20VC Steve Jurvetson on 20 Years of Friendship with Elon Musk, How To Analyse Market Timing, Why Venture Does Not Scale & Why He Has Never Sold A Share in Any Company He Holds

In this episode of The 20 Minute VC, host Harry Stebbings interviews Steve Jurvetson, a seasoned investor and founder of Future Ventures. Jurvetson, with a background in electrical engineering and a passion for technology, has made significant bets on transformative companies like SpaceX, Tesla, and Planet. He emphasizes the importance of first principles thinking, the power of visionary founders, and the necessity of market timing in venture capital. Jurvetson also discusses his philanthropic approach to wealth, advocating for the reinvestment of success into society. He highlights the recent investment in Prelis Biologics, a company innovating in 3D-printed organs and rapid antibody therapies, showcasing his commitment to funding ventures with the potential to revolutionize industries and impact humanity profoundly.

• The 20 Minute VC podcast is a platform for discussing venture capital, startups, and business with various guests.
• The host, Harry Stebbings, uses Instagram to interact with the audience, allowing them to suggest future guests and questions for the show.

"We are back for another week in the world of the 20 minutes VC." "Behind the scenes and you can suggest." "Both future guests and questions for the."

These quotes introduce the podcast and highlight the interactive nature of the show, where listeners can contribute to the content by suggesting guests and questions.

• Steve Jurvetson is a managing director and founder at Future Ventures.
• His portfolio includes SpaceX, Tesla, Planet, Memphis Meats, Hotmail, and deep learning companies Mythic and Nirvana.
• Jurvetson is on the board of SpaceX and Tesla.
• He co-founded Draper Fisher Jurvetson and led investments in successful IPOs and billion-dollar acquisitions.
• Jurvetson has a background in electrical engineering and computer design, with experience at companies like Apple, NeXT, and HP.
• He joined the venture capital world by sending a resume to Tim Draper of Draper Associates.

"And so with that, I'm thrilled to welcome Steve Jervertson, managing director and founder at Future Ventures, who announced their debut and flagship 200 hundred million dollar fund in 2019." "Prior to founding Future, Steve was the cofounder of renowned Silicon Valley firm Draper Fisher Jervison, where he led investments in five companies that went public in successful ipos and several others that became billion dollar acquisitions."

These quotes provide an overview of Steve Jurvetson's professional history and accomplishments in the venture capital industry, highlighting his successful investments and leadership roles.

• The venture industry has grown 25 times over the past 25 years.
• Jurvetson experienced the industry's growth from a boutique, pre-Internet era to its current state.
• He describes his career path as a "random walk" through technology and business, ultimately finding his dream job in venture capital.

"The venture industry per year has grown 25 x since then. So 25 x in 25 years."

This quote illustrates the exponential growth of the venture capital industry over the past two and a half decades, reflecting the dynamic and evolving nature of the field.

• Jurvetson lost about 90% of his net worth in the .com crash but held onto his investments.
• He shifted to a long-term view of venture capital, focusing on the future rather than the timing of exits.
• Jurvetson discusses the lagging effects of economic downturns on venture funds and the industry's collective inward focus during these periods.
• He emphasizes that many successful companies are founded during recessions, as it's a better time for building a healthy company culture and customer-focused iteration.

"For example, I lost about 90% of my net worth in the.com crash. And I just wrote it down. I didn't sell." "There's no better time than a down market to look for new entrants and new opportunities."

These quotes highlight Jurvetson's personal experience with the .com crash and his insights on the optimal conditions for founding and investing in new companies during economic downturns.

• Jurvetson advises entrepreneurs to take some liquidity off the table to reduce fear and enhance creativity.
• He discusses the alignment of risk tolerance between investors and entrepreneurs, advocating for venture capitalists to encourage risk-taking.
• Jurvetson has never sold a share of his venture capital investments, preferring a long-term hold strategy.

"You can do a better job as a manager if you're not operating from a place of fear, and if you can take 10% or so off the table and sort of COVID your nest egg, if you will, or your ability to live in Silicon Valley, if that's where based, for example, and not fear for family or what have you."

This quote provides advice for entrepreneurs on managing personal financial risk to maintain focus and creativity in their business endeavors.

• Jurvetson assesses founder psychology by asking about their vision for the company in 20 years.
• He looks for founders with a clear, passionate, and detailed long-term vision, indicative of their commitment and ambition.
• Founders who laugh at or dismiss the question of long-term vision are less likely to be a good investment.

