20VC Investing Lessons from Fred Wilson and Why Small Funds Outperform Large Funds Why the Secret to Winning in Venture is Splitting Deals Learnings From the Biggest Hits and Biggest Losses Why Anyone That Always Does Their ProRata is Wrong with Mo



In this episode of 20 VC, Harry Stebbings interviews Mo Koyfman, founder and general partner at Shine Capital, discussing the recent launch of Shine's two new funds and Koyfman's venture capital journey. Koyfman shares insights from his experiences at IAC, Spark Capital, and Moko Brands, emphasizing the importance of strong yet adaptable opinions, and the value of deep founder relationships in early-stage investing. He advocates for disciplined, focused entrepreneurship, and the benefits of a constrained, selective approach to venture funding. Koyfman also touches on the challenges of reserve allocation and the dynamics of syndicate building in a shifting venture landscape. The conversation delves into the nuances of portfolio construction, the significance of ownership stakes, and the impact of capital abundance on startup culture. Throughout, Koyfman underscores the critical role of people and alignment in successful venture partnerships.

Summary Notes

Introduction to Mo Koyfman and Shine Capital

  • Harry Stebbings hosts Mo Koyfman on the 20 VC podcast, noting Koyfman's rarity in public speaking.
  • Koyfman is the founder and general partner at Shine Capital.
  • Shine Capital recently announced Shine Two, a $200 million early-stage fund, and Shine Opportunities One, a $100 million vehicle.
  • Koyfman's background includes managing Moko Brands, investing in startups like Coinbase, and working as a general partner at Spark Capital with investments in Plaid, Warby Parker, and Hivemapper.
  • Before Spark, Koyfman spent over five years at IAC, overseeing companies like Vimeo, CollegeHumor, and Busted Tees.

"They do not speak in public much. I know what you're thinking, how incredibly." "Mo was the managing member at Moko Brands, where he made angel Investments in Coinbase, Polychain, Harry's to name a few." "Mo spent over seven years as a general partner at Spark Capital, where he made investments in plaid, Warby, Parker and Hivemapper." "Finally, prior to spark, Mo spent over five years at IAC where he oversaw group of companies that included connective ventures, parent of Vimeo, college humor and busted t's."

These quotes outline Koyfman's professional background and the significance of his appearance on the podcast, given his extensive experience in venture capital and his low public profile.

Mo Koyfman's Entry into Venture Capital and Founding Shine

  • Koyfman's entry into venture capital was accidental, with no knowledge of it during college.
  • His family background influenced his career path, with his father being an immigrant from the Soviet Union and his mother an OG software engineer.
  • Koyfman studied finance at Wharton and English literature at Penn, then joined Bear Stearns for its entrepreneurial spirit.
  • Recruited to IAC's strategic planning team by Dara Khosrowshahi and Jeremy Liew, Koyfman gained experience in strategy and M&A.
  • As the market heated up pre-2008 crisis, IAC pushed for early-stage investments, igniting Koyfman's passion for early-stage business building.
  • Koyfman joined Spark Capital, where he learned to love early-stage investing and the importance of firm structure and governance.
  • After a break post-Spark, Koyfman decided to found an early-stage firm in New York City, leading to the creation of Shine Capital.

"Honestly, it was an accident." "My father is an immigrant from the former Soviet Union who came to America when he was 35." "My mother, on the other hand, was the child of immigrants and grew up in Brooklyn." "I went to Penn as an undergrad, where I studied finance at Wharton and English literature in the college." "I was lucky enough to be recruited to IAC." "Through this experience, I really fell in love with the early stage of business building and decided that is where I wanted to spend my time moving forward."

These quotes provide a personal backstory to Koyfman's career, showing how his family, education, and early professional experiences shaped his path into venture capital and his eventual founding of Shine Capital.

Spark Capital's Influence on Shine Capital's Foundation

  • Koyfman's time at Spark Capital taught him the love for early-stage investing.
  • He took breaks after leaving both IAC and Spark to gain perspective.
  • The experience at Spark highlighted the importance of firm structure, leading Koyfman to prefer clear leadership and governance in venture capital firms.
  • Koyfman believes having a clear structure is critical to the durability of a firm and better suited him personally.

"Honestly, what I learned at Spark, most importantly, is that I love early stage investing." "One of the core things I learned beyond that is really around the difference in structures of venture capital firms." "The more durable firms, in my experience, often have very clear leadership and governance structures."

Koyfman reflects on his biggest takeaways from Spark Capital, emphasizing his passion for early-stage investing and the realization that venture capital firms with clear leadership structures are more durable, influencing his approach to founding Shine Capital.

Balancing Strong Opinions and Team Dynamics

  • Koyfman lives by the motto "strong opinions, weakly held," valuing the importance of having and challenging strong opinions.
  • He encourages team members to challenge his views and is open to being proven wrong, as he prioritizes reaching the right answer over being right.
  • Koyfman promotes dynamic debate and decision-making, avoiding groupthink and absolutism.
  • He seeks to foster an environment where team members can assert their ideas and challenge assumptions.

