20VC：从80亿美元到190亿美元：走进WashU捐赠基金 | SpaceX一度占我们管理资产的20% | 欧洲和中国为何蕴藏如此多机会 | AI公司即将迎来的清算时刻：Scott Wilson

We had 36, 37 hedge funds in the portfolio, and then we got rid of them all. Eighty to 90% of our time is just out meeting individual companies. That's very different from how most of your LPs probably spend their time. At one point, north of 20% of the portfolio was in SpaceX.

Half of our portfolio is in our top 50 look-through positions. Our model doesn't really work with mega funds. They don't need our capital. We hardly ever talk about fund performance. We only really talk about the underlying exposures in the portfolio. Price is what you pay; value is what you get.

Scott, I'm so excited for this. You're one of the most respected in the industry. Thank you so much for joining me today.

Yeah. Well, thanks for having me.

Not at all. I'd love to start with a couple of lessons from the past. You obviously had roots at Grinnell and spent several years there building out an incredible book. What are some lessons from Grinnell that really stuck with you, that you took with you to WashU and that impacted how you think about building out your book there?

Yeah, I think we ran a similar strategy at Grinnell. I was fortunate to work for this guy, David Clay, who hired me at Grinnell. Grinnell had a long history of a mix of direct co-investments and external partners that managed the portfolio. It was a pretty concentrated portfolio, and I think it was super concentrated relative to the peer group.

We do a lot of the same things, but David was a great guy to learn from because when I first landed at Grinnell, I really had no idea what an endowment actually did on a day-to-day basis. I think our strategy has evolved over time, but we still fundamentally do the exact same things we were doing at Grinnell here at WashU.

Which is concentrated managers, and concentrated positions in directs as well.

Yeah. If you really want to dumb it down, there's nothing particularly clever about it. We try to find really good external partners. When they find something that we think is really unique, we try and double, triple, quadruple down on it, and then hopefully let that compound over long periods of time. That's it.

If we go forward to WashU, I heard—and I can't remember who told me—but they said that the first week on the job, most people have a bit of time to get used to the new environment. Nope, Scott did a fire sale. Sold 75% plus of the WashU portfolio.

Yeah, I saw that stat. I'm not sure that it was 75%, but we put in redemptions for over half the portfolio in the first week. But I also had the portfolio for a couple of months before I actually landed in the seat, so there was a lot of preliminary work that went into those decisions. It wasn't a complete, like, “We're just fire-saleing everything.”

Were you worried about doing too much too soon? That is a very large shift.

Yeah, it was a mix. There was this kind of obvious tension that performance hadn't been great for quite some time, and the board wanted to see results quickly. They'd given me and the team 3 years to really show some real performance improvements. To do that, we had to restructure the portfolio relatively quickly, and changing around an endowment portfolio is more like turning around an aircraft carrier than a speedboat.

We knew that was going to take a decent amount of time. Luckily, the private side was in better shape, I think, than the public side of the portfolio. We had 36, 37 hedge funds in the portfolio, and then we got rid of them all, so we certainly weren't popular in certain parts of Manhattan. Ultimately, we turned over more than 75% of the portfolio through secondary sales on the private side.

That is a fire sale. That would constitute—

A fire sale over 18 months.

Oh, fine. And just don't go to Manhattan for a while. You won't be the most popular dude on Wall Street. Okay, and the endowment then is $8 billion?

Yeah, it was just under $8 billion when I started.

And how much is it today?

The total managed pool is probably just under $20 billion today.

I hope you have a 20% take rate personally.

No, unfortunately, that's not the way it works.

Unfortunately not. That would be a $2.4 billion take, so well done. So you have that restructuring of the portfolio, and you then have the freedom to bluntly reallocate and start a little bit more afresh. How did you approach it, going, “Okay, this is how much I want public, privates”? What did the portfolio construction look like when you had that flexibility?

I mean, I always say we're pretty much indifferent between public and privates. I would tell my board that the only difference between those 2 asset classes is how often they're marked to market. If you have a 10- or 20-year time frame, should you really care that something is marked every day or something is marked once a quarter?

Within that, we have obvious liquidity constraints, so our big, broad target, I would say, is half public, half privates. We're definitely out over our skis in privates, but that's reversing quickly.

With the greatest of respect, I get you on the mark-to-markets. The biggest difference is, as you said, liquidity, no? I mean, the extended period that funds are now in—being 12- to 15-year funds—and the time it takes to get cash back, the fundamental difference is available liquidity, no?

Yeah, we obviously have liquidity constraints, and that drives that ratio between public and privates. But it's not like if Stripe goes public tomorrow, it should be in a different asset class.

In terms of the capital requirements, you have net outflows a year of, like, 5%?

Roughly 5%.

It’s smoothed out over a rolling 5-year average.

If you didn’t have the required net outflows, would you do anything differently in terms of capital allocation?

Oh, for sure. We would probably have a 70% to 80% target in privates.

Wow. Can you walk me through that thinking? I’m the board. Rationalize that for me, Scott.