"I like to ask every entrepreneur somewhere towards the end of the first pitch meeting, what does the company look like in 20 years?"

This quote reveals Jurvetson's technique for gauging a founder's long-term commitment and ambition, which is crucial for identifying potentially successful investments.

• Jurvetson believes market risk is the worst kind of risk and avoids industries where customer preference is unpredictable.
• He focuses on assessing market timing, which he considers an art, especially for projects with long time horizons and significant societal impact.
• The goal is to invest in visionary founders who are committed to their mission regardless of market conditions.

"So that, in a way, is the focus of what I try to do. In other words, if I was to say, what is the skill set that I'm trying to hone, what is it that I do as an early stage venture capitalist? It's trying to figure out market timing."

This quote explains Jurvetson's approach to minimizing market timing risk by focusing on the founder's vision and commitment rather than unpredictable market fluctuations.## Inevitability of Electric Vehicles and Other Technologies

• The inevitability of all vehicles becoming electric in the distant future is not debated, even by oil industry executives when considering a long enough timeline.
• In the far future, the current practice of drilling oil and burning it in inefficient engines will be seen as absurd.
• The transition from settler agriculture and slaughtering animals for meat to alternative methods is inevitable, as is the shift from human-driven vehicles to autonomous driving.
• The challenge lies in determining the market timing for these transitions.

"It is inevitable that all vehicles will be electric. If you look far enough in the future, no one will debate this point."

This quote highlights the certainty of electric vehicles becoming the standard in the future, emphasizing the importance of long-term vision in predicting technological changes.

• Market timing is crucial for investors, as being too early or too late can result in missed opportunities.
• The transition to electric vehicles was predictable, but the exact timing of when it would become obvious to the market was uncertain.
• Experiencing Tesla's electric vehicles and Google's autonomous driving technology (now Waymo) provided epiphanies about the future of these technologies.
• The role of an early-stage venture firm is to catch an industry on the cusp of a transition, understanding the technology risk, and determining when the technology will be adopted by the market.

"The market timing. And this is where you can totally miss out."

This quote emphasizes the critical nature of getting the timing right in the market to avoid missing out on investment opportunities.

• Investing early in quantum computing and synthetic biology was premature, while timing was better for electric vehicles and space-related companies.
• The goal is not just to pick the best company within an industry, but to identify the right industry sector that is about to undergo disruptive change.
• Understanding when technology risk will be resolved and when the customer experience will be convincing enough for later-stage investors is key.
• Examples include the transition from science projects like nuclear fusion to engineering challenges that the industry agrees upon.

"So I see my job as not picking so much the best company of an industry because frankly, I'm trying to invest in things that don't even have an industry yet in the startup domain, but try to pick the right industry sector that it will go through a disruptive change."

This quote underscores the investor's role in identifying not just promising companies, but entire industry sectors poised for disruptive change.

• Venture capitalists often disagreed with the speaker's investments, such as Tesla, which was initially criticized by Peter Thiel.
• The venture industry has an abundance of herd mentality investors, particularly in consumer Internet and enterprise software.
• Historically, venture capital was limited to a few sectors, but now almost every industry is becoming an information business, leading to a wide array of opportunities.
• Successful investing involves looking for companies that will fundamentally change society, rather than making incremental improvements.

"It was amazing how almost all venture capitalists disagree with me when I first invested."

This quote reflects the speaker's experience of facing opposition from other venture capitalists when making early investments in what would later become transformative companies.

• Emotionally, the entry price seems important, but analytically, it may not be as significant for early-stage venture funds.
• The power laws of portfolio returns show that a few companies typically generate returns that eclipse all others in a fund.
• It's more important to bet on remarkable people and pick the right industry sector than to focus on the entry price.
• Investing in companies that aim for monumental societal change can lead to historic achievements.

"There's no logical reason why entry price should matter as much as it does."

This quote suggests that while entry price may feel important, it is not as critical to investment success as choosing the right companies and industry sectors.

• Traditional ten-year venture fund structures may not be suitable for investments that require longer to mature.
• The speaker's firm, Future Ventures, created a 15-year fund to accommodate the longer development timelines of transformative companies.
• There is a need for alternative fund structures, such as evergreen funds, to better support the types of investments that can have significant societal impacts.

