20VC Oren Zeev on Raising 3 Funds and $1BN in 12 Months; Why Temporal Diversification is BS, Why Both LPs and GPs are Way OverDiversified & Why Venture Partnerships are SubOptimal and Challenging

In this episode of 20 VC, host Harry Stebbings interviews Oren Zeev, the founding partner of Zeev Ventures and a proponent of solo capitalism. Oren has invested in successful companies like Audible, Houzz, Chegg, and Riverside, and operates without a traditional VC firm structure—eschewing associates, partners, and investment committees. Zeev shares his contrarian investment philosophy, emphasizing the importance of backing founders and making decisions based on opportunities rather than adhering to conventional VC models like vintage diversification or ownership protection. He discusses the significance of being the best alternative for founders, which in turn attracts LPs, and the importance of transparency and authenticity in dealing with companies that don't perform as expected. Oren also reflects on past investment decisions, including misses and learnings, such as the importance of not being overly price-sensitive with fast-growing companies and the potential to recycle capital in the event of early exits.

• Harry Stebings introduces Oren Zeev as a mentor and a leading figure in solo capitalism.
• Oren Zeev is the founding partner at Zeev Ventures with notable investments.
• Zeev operates without associates, principals, staff, partners, partner meetings, LP meetings, processes, investment committees, or memos.

"Oren is the founding partner at Zeev Ventures, with investments in the likes of Audible, Howes, Chegg, Riverside, Topalti, trip actions and firebolt, to name a few. Oren is also very unlike any other VC firm. He does not employ any associates, principals or staff."

The quote highlights Oren Zeev's unique approach to venture capitalism, where he operates without the traditional structure of a VC firm, emphasizing his solo approach.

• Oren Zeev's background as a double engineer and a research staff member at IBM.
• Zeev's venture capital career began when he joined Apex Partners to open operations in Israel.
• After twelve years with Apex, Zeev shifted to solo venture investing.

"I spent twelve years with Apex, the first seven years in Israel, and then they asked me to move to the US and strengthen the US operation, which I did."

This quote gives insight into Oren Zeev's career progression and his move from Israel to the US to enhance Apex Partners' tech practice.

• Zeev distinguishes the current market downturn from the dot-com crash and the 2008 financial crisis.
• He observes that while valuations have dropped, strong businesses continue to experience healthy demand.
• Zeev advises against obsessing over past mistakes and focusing on future opportunities.

"I don't equate the current crisis to big ones."

Oren Zeev suggests that the current market conditions, while challenging, are not as severe as previous crises, indicating that strong businesses remain resilient.

• Oren Zeev discusses his rapid pace of fundraising and investment, with three funds raised in 2021 and another in progress.
• He emphasizes an opportunity-driven approach, not managing the pace of investment based on time.
• Zeev's stance is that good deals take precedence over structured portfolio construction or diversification.

"I just don't try to manage the pace. Totally opportunity driven."

The quote reflects Zeev's philosophy of focusing on the quality of deals rather than adhering to a specific investment timeline, suggesting a flexible and opportunistic investment strategy.

• Zeev dismisses the concept of vintage diversification, focusing instead on the inherent quality of deals.
• He recounts an experience with an LP who disagreed with his rapid fundraising pace, leading to the LP's exclusion from future funds.
• Zeev's approach may not align with LPs who have structured budgeting and asset allocation models.

"I just do good deals. I don't want to think about portfolio construction and vintage diversification, all that."

Oren Zeev's quote conveys his dismissal of conventional investment strategies like vintage diversification, emphasizing a singular focus on securing good deals.

• Zeev's investment decisions remain unchanged despite market fluctuations.
• He notes a slowdown in follow-on investments due to companies being cash-rich and not in immediate need of additional funding.
• The market's reduced pace of follow-on rounds is expected to affect his investment cadence.

"I'm not in a different planet. In my case, by far, most of the money is actually being invested in follow ons into companies I'm already invested in."

