20VC Oren Zeev on Why Diversification Is Overrated, The Downside of Thematic Investing, Making Quality Decisions In Uncertain Conditions & Why He Has No Reserves Allocation



In this episode of "20 minutes VC," host Harry Stebbings interviews Oren Zeev, the founding partner at Zeev Ventures. Oren shares his investment philosophy, emphasizing the importance of backing strong, technically adept founders who are solving problems they've personally encountered, as demonstrated by his recent investment in Traverse. He advocates for quick decision-making over extensive due diligence, trusting his intuition and founder relationships. Oren also discusses the merits of founder secondary sales, the overrated nature of diversification in VC portfolios, his preference for a concentrated investment approach, and the value of maintaining a flexible fund pace. He challenges conventional VC practices, such as reserve allocations and thesis-driven investing, favoring a founder-centric and authenticity-driven strategy. The conversation also touches on the need for diversity and inclusion in venture capital and the benefits of being a solo general partner.

Summary Notes

Introduction to Oren Zeev and Zeev Ventures

  • Harry Stebbings introduces Oren Zeev, the founding partner at Zeev Ventures.
  • Oren Zeev is recognized for his influential advice, ideas, and guidance in the venture capital industry.
  • Zeev Ventures is an early-stage firm in Silicon Valley with investments in TripActions, Topality, Audible, Chegg, and Hippo Insurance.
  • Oren Zeev has a background with Apex Ventures and has been involved in venture capital for over a decade.
  • Harry thanks Ariel Cohen from TripActions for contributing questions for the interview.

"Oren is the founding partner at Zeev Ventures, one of the best and most under the radar firms in the early stage Silicon Valley landscape."

The quote introduces Oren Zeev and his venture firm, highlighting its success and low-profile nature in Silicon Valley's early-stage investment scene.

Oren Zeev's Background and Transition to Zeev Ventures

  • Oren Zeev began as an engineer at IBM Research in Israel.
  • He pursued an MBA in France before returning to Israel in 1994 when the venture industry was nascent.
  • Oren was one of the first ten people in venture capital in Israel, working with Apex Ventures.
  • After spending over a decade at Apex, he retired but later began investing his own money, behaving like a VC.
  • Five years prior to the interview, Oren started raising funds to scale his investments.

"And then I retired and I didn't think I would do it again. But I started investing on my own. And for a bunch of years, like seven or eight years, I invested my own money, but behaved as a VC."

The quote explains Oren Zeev's initial retirement from venture capital and his subsequent return to investing, using his personal funds while operating with the approach of a venture capitalist.

Impact of Downturns on Investing Mindset

  • Oren Zeev's extensive experience in venture capital has given him a broad range of experiences, aiding his intuition during downturns.
  • He believes in overreacting rather than underreacting to crises.
  • Oren notes that the current economic situation is unusual, with high employment and strong technology markets despite the lack of a vaccine and prolonged lockdowns.
  • He emphasizes that each crisis is different and that no one can predict the future.

"So I think companies in my portfolio in general, reacted very fast. And as it turns out, at least right now, it looks like things look way better than I, or probably anyone else could have expected."

Oren Zeev discusses how quick reactions from his portfolio companies have led to better-than-expected outcomes during the current economic downturn, despite the uncertainty.

Decision to be a Solo General Partner (GP)

  • Oren Zeev chose to be a solo GP due to his preference for independence and accountability for his own decisions.
  • He did not enjoy partnership dynamics and wanted to continue investing with the freedom to follow his convictions.
  • Oren sought to maintain the same investment approach as he did with his personal funds, but with additional leverage through raising funds.

"There was no scenario that I would build a firm, because we'll probably talk about later, but I think I have all the advantages in the world without any of the disadvantages."

This quote indicates Oren Zeev's decision against building a traditional venture firm due to his belief in the advantages of operating solo without the drawbacks of partnership dynamics.

Partnership Dynamics and Decision-Making

  • Oren Zeev prefers consulting with selected individuals for their input rather than seeking approval from partners.
  • He consults with people whose opinions he values and who are relevant to the specific deal.
  • In a partnership, one may have to persuade others and may not be as transparent or receptive due to the need for approval.
  • Oren finds consulting without the need for approval to be a purer and more advantageous way to receive input.

"When I consult with people, and I do consult with people, it's not that I think I have a monopoly over wisdom and I learn from people, but I choose the people that I think I would value their input."