"For what we're talking about today, you're exactly right. In fact, I've been on a variety of companies boards for between 15 and 20 years when they're successful."

This quote acknowledges that the typical ten-year venture fund structure does not align with the long-term nature of some transformative investments.

• Given the ambitious nature of the investments, there may be a higher expectation of loss ratios compared to more conventional ventures.
• The right level of diversification within the portfolio is crucial to balance the risk and potential for high returns from societal impact projects.

"Do you expect loss ratios to be higher, and how do you think about the right levels of diversification within the portfolio, given the profiles that you invest in?"

This question addresses the concern of balancing risk and diversification in a portfolio focused on investments with the potential for significant societal impact.### Venture Capital and Investment Strategy

• Steve Jurvetson discusses the surprising success of venture investments in high-risk areas like synthetic biology and clean tech.
• He reflects on his time at DFJ, noting that despite specializing in early-stage Internet investments, their losses during the .com crash were less than expected.
• Jurvetson attributes this to diversification and smaller bets rather than concentrated investments.
• He emphasizes the importance of diversification across various industries and stages of company development.
• The conversation touches on the notion that companies further along in development, such as Series B stages, can still present reasonable investment opportunities.
• Steve points out that not all investments need to be seed-stage checks; there is value in investing in companies that are still developing their first product success.

"It's strange. I would have thought that the loss ratio should be a lot higher... but it hasn't played out that way at large."

This quote highlights the counterintuitive success of venture investments in areas perceived as high-risk, challenging the expectation of high loss ratios.

"In the 90s, starting in 95, we were doing 80% Internet investing at DFJ... we did a third of all Internet investments for the entire venture industry."

This quote provides historical context to DFJ's investment focus during the early Internet era, emphasizing their significant market share.

"We were still pretty well diversified. We had a lot of smaller bets, not these concentrated ones."

Steve explains that a diversified portfolio with smaller bets contributed to their resilience during market downturns, contrasting with the losses from concentrated investments.

• Steve Jurvetson reflects on his relationship with money, particularly after becoming a parent.
• He shares his upbringing with immigrant parents and the realization that children who inherit wealth often lack the drive to lead meaningful lives.
• Jurvetson made a conscious decision to pledge 99% of his wealth to charity, ensuring his children would not inherit an arbitrary amount of money.
• He discusses how this decision impacts his investment approach, allowing him to focus on the long-term and be a better steward of capital.
• Steve connects his personal philosophy on wealth to the types of entrepreneurs he prefers to work with—those who are motivated by impact rather than financial gain.
• He also touches on the importance of a company's mission and vision for aligning employee priorities and creating long-term value.

"I think my relationship with money changed when I had kids... I want to give it all away."

Steve shares a personal turning point in his views on wealth, emphasizing the influence of family and the decision to prioritize charitable giving over inheritance.

"I think it leads us to be better stewards of our capital and of sort of the future and what matters."

This quote reflects on the broader societal and personal benefits of philanthropy, including the positive impact on one's approach to managing wealth and decision-making.

• Steve Jurvetson gives his perspective on what makes Elon Musk an exceptional entrepreneur.
• He notes Musk's approach to problem-solving using first principles and the importance of having a long-term vision.
• Jurvetson admires Musk's ability to focus on critical tasks while maintaining a connection to future goals.
• He compares Musk's design sensibilities and drive for simplicity to those of Steve Jobs, highlighting the shift towards software-driven value in products.
• The conversation covers Musk's multitasking across multiple companies and how it enforces discipline and prioritization.
• Steve shares memorable moments with Musk, reflecting on the long-term nature of their relationship and the shared experiences they've had.

"I think he's perhaps the greatest gift of the American dream, living right now..."

Steve praises Elon Musk's achievements as an immigrant entrepreneur who has driven change across multiple industries.

"He takes his software engineers... and you motivate people like crazy because they want to see this vision succeed."

This quote explains how Musk's leadership and vision inspire his teams to innovate and push boundaries in their respective fields.

"He has an incredible ability to focus on what's important, yet tightly couple it to the future vision."

