E369: Midas List VC: Why Smart VCs Are Buying Secondaries

Episode Summary

Executive Summary: Brian, a long-time VC, explains his shift from primary venture to secondary investing as a response to longer liquidity cycles, LP skepticism, and the chance to build a differentiated brand around inflection-point secondaries. He emphasizes deep information access, founder/insider relationships, GP LPs, co-invest structures, and trust in teams over pure power-law chasing, arguing that talent, market tailwinds, and organizational speed drive outcomes.

Main Topics: Why switch from primary VC to secondaries (Priority: 5/5): Brian says seed timelines stretched to 15-20 years, making secondaries more attractive for faster liquidity and better alignment with LP concerns about payback periods. Inflection-point secondary strategy (Priority: 5/5): He focuses on buying just before product/valuation inflection points, often at or near par, using relationships and information asymmetry rather than relying on traditional discount hunting. Competition, insiders, and signaling (Priority: 5/5): Brian frames insiders as the true competitors in secondaries because they have governance and knowledge, but also as valuable signals when they double down or co-invest alongside him. Building the GP-LP network and fundraising model (Priority: 4/5): He describes raising his fund from 30 GP friends to gain endorsement, deal flow, and information flow, and building a small fund with co-invest access for LPs. Founder primacy and talent aggregation (Priority: 4/5): A recurring theme is that founders—not VCs—create the value, and that great talent attracts more talent, while mediocrity compounds downward. Education, instincts, and contrarian thinking (Priority: 3/5): Brian argues that pedigree can provide validation and ambition, but instincts, resilience, and execution matter more than credentials or prestige. Portfolio construction and market tailwinds (Priority: 4/5): He rejects pure power-law investing for his strategy, preferring broader underwriting of strong teams in good markets and emphasizing that market tailwinds matter as much as team quality.

Key Arguments: Seed VC liquidity has become too slow; secondaries offer a tighter, more rapid payback loop for LPs and managers. The best secondary opportunities are often not deep-discount purchases, but buying near par in businesses that have already appreciated and are near an inflection point. Insiders are the main competitive threat because they have the strongest information and governance position; however, insider participation is also the best diligence signal. A small, purpose-built fund with co-invest rights can be more effective than a larger fund, because it preserves strategy integrity and attracts LPs who want direct access. Having 30 GP LPs creates a flywheel of deal flow, validation, and information flow that materially improves underwriting. Founders are the real “diamonds”; VCs mostly facilitate talent aggregation and provide brand/credibility rather than creating value directly. Great talent is rare and compounds; mediocre hiring creates weaker organizations, while A-teams attract more A-players. Market quality matters as much as team quality; backing a great team in a weak market is often not enough. Instinct often outperforms experience in venture decisions, especially when combined with fast iteration and organizational metabolism. LPs increasingly want pools of capital and co-invest opportunities, not just blind funds with long lockups.

Data Points: VC career length: 25+ years - Brian describes his long venture career before pivoting to secondaries. Seed liquidity horizon: 15-20 years - He cites increasingly long time-to-liquidity for seed investing as a reason to switch. Accomplice secondary deals: 35 - He says he did 35 secondaries inside the Accomplice portfolio over the last 10 years. GP LPs in Revenant fund: 30 - He brought 30 GPs in as LPs to create endorsement, access, and information flow. Revenant Fund One size: $100 million - He raised a $100M first fund designed to stay small and enable co-investment. Current fund age: ~8 months after close - He references information flow benefits observed about eight months after closing the fund. Earliest secondary investment size: $25 million revenue - He says the earliest business he entered via secondary had around $25M in revenue. Largest secondary investment size: $900 million revenue - He says the largest business he entered via secondary had around $900M in revenue. LP co-invest closing window: 40 days or sooner - He explains that family offices need the ability to close co-invest deals quickly. Emerging managers in market: 2,500-3,000 - He references the number of emerging managers a few years ago in discussing market pressure. Potential attrition of emerging managers: 50%-75% - He notes some believe half to three-quarters may not raise another fund. Portfolio concentration: 90%+ startups - He describes his personal portfolio as heavily concentrated in startups and illiquid assets.

Pivotal Quotes: "I felt secondary was a more interesting way to tighten that loop." — Brian: Explaining the strategic pivot from primary venture capital to secondaries due to long liquidity cycles. "The real competitor, the incumbent cap table member. Like I think that's insiders." — Brian: Describing who he competes against most in secondary transactions. "My career has been made on underwriting really good people and underwriting some semblance of information." — Brian: Summarizing his investment philosophy and why he avoids pure power-law chasing.

Implications: The conversation suggests secondary venture is becoming a more strategic, LP-friendly niche: smaller funds, co-invest rights, and deep relationship-driven access may outperform generic brand-led capital. For founders, continuity and trusted capital matter; for investors, discipline and speed to information are key.