Chris Douvos, founder of Ahoy Capital, discusses venture capital investing as a limited partner (LP). He explores how venture capital fits in an investor's portfolio, shares his investment philosophy, and reveals how he identifies nonconformist VC investors, especially emerging managers. Chris also reflects on recent VC landscape changes and offers insights to better the industry's future and its potential impact.
Chris Douvos, founder of Ahoy Capital, discusses venture capital investing as a limited partner (LP). He explores how venture capital fits in an investor's portfolio, shares his investment philosophy, and reveals how he identifies nonconformist VC investors, especially emerging managers. Chris also reflects on recent VC landscape changes and offers insights to better the industry's future and its potential impact.
In this episode, you’ll learn:
[2:28] Pre-2005 venture capital: An enigma mastered by just a few hundred experts. What's evolved?
[9:03] Contrarian view: Concentrated VC portfolios triumph over diversification.
[13:15] Ahoy's portfolio: Home to unique ventures.
[18:26] Nurturing LP/VC connections.
[23:47] Standing out in the world of 'chaos capital' as a VC investor
The non-profit organization that Chris is passionate about: Habitat for Humanity
About Chris Douvos
Chris Douvos founded Ahoy Capital in 2018 with a focus on building a boutique firm committed to investment excellence and fostering strong partnerships. With nearly two decades of experience in venture capital, Chris is a pioneering figure in the micro-VC movement. He excels in identifying and nurturing emerging funds, facilitating transparent dialogue between capital providers and consumers, and shares his insights through his blog, SuperLP. His expertise is not limited to capital; he is also sought after for his advisory role on numerous manager's boards. Chris is a frequent speaker at industry conferences and business schools, and he serves as a valuable resource for tech and business media.
Before establishing Ahoy Capital, Chris led investment efforts at Venture Investment Associates and The Investment Fund for Foundations. He honed his skills in illiquid investing while working with Princeton University's endowment and started his career as a strategy consultant at Monitor Company.
Fun Fact: Chris is known for his exclusive brick oven pizza parties, attended by LPs, GPs, and entrepreneurs in Silicon Valley.
About Ahoy Capital
Ahoy Capital is a Silicon Valley-based boutique fund manager that scours the innovation ecosystem in search of attractive risk-adjusted returns while maintaining a high level of engagement with its Partners. Focusing on investments in both early-stage venture capital funds and start-up companies, Ahoy Capital seeks outstanding opportunities in the application of emerging disruptive technologies, as well as the development of nascent frontier ideas that will continue to have profound effects on the ways in which people live and work.
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"You know what? We've made enough money." And they just returned the funds to their LPs and they walked away. And boy, if somebody did that, that would be amazing. Because right now there are a lot of people that are retired on the job or calling in rich and are very comfortable and LPs keep giving them money because they're a safe pair of hands.
And they keep putting up 2.5X returns, which in my opinion is what you can get investing in the NASDAQ. And I don't know why we tolerate that.
Gopi Rangan: You are listening to The Sure Shot Entrepreneur - a podcast for founders with ambitious ideas, venture capital investors, and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision.
Welcome to The Sure Shot Entrepreneur. I'm your host, Gopi Rangan. My guest today is Chris Douvos. Chris is the founder of Ahoy Capital.
He comes from the limited partner world. Limited partners are investors behind the investors who are venture capital investors. We're going to learn about how that world works. Chris is a very familiar character in the venture capital industry, especially in the emerging manager, new VCs who are starting firms.
They all know him. It would be great to learn from his wisdom how he thinks about investments in venture capital firms, how he forms these relationships, what kind of quality of connections he builds with those firms. He popularly says that he likes to invest in venture capital investors who are nonconformists.
What does that mean? We're going to talk to him. Chris, welcome to The Sure Shot Entrepreneur.
Chris Douvos: Thank you so much for having me. It's fun to see you.
Gopi Rangan: Let's start with you. Tell us a little bit about yourself. You grew up in Brooklyn, in New York, and then you made your way to Silicon Valley. You've been living here for many years now.
How did that happen?
Chris Douvos: It was a wild journey. So I grew up in Brooklyn. My parents were both immigrants. And one story that I've never told on a podcast is my parents were both fresh off the boat. And sometimes in New York, you get these beautiful days in December and everybody's outside.