Steve highlights Musk's skill in balancing immediate priorities with long-term objectives, a trait that contributes to his success as an entrepreneur.## Rocket Launch Experience and Insights

• Steve Jurvetson shares a vivid memory of witnessing a rocket test in Texas.
• The rocket was meant to land vertically, a feat considered impossible by industry observers.
• During the test, the rocket went off course, leading to an intentional detonation.
• Steve notes the explosion was the largest fireball he had ever seen.
• Despite the failure, he highlights the learning opportunities from such events.
• Elon Musk's response to a quote about learning from failure emphasizes his preference for learning from success.
• Steve uses a piece of the rocket wreckage as a reminder of the challenges and lessons in rocketry.
• He admires Elon Musk's perseverance and conviction in the face of failure.

"It's the height of a three-story building coming back at you under thrust and then landing vertically near where you want it to land. It's never been done before."

This quote explains the ambitious goal of the rocket test, highlighting the innovative and challenging nature of the experiment.

"And it detonates because when something goes out of launch parameters too far, like it's starting to launch horizontally, you blow it up so it won't be a threat outside of a certain circle or radius."

Steve explains the safety measures in rocket testing, where a rocket is intentionally destroyed if it veers off course to prevent danger to the surrounding area.

"Elon's reply was, well, considering the alternatives, I'd rather learn from success."

Steve recalls Elon Musk's preference for success as a learning tool, contrasting it with the common saying that failure is necessary for learning.

• Steve Jurvetson's favorite book is "Out of Control" by Kevin Kelly.
• The book discusses biological metaphors and information technology.
• It influenced Steve's interest in iterative algorithms and systems biology.
• He also recommends the first few chapters of Ray Kurzweil's "The Age of Spiritual Machines" for its framework on the progression of technology.

"The most influential on me was 'Out of Control' by Kevin Kelly."

Steve names the book that had the most impact on him, indicating its significance in shaping his interests and thinking.

"It's the most important thing ever graphed. It's the most important thing in technology business, and it gives you a sense of where the future will lie."

He praises the framework presented in the first few chapters of Kurzweil's book, suggesting it provides valuable insights into the trajectory of technological advancement.

• Steve reflects on the diverse characters he has encountered on boards.
• He highlights Antonio Gracias of Valor as the most value-added board member he has worked with.
• Antonio's background in industrial companies and his hands-on approach as a board member are particularly noteworthy.
• Steve respects the cognitive diversity in venture capital and the different successful models that exist.

"Certainly the most value-added board member I've sat with."

Steve identifies Antonio Gracias as an exemplary board member who has made significant contributions.

"There's a huge array of different models for successful venture."

He acknowledges the variety of effective approaches in venture capital, emphasizing the importance of diversity in thought and strategy.

• Steve wishes that successful venture groups could scale their operations to fund more ideas.
• He notes that increasing the size of venture funds usually changes their investment strategies.
• Steve believes that team size in venture capital is critical, with two to five partners being optimal.
• He discusses the potential for automating capital provision for more predictable businesses.
• Steve advocates for venture firms to invest in companies that can significantly improve the world and for successful investors to be philanthropic.

"If I could wish for something that I think may be impossible, I wish it could scale where the groups that do it well could do it ten x or 100 x as much as they do."

Steve expresses his desire for effective venture capital groups to expand their reach and fund more innovative ideas.

"I don't think venture firms scale at all."

He explains the challenges of scaling venture capital firms, particularly the impact of team size on performance.

• Hiring for cognitive diversity is essential to overcoming implicit biases.
• Steve has focused on promoting gender diversity and avoiding recruitment from a single alma mater.
• He stresses the importance of equal voting policies and tapping into the wisdom of crowds.
• Steve recommends reading on cognitive diversity and its benefits over individual expertise in ambiguous decision-making.

"Cognitive diversity is something I think you have to hire for."

Steve discusses the intentional effort required to build a cognitively diverse team, which is crucial for effective decision-making.

"The diversity bonus. A book out of Sinofine Institute and others tell this story in the more updated form."

He cites literature that supports the value of cognitive diversity in fields like venture capital, where decisions are often ambiguous.

• Steve's most recent investment is in Prelis Biologics, a company that prints 3D organs.
• He is excited about the company's potential to create antibody therapies for COVID-19 and future organ transplants.
• The company's approach and technology are seen as scalable and timely.

"They print 3D organs, which is a category I've been watching in terms of market timing."

Steve shares his enthusiasm for Prelis Biologics' innovative work in 3D printing organs, a field he has been interested in for a long time.

"The best way to amplify your B cell and T cell response is to have a recreation, literally recreation, of the human lymph node."

He explains the significance of Prelis Biologics' technology in developing antibody therapies, highlighting its potential impact on health and medicine.