially or entirely non investing.

(38:15):
And then when I'm recruiting, I don't just lookfor people who wrote checks because that's not
the only skill you need, contrary to popularbelief, right?
If you want to grow a franchise, you have tothink about all the other facets of the
business.
By analogy, you can't grow a software companyby just hiring software developers who only
know software and only wanna do software.

(38:35):
At some point, you have to hire customerservice and sales and marketing and all those
other functions, right, you want to grow asubstantive organization.
And when you were developing talent in yourpast roles, what were some things that you saw
that stood out as just really good qualities asmaybe an analyst or an associate, maybe on the

(38:55):
tactical side or maybe even on the emotionalintelligence side, where they bring it in ten,
fifteen new deals a week, anything that you canquantify or qualify.
I'm sure when you're developing the talent,maybe you had some type of developmental goal
system for those new analysts or associates.
Just trying to tee up some things for thesepeople to think about when they join the firm

(39:22):
and you know, what micro or macro goals theyshould be thinking about?
So there's a set of generic skills that Mhmm.
Any early career person should have.
And I actually just published my second bookwhere I compile.
It's called To University and Beyond, Put YourCareer in High Gear.
So I'm not gonna talk about that because that'sgeneric, but things like work hard, take good

(39:47):
notes, be responsible, don't ever ever letpeople down, keep your promises.
Let's just talk more narrowly about VC, right?
How do you advance in your career in VC?
So first off is a certain level of tech savvyis super important, right?
You want someone who says, Sure, I'll configurethe CRM.
I'll figure out a way to use some no codeplatform to automate the integration of our

(40:13):
social media presence with our CRM, with ourmailing list in whatever way makes sense.
So that's almost a job requirement for anyentry level job in tech.
And if it's not a job requirement for 100% ofthe time, it will be another year or two.
Because it's just part it's like rating emails.
Like you have to be email savvy, obviously.
You have to be relatively literate in some ofthose aspects of any modern platform.

(40:40):
Second is I encourage people to figure out somedomain expertise.
It could be geography.
It could be some interest group, like peoplewho specialize in investing in women founders
or African American founders.
The best of all possible worlds is to pick asector like Bitcoin 2013 and say, I'm going be

(41:01):
all about Bitcoin and for that sector to gobecome really hot, right?
That's how you become a partner at a very youngage.
Of course, you're taking a big risk therebecause Bitcoin could have just flopped many
times.
It could still flop.
And that's true for any sort of bet you make ona particular sector.
I very publicly have taken bets on certainareas of FinTech, and I'm doing that because

(41:24):
I'm super confident, right?
Like I don't see any state of the world whereI'm not right in my publicly stated assertions
about how I think the industry is going.
Maybe I'm not being bold enough when I say Idon't see any real estate of the world where
this is not the future of the industry.
But I think that that's a good model, right?

(41:46):
And I have other things I haven't publishedother areas that are of interest as well.
So lastly, I would say that this industry istiny at the level of the investors, and it's
small at the level of the tech founders, right?
So every single person you meet, there aremeaningful odds.

(42:06):
You'll run into them again in a Slack group, ata conference, whatever, and you can end up on a
cap table with them.
You can end working in the same company withthem.
So really important to keep in mind, this isvery much a long term game.
Yeah, that's really helpful advice.
Well, we got about fifteen minutes.
I'll just leave a little bit of room if anybodyhas any questions.

(42:29):
So anybody in the audience, you guys have anyquestions for David?
And while they're thinking of a question, maybeyou can share a piece of life advice from a
mentor that you've carried with you, maybe amentor or family member that you'd like to
share with us.

(42:49):
So I'll share one of my most influential books.
I'm a huge fan of Edward Tufte, who's aprofessor at Yale, who's the world's leading
expert on visualization of quantitative data.
I channel him almost every day.
And so I encourage everyone to read all of hisbooks and also visit his sculpture garden in

(43:09):
Connecticut if you can.
I'd say one of the most impactful pieces ofadvice I got was from a mentor who said to me,
public speaking is a really useful skill, andit is unlike almost every other skill, and that
you can't develop it without a large group.
If you wanna get good at tennis or chess, youonly need one or maybe even zero people, but
you can't be good at public speaking withoutlarge numbers of people sitting in front of

(43:33):
you.
And so he said the logical conclusion from thatis anytime you have a chance to present in
public, for example, in a classroom setting,you should do it because you will build up that
skill by being on the stage in front of lots ofpeople who are examining everything you do.
And so someone said that to me, I don't evenremember who, when I was in my 20s.

(43:56):
And I was always a person in school whovolunteered to present the findings of my study
group.
And that's definitely been a useful skill to mebecause I made a point of sharpening that saw
whenever I had an opportunity to do so.
Yeah, that's great.
Well, anybody else have any questions forDavid?

(44:17):
Feel free to yell it out.
Just a quick question on my end, David.
And I know that you had a session.
This is John.
At one point, you shared with us some goodadvice on the decks that we review from
cofounders.
What is the most important, like, three aspectsof the deck that you would look do a deep dive

(44:42):
and make sure that they have it solid insteadof, you know, just a wishy washy situation or
something that's too ambiguous?
So I have a checklist of what I recommend youput in your deck along with recommendations on
service providers who can help you.
So I'd say the first thing is the team.

(45:04):
You want to make sure that you have the rightteam in place.
And secondly is the product, right?
So more important than deck is when I go toyour site, your app, whatever, does it work?
And you'd be surprised how often I go to thesite, and it's just clunky.

(45:24):
It's not there.
They don't even have a website up.
And so so I would focus on that above all else.
Okay.
And when it comes to the structuring the deal,whether you're going to use a equity round or a
safe, a post safe, Which one do you leantowards mostly?

