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Steve Jurvetson on Investing Smarter

Steve Jurvetson, 5x winner of Forbes’ Midas List award, talks about debating Peter Thiel, his new fund Future Ventures and also shares some of his insights into fund performance and investing smarter.

Watch our interview with Steve Jurvetson, who has been supporting transformative businesses for over 25 years as an early investor with the likes of SpaceX, Tesla, Planet, and UPSIDE Foods; and as a Presidential Ambassador for Global Entrepreneurship (appointed by President Barack Obama).

On Fund Size

The bigger the fund size the worse the returns

A $1bn fund cannot perform as well as a $50m fund

However, the conventional line of thought used to explain this may be wrong.

The industry has always explained the loss in performance with phenomena like ‘regression to the mean’ and the change in the stage of the fund, the ticket size and the increase in deals per partner.

I think that there is an independent reason that you can statistically discern, which is the team size.

On Team Size

It is statistically clear that when teams are bigger they make worse decisions

In Google, the average programming team is five. Beyond a team of seven, you have diminishing returns.

So I think that nine-person groups in a partnership are not a team. They usually have sub-groups / committees and it negatively affects decision making

Smaller is better in Venture Capital, but one is not great. As one, you have no one to bounce ideas off. This is why I’m loving being in a partnership of two at Future Ventures. I think I would be a worse investor if I was alone.

Even the best startups come from dynamic duos. At Apple you had Jobs and Wozniak, Yahoo had Yang and Filo, even Ellison had Miner at Oracle and obviously Page and Sergey at Google.

The mutual respect between two amazing people is a recipe for success. It sets out a similar culture as the company grows and the two characters balance each other. 

On the Importance of Debating

In 2012, I loved debating Peter Thiel on the future of electric cars and Moore’s Law

He is the only person who will argue 180 degrees on the opposite side on those topics and take a contrarian position.

When you have to defend a position you deeply care about, it really makes you think and is very fascinating.

A lot of my great investments such as SpaceX have come from internal debates and repartees I’ve had with someone else rather than a profound personal epiphany. 

On Fund and Partnership Dynamics 

You cannot have a diminutive hierarchical structure and expect junior members to fully challenge you on ideas

Open discourse allows us to arrive at the truth. Creating an atmosphere in your fund where debate is accepted is very important. When bringing in junior members, you must allow them to be contrarian.

Sometimes firms create argumentative cultures to compensate and offset groupthink which is unhealthy on so many levels. In contrast, at DFJ we had all the junior members come in with expectations and potential of becoming a partner and not as subordinates. 

Lastly, the investment committee’s consensus policy is also very important. Having a unanimous consensus model may work with small tight-knit teams, but is very challenging in large teams. In our scoring model, a ‘passionate minority’ could outvote a majority. This allowed me to fight very hard for our investment in SpaceX and convince the IC.

On Thesis and Strategy

I can easily encourage everyone to follow and copy our core strategy

This is because our strategy is inscrutable from the outside, kind of like Tesla putting out the ‘Master Plan‘ 10 years in advance.

Unlike most firms, we didn’t pitch our specific areas of focus to LPs. Our core strategy is our ‘process learning’ and investing in things we’ve never seen before, which are adjacent to an area of expertise. 

For example, UPSIDE Foods was adjacent to synthetic and re-engineering biology, where I had previous experience. Interestingly, I had written a blog post about my interest in investing in this space and I think Uma, the founder of UPSIDE Foods, was keen to speak to us because of this.

It also sparked an interesting dialogue with Moby, the famous vegan, which really helped refine my thinking on the matter and connected me to groups focused on this topic. 

On Fund Formation

Usually, it is brutal to raise money for a first time fund

I should disclose that we came in with a great track record and a vast network so our journey might be different from most new fund managers. The process took around three months, which is incredibly fast and not typical.

It is very important to think about your successive funds early on and include your plans in your discussions with LPs. The more experienced LPs will ask about this so be ready

We found a statistical correlation that showed a partners personal track record was a 6X better predictor of future success than the firm the person was previously at. So we were able to leverage our past performance in our pitch. 

On Advice and Strategies for New Managers

Focus on change that matters and the money will follow

Companies that are going to change the world like SpaceX and Tesla are what really excite me

Looking back at my life, I’ve had enterprise software investments that went from $700,000 to going public at $11bn and I am having trouble remembering them.

In the long run, companies that improve the world in a meaningful way are much more satisfying than those that just made the most money. I would urge you to think long and hard about what you care about. It will correlate with success so much better than being a momentum investing, arbitrage seeking opportunist. This tactic will not work long-term.

Secondly, on strategy. Early on, don’t just follow other venture funds and the warmth of the herd. 

Bill Joy has a saying that “people outside your company, on aggregate, are smarter than people inside your company”. Don’t assume you are smarter and can out-execute others, it is doomed scenario if you do. This cannot be a basis of long-term strategic advantage.

Focus on what differentiates you. Most new entrants are working much harder than me and many other established VCs. Go where the rest of the herd is not looking and where the puck isn’t moving.

Here is a great anecdote. In 2015, SpaceX raised $1bn. This amount exceeded all historical investment into space by the venture industry by 2X. Subsequently, it has gone up to multiple billions every single year. There are now over 500 venture investments into space. In stark contrast, when we got in, there were 5 at most. 

This content is provided by VC Lab, the venture capital accelerator. 

The free 16 week VC Lab program provides guidance, structure and a network to complete a fund closing in 6 months or less. Since mid 2020, VC Lab has helped launch 83 venture capital firms around the world.

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