This quote explains that while Zeev's investment philosophy remains consistent, external market forces, such as the pace of follow-on funding rounds, can influence his investment activity.

• Zeev discusses how he evaluates whether to participate in follow-on investment rounds, especially when valuations appear high.
• He suggests that missing out on doubling down on investments due to perceived overvaluation can lead to regrets.

"My biggest misses have not been ones that I haven't done well, I mean, other than Riverside, but it's been ones where I invested. But I didn't double down because I thought the price was too high."

The quote reveals Zeev's reflection on his investment decisions, indicating that hesitance to invest further at higher valuations has sometimes led to missed opportunities.

• Oren Zeev does not make a distinction between new deals and follow-on deals; each deal should be evaluated based on its own merits.
• One should not be overly price sensitive but maintain some discipline in pricing.
• Paying a premium for companies with sustainable growth over 100% per year can be justified as the value will catch up.
• Oren prefers to risk paying more for a company he believes in rather than missing out due to price sensitivity.

"First of all, I don't make a real distinction between a new deal and a follow on deal because each deal should stand its own merit."

This quote emphasizes Oren's philosophy of evaluating each investment opportunity independently, regardless of whether it's a new or follow-on deal.

"But the reality is that if you're dealing with companies that are growing at over 100% per year and you believe it's sustainable, even if you pay more than you should at by 50%, it will catch up in six months."

Oren explains that for rapidly growing companies, paying a premium can be quickly offset by the company's growth, suggesting that a higher entry price may be acceptable.

• Transparency with founders is essential when losing faith in an entrepreneur or the business.
• It's important to differentiate between losing faith in the entrepreneur and losing faith in the business itself.
• When deciding to stop supporting a business, it's crucial to do so with dignity and care for all stakeholders.
• Oren believes in stopping support for a business before it becomes too painful and undignified, comparing it to end-of-life healthcare costs.

"I want to be as transparent as possible so that they're not surprised."

Oren stresses the importance of clear and honest communication with founders when doubts about the business or entrepreneur arise.

"Not everything has to work. There's no shame in it at all."

This quote reflects Oren's understanding and acceptance that not all businesses will succeed and that failure is a natural part of entrepreneurship.

• Oren Zeev does not focus on ownership percentages as a primary factor in investment decisions.
• The importance of ownership is considered only in the context of whether it can significantly impact the success of the investment.
• Oren criticizes the venture capital industry's rigid rules on ownership percentages and believes that each deal should be considered on its potential to move the needle.

"I never focused on ownership per se."

Oren clarifies that ownership percentage is not his main concern when evaluating an investment opportunity.

"I think it's silly that VCs have these hard and fast rules."

This quote criticizes the inflexible rules that some venture capitalists adhere to regarding ownership percentages, suggesting that a more flexible approach may be beneficial.

• Partnerships in venture capital can lead to negative dynamics at board meetings, especially when a company is struggling.
• Oren admits that he was more difficult as a partner in a firm than he is now as an individual investor.
• Partnership models can push VCs towards safer, less controversial deals, potentially leading to mediocrity rather than exceptionalism.

"The more insecure the partner is, the worse it is."

Oren discusses how insecurity within a partnership can exacerbate negative behaviors at board meetings.

"It's so much easier to be contrarian when you're operating on your own, and you don't need to convince anyone."

This quote highlights the advantages of being an individual investor, such as the ability to make contrarian bets without the need for consensus.

• Oren believes that funds and limited partners (LPs) are often over-diversified.
• The concept of protecting ownership at a specific percentage is questioned, with Oren suggesting that investment decisions should be based on the potential of the deal rather than maintaining a specific ownership level.
• Incentive structures for LPs are also criticized, suggesting a misalignment with the goals of the funds they invest in.

"Funds are over-diversified and LPs are too diversified in terms of the number of their GP relationships."

Oren argues that excessive diversification in the venture capital industry can be counterproductive.