So it was, you know, warm December day. And my dad was walking down the street and he saw these. Women on their lunch break and he bought an arm full of hot dogs and walked up to them and said, ladies, would anybody care for a hot dog? And that night he and my mom went on a date and they've been married now 53 years.
So that's the beginning of my origin story. It's a very American story. And so I grew up though, uh, in pretty humble circumstances. My dad was a cab driver and my mom worked in the hotel industry and I actually got a scholarship to fantastic boarding high school and so I was really a fish out of water, but it taught me how to be adaptable. But it also taught me how to observe people. For those who've read the book The Great Gatsby, I was very much the Nick Carraway character who kind of is the narrator who watches from afar and sees all these things unfold before him.
And so I went from that school and, and went to Yale actually, where my investing story starts because I was fortunate enough to take David Swensen's institutional investing class while I was there and really learned a lot. And that was before Swensen was famous as the kind of seminal figure in endowment management.
Some of the things that he talked about in those days, everything from seeking out inefficiency to making sure interests are aligned to having an equity bias still resonate with me today. In fact, he said something to me in those days that I think of every single day. He said, investing is about optimizing discomfort. If you're too comfortable, you're not taking enough risk. That's one of my touchstones.
After college at Yale, I spent five years in Boston doing some business stuff, actually working at a hedge fund for 15 months in the late nineties and. Really started to think about investing as a career path and went to business school. Actually, one of my favorite stories is David Fialco from General Catalyst and Joel Cutler, the two founders of General Catalyst. They were doing all kinds of companies before they launched General Catalyst. And in 1998, 99, a lot of my colleagues from a place called monitor company, we're going to general catalyst, proto general catalysts, back to startups.
I was talking to those guys about going to work at a startup actually. And I said, "actually I think I'm going to go to business school instead." And in 1999 Fialka, who's like kind of this awesome personality. He says, "Douvos, what's the matter with you?
Going to business school now is like studying geology during the gold rush. You're going to be behind a desk and all your friends are going to get rich while you sit there studying." And I thought, you know, that's probably right, but I need to figure this out. So it was actually business school is a great time of exploration. While I was in business school, 99 to one, we saw the crest of the. com boom and how it turned into the. com bust. And actually that's where I got into endowment management. Because I had spent my business school summer at Morgan Stanley, and then afterwards, had such a unfulfilling experience.
Afterwards, I talked to a friend named Seth Alexander. He and I had gone to college together. He's now the chief investment officer at MIT. And, I said, "tell me about what you do." He was then in the Yale investments office. And he talked about how endowments are the ultimate. Investors, because they have low liquidity needs, low time horizon, few tax issues, a single client, et cetera.
That you'd go on and on. I said, "this seems really interesting. And so, can I maybe interview at Yale?" He said, "sorry, you missed your chance. We only hire people out of college, but why don't you talk to Andy at Princeton?" And so I went and talked to Andy Golden, the chief investment officer, who's now retiring after a tremendous run at Princeton. I was fortunate enough to get a job there and was there for a few years, and then went to a place called the Investment Fund for Foundations, where I started really looking at emerging managers and then transitioned when they closed their West Coast office to a place called VIA. And when one of our partners passed unexpected, I spun out the funds that I'd been managing into Ahoy Capital.
So that's my story and I'm sticking to it. .
Gopi Rangan: What an amazing story. Immigrants coming to the U. S., your parents giving you a chance to build the best life you can, and you made your way to Silicon Valley where the venture capital industry is blossoming and continues to blossom over the decades. Did you ever meet David Swensen when you were at Yale?
Chris Douvos: Yeah. So he used to teach a class called Institutional Investing, and he taught that to both undergrads and grad students. And when I went back to Yale for business school. And unfortunately, when I was there in 1999 to 2001, I think that's when he was initially sick. Dean Takahashi taught the class and Dean is really one of the unsung heroes of investing in the late 20th century. He's an outstanding investor in his own right and Dave's right hand man for many, many years.
Gopi Rangan: David Swenson and Dean Takahashi revolutionized venture capital. They showed the endowment world how the asset class can become an important piece of their allocations. I see that the new head of Yale's endowment actually was the head of venture capital division previously.