The quote highlights Oren Zeev's approach to seeking advice selectively, valuing input from others while maintaining the freedom to make independent decisions.

Investment Decision Autonomy

  • Harry Stebbings expresses his belief in maintaining the autonomy to make investment decisions.
  • He values the ability to proceed with a deal based on his own conviction, even after considering input from others.
  • Harry acknowledges that a formal partnership requiring mutual agreement could hinder this autonomy.

"and took everything in, I still think I should do the deal, then I want to be able to do the deal and that I would not have got if it was like a formal partnership where both of us needed to agree."

The quote emphasizes the importance of having the freedom to make investment decisions independently, without being bound by the necessity of a partner's consent.

Rejection of Thesis-Based Investing

  • Oren Zeev decides against establishing his fund as a thesis-based investment firm.
  • He acknowledges that having a thesis can help with fundraising and provide a knowledge edge in a specific space.
  • However, Oren believes that thesis-based investing leads to groupthink and overfunded, competitive markets, reducing the likelihood of backing a market leader.

"I don't believe that I need or it would serve me well to have hard and fast thesis."

Oren explains his view that a rigid investment thesis is not necessary for his approach to venture capital.

Serendipity vs. Proactivity in Deal Flow

  • Oren admits to relying more on serendipity than proactivity in finding investment opportunities.
  • His extensive experience in venture capital has provided him with a flow of interesting opportunities without the need for actively seeking them out.

"If I'm honest it's more serendipity. I wish I was more proactive but it's more serendipity."

The quote highlights Oren's reliance on chance encounters and existing networks for deal flow rather than actively searching for underexplored markets.

Price Sensitivity in Investments

  • Oren considers choosing the right team and company as more critical than price sensitivity.
  • He argues that even paying a premium for an investment can still yield significant returns if the company is successful.
  • Oren equates this mindset to advising founders not to overemphasize valuation when choosing investors.

"It's not the most important thing in my mind because at the end of the day the biggest wins are not because you pay cheap, you don't win because you pay cheap and you don't lose because you pay expensive, you win because you chose the right team and the right opportunity in the right company."

Oren expresses that the success of an investment is primarily determined by the quality of the company and team, rather than the entry price.

Mental Plasticity in Venture Capital

  • Oren discusses the importance of not letting past failures negatively influence assessments of new opportunities.
  • He stresses the need for deep thinking and avoiding superficial conclusions based on previous experiences.

"So I think it's really going down, double clicking, going down the next level, thinking a little bit deeper and not draw the wrong conclusions from the past."

This quote underscores the necessity of critical thinking and not allowing past outcomes to dictate future investment decisions.

Rapid Decision-Making in Investments

  • Oren highlights his ability to make investment decisions quickly, often within 24 to 48 hours.
  • He associates quick decision-making with having strong conviction and the ability to think deeply under pressure.
  • Oren's process is streamlined because he does not require consensus from partners or extensive documentation.

"I don't equate going deeper with necessarily taking weeks to make decisions. I think that you can think deep, fast, and I think part of the keys to success is making quality decisions under uncertain conditions quickly."

Oren explains that depth of thought and speed are not mutually exclusive in making quality investment decisions.

Fundraising Cycles and Fund Size

  • Oren raises funds without a predetermined strategy, often investing capital faster than anticipated.
  • He prioritizes investment opportunities over adhering to a specific fund investment timetable.
  • Oren acknowledges that his approach may not align with LP preferences, but he remains focused on the needs of founders and his own investment philosophy.

"I refuse to be held hostage to an artificial timetable to invest the fund. I don't want to manage the pace, I want to be totally driven by the opportunities."

The quote reflects Oren's philosophy of prioritizing investment opportunities over structured investment timelines.

Portfolio Diversification

  • Oren believes that venture capital funds are generally over-diversified.
  • His funds typically contain between five and ten investments, which he believes is sufficient for diversification without diluting focus.
  • Concentration in investments allows Oren to commit fully to high-conviction opportunities and sets a higher bar for investment decisions.

"I think diversification is way overrated. I think that VC funds are generally way over diversified."

Oren argues that excessive diversification in venture capital funds can be counterproductive and that a more concentrated approach can lead to better investment outcomes.

Investment Strategy and Concentration

  • Oren Zeev emphasizes a high investment bar to ensure meaningful returns.
  • Prefers investing in a small number of companies to increase the impact of successful investments.
  • Believes that lack of diversification is not an issue if investments are failing; the problem lies in the investment strategy itself.