"It's never about protecting the ownership. If I put money in a company again, it doesn't matter if it's a follow on or new, it's because I want to put new money, not because I put something in the past and I want to protect some arbitrary number."

This quote challenges the common VC practice of protecting ownership percentages and advocates for investment decisions based on the merit of the opportunity.

• Certain investors prioritize being associated with top brand names over financial return.
• These investors use the reputation of brand names to gain access to other investment opportunities.
• Compensation structures such as bonuses and salaries can influence investment decisions, rather than carried interest.

"We don't need to make the money on it. I just get credit for being in this brand name, and then I can use that brand name to get into other firms."

This quote highlights how some investors value the prestige and networking benefits of being associated with big brand names over the actual financial returns of the investment.

• Fund of funds often invest in well-known brands to enhance their own fundraising capabilities.
• The strategy is seen as a necessity to attract money for their own funds.

"Especially true for the fund of funds, because they also need used in brand names to raise money for their funds 100%."

Oren Zeev is emphasizing the importance for fund of funds to be associated with recognizable brands, as it helps them in raising capital for their own funds.

• The LP space is seen as non-competitive and slow-moving.
• LPs face no negative consequences for delayed decision-making.
• The process used by LPs is often bureaucratic and perceived as lacking value.

"There's really no penalty, there's no consequences for being slow for an LP."

Oren Zeev criticizes the lack of urgency in the decision-making process of LPs, suggesting that their slow pace has no real impact on their ability to participate in a fund.

• Signaling risk is acknowledged and considered in multistage and cross-fund investing.
• Transparency and honesty with companies are maintained to avoid harming them.

"I think the risk exists and I take it into account when I make decisions."

Oren Zeev admits that signaling risk is a real concern and that it is factored into his investment decisions to avoid negative implications for the companies involved.

• Founders' wishes are always prioritized; no pressure is applied to influence their decisions.
• Preemptive actions and offering better terms can lead to increased ownership.
• Three scenarios for increasing ownership: founders prefer not to seek additional rounds, market underestimates the company's value, or preemptive leading of a round.

"The only effective way to increase someone ownership is to preempt and lead the round."

Oren Zeev explains that taking initiative and leading investment rounds is the most effective strategy for increasing ownership stakes in companies.

• GPs may focus on optics and external validation rather than increasing ownership.
• Oren Zeev dismisses the need for external validation from LPs, focusing on making the best decisions.

"I had the privilege, which obviously I earned it, that I don't care how I look to lps because I would look amazing anyway."

Oren Zeev expresses confidence in his investment approach, indicating that he does not prioritize the appearance of success to LPs over making sound investment decisions.

• The ability to sell secondary shares is limited; often, desirable sales are not possible.
• Offers to sell shares are frequently received for the shares that are not intended to be sold.

"The ones that you want to sell, you can't. And the one that you can sell, you don't want to sell."

Oren Zeev outlines the paradox often faced when considering the sale of secondary shares, where the opportunity to sell does not always align with the desire to sell.

• Missed investment opportunities are a reality in venture capital.
• Past experiences of missed deals due to partnership disagreements have led to a preference for independent decision-making.

"I never want to have partners again. So that was my takeaway, that I don't want to have partners."

Oren Zeev shares his conclusion from past missed opportunities, which is a preference for solo investing to maintain full control over decisions.

• Even experienced investors make mistakes or miss out on opportunities.
• Personal connections and biases can influence investment decisions.

"Of course I fuck up as well. So give an example."

Oren Zeev acknowledges that he, like all investors, has made mistakes in his investment career and provides an example to illustrate this point.

• Harry Stebings discusses a missed investment opportunity.
• Recognizes the importance of quick returns and the ability to reinvest capital.
• Admits overlooking the possibility of reinvesting returns from a potential early exit.
• Acknowledges the mistake was due to a desire to maintain a high average return.
• Emphasizes the lesson learned for future investment decisions.