Chris Douvos: Yeah, he's an awfully sharp guy well, and the endowment is in excellent hands. By the way, a quick story, I wasn't supposed to be in venture capital. When I joined Princeton, Seth had told me when I went to interview that when I was talking to the Princeton guys to talk about timber, because timber is this outstanding endowment asset class. When prices are bad, you leave the commodity in the ground and it grows and how it gets step function more valuable. And, if you've got a long time horizon, timber can be a great asset class, or at least it was in the late nineties. And, and so I had this great conversation and I was kind of brought on as a generalist with an eye towards maybe working on real assets.
And not long after I arrived, the guy who did a lot of the venture capital work left to go to another university. And they said, " This is like summer of a one when venture was in the doldrums." And somebody said, "okay, so who wants to do venture?" And really nobody raised their hand. Everybody looked at me and I was kind of the new guy and I filled Ken's shoes and I wasn't actually super excited about it, but the first trip I took to California to meet with venture managers, I landed at San Francisco airport and I took 280 down for those who come down to Silicon Valley. I always take 280, not one on one. It's a much more inspiring road.
And it made me think, I'd been an English minor in college. And I remember reading Walt Whitman and he wrote this poem in the 1850s called song of the Redwood tree. And he said, in California, I see the genius of the modern, the child of the real and the ideal. And I thought, wow, that's actually what venture is.
And it was like a switch flipped. And I said, from that moment in late summer of 2001 to today has been one unbroken line of living in this amazing world and being so excited about it and really leaning into this future that, as Whitman says, is the, the child of the real and the ideal.
Gopi Rangan: You could have been a timber lord. Instead, you became the champion of venture capital in Silicon valley.
Chris Douvos: I think this is much more fun.
Gopi Rangan: 280 is a much more scenic and fun route, highway, compared to 101 indeed. Let's start with the basics. Where does venture capital fit in the asset allocations of an investor?
Chris Douvos: So generally speaking, if you think about a traditional institutional portfolio, private equity serves a very important role in return enhancement. And venture capital as a sub asset class of private equity is really where people go to get their portfolio octane. And I'm thinking of institutional investors now, but when you look at people have really outstanding years. The secret sauce is often the same. It's venture capital, right? And part of that is because venture is the longest dated furthest out of the money option that most people have in their portfolios. And as a result, it's the most volatile, right? And you have these boom, bust cycles.
What took me a while to actually understand, because I used to come at venture from a value perspective, but what took me a while to understand was that the asymmetry of venture makes it really remarkable. We had one fund, the first round capital 2008 fund that I invested in, it was the first investor there, you know, that's, that's a 40 times money fund, right?
And it's remarkable how much impact that can have, uh, that can have on returns. And I used to think about all the things that could go wrong, but I think it was Gary Tan that said to me, he said, pessimists sound smart and optimists make all the money. And you know, that switch flipped in me at some point in the mid 2000s. And I realized, wow, this is what's beautiful about venture. It's this weird corner of the institutional investing world that a lot of people find actually really hard to access, and access well, which is why there's such a focus on name brand in venture. But if you can be a contrarian and look in different corners, there really are some really outsized returns that that can be found because what most people execute their venture very inefficiently and end up really indexing their venture and an index of venture doesn't compensate you for the incremental risk and illiquidity that you take relative to a public market opportunity cost, for lack of a better phrase.
Gopi Rangan: What does indexing venture mean? Do you mean that portfolios need to be more diversified instead of having a concentrated portfolio?
Chris Douvos: That's right. A friend of mine, Will McLean used to say that most people are de-versified, not diversified.
I have endless debates and I'm sure somebody listening right now will say, but there's power law and there have been a lot of people who have said: if you look back to 2010 to today, somebody did a study. I won't name names. There's somebody that did a study that said you should invest in every marginal company.
Every marginal company has a positive expected outcome because the chances of you getting into a company that has power law dynamics increase with N or N plus one N plus two. But the reality is that if you look back at the long sweep of venture, that average venture returns have been very mediocre. In fact, have in many cases, not surpassed public market returns, which is why people say, well, you've got to focus on the top quartile, but in a world where I think Samir Kaji says there are 4, 000 venture firms in a world where there's 4, 000 venture firms each raising on a two year cadence.
That means there's 2000 venture firms raising each year. That means there are 500 firms in the top quartile. I wouldn't want to invest in firm 500, much less from 250. you know, There's probably 10 investable in any given year. So I think the flood of capital has come into the space has really kind of changed the calculus of it.