Your payout is a function of your liquid assets, right? You can’t always convert your private portfolio into cash. The payout is not guaranteed. In theory, some percentage of your private portfolio should become liquid every year, but you can never count on it when you actually need it. So if you have a 5% payout and half your portfolio is liquid, that’s 10% of your liquid portfolio that you’re paying out every year. If you’re paying out zero, you really don’t have that constraint.

If you look at the relative performance over the last decade, we’ve probably compounded our privates in the low to mid-20s, and we’ve compounded our public equities at 10%.

Did you always have this belief in privates being the value driver of a portfolio?

No. But I do think the markets are less efficient.

What do you mean by that?

You can get access to investments that are less picked over. There are always natural buyers and sellers, and I think it’s much harder to create alpha in public markets than it is in private markets. I think this is well documented over time.

If we take the 70% to 80% that could be in privates, how do we think about structuring the privates book today? Obviously, privates is a very large allocation in itself. You’ve got directs, funds, credit, and debt. How do you think about how privates should be structured for you?

The way we do it is, roughly half of our private portfolio—and maybe more than half right now—is in co-investments and direct investments. We manage it the same way we manage the public portfolio. We find good partners and, to the extent we can, when they find something that’s really interesting, we try to co-invest or add capital directly to that single name.

Do you have a separate direct team?

No. Everybody on my team is a generalist.

What would you advise another CIO? I’m a manager, I have many LPs, and they all say to me, “We’d really like to do more directs, but we don’t feel like we’re equipped to do so. We don’t have the time to really do the work.” What would you say to them, and how would you advise a CIO who doesn’t really do directs today but maybe should and could?

You have to build that muscle. You have to have that internal skill set on the team. If you look at how my team allocates their time, we still meet with a lot of external partners, but upwards of 80% to 90% of our time is spent meeting individual companies. That’s very different from how most of your LPs probably spend their time.

Very different. Most of them spend 70% to 90% of their time with managers, and then 10% of their time with directs, I’d say.

If you look at our performance over the last decade, if we didn’t have any direct or co-investments, we would’ve been right at the average of our peer group. As it is, I think we’re at the top, if not the very top, of our peer group over the last decade.

So are you just better company pickers, then? Because what you just told me is that you’d be average if it were just funds only. If that were the case, you must just be better company pickers than everyone else.

It’s not us, though. We’re not doing what you’re doing. I think you have to be humble. We’re trying to identify what we think is a really unique thesis or a really unique company, but we’re not sourcing that from scratch. I think we’re starting on second or third base because we’re already invested with Harry, and we think Harry’s a really smart guy and he really likes this investment.

We’ll do our own work to independently verify the thesis. Sometimes we don’t agree with the thesis, and we have certain partners that we think are high-signal and lower-signal. But that’s where we start our process: somebody we think is really smart already thinks this is a great investment.

Tell me, how much will you have in one company? We have a mutual friend in Mr. Lee Fixel, who I happen to think is wonderful, and he told me that I had to ask about concentration limits. How do you think about concentration on a per-company basis?

I would separate cost from NAV. Lee, the board, and Adam should get a lot of credit for the big win in SpaceX. That became such a large position for the portfolio. At one point, north of 20% of the portfolio was in SpaceX. At that point, we had conviction as a team, and we had many chances to take a lot of liquidity in that name, but we advocated for holding it and letting it compound. We did several continuation vehicles that allowed us to hold onto that stock up through the IPO.

But you can’t do that without the right governance structure. At cost, if we were going to put more than 2% or 3% of the portfolio in a single name, we would need to notify the board. I think at 4%, we need their approval. But we have a lot of leeway to concentrate the portfolio quite a bit.

You’ve also worked with some of the best funds, and we have capital concentration limits on a per-company basis. Do you think those are inhibitors of great venture returns?

I do. They’re mostly artificial. If you think about doing five funds, that’s X amount of capital, and I don’t think it makes sense to have a 10% concentration limit in any individual fund. We have lots of funds where we have a mandate that’s two or three stocks, and we certainly wouldn’t have a problem with that.

If you think about it, if you’re 1% or 2% of our portfolio and you have a 50% position, that’s only 100 basis points for us.

Have you had a position with a lot of capital concentration that hasn’t worked out?

Oh, yeah, for sure.

What did you learn from it?

A lot. There are a couple that come to mind where we had super-high conviction going in. One was an automated manufacturing company, and another was an additive manufacturing company. Maybe we’re just poor at underwriting manufacturing companies. We have substantial investments, and I don’t think the story has been completely written on either company, but it’s certainly painful when those don’t work out.

Do you think 50% of your private book being in directs is the right allocation?

I would take it to 80%. When we started, it was just a tiny fraction.

Could you have it at 80% given that you are fed by the managers you back?

There’s a natural equilibrium there, and that’ll ebb and flow over time as some of these bigger positions become liquid. There’s no artificial limit on it. It’s somewhat of an organic process. If you’re right on the underlying thesis and it can compound for a decade or more and massively outperforms the rest of the portfolio, you get natural high concentration in that portfolio.

I think investment decision-making processes are the product that we sell our LPs. I’m intrigued by your investment decision-making process on the direct side. What does that look like? How do you decide on directs?

