20VC Will LPs Replace GPs with Chris Douvos, Managing Director @ VIA

Harry Stebbings interviews Chris Duvos of Venture Investment Associates on the 20 minutes VC podcast, delving into the nuances of limited partnerships (LPs) and venture capital. Chris shares his unconventional journey into the LP world, initially inspired by an encounter with Michael Porter and further influenced by Seth Alexander's insights into the advantages of long-term investing. They discuss the trend of companies staying private longer, causing 'capital constipation' and prompting Chris to invest earlier in company life cycles, contrary to the common move towards later-stage investments. Chris also touches on the importance of geography and relationships in co-creation investments and the potential shift towards LPs becoming more involved in direct startup investments. The conversation also covers the role of FOMO in investment decisions, the hustle within the LP community, and the future landscape of MicroVCs. Finally, Chris expresses a desire for LPs to be less swayed by buzz and more critical in their investment choices, and he highlights his recent investment in Otherlab, a company specializing in co-creation and soft robotics.

• LPs are the source of capital for venture capitalists (VCs).
• They are considered the "money behind the money."
• LPs are crucial for understanding where VCs get their funding.

"Ever wonder where vcs get their money from? That's where lps come in."

This quote highlights the role of Limited Partners as the financial backers of venture capitalists, indicating their importance in the investment ecosystem.

• Chris DuVos is a member of the investment committee at Venture Investment Associates.
• He manages relationships with the fund's managers and its limited partners.
• Chris has experience with the Investment Fund for Foundations (over a billion dollars) and Princeton University's endowment.
• He made a notable pre-first fund investment in First Round Capital.

"Prior to joining venture investment associates, he spent time at the investment fund for foundations or TIF, where he was responsible for over a billion dollars."

This quote provides a brief overview of Chris DuVos' professional background, emphasizing his experience in managing substantial investment funds.

• The mattress was invented in the Neolithic period.
• The original purpose was to avoid draughts, dirt, and pests by being raised off the ground.
• Modern advancements have led to the creation of scientifically engineered mattresses like those from Lisa.

"Did you know the mattress was invented in the Neolithic period as a mechanism raised off the ground to avoid draughts, dirt, and pests?"

This historical fact about mattresses is used to demonstrate how far technology has come, leading up to modern products like the Lisa mattress.

• Chris's interest in becoming an LP was influenced by a chance encounter with Michael Porter.
• He was advised to pursue a career in railroads, a field not crowded at the time.
• The advice was to do something different from the mainstream (technology, investment banking, consulting).
• Chris's friend Seth Alexander introduced him to the Princeton team, leading to his career in endowments.

"Railroads. Go into railroads. He's like, charismatic young guy like you, you go into railroads, watch, you'll be CEO of Burlington Northern in 15 years."

This quote captures the unconventional career advice given to Chris DuVos by Michael Porter, suggesting that success can come from entering less saturated markets.

• Long-term investors have a natural advantage over transient LPs.
• The investment business was less developed at the time Chris entered the field.
• Chris was attracted to the idea of being part of a small, exclusive group of investors with interesting jobs.
• Endowment investing appealed to Chris due to its low liquidity needs, long horizon, and single client focus.

"We have a natural built in advantage over most lps, who tend to be transient."

This quote explains the competitive edge long-term investors have over those who view LP positions as temporary stepping stones, reinforcing the benefits of a long-term investment approach.

• Companies are staying private longer, impacting the investment and return cycle.
• Chris has written about the circularity of funds where investments yield returns that fund subsequent investments.

"Well, I'm sure he's thrilled to be credited with that starting point, but you mentioned that kind of lengthening life cycles for investments."

This quote leads into a discussion on how extended private company lifecycles affect the traditional investment-return cycle for funds, a topic Chris has explored in his writings.## Extension in Privatization for Firms

• The extension in privatization is disrupting the traditional cycle of investments and exits.
• Companies are staying private longer, which affects the liquidity and capital available for new investments.
• This phenomenon is referred to as "capital constipation," where the inflow of deals is not matched by an outflow of capital from exits.

"So even a lot of the more recent entrants have cash flow negative programs. Right. But when you see a portfolio like a Princeton portfolio, where I was at Princeton from one to four, and you get to the point where in the lingo of the business, you're recycling, distribution. So your portfolio is mature enough that the seeds you planted several years ago are coming out, you're sprouting and providing feed stock for the new plants, whatever, mixing metaphors. But you're getting that kind of great circle of life, right?"

This quote explains the ideal scenario where a mature investment portfolio is self-sustaining through recycling distributions, which is disrupted by extended privatization.

"It's really interrupted that cycle. And so this is what I call capital constipation, feeding the snake with deals. The snake is kind of bulging and bulging and bulging, and at some point something needs to come out the back end, right?"

Chris DuVos describes the challenge of capital being tied up in private companies, which prevents the normal cycle of reinvestment into new ventures.

