Ho Nam

Deep value investing, to me, is not about big discounts. It’s about finally seeing something profound and deep underneath the surface, when others are still only seeing the tip of the iceberg, and still making judgements.

@endowment_eddie So true. Sequoia was like a benevolent dictatorship under Don Valentine. Then he passed the baton.

Partnerships are hard. The older I get, the greater appreciation I have for the benevolent dictator.

Excited to see @kiddomapp launch its AI-powered curriculum. It connects daily assessment inside the curriculum teachers already use. For decades, curriculum, assessment, and data have lived in separate systems. Atlas brings them together for real teachers to improve student outcomes in a meaningful way.

@Samirkaji @gerstenzang Yes, it's playing games. When GP starts to worry about basis points, they are playing a different game. Dress up IRR to accumulate AUM, vs creating real value.

@honam @gerstenzang Many PE firms also use sub lines aggressively (up to 2-3 year repayment terms) which can significantly alter irr as well in short time frames

This is a really fascinating slide from a16z. The bottom quartile of PE funds are better than the bottom quartile of venture funds - you'd expect this. But the top decile of venture capital and private equity funds perform nearly just as well!

@ArielHersh @gerstenzang LP told me that you cannot eat IRR (or TVPI). Only DPI. Cash on cash returns is what matters to fund their missions.

@honam @gerstenzang Why would an LP prefer to look at MOIC vs IRR. IRR normalises for holding period so isn’t it a better view?

@gerstenzang Yup, that’s the right question. It’s not about IRR. I gave my answer based on anecdotal info. Can’t think of a single fund in one category and can name many in the other.

@honam Yep. So the only question is what is the distribution of DPI performance vs a PE fund.

It’s a great idea. Our permanent capital vehicle would not be at the fund level but within a portfolio company. For example CSC Generation has been acquiring retail and e-commerce companies to target neatly endless number of companies that need to be part of a platform to remain competitive - already over $1B in revenue and profitable. It would make sense to have many platforms in different verticals.

Josh launched Thrive Holdings last year, a $1 billion permanent capital vehicle built to own and operate businesses in industries like accounting and IT, and use AI to make them more efficient. The idea grew out of a desire for Thrive to look more like the companies it invests in. After investing in OpenAI, they went around to PE firms pitching the idea of using the API to create greater efficiencies within their businesses. Few were interested, so they decided to do it themselves, with OpenAI as an equity partner in Holdings. For decades, technology transformed industries from the outside in. The core belief behind Holdings is that the AI paradigm will be different. The data and the experts who fine-tune the model already exist inside these businesses. Going forward, innovation will occur from the inside out. The permanent capital structure allows them to buy these businesses and hold them in perpetuity. "If you have a differentiated unique lens and cost of capital around these businesses and you're able to transform them in the ways in which you want to, you ultimately want to hold on to them forever."

@gerstenzang The 30x DPI comment is at fund level.

I don't disagree on your point that holding shares a long time creates value, but venture funds are on the same fund timelines as PE funds. And the fact that some venture funds have hit higher highs isn't a counterpoint: it's exactly what you'd expect to happen. The question is top 1% outcome, a top decile, etc?

I don’t have benchmarks but know of many VC funds that delivered more than 30x DPI. Don’t know of any PE fund that’s come close. Another metric is how many “investors” made $10B+ personally. In VC, it’s only those who held their personal shares. In PE, it’s only those who monetized the founder equity of their money management business.

@honam Do you have the MOIC benchmarks across strategies? Would love to see it. Trillion dollar market cap created by PE seems like the wrong benchmark: Berkshire didn't create Apple but made far more than on it than any VC. And I'm not sure VC has created any company either ;)

@Jeffreyw5000 Very interesting stats on power law distribution among your 350+ exits. It’s been great to follow you into Clutch, one of your (and our) high conviction bets.

So true. Reality is there are many ways to make money. The key is to play your own game. Find what works for you. It’s a long spiritual journey if you want to play at the highest levels. If goal is to paint by numbers there are many paths to mediocrity also. But long term survival is doubtful.

@honam @dropalltables Love this conversation because everything is perspective. founder sees the concentrated VC and says ha. concentrated vc looks at the sprayer and says ha. The vc looks at the LBO shop and says ha ha. And the PE guy says Index funds are for losers why cant I be in private credit...

Diversification is a strategy best followed by concentration. Investing early, it’s extremely hard to identify outliers until you get to be in the trenches together for some time.

@thogge That seems quite pragmatic and similar to Munger.

i will say Of all the VCs i study Don Valentine is my favorite. Absolutely hilarious.

I tend to like solo GPs managing smaller sums of capital. Smoak, Islander Capital, Framtiden, SPV, Benedict Value, Greanlea Lane are some funds I’m in. I like Rob Vinall’s fund but he can’t take investors from US, other than for separate accounts. Cliff Sosin is also great but I’m not in his fund either (and I can buy Carvana on my own).

@honam @F_Compounders Hi Ho, which public fund managers do you think are great

Guy Spier is winding down his fund due to health reasons Wishing him well in his journey to recovery

No, he beat the index over his entire tenure (although not by much). During my time with him, he did better. I liked his approach and fee structure. I knew his biggest mistakes and despite the blunders did ok. I thought he’d do better going forward. No one has his fee structure (had to commit long term to get it).

@honam @F_Compounders Honam, wasn't Guy's IRR lower than the index? Any specific reason you chose the fund over say a broad based index?

@rodriscoll Exact topic covered in our Q4 letter to LPs.

This market is way more consensus up and down the stack than it's ever been in venture. Of the newly minted unicorns in Q1 of last year, 40% already had one or more up rounds by Q4. Once you're a winner, the money says king make, double king make, and so on. It's too hard to pick the guy at 50 pre that might make it. Just pile into the guy who's made it. Even at $12b, the worst case is a 1x. It's the venture capital equivalent of “you can't get fired for buying IBM.”

Google was a quiet compounder. Of course, everyone knew about them and used the service, but no one knew how big and profitable they were for a long time. They wanted to keep it hush. No way they wanted Microsoft to learn about how massive the search business was…until it was too late. In my experience, the best companies prefer to keep things quiet. No need to pound chests and let people know what’s going on. They don’t need outside capital either. That’s the main reason we became an RIA. In order to buy lots of shares of the best companies we had to make secondary purchases because they didn’t need money.