As an institutional investor, what happens is your portfolio just kind of gets overgrown because when you invest in a fund. You've got to give it a couple of funds before you really can evaluate like the true evaluation horizon is probably 10, 12 years, but you can start getting telltales in years five or six, and that might be two or three fun cycles.
Meanwhile, you're adding more to your portfolio because people are incentivized to do deals, right? And so one day you wake up and you wanted to have a portfolio 20 venture managers, and you've got a portfolio of 40 managers. How did this happen? Well, it happens, right?
So the execution of venture has typically been very tough. And I think that's why average returns are average. I know that's circular, but an average returns are very unfulfilling.
Gopi Rangan: I want to talk about portfolio composition, but let's start with Ahoy. How is Ahoy different from other limited partners?
Chris Douvos: You know, what I think we like to do is be very aggressive about shining our flashlights into new areas. Historically we've been very active in backing new managers as part of our DNA. So going back to being the first check into First Round back in 2007 to Data Collective in 2011 to XYZ and Ross Fabini in 2015, 16. More recently, there've been a whole bunch more. So a lot of people tend to invest very conventionally. And there's a lot of smart people and there's a lot of money to be made in conventional. I'm just not as smart as some of those people. what did they say? Fools rush in where angels fear to tread. And I've been lucky and I've been helped by kind of following winds. So we do over index on new ideas, something which you alluded to in the intro. Our watchword is: we look for people who are robust, nonconformist with the courage of their convictions.
There are a lot of people who are very comfortable just doing what the crowd does, especially in venture capital. There's a lot of social proof in venture capital. And what we do is we look for groups that really are kind of marching to their own drummer. You know, somebody once said your portfolio is the land of misfit toys, like an old Christmas special. And I kind of like it that way.
The other thing a couple of which ways in which we're different is in terms of what we look for is we really try to keep the portfolio as concentrated as possible. I've been in places where the portfolios get a little bit unruly.
So we try to add at most one or two new managers a year and, typically are subtracting a manager a year. Sometimes they grow out of our sweet spot. So there are a lot of very fine firms that are maybe a little bit too big for us now and we've stepped away from them and it's part of the natural cycle of life in venture.
So in any given kind of two year period, we're probably going to only have seven to nine or 10 different funds per two year period. And then the last, you know, right now we've got a bet on is we're really looking at groups that are in invention, not just innovation.
And what I mean by that is we're looking at people who are really leveraging robust ecosystems of invention. So we're investors in a group called E14 that sits on top of the MIT Media Lab. We're big fans of the house fund at Berkeley. That's doing a lot of stuff with the AI department and other departments there as well.
There's a group called Rhapsody that's out of Boston that does a lot of material science stuff, real sweat equity in material science. That's the kind of stuff that's really exciting to me right now because when capital becomes a commodity like it had over the last number of years, it becomes harder and harder to actually generate excess returns because prices get bid up.
Gopi Rangan: I believe in the philosophy of go ugly and go first. I do that with my own investments and let other smart people follow me after I invest. You mentioned that you prefer to build a concentrated portfolio, not a diversified portfolio. Let's talk about 'moolah in the cooler'. That's your phrase. How does a concentrated portfolio help you put moolah in the cooler?
Chris Douvos: That's that's right. So, you know, it's funny because, I actually swiped that phrase. It's become a trademark phrase, but I actually swiped it from Josh Koppelman, who himself back in 2007 or 2008, who himself swiped it, I think from Bonsell at NEA or somebody, but what's great about a concentrated portfolio is that things that work, work really well and winning companies have a real impact on the fund in a very profound way. So in our fund, one, we had a nice exposure to Sentinel one, and it returned three quarters of our fund of funds, right? So, you know, when I've been in other fund to funds context, when, you know, a single company returns 10 percent of your fund, you get excited and happy.
something like like Sentinel one or Peloton and fund two, that returned kind of a comparable amount. You know, we've been lucky to have that concentrated exposure. Cause the one thing that I found that was really frustrating when I've been places with bigger portfolios is this happened to me in, and it taught me this on both the GP side and as an LP.
There was a company named equal logic, outside of Boston that got acquired in 2002, I think. And it was, at that time, the largest all cash M&A ever. EMC acquired it. It was, I think, a billion five, which tells you how much the world has changed.