We have to agree with the thesis, and we also have to underwrite it. There’s a ton of stuff that people bring to us that, for whatever reason, the team isn’t smart enough to evaluate, we just don’t have the right skill set, or it’s impossible for us to differentiate between this company and five of its competitors. In those cases, we just don’t play.

We have to be able to independently verify and understand the thesis, have the ability to underwrite the company and monitor it going forward, and think it’s our best marginal use of capital. We look at a lot of potential investments, and I would say we do closer to 0.1% of those investments than 1%.

Is it challenging as you’ve scaled? You’re now close to $20 billion. To move the needle, writing a $20 million check into a growth round at $20 billion to $50 billion—even at 20x—doesn’t move the needle in any meaningful way.

I think the biggest mistake I’ve made since I’ve been at WashU is not adding capital to our winners just because they became a relatively sizable position early on. We had lots of opportunities to add capital to some of the names you’d know that have done extremely well, and we didn’t do that when we could have, just because they were already north of 1% or 2% of the portfolio.

But I still think our model probably scales better than the traditional fund-of-funds model, because it’s hard to scale with managers as well. What you end up doing is adding more managers, and then each manager means less and less.

We can maintain better concentration. We’re still probably over-diversified, but hopefully we can maintain this concentration even as we double in size from here.

You say you’re potentially over-diversified. What’s the right number of managers to have in a book, do you think?

1. Sizing The Manager Portfolio

If you think about the underlying look-through exposures, the quantitative benefits of diversification trail off really quickly when you get more than 20 or 30 names in the portfolio. Charlie Munger would say if you have 3, you’re fine. But there are really no quantitative benefits beyond 30 underlying look-through exposures.

The way we think about diversification is that we want the top 30 names to be a significant driver of our performance. We target having about half our portfolio in our top 50 look-through positions. It’s taken us a long time to get there, and that’s probably a good, realistic target for us. But it’s still very diversified. If you look at a diversified hedge fund, typically they have the bulk of their capital in their top 15 or 20 names.

Just so I understand, we have 50% of privates in directs. In the venture funds allocation, how much do you allocate toward those 20 to 30 names?

At cost. If we don’t have enough conviction to do 1% of the portfolio, then we probably don’t have enough conviction to do it at all. At this point, that’s close to $200 million, and we just don’t have the capacity. So we have to continue backing the companies we have high conviction in over time. We might start with a $50 million check in a co-investment and then scale that up over time.

With a fund investment, will you do a $20 million fund check if it’s completely irrelevant from a returns perspective?

It probably means it’s a very small fund. If it’s a very small fund doing really interesting things, and we’d have an opportunity to write a bigger check into one of the underlying companies, then we would do it. But we don’t do many of them because it’s just not scalable.

You have 20 to 30 funds. How many do you add a year?

I think last year we added 1. We know we’re going to add 1 next year. But if we add 1 or 2 funds, it’s kind of one in, one out. It’s not a hard line, but we don’t add partners very often.

You said before that mega funds should maybe be more judicious about where they invest instead of just growing. I’m kind of paraphrasing you. It seems like the world has moved in favor of mega funds. Capital is a moat now for many startups. Compute and CapEx are very real costs that maybe weren’t there before. Have you reflected on that and changed your mind, or no?

No. Our model doesn’t really work with the mega funds. They don’t need our capital, and they don’t really need us for co-investment unless it’s some massive round and some massive company that we could probably go into directly anyway. I think it’s going to be very hard—we’ll see—but it’s going to be very hard to generate the historic multiples of invested capital they’ve had on those much smaller funds.

With respect, I think this show is phenomenally successful because I do push back, so forgive me, because you’re a GP and I’m a podcaster. You see Thrive absolutely crush it with OpenAI and Cursor, with positions in outcomes of sizes we’ve just never seen before. We’re seeing outcome expansion that’s very real, as you’ve seen with SpaceX. With respect, that would suggest you could get venture returns on mega funds if you’re in those outcomes.

Yeah. When you get these trillion-dollar-plus outcomes in private markets, even before they’re public, it’s possible. But if you think about the dynamics when you double your fund size, you either have to double your check size in every company at the same valuation, and we know that doesn’t happen. They end up paying a much higher valuation, so the multiple on the money probably isn’t going to be as good going forward as it has been historically.

Or you have to do twice as many investments, and your 50th investment is not as good as your top 10 investments. So you either have to do way more investments or double your check size—and typically, when they double the check size, it comes with a commensurate valuation.

I think they would say they double their check size, but the companies need so much more capital. AI is this exhaust of capital that venture needed. Finally, we have an avenue to deploy the billions of dollars that you very kindly give us.

Yeah. There are certainly massively CapEx-intensive businesses, but it’s not clear to me what the long-term returns on that CapEx are going to be.

With respect, given the size of checks you need to write, are you able to not be in the mega funds? When you think about concentration on a per-fund basis, if you have to write $50 million to $100 million and you don’t want to be more than 10% of the fund, you’ve got to be in billion-dollar-plus funds.

Yeah. We’re obviously in lots of funds north of $1 billion. We’re not in any that are north of $10 billion. We would certainly have a strong bias against those. I wouldn’t say never, but we’d have a strong bias that they’re probably not the best use of our capital.

