David Weisburd

How should a family office go about starting a venture book from scratch today?

The private capital pacing is such an underrated point for venture specifically.

And there's a couple of reasons for that.

One is a lot of people know about the power law and venture capital where you have one out of every 100 startups accounting sometimes for 50, 60, 70% of that basket of 100.

But you also have high dispersion between different vintage years.

So everybody's aware of the dispersion between top quartile and second and third quartile managers, but there's also dispersion in years where the top quartile sometimes during difficult times is four, seven, 10% versus in boom times, it can be over 40% on the IRR basis.

So making sure that you're diversified by vintage year is really critical for venture capital specifically.

I've had different people

say different numbers on that.

It seems like there's a consensus that if you're in six different vintage years, you're doing pretty good from a diversification standpoint.

And then the second aspect of capital pacing that's very underrated, unless you've been investing in funds, is one is, of course, you have to manage the capital calls.

Sometimes you have 10%, 20%.

being called on the first year, and then it could take up to three, four years for other capital to be deployed.

If you don't invest into the next fund and the fund's doing well, there's a reputational aspect to that where a, you're not going to get access to that fund again, but also GPs talk to each other and it'll be harder to build a platform.

So having this capital pacing model for venture specifically is extremely hard.

And a lot of people don't even think about their capital pacing model in venture, which is very, which is not advised.

And I've looked at the Cambridge data.

It's not always the case, but I'd say 80 plus percentage of the time, the best vintages do actually follow the worst vintages.

It's even more brutal than the stock market where if you actually sell at the bottom, you know, you have this V-shaped recovery, but in venture, sometimes it's even more pronounced.

And the intuition behind that is pretty simple, which is when you have sharp downturns, a lot of capital leaves the space for the same reasons.