"more than 100 x on my personal investment. But obviously I could have had 15% of that company. I could have and should have. Instead, I let other people did it later at higher prices than I could have got it. And this is a teachable moment for me, because next time, if the risk is that I only make two or three x quickly, not after or five years, then I should have done it."

This quote reflects on a personal investment that yielded significant returns, yet Harry acknowledges that he could have had an even larger share. He identifies the lesson in seizing opportunities for quicker returns and the benefit of reinvesting capital.

• Oren Zeev shares insights on the importance of being founder-friendly in venture capital.
• Emphasizes that founders are the primary customers, not limited partners (LPs).
• Discusses past experiences where tensions with founders were unnecessary and counterproductive.
• Highlights the competitive advantage of being the preferred choice for founders.

"That it's all about being the best alternative for the founders. So that the founders are the customers, not the lps."

Oren Zeev underscores the paradigm shift in venture capital, stressing that success hinges on prioritizing founders' needs over those of LPs, as founders ultimately drive the venture's success.

• Oren Zeev discusses changing his mind about a company he had written off.
• Describes investing additional funds to enable the company to aim for a win rather than merely surviving.
• Advocates for a decisive, aggressive approach to funding to secure a more substantial outcome.

"I'll put 4 million myself. I don't care what the others are going to do. And let's play to win."

This quote reveals Oren Zeev's strategic decision to invest heavily in a struggling company, demonstrating his belief in the potential for a turnaround and his willingness to take bold actions to achieve success.

• Oren Zeev offers advice to first-time fund managers, reiterating the importance of appealing to founders.
• Advises that attracting top founders naturally leads to securing LP investment.
• Stresses that founder relationships are more critical than LP relations for fund performance.

"The biggest. The first advice is what I said before, that the customers are the founders, not the lps."

Oren Zeev reemphasizes his earlier point about the centrality of founders in venture capital, advising new fund managers to focus on establishing strong relationships with founders to ensure access to top entrepreneurial talent.

• Oren Zeev speaks about admiring and learning from others in the venture capital industry.
• Mentions Ben Horowitz and the operational insights gained from his book.
• Acknowledges the accomplishments of venture firms like Andreessen Horowitz.

"I did learn things from his book more than operational side, which is something that he's much stronger than I am about."

Oren Zeev shares his respect for Ben Horowitz and the valuable operational knowledge he acquired from Horowitz's book, highlighting the importance of continuous learning from peers.

• Recalls meetings with founders of successful companies like Audible and Houzz.
• Notes that the memorability of these meetings is linked to the positive outcomes of the investments.
• Describes the quick decision-making process in these successful cases.

"You tend to remember more the first meetings that turned into great outcomes, like the first meeting with audible, the first meeting with house."

Oren Zeev reflects on the significance of initial meetings with founders who later led their companies to success, emphasizing the impactful nature of these early interactions.

• Oren Zeev expresses confidence in his investment abilities after many years.
• Acknowledges that while he is not an expert in every domain, he trusts his decision-making skills.
• Mentions the fear of missing out on a great investment but does not feel preoccupied by it.

"I feel very secure now. It's been 27 and a half years that I've been doing it."

The quote illustrates Oren Zeev's self-assuredness in his investment expertise, born out of extensive experience and a track record of success.

• Discusses recent investment in Riverside, motivated by its organic growth and clear product-market fit.
• Explains the importance of correctly identifying a problem over creating a perfect initial solution.
• Describes a recent funding round where he set the terms to ensure both sides were satisfied.

"It's so much more important to identify the problem correctly than the solution."

Oren Zeev emphasizes the critical nature of accurately identifying a market need, which he considers a more crucial factor for success than the initial quality of the solution.

• Oren Zeev and Harry Stebings discuss the mutual learning and support in their professional relationship.
• Zeev invites Stebings to visit the West Coast, reflecting a willingness to maintain connections beyond professional settings.

"I really haven't been to London since I met you online, but you can come to the west coast as well."

This quote signifies the personal bond and mutual respect between Harry Stebings and Oren Zeev, highlighting the value of personal connections in the business world.

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