"If I invest in six, seven, eight companies and I don't do well in my book, it's not because I didn't have enough diversification, it's because I'm doing something wrong."

The quote highlights Oren Zeev's belief that a small, focused portfolio that doesn't perform well indicates a flaw in his investment choices rather than in the level of diversification.

Cross Fund Investing

  • Oren Zeev regularly engages in cross fund investing, which is typically rare in venture capital due to the complexities and potential for conflict.
  • He set clear expectations with his limited partners (LPs) from the start regarding his approach to cross fund investing.
  • Cross fund investing contributes to his concentrated investment strategy and allows flexibility across different funds.

"I do cross fund as a rule, not as an exception."

This quote indicates that Oren Zeev's approach to cross fund investing is a deliberate and consistent strategy, contrasting with the venture capital norm.

Reserve Allocation

  • Oren Zeev holds a contrarian view on reserve allocation, keeping minimal or no reserves.
  • He believes that returns on reserves are generally lower than initial investments because reserve allocation is often automatic and lacks rigorous analysis.
  • Prefers to invest from newer funds if additional capital is required, rather than holding reserves.

"I pretty much do not keep reserves or keep very, very little."

Oren Zeev expresses his unconventional stance on not maintaining significant reserves, which differs from common venture capital practices.

Pro Rata Investment

  • Discusses the issue of pro rata investment as an expectation rather than a strategic decision.
  • Oren Zeev avoids being forced into pro rata investments by maintaining authentic relationships with founders and making independent decisions based on his analysis.
  • He has managed to avoid the pressure to follow on in investments without negatively impacting the companies.

"By definition, if it's kind of expected from you, then it stops serving as a positive signal."

This quote reflects Oren Zeev's perspective that when pro rata investments are expected, they no longer indicate genuine confidence in a company's future success.

Founder Relationships and Allocation

  • Oren Zeev prioritizes relationships with founders to secure investment allocations in competitive rounds.
  • He has led multiple investment rounds in successful companies like TripActions by leveraging strong relationships.
  • Despite the aggressive nature of funding rounds, he has been able to maintain and concentrate capital in top-performing companies.

"It's a relationship thing, but honestly, the opposite also is true."

Oren Zeev acknowledges the importance of relationships in securing allocations but also recognizes that there are limits to how much he can or should invest based on fund size and founder preferences.

Founder Psychology and Character

  • Oren Zeev prefers to invest in nice people and avoid those with difficult personalities, believing success can be achieved without negative traits.
  • He assesses founder character through long-term relationships or trusted mutual connections, avoiding formal psychological assessments.
  • Believes in mutual attraction between himself and founders with positive character traits.

"Life's too short. Why would I want to put myself in a situation which I do not enjoy?"

Oren Zeev's quote reflects his philosophy of investing in people he enjoys working with, as he values the experience and relationships over merely financial outcomes.

Turning Laziness into an Advantage

  • Oren Zeev challenges the traditional work ethic in venture capital, claiming to be the least hardworking VC.
  • He uses his "laziness" to avoid unnecessary due diligence, only proceeding with investments that are obvious opportunities.
  • His approach allows him to manage his portfolio efficiently and maintain a lot of free time.

"I tell them I'm pretty sure that I'm the least hardworking vc on the planet."

This quote showcases Oren Zeev's unconventional approach to venture capital, where he values efficiency and clear opportunities over hard work for its own sake.

Working Smart vs. Working Hard

  • Emphasizes the importance of output over input.
  • Quick decision-making process to filter meetings and opportunities.
  • Values having free time for accessibility to founders.
  • Availability to founders is a priority, including immediate communication and in-person assistance.
  • Decision-making autonomy without partners saves time.
  • Personal time is weighed against work tasks, often leading to declining non-essential activities.
  • Efficiency and effectiveness are byproducts of this approach.

"I don't think it's about the input, I think it's about the output."

This quote highlights the focus on the results of work rather than the amount of work done. It's the cornerstone of the speaker's philosophy on working smart.

"If I filter meetings that I'm going to take, it takes me 20 seconds to look at a deck and decide whether there is a chance more than 5% that I would want to pursue it or not."

This quote explains the speaker's quick and efficient method for deciding which meetings are worth attending, which contributes to their overall productivity.

"I'm super accessible to the founders."