And the funds that had invested in two great funds, each owned a quarter of the company, almost as I recall, but they had such big funds that that company, which was by the way, the largest all cash M&A outcome to that point still didn't return their funds. And then when you aggregate that up to our funds, it really didn't move the needle much. And I think that's a real challenge for institutional investors. Venture is only, kind of 5%, 7 percent of your portfolio, as it is at a lot of institutional investors, they're playing a little bit more of a beta game because it's really tricky to have a needle moving alpha when you're too diversified.
Gopi Rangan: This is a difficult game for many reasons. The returns that you get back from VC firms depends on returns that startups generate and returns to the VC funds. There are multiple stages here. How do you look at these relationships with VCs? You typically choose one or two new managers to add every year.
What happens in the first meeting, the second meeting? How do you build relationships with managers? Can you give an example?
Chris Douvos: Yeah, one thing that I've been really lucky about is that I've been around long enough that I've met a lot of people and have been very fortunate to have some good relationships. It's actually funny. A lot of the people that I met in my earliest days are now long retired. There's a phrase in the public markets: 'there are no old, bold investors.' I feel like I'm both old and bold, but that I think speaks to the long dated nature of venture. But typically one of my favorite ways to meet new managers is through entrepreneurs.
In fact, let's talk about Data Collective back in 2010, 2011. I was actually at a data scientists meet up in San Francisco and I was talking to this guy who looked like Hagrid from the Harry Potter movies. Um, you know, big, long hair, tall, seven foot tall guy, big, you know, black leather jacket and, you know, wearing a Metallica t shirt or something.
And, of course, he had A PhD from Stanford or Carnegie Mellon or somewhere. And he said to me, I was asking him who he likes as an investor. And he said, Oh, you got to talk to these guys, you know, Matt Occo and Zach Bogue is, but you know, if you talk to, to Matt, you, you probably won't get him. I'm like, what do you mean?
He goes, well, he doesn't, you know, really necessarily resonate really well with guys like you. I'm like, what do you mean? Guys like me? Oh, he goes, you know, finance guys. Um, he goes, but for people like us, he's in the tribe. He's a member of our tribe. And when I heard that, I'm like, I need to meet this guy yesterday.
And so I met with Matt and Zach, and I started talking to them. And a lot of what I do when I spend time with managers is trying to understand their behavioral footprints. Because we don't have, at my level, being the money behind the money. We don't have the luxury of understanding companies, things like TAM are not something that we think about because as VCs, you get to like, sink your teeth into things that are tangible like that. You can figure out what LTV is going to be, you can make a guess about what CAC is going to be, but for us, we're trying to understand the people who are going to make those decisions.
So in some ways, my job is not dissimilar to that of an organizational psychologist and an investigative journalist and a bunch of things like that. And it's a lot of fun to try to understand who people are. And also by the way you understand individuals, then you have to understand team dynamics.
I'm of the belief that every great team is a well rounded whole made up of jagged pieces that fit together nicely. Right. And so, you know, for instance, getting to know those guys, you know, was a really interesting journey of seeing how they interacted, how they interacted with their portfolio companies.
I spend a lot of time talking to portfolio companies that they invested in and some that they missed that they had in depth discussions with. Understanding how they find deals, how they evaluate deals, how they win deals, how they're helpful post investment. Understanding all of that, in some cases, is a multi year process. And I think in the case of first round, it took me two years to get to know Josh Koppelman to a level of satisfaction. And it's been a fruitful 20 years since. In the case of Data Collective, it probably took a year.
Sometimes I'll have a thesis though. In like 2014, 2015, I mentioned earlier, XYZ and Ross Fabini, I had a thesis about Palantir. And I was trying to understand who really understands the Palantir network? And I was asking around and somebody finally said, " you got to get to know this guy, Ross. Ross understands it as well as anybody." I got to know Ross and that was kind of a shorter courtship, but still six to nine months.
Gopi Rangan: I see that you carry the same kind of thought process of observing people that you did in boarding school, watching people, understanding who they are, getting into tribes, how are these groups formed, how do people behave, who are these people, and how can I find non conformist people among them, other people may not get some of these characters, but typically in the finance world, maybe it's a misfit, but the world gets it.
