NCI: Unveiling AI Trends in Venture

NCI Unveiling AI Trends in Venture

Speaker1: [00:00:00] Alright, good afternoon. I'm pleased to present and welcome Shield, who's the founder of Better Tomorrow Venture. Now Shield is a serial entrepreneur. It's built and sold multiple companies, and I always enjoy talking to entrepreneurs turned investors. I think they're actually probably the best investors.

You're a crossover hybrid between investor and operator, so it gives really unique perspective. We're gonna touch on a few different topics. One is. We gotta get in. The spat you had with Chamath around his DPII. I saw that online and I dm. She was like, Hey, we gotta get you on the show and talk about this.

So it's good to be timely. We'll spend a minute or two on that and then talk about the state of venture overall, how AI transforming the entrepreneurial startup ecosystem, where you're seeing certain themes and trends how LPs. Are responding in the current climate. You also backed some very notable [00:01:00] startups including the AngelList, and that's transformed investing in a couple different ways.

I'd love to talk about that. I think one of the advantages of talking to people that have a unique perch in different asset classes, you can see the cross connects. There's always some relationship eventually links back to QQQ or bonds at some point. So first off, thanks for joining us. How have you been?

Speaker2: Very good. I've been I spent the last few months in New York. We have a lot of companies there. It was great. Now I'm moving on. I'm actually home in Pittsburgh right now. 

Speaker1: You were Carnegie Mellon grad. 

Speaker2: That's right. And my parents live here, so I'm visiting them for a few, a 

Speaker1: great program and that I imagine, sets you on the trajectory that led you to where you are today.

Speaker2: Yeah, absolutely. I, and I had such a great experience there. It was awesome. Highly recommended for anyone who's thinking about sending their kids there. It was a great experience. 

Speaker1: Are you of to view that computer science degrees are no longer of value given where AI is trending or no.

No, 

Speaker2: I, it's a great question. I think [00:02:00] I think it's always gonna be valuable to have that skillset, but I think, the great computer science programs are evolving, and it's the same way that like, a computer science, a computer scientist from 30, 40 years ago, like my mom, who learned in punch cards, like what they were learning didn't apply.

Actually, it was probably more like 50 years ago. And what they were learning didn't apply to the next generation. So this is, it's always an evolution, and I think the same is true today. Fair enough. Fair 

Speaker1: enough. At the very least, you learn critical thinking, problem solving. Exactly.

Logic. Logic. That's extraordinarily valuable. So let's start off with the recent drama the day and then we'll zoom out a bit Sure. About venture and AI dynamics and tech more generally. But this was a post that oh man, it's gotta be a compliment. It's gotta be a compliment called a Buffoon from Chama.

This is a guy that was talking about buying CDS. Bank stocks and never made any sense to me. Bank stocks are doing more [00:03:00] than well. So why don't you frame up what's at issue here and what is the dispute around the Yeah. DP Yeah. 

Speaker2: So the main thing, so he, so there's 0.1, which is DPI versus TVPI, and I think.

He has a perfectly valid point that DPI is the only thing you can count on TVPI can be manipulated. Now the thing is, DPI also can be manipulated in the short term because you can force the sale of a company, you can exit out of a company earlier than you should otherwise. But my main point was, 

Speaker1: sorry.

Let's define it real quick just for the audience. 

Speaker2: Oh yeah, of course. DPI is dollars to paid in. So like however much you paid in what multiple of that did you get back? And then TVPI is total value. So what is it worth? Not only what did you get back, but what is it worth in total? And his point, which is correct, is TVPI can be manipulated.

You can you can, different folks mark things [00:04:00] differently now. Real LPs, institutional LP, see right through that stuff. So for the most part, real funds don't have an issue there because we're all marking. Our top NAB drivers similarly. But his point is totally fair on DPI versus TVPI. Now, I was making a different point, which is if you go back to, so right now this is his most recent performance, which is actually totally reasonable.

If you go back to the original slide that I was responding to, he had a bunch of errors in the slide, so if you go up and scroll up. Go back up one more. 

Speaker1: Okay. 

Speaker2: Yep. And the second one there. So actually what happened is the second slide that you brought up, or the slide that you brought up is his revised slide after I criticize this one for his lack of attention to detail.