Accessibility to founders is stressed as a key benefit of the speaker's approach to time management, emphasizing the importance of being available for immediate assistance.

"Part of the reason why I don't have partners is because I wanted to save all this time."

The decision not to have partners is justified by the time saved in making decisions independently, which aligns with the theme of working smart.

Favorite Book: Churchill Biography

  • Enjoys biographies, particularly "The Last Lion" about Winston Churchill.
  • Fascinated by Churchill's imperfections and context-dependent success.
  • Believes in the importance of context in evaluating individuals' success or failure.

"It's not particularly new, but it's called the last lion. And just fascinating because the guy was definitely very far from being flawless."

This quote introduces the speaker's favorite book, highlighting Churchill's complex character and the speaker's appreciation for biographies.

"The same person who in some contexts can be great."

The speaker notes the context-dependent nature of success, using Churchill as an example to illustrate that one's effectiveness is not absolute but varies with the situation.

Founder Secondary

  • Supports the practice of founders selling a portion of their stake in their company (founder secondary).
  • Believes that financial security aligns founders' interests with long-term company success.
  • Views secondary sales as investment opportunities that can be more attractive than primary funding rounds.
  • Advocates for helping founders facilitate secondary transactions if they desire.

"I do not believe that founders are more hungry because they should be kept hungry."

The speaker opposes the idea that founders need to be financially desperate to be motivated, suggesting that mission-driven founders are preferable.

"The fact that you let them take money off the table actually brings better alignment."

This quote explains the speaker's view that allowing founders to secure some financial reward early on leads to better decision-making for the company's future.

Lessons Learned in Venture Capital

  • Importance of supporting founders rather than trying to outshine them.
  • Early in his career, being the "smart guy" was important, but now the focus is on being helpful to founders.
  • Believes founders usually know better about their business and values their decision-making.
  • Learned that attractiveness to founders is crucial for securing future deals.

"My role is to be the best support system, but my role is not to know better than the founder."

This quote reflects the speaker's philosophy of being a supportive force behind founders rather than trying to dominate the decision-making process.

"Today I'm not attached to it at all."

The speaker has evolved to a point where he is not concerned with whether founders take his advice, emphasizing a shift from ego to support.

Changing the World of Venture

  • Acknowledges the need for more diversity and inclusion in venture capital.
  • Wishes that personal character would more consistently determine success in the industry.
  • Recognizes that people tend to invest in and hire those similar to themselves, which can hinder diversity without active efforts to be inclusive.

"Obviously, there is a lot of room to improve in terms of diversity and inclusion."

The speaker identifies diversity and inclusion as areas needing improvement within the venture capital industry.

"I wish that it was always the nice people who would win and the assholes who would lose."

Expresses a desire for a more just world where success correlates with being a good person, although he acknowledges this is more of a wish than a reality.

Not Announcing Funds

  • Does not consider raising a new fund to be newsworthy.
  • Believes that having the necessary funds is a given and not worth publicizing.
  • Prefers to avoid outreach and PR activities, focusing on his work instead.

"I just don't think it's news."

The speaker sees raising funds as a routine part of business, not something that requires public attention or announcement.

"I just never bothered and don't care about."

This quote demonstrates the speaker's lack of interest in publicizing his fundraising efforts, aligning with his overall approach to focus on essential tasks.

Recent Investment: Traverse

  • Invested in Traverse, an Israeli data infrastructure company with technical founders.
  • Attracted to founders who are solving problems they have personally experienced.
  • Believes in the importance of a strong technical foundation for a company.
  • Prefers to invest in companies with potential for growth and technical innovation.

"It's in the data infrastructure space now."

The speaker briefly describes the sector in which Traverse operates, providing context for the investment.

"I love it when founders solve for a problem they really understand extremely well because they experience the problem themselves."

This quote explains why the speaker was convinced to invest in Traverse, emphasizing the value of founders with firsthand experience of the problem they are addressing.

Venture Capital Philosophy

  • Oren Zeev's approach to venture capital is characterized by a focus on supporting founders and making efficient use of time.
  • He values personal accessibility and decision-making speed over traditional venture processes.
  • Zeev's investment decisions are driven by the potential of the founding team and their technical expertise.

"I just love the way that Oren really thinks and deconstructs the world of venture and how he operates within it."

This quote summarizes the speaker's admiration for Oren Zeev's unique and thoughtful approach to venture capital.

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