And you think about how do I get to them? How can I build a relationship with them? And it takes time. It takes a year, sometimes two years to build these relationships.
Chris Douvos: That's right. It's a very laborious process. And during the last five years leading up to 2021, sometimes that causes us to miss things and, it was a real challenge because people were saying things like, you know, you have to move at startup speed.
I always say the average partnership lasts twice as long as the average American marriage. If you marry at haste, you repent at leisure. understanding people and their ability to act consistently over long periods of time is really important. In fact, somebody once asked me to boil down what I'm looking for into like one or two words. And I said, what we're looking for is repeatability. That's ultimately what we're trying to understand. It's the repeatability of somebody's success, because there are a lot of people in venture who are extremely lucky or have been lucky once and are perceived as, as outstanding investors and stripping out luck from skill is our biggest task and challenge.
Fred Wilson has spent a lot of time talking about this. And Fred, I think would say that process drives repeatability. But sometimes it's not process. Sometimes it's behavioral footprint.
You have a firm that brings a lot of resources to bear, like first round, and you can see why they're successful. But then there are other people who kind of careen through life, and they've been successful often enough that you think, hey, there's got to be something here. And some people just have great noses, and those are the hardest funds to evaluate.
Gopi Rangan: It's hard to evaluate intuition. It's a lot easier to observe someone's processes to see how they're consistently building a strategy. I get that. It's a long period of courtship. Is that necessary? We live in a world where banks like SVB and FRB can be bought and sold over a weekend. Why does it take a two years, at least a year for a limited partner to decide on an investment in a venture fund?
Chris Douvos: Yeah, look, and it doesn't always take that long, and different people have different processes. Mine is probably a little bit more laborious than others for better or for worse. And I think for me, I analogize it to dating, right? If you go on a couple of dates and decide to get married, you might not realize that somebody snores.
Um, so the time you spend with people allows you to see them. Particularly when you meet them outside the fundraising process, because a big part of what I do is I have to chip away at people's veneers. And I think people are very good at selling themselves and sometimes at hiding their authentic selves. One thing that I had to spend a lot of time trying to understand is to what extent are people actually behaving when I meet them in a way that they're going to behave going forward for the next, you know, kind of 5, 7, 10 years. And will they have that same level of hunger?
Will they have that same level of interest alignment? These are things that are really tough to put your arms around and you never actually will know at some point you have to take the leap and some people are comfortable taking earlier leaps. I'm comfortable taking new fund risk. I'm not comfortable taking short evaluation risk. And I think that that's a major impediment to us moving quickly.
Gopi Rangan: I spoke to a chief investment officer once and he said that it's really hard to evaluate emerging manager venture capital investors, but at least they're willing to talk. It is often harder to evaluate established managers because they have these walls of protection and veneers that's really hard to break down and truly see their authentic self.
What are they actually doing? How and what is actually working well for them? Meanwhile, they've gotten really good at telling stories. It's much easier to talk to an emerging manager and ask them a few more questions. They're more than happy to share and give you the time. But established managers, you can't.
You don't have the luxury of time of evaluating and asking them many questions. It becomes harder and harder to know who actually does good work. 20 plus years ago when I came to Silicon Valley, probably a couple of hundred VC firms that really mattered in the ecosystem and you could track them. But now these days, like you said, there are 4000 VC firms and more new firms are being formed every year.
Is that good for the ecosystem? How do you manage your workload so you can be on top of all these things?
Chris Douvos: So at different times in my career, I think back to 2002, 2003, I think one fund of funds put out a report in 2003 that said there were only 100 active venture firms, early stage venture firms, which was really remarkable to me.
And I thought that that was the world that we're going to live in. Fast forward, we got 40 times as many today. And what's changed? I've thought about this a lot because my reflexive answer to that is that that there's just too much money sloshing around, which, which, you know, maybe true that there's so many individuals investing.
It's become so inexpensive to invest in companies, you know, with, with lean startup, you know, the cost to get into business and get to first revenue has come so far, you know, orders of magnitude down. Um, and that's drawn a lot of people into the space and also created a lot of wealth. And I've thought that that's created chaos capital.
And I get very cranky, but then I realized every time I think I'm becoming a cranky old man, I try to check myself and figure out how is my hypothesis or how's my worldview wrong. And really the thing that I keep reminding myself whenever I do get cranky, is that venture up until like 2006/7/8 was really a dark art, mastered by a handful of fewer than a couple of hundred wizards in this kind of quirky place on the San Francisco peninsula.
