I just read a venture pitch deck reviewed and commented on by self-proclaimed SuperLP, Chris Douvos.
The review is a nice pacifier applicable to anyone who has never raised money. The problem I have with the review is with the supposed superiority (SuperLP) of the reviewer. A man I have debated my proclamation of subprime venture capital with ten years ago in person in Palo Alto. He then tossed my comments aside saying “in the fullness of time” we will discover if I am right or not.
Venture Should Move The Needle
Clearly, the venture business ten years later does not fundamentally move the needle of Limited Partner (LP) returns, and no significant improvement to the allocation percentage of venture of total assets under management (AUM) has been assigned since. Venture is still not capable of outperforming 75-year-old asset classes.
It cannot because an old-boys club of financial arbitrage in Silicon Valley using the most obscene elements of collusion and risk avoidance is fundamentally incompatible with finding outliers of innovation. Let alone produce the regenerative returns from improving human adaptability to nature’s entropy humanity should care about.
Standard Candle
Let me refresh your memory about KPCB’s sliding performance I covered in great detail in addition to DFJ’s misery, both as the much-heralded emperors wearing no clothes.
So here is my response to the pitch deck review by Chris:
Well, using Chris’ mantra of “only in the fullness of time” can we prove something to be valid cannot be the “standard candle” by which we measure the success of venture.
The supposed risk managers in asset management, I have come to find out, know nothing about risk, and certainly not about the venture risk that is grandfathered by asset managers’ own ten levels of bottom-heavy diversified embedded risk before one dollar is spent.
To produce consistent venture style returns means you must pursue the outliers of the fractal of human expansion responsible for improving human adaptability to nature’s entropy. A normalization of truth no venture firm aligns with today and thus spawns merely temporal valuations not living up to the socioeconomic value they feign.
Without such normalization, the returns produced by venture are like winning a game of monopoly, a pyrrhic victory at best. My point being, the validity of venture presentations should not be judged by LPs whom themselves cannot produce regenerative returns to write home about.
Grandfathered Dysfunction
While investigating venture ten years ago, I discovered why, with plenty of dry powder and great ideas, venture capital as the arbitrage is systemically unable to make the marriage of these assets work to produce consistent outlier returns.
My point is, you will never produce consistent venture-style returns if the arbitrage of innovation does not mimic the nature of the underlying asset, outlier innovation that has no precedent.
So, Chris’ analysis is cute, but as a limited partner stuck in his own web of endless avoidance of risk, a diligent assessment of risk can not be inferred from the ill-formed risk in his own backyard.
Rethink The Theory
Chris’ stylistic observations are not wrong, but correcting those will not improve the performance of the venture firm in question, other than improve the propensity to raise money from greater-fools. Be careful who you raise money from, as their theory ultimately determines what you can discover (Einstein).
Raising money as a one-eyed king in the land of the blind is fairly easy, producing consistent returns to improve humanity is what the arbitrage of venture capital and its grandfather, asset management, have yet to deliver.
Venture, tapping into an 80% worldwide Greenfield should outperform any asset-class, and can do so when the theory it deploys matches the theory of outliers, prime entrepreneurs, who meaningfully break the norm.