So there's a few things you'll notice here. One is. The paid in capital section, that's how much money people paid in. [00:05:00] But he has dates listed there and he talks about how he has such high attention to detail. That's obviously an incorrect thing right there. But then the other thing is the gross TV piqua quartile rankings.

They actually just wrong, like I, I pulled up the data that he claims it's from. And they're wrong. Like he has himself listed as a top quartile performer. But I pulled up the chart and actually only one of his funds is a top quartile performer and fund three is actually a below median performer. It was just a fun ribbing.

Yeah, 

Speaker1: just fact check social media, just a 

Speaker2: fact check. And then, he said I was a buffoon, claimed that if I had read the sub the subheading, I would've. Known what he meant, but then in fact, he actually went back and changed his annual report to reflect what I had written. That's funny.

He said I was wrong, 

Speaker1: but then changed. Changed the report Anyway, watch what they do now. What they say. I can attest she was not [00:06:00] a buffoon. Very sharp, thoughtful individual. Look forward to, I think we always run into each other. Money 2020. Yeah. And other places. Yeah, and other places. So all we we can move on from that now.

I asked Grock to compare QQQ returns against social capital returns or more, more generally. And here's what Grock is saying, right? Grok is saying that in short, if you invested in QQQ kind of post 2019, you know you beat venture and also the earlier vintage years around 2013, of course 2011, those are stronger Now that's true for.

Venture as a category too, right? Yeah. I mean there was just a of capital, do you wanna double click there? And you started in venture before you had so many people and firms and rush into venture. You've seen a lot of it. Yeah, 

Speaker2: absolutely. And the more folks there are in the asset class, like the asset class, [00:07:00] I think the number of investible companies has not grown as fast as the amount of capital.

In the space. So that, of course, drives down returns across the board. I think, for all the shit I've given Shaath, his returns are perfectly acceptable. They're not like lights out, but they're good performers. He is got, I think, 15 to 20% IRRs or something like that.

I think the one thing that people miss, if you compare it to the cues is the timing. To give you an example, I can talk about my own fund. My, my first fund in 2017, I, a small fund, $15 million. And so it's a 2017 vintage fund, but actually the way venture works is you don't gimme the money in 2017.

You gimme a little bit of the money in 2017 and then 20 18, 20 19. And if you compare, if you look at my overall multiple. Today, let's say it's somewhere in the order of five x. All right? By 2017 fund. So you might say, okay, you might look at that and say, okay, how did the QS perform over that [00:08:00] time?

I think I'd probably still beat the Qs, but maybe not buy that much. But what you'd miss is my investors didn't gimme the money in 2017. They gave me like a third of the money in 2017 and then more in 2018, more 2019, more 2020. And actually the other thing you'd miss is I paid them back half their money in 2019.

So that you wouldn't have accounted for. In your multiple calculation. And so they have that money back and they can invest that in whatever they want. So I think that the comparison to the queues is one that makes sense. But you, it's not exactly apples to apples. 

Speaker1: Yeah. Yeah. You started your career.

Was that 500 startups, I wanna say. Yeah, that was the five. It was the 500 

Speaker2: FinTech Fund. Exactly. Yeah. 

Speaker1: So what have you seen around venture and how it's evolved from this cottage industry to these Yeah. Big platform VCs with loads of capital and companies staying private for longer and for [00:09:00] example, Stripe.

Yeah. Will 

Speaker2: they ever go public? Who knows, right? Yeah. It's interesting. So the industry's changed so much in the. Decade or so that I've been a part of it. And then there, there was another four or five years that I was a part of it on the other side as an entrepreneur. So I could speak to that last 15 years or so.

One thing is, when I had my company we were based in Chicago and we came out to the, everybody did the Sandhill Road. Dance, and you might even go to Boston. We went to Boston. Sometimes we went to Sandel Road to fundraise. Now nobody thinks about Boston. That's not you. 

Speaker1: Boston's off the map.

Usually ecosystems grow over time. Like Silicon Valley. New York is a real market. It was dismissed back in the two thousands when DoubleClick was the first. Yeah, kinda the category, but it's a real market. 

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