We have no problem getting concentrated positions. If you look at our look-through exposures, we have lots of significant capital allocated to a small handful of names that we’ve built up over time in really great companies. We don’t need trillion-dollar outcomes to have SpaceX-like outcomes. It’s just a completely different strategy. We’d rather be with somebody small who’s doing really interesting things in these companies early. We can partner closely enough with them that we know those companies, develop conviction early on, and essentially lead some of those middle- to late-stage rounds.

When is it interesting for you to get involved? Company valuations are soaring so fast today. How do you think about when the right insertion point is?

We come across companies at all stages. It’s driven more by our opportunity set at the time than by any specific strategy of targeting a particular stage. I’d say we’re not good super-early-stage investors. That’s a really tough skill set that I’d say we don’t have. If we can’t talk to customers, understand the product, and understand what we think the unit economics look like, that’s going to be hard for us to build conviction in. So it tends not to be a lot of seed or Series A.

Does it become difficult as more and more of these funds have IR teams, and the distance between you and the manager becomes more real, so your ability to get information and deals becomes more buffered?

Well, I don’t think many of the funds we’re really close to even have IR teams. Some of them have somebody who functions as a point of contact. But the way we typically do it is much more proactive. We’re not waiting for them to bring us a deal. We’re going out and saying, “Harry, who are the 5 companies in your portfolio that you’re most excited about?” Then we’ll go out and meet those 5 companies.

If we find one that we think is really interesting, we’ll say, “We’d love to get involved with this company if there’s a chance for us to help lead the next round.” We’ve led employee tender offers, gotten direct on the cap table, and done lots of things that help us get exposure. That’s more offensive than waiting for your IR person to call and say, “Hey, we’re doing an SPV in this fund.” I actually think there’s a huge negative selection bias if you’re just waiting for someone to call and say, “Hey, we have $500 million of OpenAI that we’re syndicating out.”

Can I ask you, when you review the venture book you’ve built in terms of managers, what do you know now that you wish you’d known back when you were at $8 billion, when you were doing the fire sale?

We’ve definitely learned some hard lessons. Maybe the biggest takeaway is that we’ve done much better with an offensive strategy than a defensive strategy, so we do way fewer co-investment opportunities than outbound. That’s probably the biggest takeaway.

Are you concerned by where we are in the cycle? You’re a very realist investor who, to me, really likes fundamentals. Today, a lot seems detached from fundamentals, especially in the private markets, where you’ve got incredible, exuberant pricing and real frothiness juxtaposed with this very real public-markets reality. How do you think about that?

I think the markets have short memories. If you look at the lessons from the original tech bubble in the 2000s, the GFC in 2021, and the crypto bubble, we’re seeing the same kind of stupidity we saw in all those other cycles. Every 5 years, particularly in private markets, where I think the investors tend to be less sophisticated.

But it’s clear to me that there’s a valuation premium in the private markets. I don’t know where Anthropic is going to go public, but it’s clear to me they could have raised capital in the private markets at north of $2 trillion if they wanted to stay private. I’m not convinced the public market is going to give them that same valuation. Maybe. Same with OpenAI.

Aura tried to go out. Cerebras has traded really poorly since its IPO. SpaceX is basically back to really close to its IPO price. There’s just too much capital chasing these late-stage champions in the private markets, and the valuations are… I think that’s why there’s no DPI. It’s not because the public markets aren’t open; the public markets are pretty close to all-time highs. It’s just that you can’t go public at the valuation the private markets will give you.

Why would you go public? Is this a permanent transition in the financing landscape where, to your point, you could raise and stay private? The Collisons have proven that staying private and having a great business is very beneficial. You’re still able to do amazing tender offers to your employees. You’re able to do M&A and buy OpenRoute for $8 billion. Hell, Scott, why are we going to go public?

There’s a lot of rationale to stay private. Ultimately, the public markets are obviously much deeper capital markets. When SpaceX raised $85 billion or whatever in the IPO, that’s pretty tough to do. The sovereign wealth funds, the big pension funds, and SoftBank can only write so many of those checks, and I think most of those capital sources have been exhausted. The public markets are still multiple times the size of the private markets. I think there’s $14 trillion or something globally in private markets.

Do you think we’re seeing a massive sell-off now to make capacity for Anthropic?

Could be. It would obviously be a lot of the same potential buyers, but I think that’s tough to beta test.

You said there was stupidity within private markets. What did you mean by stupidity? What are you pointing to? Is it valuations? Is it deployment speeds?

Yeah, it’s just valuations. I’m sure that half of these AI-related companies—“superintelligence” is the correct term now, I guess—probably won’t exist 10 years from now, and it’s not clear how many have a defensible moat around their business. It’s not clear to me what the ultimate profit pools look like for these companies. I think it’s a super strange dichotomy. If you take the top 5 large language models and they all had the same user interface for 99% of problems or tasks, you probably couldn’t tell the difference. You wouldn’t know which model you’re using. I can’t describe another industry like that with a big, deep profit pool.

Do you have much exposure to OpenAI or Anthropic, the model providers?

We have pretty decent exposure to Anthropic through a few of our partners.