(45:49):
So I generally have a preference for pricedrounds.
I know SAFE's are super popular, but theproblem that founders, I think, don't fully
realize is that when you do that, you arecreating the risk of a pile of debt that makes
it harder for you to fund the company overtime.

(46:10):
And I've certainly seen companies that havebeen hurt because they had this pile of debt
that had to convert in the next round and theycouldn't get someone to fund them.
Founders often say, well, I don't know theright valuation.
I'll punt on the valuation conversation.
But the the problem with that is at some point,gotta bite the bullet and acknowledge the

(46:33):
valuation, whatever it is.
And and that's healthier because then you havea real cap table with equity participants and a
board seat, and you're setting yourself up forfor having a clean corporate ownership
structure, which will make you more attractiveto later investors.
But but wouldn't that risk be offset by makingsure that they have vesting schedules and I

(47:00):
know one year eclipse and I would think thatthere's a way to prevent a challenge while
you're structuring a post safe agreement?
So at the level of employees, sure, you canmitigate those issues through appropriate

(47:21):
vesting.
But But that doesn't really apply for forinvestors.
Right?
Because there's no
Yes.
Okay.
So investors are gonna be still at high risk ofhaving the founders go overboard and not having
the appropriate fund appropriate percentage fordilute the dilution.

(47:42):
Is that correct?
Yeah.
So, you know, it's one of the things I look foras an investor is making sure the cap table has
appropriate dilution sorry, appropriate vestingfor the founders Yes.
Over time.
Right?
Because I wanna retain the founders.
Yes.
Okay.
Alright.
Thank you very much, David.

(48:03):
Appreciate it.
No problem.
Hi, David.
This is Anu.
One question I had was, in today's times, evenfounders right off the gate have astronomic
valuations.
So how do you introduce a grain of reality,especially if you're not a lead investor,
you're not the one leading the round, what areways and tips and tricks in your opinion of

(48:25):
managing that the valuation?
So I can't emphasize enough that in myexperience, the crazy valuation phenomenon
happens, but it happens to a subset of all thestartups out there.
I certainly know startups out there that arehaving lots of problems finding investors and
they're they have potential, right?
They're investable.
They just don't come out of central casting.

(48:46):
And there's this dramatic difference invaluation from the central casting startups and
everyone else.
Let's say you're talking with a YC company thathas a reputable lead investor, and they're
getting a 50,000,000 valuation on demo day fortheir three month old startup.
Right?
So good for them that they got that valuation,although they should be where their cost at
raising at that high valuation.

(49:09):
So I know investors who will negotiate or tryto negotiate warrants or some other side deal.
There's a cost to that because it willdefinitely impact your reputation in the
ecosystem that you're an investor who tries toget side deals because other investors will
say, hey, why'd you get the deal?
Like, what makes you better than me that yougot something preferential?
And also, it may reduce future deal flow fromthe founders.

(49:33):
By the point at which a lead investor setevaluation, you have very little leverage.
So the point at which you have leverage is whenthe company doesn't have a lead investor and
they're looking around.
And if you can make an argument to them, firstof all, you're the only investor, you're the
only deal in town.
And that happens a lot more than people think,right?
That you are the only person providing termsheet.

(49:55):
And then you hopefully can say, I am so valueadded in your space that my term sheet makes
sense.
And yeah, I know someone else might offer ahigher valuation, but don't take it.
There's plenty of examples of people took alower valuation from an investor because they
said that investor is value added, wellregarded, and not going to take a risk of

(50:17):
having some random person who's trying to bidup on my cap table.
Great, thanks.
All right, and if you got a second, David, itlooks like we have one final question here.
John, you want to shout out your question?
Yeah, thanks, Joel.
Hi, David, this is great.
Really appreciate it.
Have an AngelList Syndicate, and I'm brand newto Venture.

(50:42):
And Joel has been helping me a lot build out mynetwork.
And I've invested in some VC funds.
But my issue is that I have kind of a generalsyndicate.
I'm working on my first deal, it's kind oftough.
But my real question I guess is I want toeventually build out the syndicate successfully
and then hopefully have that give me a chanceat starting my own fund down the road.

(51:06):
So just what advice would you have for someonelike me?
So the good news is if you get into the VCbusiness by running a syndicate, your track
record is public.
You own your track record.
It's easy for people to audit it.
So it really comes down to just having goodreturns and to marketing it.
I think one challenge you'll have is myexperience on Angela Syndicate is that because

(51:31):
it is so easy to look for deals, someone whogoes on says, okay, I've got a 100 k.
I'm willing to put it into an early stagestartup.
What do what do I do?
They very strongly bias towards the brand namesthat they see.
Right?
So you can't just go to AngelList and the moneycomes to you.
Right?
You often have to go hustle and look for it.

(51:52):
And, course, you should make sure that peopleare registering through the dedicated AngelList
affiliate links so you get credit that they'reyour LP and not just a general LP.
And the the advantage of AngelList is theycertainly take care of a lot of back office
work for you, and they will make it easier foryou to hopefully raise further syndicates over
time, maybe even a fund, because youeffectively have an audited track record.

(52:14):
Not technically, but effectively.
Whereas if you say we're a principal at a VCfund and then left to start your own firm,
you're gonna run into issues around attributionof your track record, is it audited, etcetera.
And so that's hopefully helpful to you.
Thank you so much.
Great.
Well, hey, David, thank you so much.

(52:36):
I really appreciate your generosity with yourtime and hope to catch up soon at one of these
events in New York.
And it was good seeing you the last couple ofweeks as well.
Definitely, look forward to seeing you soon.
I am emerging from my home office asappropriate.
So take care and anyone who wants to reach out,feel free to contact me via my website.

(52:56):
Thank you for your time.
Alright.
Take care.
Have a good day, everyone.