• In response to lengthened privatization, some investors are shortening the duration of their portfolios by focusing on later-stage companies.
• Chris DuVos is taking a counterintuitive approach by investing earlier in the lifecycle of companies, aiming to "hit them where they ain't."

"Counterintuitively what I'm doing is I'm actually going earlier in the life cycle, because again, kind of with this thinking of Mike Porter and Yogi Bera, the famous baseball philosopher, said, you got to hit them where they ain't."

Chris DuVos explains his investment strategy of focusing on earlier stages of company development, which contrasts with the trend of investing in later-stage companies to address lengthening horizons.

• There is a noticeable increase in the number of micro VCs, which has led to LPs being overwhelmed with pitches.
• Chris DuVos was an early investor in the Microvc space and sees a distinction between Microvc and co-creation.

"I'm really intrigued that, though, because we constantly hear about the proliferation of micro vcs and lps are always, in the past few weeks, when I've got to know lps, they've always been moaning to me about how many micro vcs pitch them."

Harry Stebbings acknowledges the growing number of micro VCs and the resulting fatigue among LPs from frequent pitches.

"I'm not even talking about MicrovC. I'm talking about co creation."

Chris DuVos clarifies that his focus is not on Microvc but rather on the concept of co-creation, which involves working closely with innovators before a company is formally established.

• Co-creation involves monetizing inventions or innovations before they form into companies.
• Chris DuVos leverages his geographical advantage in the Bay Area, a region rich in innovation and entrepreneurial activity.
• He focuses on finding opportunities in "white space" areas and building companies around them.

"So when I say co creation, one of the things that I really like is people kind of inventing. How can we monetize that invention or that true innovation before it forms up as a company?"

Chris DuVos discusses his interest in co-creation, which involves identifying and monetizing innovations in their earliest stages, before a formal company structure is in place.

"The radius around my 20 miles radius around my home is one of the great kind of mischief making areas in the world."

This quote highlights the Bay Area's unique environment for innovation and entrepreneurship, which Chris DuVos leverages to find co-creation opportunities.

• FOMO (Fear of Missing Out) can create anxiety among investors, especially when exciting opportunities with short timeframes appear.
• Chris DuVos tries to avoid FOMO by getting to know potential partners ahead of fundraising cycles and focusing on long-term investment strategies.

"It's interesting because it does create anxiety, right. In a business that is so deal oriented. And so if something comes along that's exciting and it's got a short fuse, boy, it feels like there's a lot of pressure."

Chris DuVos acknowledges the anxiety that FOMO can create in the deal-driven venture capital industry, emphasizing the pressure to act quickly on hot opportunities.

"Warren Buffett famously says there are no called strikes in know you can let pitches go by, and it's not the last."

By referencing Warren Buffett, Chris DuVos suggests that it's acceptable to pass on investment opportunities without negative consequences, countering the pressure of FOMO.## Early Investment Opportunities

• Chris DuVos discusses the advantage of connecting with investment opportunities early, citing his experience with Josh and Howard in Philadelphia.
• Being the first institutional investor in a friends and family fund provided him with a valuable position ahead of the establishment of an institutional fund.
• Introducing these fund managers to prestigious institutions like Yale, Princeton, Notre Dame, Virginia, and Northwestern was a strategic move to gain early access and leverage.

"Getting out in front of Josh two years before he actually raised an institutional fund was kind of one of the luckiest strokes of hustle that I've had in my time in the business."

This quote highlights the importance of early engagement with fund managers and the benefits of being proactive in the investment community. It emphasizes that timing and personal initiative can lead to fortunate investment opportunities.

• The behavior of investors towards LPs (Limited Partners) is indicative of their overall treatment of relationships, including those with entrepreneurs.
• Chris DuVos suggests that aggressive or arrogant behavior towards shareholders could reflect similarly poor treatment of customers, i.e., entrepreneurs.
• He draws a parallel between everyday interactions, such as with toll collectors or servers, and professional relationships to gauge personality and professional conduct.

"The way investors treat LPs gives us a lot of insight into how they treat entrepreneurs."

This quote implies that the interpersonal dynamics between investors and LPs can be a microcosm of broader business relationships, hinting at the importance of observing and evaluating these interactions for insight into professional conduct.

• Harry Stebbings questions the presence of hustle within the LP world and whether there is an increasing effort to get into popular funds.
• Chris DuVos criticizes the "hot fund" mentality, which he believes is often driven by a herd mentality among LPs.
• He discusses the fear of career risk among LPs, leading many to make conventional choices rather than taking the risk of being right but alone.
• DuVos highlights the potential rewards of making independent investment decisions, even if they are not popular or widely recognized.

"You use the phrase hot fund wrinkles me, because time and time again, we've seen funds kind of get attention and get kind of wildly oversubscribed only because LPs are demonstrating lemming-like behavior."

The quote criticizes the tendency of LPs to follow trends blindly rather than making independent, well-considered investment decisions. It suggests that success in the investment world often requires breaking away from the crowd.