With the greatest of respect, as you said there, given the ability and willingness to switch and the commoditization, do you ascribe little value, then, to that model-provider layer?

The way the business models are currently constructed, yeah. When there’s a free alternative, customer willingness to pay drops very, very quickly. Everybody starts with the frontier model, and this is definitely true when I talk to our portfolio companies. Everybody starts with the frontier model because, when you’re trying to implement AI, you’re starting at zero and allocating some budget to it.

I think everybody starts with the most expensive models. They use them, find them useful, and ramp up spend. At some point, they say, “You know what? For most of our tasks”—and certainly this is true on my team—we don’t really need a frontier model. We’re not solving Millennium Prize Problems.

Why have you not sold, then? We’ve had very liquid secondary markets. I completely hear and agree with you on everything, but why hold a position that could be sold?

For us, it’s relationship-driven. These aren’t held in SPVs where we could easily sell.

Mm.

It’s one exposure in a fund of 40 other investments, so we wouldn’t be selling just one thing in isolation. Those particular partners are great partners for us, so we’re happy to hold it. If it goes public, we have the ability to hedge if we think the price is right.

How do you think about the stock-distribution lens? We’ve seen several managers say, “Actually, we think we can manage your position once public, and so we’re going to create vehicles to do that.” Others say, “We’re going to distribute straight to you in stock.” What do you think is the right way, and what do you do with the stock once it’s distributed?

It depends on the situation. We have things we owned as private companies that went public 5 years ago, like NewBank. It’s in our 13F. We’ve owned it since it was a private company. It was distributed, and we still own it almost 5 years later.

For other companies that go public, we have the ability to hedge exposures even before distribution. We’ll do that if we think the valuation is frothy. For us, it’s about valuation. We probably have an independent view on what we think the right value for the stock is, so we’ll partially or fully hedge the position.

So you get stock. You do a scheduled sell-down over an 18-month period. Or it’s totally ad hoc and depends on a per-name basis. I agree. I think NewBank’s amazing, and David is a rockstar. I’m a holder, too. But how do you do that?

For something like SpaceX, or a really big position that we think still has a ton of potential upside over the next 5 or 10 years, we’ll try to be as thoughtful as we can. I always say it’s better to be not stupid than clever. It’d be stupid not to take some chips off the table because we have a fiduciary obligation to the university and its mission.

So we’ll take some chips, but if it were a much smaller position, we would just hold it for the next 10 years. To some extent, we’re just risk-managing that position. We’ll gradually sell out of it over a multi-year period.

Scott, I believe you were the only allocator to suggest to Sequoia that maybe the Eternal and Evergreen funds were not optimal. How do you think about and reflect on that? Did you sit back and go, “Wow, this is a bold move,” as you were doing it?

It was controversial enough that we discussed it with the board. They’re great investors, they’re great people, and they’ve obviously made LPs a ton of money over long periods of time. It didn’t fit super well into our co-investment model, so they weren’t great partners for us at that point in time. It was probably detrimental to some LPs when they switched to that structure. We really haven’t followed the firm as closely since then, but those guys will do great over long periods of time.

Scott, I’m so sorry to be so blunt. You don’t fricking turn down Sequoia. You just don’t do it. I really like you because you’re blunt, you’re honest, you’re just a good dude. But what are you doing? Even if they 1x, the point is you’re close to the green leaf, and goodness comes from being close. It’s like the genie in the lantern in the cartoons. Maybe don’t rub it.

Yeah, no, I’m sure it was a mistake if you look at the returns they’ve generated, but we’ve done just fine.

Did every LP just come to you and say, “Wow, that was so bold”?

It was funny. A bunch of LPs called, and we expressed our view. I think everybody complained about it, but everybody did it at the end of the day.

I have so many LPs who call us because we have a lot of data on the managers we interview. They’ll say, “I can’t believe it. They make me do the India fund, the China fund, the bio fund, the crypto fund, the games fund. I can’t believe it.” And I say, “So did you do them?” They go, “Oh yeah, of course we did.”

Yeah, and we just won’t do that. We’ll find some other place to put capital.

Is it a big decision for you to churn? Do you agree with the three-fund policy for fund commitments, which is traditional in venture, where LPs commit to 3 funds to give managers enough time and room to prove themselves?

We don’t have a hard commitment. We’re probably committing to more than 3 funds. But we’ll start underwriting as soon as there’s something for us to go and underwrite. We’re fortunate that we don’t have that many partners, so we typically know their portfolio companies relatively well.

We’ll start making our own judgment calls on the quality of the underlying portfolio early on. If we think there’s a big disconnect between our view of the portfolio and a partner’s view of the portfolio, then we won’t stick around. But that’s super rare.

Typically, we have some view before we invest.

When you review those decisions not to do a fund, what’s the dominant reason? What’s the number one most frequent reason why you’ll churn?

Discipline around valuation.

Wow, that’s bold. But it’s bold because you don’t know, with the greatest of respect, and the best companies often look expensive at the time but very cheap in hindsight. So for you to take a snapshot decision and say, “That company is overpriced,” is bold, close to it being done.