"I live my life by very simple moniker in this regard, which is strong opinions weakly held." "I am much more fundamentally interested in getting to the right answer than I am in being right." "Believing your own bullshit is not a way to do that."

These quotes encapsulate Koyfman's philosophy on opinionated leadership and decision-making, highlighting the balance between having strong convictions and remaining open to change based on new information or team input.

Mentorship and Personal Growth

  • Koyfman has mentors who challenge his perspectives, providing diverse viewpoints.
  • He appreciates candid feedback, as exemplified by a mentor, Fred Wilson, who isn't afraid to confront Koyfman's ideas.

"I have a handful of mentors who challenge me on it." "The other day I was talking to one of my foremost mentors, Fred Wilson from Union Square Ventures, and he literally was screaming at me on the phone."

Koyfman discusses the value of mentorship in his personal and professional development, showing that he values mentors who are willing to challenge his ideas and help him grow.

Embracing Risk in Venture Capital

  • Accepting and taking risks is fundamental to venture capital.
  • Direct feedback and challenging ideas are valued for growth and learning.
  • Mo Koyfman emphasizes the importance of being open to criticism and using it constructively.

"You have to take risk. That's what venture is all about."

This quote highlights the inherent risk-taking nature of venture capital, which is essential for success in the industry.

Fund Size and Performance in Venture Capital

  • There's a common belief that larger funds may not always lead to better performance, especially in early-stage investing.
  • Constraints imposed by smaller funds can lead to more deliberate and selective investment decisions.
  • Mo Koyfman explains that constraints force investors to make more considered choices.

"Larger early stage funds always lead to lesser returns."

Mo Koyfman conveys the idea that larger funds may not be as effective in early-stage investing due to a lack of constraints that smaller funds naturally have.

Portfolio Construction and Fund Management

  • Shine manages a total of $435 million across different funds.
  • The first fund of $125 million was deemed small for their strategy, leading to the creation of an opportunities fund.
  • The fund's reserve strategy is not based on per company but as a bucket for the entire fund, focusing on performance-based allocation.

"We're probably 65/35 on first money in."

Mo Koyfman details the reserve ratio of their first fund and how they manage investment allocations.

Reserve Allocation Challenges

  • Reserves in venture capital are complex and can be influenced by personal biases within partnerships.
  • Shine's approach to reserves is based on performance, not predetermined allocations per company.
  • Mo Koyfman shares that they avoid throwing good money after bad by being rigorous in their reserve allocations.

"They're not reserves, they're deserves."

This quote reflects Mo Koyfman's philosophy that reserve capital should be allocated to companies that have proven their worth, rather than being pre-assigned.

Prorata Investment Decisions

  • Mo Koyfman challenges the notion that all VCs always follow through on prorata commitments.
  • Prorata investments are made based on company performance and market conditions.
  • He discusses the importance of being honest with entrepreneurs about their business's potential and the likelihood of success.

"I will never do that. The only time I won't do Prorata is if I don't need to or I know it's the best thing for the company."

Mo Koyfman clarifies his stance on prorata investments, emphasizing that these decisions are made in the best interest of the company and the fund, not just to follow a blanket rule.

Entrepreneurial Decision-Making

  • Entrepreneurs face difficult decisions, especially regarding the allocation of capital.
  • Mature decision-making involves knowing when to stop investing in a venture.
  • Opportunity cost is a key consideration; time and money could be better spent on more valuable opportunities.

Watching you make that mature decision as an entrepreneur, rather than watching you piss that money down the drain over the next two years and actually, in many ways, waste two years of your life with a very high opportunity cost that you could put against something way more valuable.

This quote emphasizes the importance of recognizing when a venture is no longer worth the investment, both in terms of money and time. The speaker is commending the entrepreneur for making a mature decision and not wasting resources on a failing venture.

Capital Allocation and Opportunity Cost

  • Balancing investment between okay companies and high-performing ones is challenging.
  • Every dollar invested in a mediocre company is a dollar not invested in a potentially better one.
  • Communicating investment decisions based on relative performance is complex.

The hardest thing for me, and often is the case, is the gray in between where you have a company that's doing okay, it's doing fine, but in the capital constrained world that you and I both live in and both quite enjoy, and like, there's an opportunity cost of that capital, and every dollar you allocate to an okay company is a dollar that goes away from a significantly high performing company.

Harry Stebbings discusses the difficulty in managing investments when a company is performing adequately but not exceptionally, highlighting the opportunity cost of capital allocation in a capital-constrained environment.

Venture Capital Dynamics

  • The venture capital market fluctuates, affecting investment strategies.
  • Capital availability influences whether to maintain pro rata investments.
  • Current market conditions may necessitate more strategic pro rata decisions.

Unless what they're asking us is to step up and lead around, which I do not feel compelled to do under any circumstance other than when I feel compelled to do it.

Mo Koyfman expresses his stance on leading investment rounds, indicating that he only feels compelled to do so under specific circumstances that motivate him.

Ownership and Investment Strategy

  • Ownership levels are a central consideration in venture capital investment.
  • There are differing opinions on the importance of high ownership versus being part of many deals with lower ownership.
  • The speaker's strategy involves a balance between securing enough winners and maintaining significant ownership.

