Is fund-level portfolio construction discipline (reserve ratios, per-company caps) primarily a mechanism to satisfy LP expectations, or does it genuinely drive investment strategy?

Nikhil Basu Trivedi · Sep 6, 2023

Exceptional companies deserve exceptions to your investment model and portfolio construction rules

The companies that break your model and feel like outliers are most often the ones that end up being the winners, and the job is searching for outliers

4:35 20VC: Why Small Funds Outperform Large Funds & AUM is a Vanity Metric | Why 99% of Investments in AI Startups Will Go To Zero | Being a "Traction First" VC & Investing Lessons from Investing in Canva and Missing Figma with Nikhil Basu-Trivedi

Danny Rimer · Jun 17, 2024

Index should have paid the extra $21M to lock in the Snap round and solved the fund-concentration problem afterwards

It was naivete with one of their first growth funds — the check would have been over 10% of the fund and they failed to think creatively about how to justify it

Scope: recollection of the numbers; was one of Index's first growth funds

43:04 20VC: Index's Danny Rimer on Investing Lessons from Hits like Figma, Discord and Etsy to Missing Snapchat, Airbnb, Facebook & Spotify | Why Valuation is a Trap and Market Sizing, Signalling and Sector/Geo-Specific Funds are all Noise

Eric Vishria · Sep 25, 2024

Large AI rounds do not break the Benchmark model, because fund size is an irrelevant accounting artifact and the firm has unprecedented flexibility on check size and deployment pace

Thirty years of performance has earned them flexibility to write $50M or $150M checks or deploy a fund in a year if they want

32:54 20VC: Benchmark's Eric Vishria on Where is the Value in AI: Chips, Models or Apps | Why Nvidia Will Not Be The Only Game in Town | The Commoditisation of Foundation Models | Which AI Apps Have Sustaining Value vs Hype and Short Term Revenue

Eric Vishria · Sep 25, 2024

Portfolio construction, fund cycle and check diversity should not be discussed at all as investment constraints; the search for exceptional founders and opportunities is hard enough without adding them

Citing Munger — finding great companies is hard enough, so don't over-constrain the search

Scope: describes Benchmark's actual practice

33:47 20VC: Benchmark's Eric Vishria on Where is the Value in AI: Chips, Models or Apps | Why Nvidia Will Not Be The Only Game in Town | The Commoditisation of Foundation Models | Which AI Apps Have Sustaining Value vs Hype and Short Term Revenue

Klaus Hommels · Nov 27, 2024

When you find the right company you should take disproportionate risk on it, and fund-level per-company rules should be loosened to allow that

Scope: acknowledges he regularly has to ask his investment advisory boards for exceptions; unsure whether this is something to be proud of

25:03 20VC: Why Price Sensitivity is BS | Why "Portfolios" are Merely a Construct to Make LPs Happy | Why the Best Investment Never Happen in "Fundraising Rounds" | What Europe Needs to do to Become a Superpower Again | Klaus Hommels, Lakestar

Klaus Hommels · Nov 27, 2024

Portfolio construction is merely a means to raise institutional money and has nothing to do with actual investing

Building portfolios forces concessions — reserve ratios, avoiding being shot out, recycling proceeds to raise investment grade — which are just about pleasing deployment rules; a fund at 80% investment grade returns 2.4x on 3x gross while 100% investment grade returns 3x, arithmetic that has nothing to do with any company. What matters is finding one or two great companies, which makes any portfolio look great

22:39 Portfolio construction rules exist mainly to satisfy lps not to drive returns