• Harry Stebbings inquires about the significance of fund terms in investment decisions.
• Chris DuVos acknowledges the importance of terms and economics but emphasizes the ultimate goal of achieving net outperformance.
• He explains the process of evaluating non-standard terms and their expected returns to ensure favorable net performance for investors.

"Terms are important, the economics are important. At the end of the day, we have to make sure that we are getting net outperformance."

This quote emphasizes the necessity of considering the terms of a fund as a crucial factor in the decision-making process, with the end goal of securing net outperformance for investors.

• Chris DuVos reflects on his past statement regarding the excitement around MicroVC and considers whether it has reached a saturation point.
• He compares the early days of MicroVC to the venture capital landscape in the 1980s, suggesting that the initial phase offered significant opportunities.
• DuVos predicts a trend of LPs becoming more hybridized, engaging in direct investments and co-creation, leading to closer partnerships with GPs (General Partners) and a shift away from traditional fund programs.

"I think what we're going to see over the next ten years is more of a hybridization of LPs into LPGPs."

The quote forecasts a transformation in the LP industry, with LPs taking on more active roles in investments and potentially altering the traditional VC ecosystem by partnering more directly with GPs and startups.## LPs Co-Investing with GPs

• LPs co-investing can help GPs to punch above their weight and invest more heavily.
• Micro VC funds are often undercapitalized and own too little, making them vulnerable to later-stage financing rounds.
• LP capital can extend the "Runway of playtime" in companies, allowing for more control and better protection.
• Some LPs may want to cut out VCs, but Chris DuVos prefers to partner with VCs to be additive.

"But I think what gps have, certain gps have concluded is that having lps who can co invest is a way for them to punch above their weight so they can then invest kind of more heavily, or."

Chris DuVos explains the strategic advantage of LPs co-investing with GPs, allowing for stronger investments.

"I think if you have LP capital that can help kind of extend your Runway of playtime, as it were, in these companies, you can have ball control longer and as a result protect yourself better."

Chris DuVos discusses how LP capital can provide more influence and protection for investors in a company over time.

• "The Great Gatsby" is Chris DuVos's favorite book due to its rich portrayal of a specific era in America.
• The book's description of the 1920s resonates with the current atmosphere in Silicon Valley.
• Chris feels a kinship to the character Nick Carraway from the book.

"I love the Great Gatsby, and a big part of the reason I love it is because it paints this amazingly rich portrait of a specific time in America."

Chris DuVos shares his admiration for "The Great Gatsby," highlighting the vivid depiction of the 1920s America.

• Time management is a significant challenge for Chris DuVos due to the acceleration in fund formation.
• There's a constant influx of funds to evaluate, and Chris's open-door policy leads to a packed schedule.
• Chris nostalgically recalls quieter times in the early 2000s when venture funds were less prevalent.

"It's just time management. We're seeing an acceleration again, kind of, I just use the phrase. The tempo had changed sharply."

Chris DuVos identifies time management as his biggest challenge, with an increasing pace in the venture capital industry.

• Chris DuVos admits he could improve on using apps and tools for productivity.
• Amy Zango, the director of community and Chris's partner, handles many tasks and coordinates various activities.
• Relying on a capable partner is a productivity hack for Chris.

"I've got a great partner. She's our director of community. Her name is Amy Zango and she handles a lot of stuff that I used to handle and just helps coordinate a lot of things."

Chris DuVos credits his partner, Amy Zango, for her role in managing tasks and improving productivity.

• Chris DuVos wishes LPs would be more resistant to buzz and not easily swayed by trends.
• He advocates for LPs to work together and be more critical, focusing on doing the right thing rather than career risk.
• He compares the situation to Odysseus' resistance to the sirens in "The Odyssey."

"What I'd like to see is I'd like to see lps more resistant to the insidious forces of buzz, work together and kind of stand firm."

Chris DuVos expresses his desire for LPs to resist the hype and be more discerning and united in their investment decisions.

• Chris DuVos enjoys Dan Primack's newsletter and Connie Loizos's work at TechCrunch's Strictly VC.
• He appreciates the content and community built by the "20 minutes VC" podcast.
• He used to be inspired by blogs like Red Eye VC and Redpoint's Thomas Tongas.

"I just love Dan Primac every morning. And Connie, now at TechCrunch, strictly VC."

Chris DuVos shares his daily reading habits, starting with industry newsletters that provide valuable insights.

• Chris DuVos recently invested in Otherlab, a company that creates soft robotics and has strong research relationships.
• Otherlab's advances in robotics and energy impressed Chris, aligning with his interest in co-creation.
• Otherlab's work with institutions like DARPA and ARPae was a significant factor in his investment decision.

"I just invested in a group called other lab. They've created a fund structure and check them out. They're at ww otherlab.com."

Chris DuVos discusses his latest investment in Otherlab, highlighting the company's innovative approach and potential in robotics.