And I think what happened is you really, and it's been, it was individuals as people like. Fred Wilson and Josh Koppelman writing early on, it was podcasts like this one. It was some of the stuff that Kauffman foundation has done is all these, you know, Brad Feld was really important. There are a lot of people who demystified venture, really lowered the barriers to entry, both for funds, but also for, for individuals.
And I think there's structural things in the economy that have resulted in entre and in demographics and other areas of life that have made entrepreneurship a much more interesting and valid choice. I think today entrepreneurship is a much more durable and renewable resource than it was when I was young.
And I think that's exciting. I think that's great for the world.
The question is, how do we continue to foster this ecosystem? You want the pot to boil, but not overflow. And what I did see in the late 2010s was that there were too many people. After a successful career at a startup, a lot of people started funds because it was the next thing to do. Just like going to law school is this obvious next thing to do after being a humanities major in college, right. It just became the default thing to do. And so I think there were too many funds. I think there are a lot of people drawn into entrepreneurship also for the wrong reasons.
I think being an entrepreneur is a challenging, exciting, unstructured road that isn't for everyone, but boy, for the people who do it and can do it well, there are so many more builders out there today than there were. And I hope that some of these people who raised funds and stopped building and started investing because they thought they were moving up the food chain realized that no, the food chain is really actually the builders are at the top. They're the kings and queens of the world. And that's something that I think is new in the last 20 years.
Gopi Rangan: I agree with you that we need builders and builders are at the top of the food chain and not VCs.
And I think over the years, it has become very clear that entrepreneurship has become a more desirable choice for people instead of becoming employees at large companies. What do you like to see changed in the ecosystem, in the industry, to make it better and improve status quo?
Chris Douvos: O ne thing we could use a little bit more of is transparency. I think that's a very generic answer, but I do think there's so much posturing and so much inauthenticity. In how people kind of portray themselves and their success, and nobody really knows what the right answer is.
And that obscures true evaluation for people like me looking at funds. And it's also a challenge for the venture capitalists looking at portfolio companies, right? There's just, you know, too much posturing and too much social proof. If I could wave a magic wand, I would make things as transparent as they are in the public markets.
The other thing I would actually love to see more of in venture is courage. And this is on the venture fund manager side, the VCs. It's very easy to get comfortable in this business and enjoy fee streams.
And I think we're at this inflection right now where there's a lot of capital sitting on the sidelines and I'm worried that some people are just going to push that capital out to get to their next fundraise. And we'll see a lot of good dollars go after bad, so far we haven't seen it yet. There's not a market clearing price for decent companies. Great companies are still getting funded as of right now, but decent companies are in a little bit of limbo. And I think it'll be interesting to see how this plays out. What I thought was interesting in kind of 2002, 2003 timeframe is that some people just cut their funds.
They said, you know what, we, we went the wrong way with fund size increases. there are even firms like people don't talk about Crosspoint anymore. That's in the history books, but Crosspoint did fabulously well, I think as a fund complex, they, they, you know, the, over all their funds, they returned seven times the money.
That they raised. I don't know if that's exact. I remember it like that, but it was a big number, big multiple. They were in the right place at the right time. And they raised a very big fund in 2000. And they just said, you know what, we've made enough money. And they just returned the funds to their LPs and they walked away.
And boy, if somebody did that, you know, that would be amazing because right now there are a lot of people that are retired on the job or calling in rich. And are very comfortable and LPs keep giving them money because they're a safe pair of hands and they keep putting up 2X - 2.5X returns, which in my opinion, is what you can get investing in the NASDAQ.
And I don't know why we tolerate that.
Gopi Rangan: It's always fascinating to talk to you, Chris. Uh, thank you for sharing your experiences. Thank you for going deep into the topic of venture capital and giving examples from your life and your career. I look forward to sharing your nuggets of wisdom with the world.
Chris Douvos: Thank you. Thanks so much for having me.
Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur. I hope you enjoyed listening to real-life stories about early believers supporting ambitious entrepreneurs. Please subscribe to the podcast and post a review. Your comments will help other entrepreneurs find this podcast.
I look forward to catching you at the next episode.