There's different ways to play the venture capital business, and we've certainly seen that evolve over the last bunch of years.

Mo Koyfman acknowledges the diversity of strategies in venture capital, suggesting that there is no one-size-fits-all approach and that his preference is for a balanced strategy between ownership and picking winners.

Syndicate Building and Collaborative Investing

  • Building strong syndicates and collaborative investing can be beneficial, especially in challenging markets.
  • Some investors may become less collaborative and more aggressive in their terms.
  • The speaker believes in karma and suggests that non-collaborative behavior may have consequences in the long run.

I believe in karma.

Mo Koyfman expresses his belief in the concept of karma, implying that the behaviors and decisions made by investors can have repercussions, potentially affecting their future success or failure in the venture capital industry.

Investor and Entrepreneur Dynamics

  • The relationship between investors and entrepreneurs can be influenced by market conditions.
  • Some investors may use their position to exert control, especially when capital is scarce.
  • The speaker prefers to compete for deals rather than accommodating other investors' terms.

I'm trying to beat them to the punch. I'm trying to convince the entrepreneur that I'm the better investor for them, that I'm going to care more about their company, that I'm actually going to roll up my sleeves and be there for them.

Mo Koyfman describes his approach to winning deals by demonstrating his commitment and value to entrepreneurs, contrasting with investors who may not be as collaborative or supportive.

Reflections on Success and Failure

  • Both successes and failures offer valuable lessons to investors.
  • It's important to manage ego and focus on the best outcomes for investors.
  • The speaker has learned to value company potential over personal feelings in investment decisions.

I try not to

The transcript ends abruptly, but it appears Mo Koyfman was about to share insights on his lessons learned from successes and failures. The context suggests an emphasis on learning and adapting from experiences in venture capital.

Learning from Successes vs. Failures

  • Mo Koyfman expresses skepticism about learning from successes due to the danger of confirmation bias.
  • He emphasizes the value of learning from failures, particularly in the context of venture investing.
  • Koyfman notes that his mistakes often revolved around misjudging entrepreneurs, which has shaped his investment philosophy.

"I've actually found learning lessons from successes is extremely dangerous because of the risk of confirmation bias." "I honestly believe you can only really learn from your failures."

These quotes highlight the risk of attributing success to the wrong factors due to confirmation bias and the belief that true lessons come from analyzing failures.

Venture Investing and Entrepreneur Focus

  • Koyfman discusses the importance of understanding and learning about people for long-term investment partnerships.
  • He mentions that his firm, Shine, is entrepreneur-focused and values the long relationships in the venture business.
  • His biggest venture win, Plaid, required a belief in the fintech category before it was widely recognized and a bet on two young entrepreneurs.

"My biggest lesson is really to lean into and learn and understand people and figure out if you have the right chemistry to be partners over time."

This quote emphasizes the significance of interpersonal understanding and chemistry in successful venture investments.

Multi-Stage Firms vs. Early-Stage Investment

  • Koyfman advises founders to consider the level of personal investment an investor has in their success.
  • He warns about the risks of partnering with large, multi-stage firms where individual advocates may not remain at the firm long-term.
  • Koyfman suggests that early-stage investment is a bespoke business where the right investors can provide invaluable strategic guidance.

"At the end of the day, the more an investment matters to an investor, the better investor they will be for you, so long as they are not in a structure that they can't control."

This quote underscores the importance of an investor's personal commitment to the founder's success, rather than just the firm's resources.

Venture Capital Ecosystem and Market Rationalization

  • Koyfman believes that there are too many investors and too much capital in the startup ecosystem.
  • He criticizes the overfunding of early businesses and the loss of focus and discipline that can result from excessive capital.
  • Koyfman predicts a rationalization in the venture capital market, with less capital inflow and a separation of winners from losers.

"The best companies are built with focus and discipline, and when there's too much capital in the system, you lose those things."

This quote points to the detrimental effects of excessive capital on startup discipline and focus, advocating for a more balanced investment environment.

Personal Reflections and Entrepreneurial Advice

  • Koyfman shares his personal journey to entrepreneurship and founding Shine at the age of 42.
  • He wishes he had started earlier and encourages those with entrepreneurial inclinations to pursue their ambitions.
  • Koyfman aspires for Shine to be a top ten early-stage venture capital firm within the next five years.

"Honestly, just that I could do it. I took a longer path to becoming an entrepreneur."

This quote reflects on Koyfman's realization of his entrepreneurial capabilities and his advice to others to act on their entrepreneurial desires sooner rather than later.

Aspirations for Children and Personal Favorites

  • Koyfman hopes his children will adopt the traits of relentlessness, integrity, and generosity.
  • His favorite book is "Portnoy's Complaint" by Philip Roth, which he appreciates for its humor and intelligence within the American Jewish tradition.
  • When asked about making a great burger, Koyfman emphasizes simplicity, focus, and integrity, drawing parallels to building a company.

"Relentlessness, integrity and generosity."

This quote lists the three traits Koyfman values and hopes to instill in his children, indicative of his personal values and philosophy.

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