A couple of months ago I had lunch with a friend who invests in tech for one of Singapore’s sovereign wealth funds. (There are only two and both of them manage hundreds of billions of dollars.) When I asked how he found dealing with VC’s, he told me the following story:
“Usually when we call a private equity manager, they offer to fly over and meet with us. When we walk into the conference room they basically bow and ask what they can do to get us to invest in their fund. But when I started reaching out to managers in the Valley, they wouldn’t reply! If they did, it was generally the same response of ‘we’re oversubscribed many times over so let’s not waste each others time.’ After some prodding and an offer to visit their office, usually I’d hear ‘well I’m really busy but maybe you can meet my associate’ and after a few meetings there if we were lucky, we’d meet with the partner a few times and hear ‘well we you know don’t move for anything less than 100 million dollars, but we’ll give you 5 million in a side vehicle where you pay higher fees and carry, and if you’re not that annoying, then maybe we’ll let you into the main fund for a larger allocation in the next round.’”
This sovereign wealth fund is now quite a substantial limited partner in some top tier funds, but it took them a while to get there.
When I joined the industry, a friend told me that VC’s have the highest ego/IRR ratio in the entire asset management universe. And while most investors have been very warm to me, I have seen some of them treating people with a level of disdain in the past.
To understand why, it’s important to look at the dynamics between venture capitalists and the two main groups of people they interact with: limited partners and entrepreneurs.
On the LP front, most fund managers either deal in the listed markets that represent trillions of dollars or in mature private companies in which buyout shops invest 500 billion dollars a year. Compare that to venture where you have only 50b a year deployed in the space.* Dispersion is also higher in VC than in any other asset class (slide below), so top quartile venture funds have even more limited access. Limited Partners find themselves clamoring over each other to get allocations into these funds and often invest in first-time funds which are much more rare in other asset classes.
As it relates to entrepreneurs, low barriers for starting a company lead to a large universe of founders looking for capital (much larger than the number of target companies at the later stage). A steady stream of emails asking for meetings leads to more ego in substance (“everyone wants to meet me so I must be really cool”) and perception (“this VC isn’t returning my email so he must be really cocky”).
At Amasia, we test for humility (in addition to confidence, which we feel is orthogonal to arrogance) in our entrepreneurs because even the best need to learn. As a Christian I personally feel that being humble is the morally correct modus operandi. No one wants to work with a jerk, so being humble and enabling oneself to work with a more quality group of partners/investors/employees happens to be the smart thing to do as well.
* Some figures that have the industry paced to invest $80b in 2015 include pre IPO tech financings which I personally don't consider venture.