Yeah, it’s typically not just one example. We had one partner who, I’m not sure, found a 100-times-revenue deal that he was willing to turn down. It just didn’t exist. For something to trade at 100 times revenue, it has to be an exciting company. I get that, but that’s not what we want our capital to be used for. We want discipline around valuation.

You mentioned Lee Fixel. I think he’s super pragmatic. He’ll obviously pay up, and he’s participated in some of these great companies that are huge winners, but he’s also very pragmatic about stepping away when things get too frothy.

Do you think we should give managers forgiveness and patience for deploying funds much faster than they said they would? Scott, you and I are both old enough to know that every manager says three years, and every manager right now is coming back 12 to 18 months later saying, “Scott, I’m so sorry. I’m so sorry, but it’s the best time ever to be investing. It’s the best time ever. New intelligence, intelligence.” Should we give them forgiveness?

If we think they’re deploying capital at really high returns, we have no problem with really fast deployment. If we think they’re deploying capital at poor returns or poor expected value, then we don’t care how fast it’s deployed.

We have a bias for smaller funds. We’d much rather have someone raise a $1 billion fund when they could raise $4 billion and come back every 18 months than someone who raises a $10 billion fund and comes back every three years. We think the ability to write a small check in a venture portfolio and have that be a super meaningful outcome for the whole portfolio—a fund returner—is much easier in a $1 billion-or-less fund than it is in a $10 billion fund.

Do you look at it through the look-through perspective? If I have a $1 billion fund and I get 10% in every company I invest in, and you say, “Well, we’re a $100 million check of your $1 billion fund,” our look-through—obviously, I’m just explaining it for everyone listening; you’ve got this already—is 1% in every underlying company. Is that how you think about it?

That’s exactly how we think about it. We hardly ever talk about fund performance. We only really talk about the underlying exposures in the portfolio. We aggregate everything up, and we know that we have X dollars of SpaceX, Cerebras, or Anthropic in the portfolio. That’s how we think about it.

Can I ask you about Cerebras? How do you think about performance being challenged? I’m not saying you should comment on Cerebras at all. But when you have a company that’s hit by bad headwinds in the public markets, how do you think about whether to stick and hold or whether there’s actually a fiduciary duty to just cash your chips in?

Yeah, Cerebras specifically was a really big position for us at the IPO, so we took some chips off the table and put some hedges on, even pre-distribution. But we like Andrew and the team, so we’ll continue to hold some of it.

If you look at the current KPIs of the business relative to expectations over the next four or five years, it’s tough to justify the valuation, even at $25 billion or $30 billion, wherever it’s at today. Based on what they’ve done in the last 12 months, you’re betting on the come, so to speak. That company has a lot to prove, but it’s clearly a great company, and we have lots of confidence in Andrew and his team to produce good results over the next decade.

Scott, if you could do anything without retribution from any stakeholders, students, the board, or the team, what would you do differently?

I would probably smooth the payout over a longer period of time. There’s this natural tension between our being here to support the mission of the university—that’s why we exist—and the fact that a 5% payout in certain market environments is tough long term, depending on gift flow.

But I understand that tension, and it’s great to grow the endowment and be able to see the impact on the institution. I think that’s a natural tension. I don’t think there’s really much at WashU that I would change. If it makes sense for the stakeholders and the team, we’ve been able to accomplish everything we’ve wanted to accomplish.

Scott, you’ve seen many cycles now. You’re a pro. Does this have a shakeout, or do we keep going on the meteoric wave that is superintelligence and AI?

Yeah, I think there will be a shakeout. I don’t know what the timeline is. Some of these industries that have just had massive runs historically were not great businesses, and that was the case for three decades. They were businesses that probably barely returned their cost of capital, and at some point they’ll go back to being not-great businesses.

But in the short term, if you used to sell a chip or memory for $3 and now you sell it for $30, and all that excess just falls to the bottom line, I think you see that in the multiples. Some of these industries, you buy them at very rich multiples and sell them at low multiples, because that’s how cycle companies work. But how long the cycle actually lasts is anybody’s guess.

Can I ask you, given what we said earlier, you mentioned NewBank or, say, an Uber or an Nvidia? These are comparatively very cheap companies based on fundamentals today, and then the private companies are exorbitantly priced if one looks at fundamentals. I look at your earlier statement about wanting to be 70% to 80% in privates, and I try to juxtapose—

For us, we’re deploying all of this stuff that we’re generating liquid back into public markets right now. If we didn’t have any liquidity constraints, I think over time privates would grow as a percentage. At the end of our fiscal year, we were 70% in privates, but a bunch of that has become liquid, so we’re redeploying it.

We think the opportunity set in public markets, particularly non-AI and AI-infrastructure-related public companies, is really good right now. We’re investing in sectors that we think are relatively protected, if not immune, from AI.

It’s a bit of a blunt question, but you’ve had such a meteoric rise. $11 billion is an incredible capital accrual, value appreciation for WashU, and it’s an amazing journey. You could do anything now, Scott. You could have every trillionaire and billionaire in the world pay you an exorbitant amount of money to join them on their superyacht and run their family office.

Yeah.

With respect, why—?

