David Tisch
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The Twenty Minute VC: Venture Capital | Startup Funding | The Pitch · 20VC: David Tisch on Why High Ownership and Concentration is BS |…
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Why Does David Tisch Think High Ownership at Seed Is Overrated?
David Tisch says trying to buy 10 to 20 percent of a true outlier in the seed round, and beat the best venture firms to do it, is a bet he has never understood. Those firms spent decades building what they stand for, and founders already want them in the deal. Since COVID they are more concentrated on seed, more accessible, and more efficient, and founders know how to reach them. A competitive early round that used to draw 3 to 5 term sheets can now draw 10 to 15.
The claim that a concentrated manager wins 90 percent of the deals they want is, in his view, total BS. The real rate is about 20 percent. A fund that needs 30 companies at 10 percent ownership has to offer that deal to 120 or 150
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Why Is Y Combinator Different From Every Other Venture Firm?
David Tisch says Y Combinator is the only differentiated product in venture because no one else gets the ownership Y Combinator gets. Dollar for dollar, he puts Benchmark at Series A and Sequoia at Series B and beyond, and he would rather hold Y Combinator seed stakes than Sequoia seed stakes. The pick changes in every market.
Venture is in a period of consolidation, and the best firms keep compounding because they reach the best founders and the best scaled limited-partner capital. Reaching the best founders and the best scaled limited-partner capital turns into the best set of returns. The industry splits into haves and have-nots. Probably 20 to 30 names stay competitive, and probably 10
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Why Does David Tisch Ban Negativity in Seed Decisions?
David Tisch bars negativity when his firm decides on early stage deals. A partner who has not spent time with the founders is not allowed to be negative about the company, and nobody is allowed to throw a grenade on someone else's deal. The job is to get to yes.
Anyone can name an early stage company and list why it will fail. He can name five risk conditions for any company. After about a year in the work, an investor can guess the failure, and the memos firms write already make the miss obvious. On a probability basis the company will not work, because 70 or 90 percent of early stage companies do not work. Spelling out the failure is obvious and irrelevant. The magic is squinting until th
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Why Do New Venture Managers Outgrow a Small Fund?
David Tisch says new venture managers do not plan to stay with a small fund. Very few people get into venture wanting to keep doing the same thing. The starter firm is a seed fund: a new, unproven manager gets a 20, 40, or 80 million dollar fund, and the goal is to raise a much bigger fund one day. Raising that bigger fund, scaling the business, and adding partners changes the investment style, the stage, the concentration, and the check size.
When he meets new investors, he asks what fund four looks like, because fund four is the vision. It matches asking a founder for the big vision. He wants to know where the manager is going, not what fund one is doing today. The advice for that person
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Should Seed Investors Sell When Founders Take Money Off the Table?
David Tisch does not sell early, even when founders take money off the table. He works for the LPs who invest money in the firm, and his customers are founders. His job is to return as much money as he can, and getting out of a seed position early carries both financial risk and reputational risk.
He invests at the seed stage to join the founder for the journey. The journey can last 15 years, 20 years, or four years. If a founder does not want an early sale, selling risks the relationship. He rejects the idea that an investor should sell just because the founder is taking secondary. Founders live under a different set of economic conditions. A founder with debt, or living in a place that cr
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Does Pro Rata Help Founders More Than Firms?
David Tisch says having pro rata in the documents helps the founder more than it helps the firm. Early-stage funds that say they do not need pro rata and will give it away are selling marketing garbage. The right to invest in later rounds is earned whether the documents grant it or not, and it is not that black and white.
If a founder asks a firm to step back and the firm says no, the firm is getting into a fight it is likely to lose. The loss can be financial, because some mechanism can be used to remove the pro rata, or, more importantly, reputational, because the founder gets angry and stops liking the firm. Taking that reputational risk is on the firm.
Funds that follow into the A and
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What Is Rogo in Finance AI?
David Tisch was in the earliest round of Rogo, a company building AI for finance. After the seed round he put his name fully behind the company and sent the Series A to 40 lead investors. 39 of them passed.
Some passes came quickly. Investors said the company was not interesting, that they did not know it could get big, or that there was not enough traction. Rogo was misread at that moment, kept building, and kept getting better. It is now a consensus company. Sequoia funded it and Kleiner funded it.
Early stage is not a perfect market and there is not perfect information. Companies outside the zeitgeist can compound value and momentum and build something important outside the immediacy of
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Why Did Box Group Stop Funding Brands?
David Tisch says Box Group has stopped funding brands, and he does not think the brands are small. He does not think you can fund brands at seed, because a brand is built off the initial data set: whether the brand resonates, whether the product resonates, whether people buy it, and whether customer LTV or CAC to LTV ratios make sense. Seed does not give any of that data.
Brand investing at Series A is one of the more interesting investor products out there. He does not think it fits in traditional venture firms today, but a subset of investors fund brands. The beverage industry, some QSRs, and personal care already hold scaling brands that are fascinating businesses.
Where Box Group sits
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Why Does David Tisch Take 1 Percent Ownership?
David Tisch will take a 1 percent or 2 percent stake when the founder is unbelievable and the opportunity is amazing. Requiring ownership made him turn down great businesses over time, and he calls the decisions terrible.
At the initial check the firm owns 1 percent on some deals and 10 percent on others, with everything in between, and no ownership level is too low. A really small check leaves him sad, but the decision comes down to yes or no. Small checks happen most when the firm gets to a deal late and is left begging for scraps. Getting there late is the firm's fault, so the work is to meet founders earlier, before a company exists. In different market conditions the win rate ebbs and
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Is the Lean Startup Method Fake?
David Tisch says the lean startup was a total fake. It was a stupid brainwash that ran for 10 years through professors, books, tweets, and blog posts, and it sent people the wrong message.
Name a company that actually ran the lean startup playbook and worked. Every company that is actually successful needs a lot of money, especially today. 37 Signals is one that is not on that path, and some companies bootstrap. On the venture flywheel, lean is not the answer. A company is going to be fat. It has to be. Fat does not mean undisciplined. The difference between lean and well-funded is not a lack of discipline.
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Why Do Later Startup Rounds Dilute Founders Less?
David Tisch says fast-growing companies now give up far less of the company in later rounds, so an early check gets diluted less. Series B, C, and D rounds come in at 3% to 8% dilution instead of 12% to 20%.
He still says yes when a founder he wants will raise 10 to 20 from someone else. Two conditions keep high starting prices from wrecking venture economics. Ten years ago a $10 billion company was farfetched. Today he looks at an early company and treats a $10 billion outcome as normal, versus a billion, with anomalies past it in valuation, acquisition, and future IPOs. Lower dilution across multiple later rounds is the second condition, and the early investment simply gets diluted less.
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Why Is Today's Venture Market Not a Repeat of 2021?
David Tisch says the venture market now has nothing to do with 2021. It is a standalone condition, funky and interesting and maybe frothy or insane, that investors have to read on its own terms.
He has done early stage investing for 17 years. People keep forcing the present onto an older cycle, and he rejects the 2021 comparison because 2021 had its own macro and micro drivers. Going back through 18, 15, and 2010, each moment was different. He can argue the job has totally changed and, equally, that the job is still whatever the current market presents: see and meet great founders, decide whether to invest, and beg them to take the money.
Harry Stebbings calls 2021 bubble-like, a good time