It’s actually a lot. In the nine years I’ve been here, we started with roughly $8 billion. We’ve generated $17 billion of profits on that original $8 billion, and we’ve paid out roughly $5 billion to the university.

All right. I mean, that’s just showing off, Scott. Okay, but you could. WashU is an incredible institution, amazing, but humans are humans.

Yeah.

Why do you stay in it?

I’m super happy here. I’ve got a great board, a great administration, and a great team. I make plenty; I’m well compensated, so it’s a great place to be. I obviously had opportunities to go elsewhere, but I’m very happy at WashU.

If you’ve spent time with my board and the chancellor of the university, you know this is a great place to work. I think maybe more than half of your fulfillment and enjoyment in coming to work every day is who you get to work with. From that standpoint, I’m just super fortunate. You’ve spent time with my team. It’s a really great team.

I know I have. They’re amazing. Listen, before we do a quick fire, you sometimes learn from mistakes. We’ve talked about the amazing successes. When you reflect back on the $11 billion that we’ve added, what did you not do in that journey that you wish you had done? It could be renewables, more in privates, or anything you name. What did you not do that you wish you had done?

I think our biggest mistake was not adding to our winners, because of frame-of-reference bias. We invested in this company at $2 billion, and now it’s $5 billion, so we didn’t add to it. Obviously, the position was twice the size at that point.

There were times when we could have invested in something that I think was still probably our highest-conviction investment, and we didn’t do it either because it had grown in the portfolio or the price had just gone up. That was my mistake, and it’s cost us billions of dollars.

So that’s probably the biggest learning over that timeframe.

What did you do that you wish you hadn’t done, on the flip side?

Oh, well, there’s a lot. There are a lot of individual funds I wish we hadn’t done. Obviously, we made tons of mistakes on the co-investments. It’s an 80/20 rule, where 20% of your investments have generated 80%-plus of the profits. We’re not quite that bad, but we’ve made tons of mistakes. We’ve added capital to companies that we probably should have let die, but we thought there was still a chance they could recover. We’ve made every investing mistake you can think of.

Is there one that really stands out?

Yeah. Our biggest mistake was that, in mid-2020, we put a huge package of LP interests into the secondary market. The markets had a huge run at the end of 2020, going into 2021, and we decided to hold off because we knew all those companies were going to have massive write-ups in the December quarter. We were waiting for the first quarter to maximize the value on the secondary sale of those assets.

That was a short-term bubble in venture markets. We were essentially being greedy. We had the chance to sell at really good prices, and we didn’t take it. I think it was probably mid-2021, and in that 2021 period, we were up, I think, 65%. Obviously, we wrote a bunch of that back down over the subsequent years. We had a chance to get out of a bunch of that stuff at really good prices, and we didn’t do it.

And so you wish you’d done it, essentially.

Yeah, for sure. We were probably taking 80 or 90 cents on the dollar, but we were pretty sure that bubble wasn’t going to last forever, so we should have taken chips off the table.

One of my dearest friends, who’s a very successful investor, told me, “You must be fearful when others are greedy and greedy when others are fearful.” It sounds so obvious. It’s actually very difficult in hindsight.

Yeah, I think we needed another three months or something. It was a big secondary sale.

Do you care about Europe? I had David Moorehead on from Baylor. He laughed at me, in all honesty, when I asked about Europe. Do you care?

Yeah. It’s mostly idiosyncratic ideas, but we like Europe, and we’ve found lots of interesting stuff to do there. It’s a super interesting market now. We’re recently investing in a fintech company in Spain, and we’re—

Sorry. Whoa, whoa, wait. Pause. Scott, Europeans don’t invest in fintech companies in Spain.

Yeah.

Well, what are you doing investing in a fintech company in Spain? How does that happen?

Well, it’s via one of our partners. We invested in another company. It’s more of a global fintech company, but it’s based in London and Singapore. We’ve done a lot in Europe recently. The thing is, for the same quality of asset—and there are good companies over there—we find great companies because the market as a whole has struggled, and certainly non-tech-related companies. If they were based in the US and had the same KPIs, growth, and unit economics, they would trade at huge revenue multiples. In Europe, they trade at small earnings multiples.

My question to you about some of these companies in Europe or Asia is that everyone says, “Oh, the Europe discount or the Asia discount.” Well, if there’s always a discount, it’s not a discount. It’s just the price.

Well, there’s price and value. I think you’ve got to separate the two, right? If we think you can buy a company at 100, we think it’s worth 300, and we think it’s compounding value at a significant clip, that’s a much better investment than buying something in the US that trades at five times the multiple and is compounding value at the same rate. Does that make sense?

It does. So people understand, how do you determine the difference between price and value? Value is what it’s worth, and price is what someone’s willing to pay.

Price is what you pay; value is what you get. It’s very subjective, and I think you have to be pragmatic about valuation. For the same quality of assets, you can think of the same growth rate. Over long periods of time, the core KPIs of the business will drive returns more than the original entry multiple. So if you get a much cheaper multiple on the entry price and the same growth over a decade, you’re going to do a lot better.

Do you have much in China?

We don’t have a ton in China. We have an office in Shanghai, so we cover that region really well, and we have 2 guys there permanently. We certainly look at a lot of stuff in China. We probably have more than our peers there, and we’ve been active since Jamie Dimon said China was uninvestable. We’ve added a decent amount of capital.

I think China was one of those markets where the geopolitical risk was always there. The risk was a little more visible. If you spend enough time in Asia, you want to do stuff that you think is either under the radar or supported by the broader political parties. I think you have to be rational there, but when you can find a good company that can return capital to shareholders and has a pragmatic view of the world, we think China is a great place to invest.

Why does everyone else not, then? I know—I so enjoy this show. Dude, why do people—

It’s—

People often ask me, “Why do you love doing the show?” I’m like, “Because I have conversations like this.” Dude, the world is saying, “No, run.”

Yes.

They kill education overnight, whole sectors get taken over. Xi Jinping has unlimited power and control, and everyone’s like, “Get out.”

Yeah.

Respectfully, you’re not. What do you see that others don’t?

Well, you see that, but we’ve seen worse behavior in very developed markets, like in the UK, where, in the northern part of the country, they had offshore oil and gas assets, and they took the tax rate from 25% to 75%. That’s basically confiscating half the company. I’ve never seen that behavior in China. They more or less did the same thing in Norway with certain types of assets. If they take the tax rate from 25% to 75%, that’s the equivalent of confiscating half the company.

Do you mind the… I bet you weren’t expecting to go here, but my knowledge of investing in Chinese funds is actually surprisingly solid. When you invest in a Chinese fund, there’s a dollar denomination, there’s an RMB denomination, and now the average is $1 to 9 RMB. Do you mind that split? And if you’re not allowed to invest in chips and some of the most exciting things with the dollar-denominated fund, does that take out all the alpha of investing in China?

Yeah. I think there are some natural agency problems, but for the most part, the entrepreneurs prefer dollars, and it’s a way for them to get assets offshore if they’re in the VIE structure. So you still get access to really good companies, and that’s a good market. We don’t have a ton of funds in China, but we’re certainly not afraid of it. We’ve done more co-investments and one-off stuff in China over the last 5 years. It’s a huge market, is what I would say, but you have to navigate it on the ground and be realistic.

Do you have to have a team on the ground to do China?

I don’t know if you have to have a team on the ground, but you certainly have to invest through local partners.

Listen, dude, I want to do a quick-fire round with you.

Okay.

I say a short statement, you give me your immediate thoughts. What fund are you not in that you wish you were in?

Benchmark, probably.

You’re not in Benchmark?

We’re not, no. I wish we had a bigger allocation to the early-stage Founders Funds as well.

How did you get Cerebras through Foundation?

We got Cerebras through a fund called Eclipse.

Oh, yeah, Lior.

Yeah.

You can put all of your money in only one fund. Which one do you choose?

Private or public?

One each.

I will say Addition. One of our core partners—I think he’s the best investor in our portfolio. He’s very pragmatic. He’s disciplined around price, but will pay up for super-high-quality assets. His underwriting process, and the way he dissects companies, business models, and management teams, is really impressive. Of the people I’ve spent a lot of time with, I think he’s probably the most talented investor in our portfolio.

Are you ready for a hard one? You have an amazing board. Who would you most like to have on your board who you don’t have on your board today?

Probably somebody with real industry expertise, like Elon Musk or Thomas Reardon—somebody with deep industry knowledge that we could use and who could help us diligence a variety of investments.

As it is, my board is really great at that.

Which other endowment fund do you most respect, and why?

There are several. I think what Eric’s accomplished in Michigan, what Robert’s accomplished at Virginia, Seth at MIT, Jane, and now Josh at Brown—those teams have done unbelievably well over the last 20 years. Ultimately, that’s what you’re judged on: the multi-decade performance of the portfolio.

Do you have a CIO dinner party where you all get together and shoot the shit?

I’ve been involved in various little groups over time, and a couple of one-off chat groups where I keep in touch with some of my peers. My daughter goes to school in Boston, so I’ll meet some of the folks there when I go out. But no, there’s not an organized, regular CIO dinner. I think most of us spend enough time on the road that it’d be tough to organize.

You’ve worked with incredible managers. You’ve met and worked with incredible founders. Final one: When we think about the best advice that you’ve been given that sticks with you every day, what would it be?

The best advice—I tell this to kids all the time, and I think it’s very true. It stems from—I don’t know who first said it—but you should always try and be the best at things that require no talent. Showing up, being curious, working hard, being presentable, asking good questions, being respectful, being kind. All those things that require no talent contribute a lot to success over time.

Do you know what? I also think it’s appalling when today you’re equipped with tools that allow you to be so good at those things so easily. You can go to ChatGPT before an interview with Scott for a job and say, “Give me three things about Scott that will show that I’ve done my work and really impress him.” It’ll tell me about an incredible investment you did at Grinnell, a quote that Adam said about you, and something else. If I say those in that meeting, you’ll be like, “Wow, Harry did his work.”

Yeah. It should be easier than ever to do those things.

Scott, I do the show for shows like this. I can’t thank you enough for, A, agreeing to do it, but B, being so open, transparent, and fantastic. Really, this has been a joy.

Yeah. Well, thanks for having me. It was a lot of fun.