Episode Summary
Executive Summary: Mark gives a detailed playbook for investing in venture capital as an LP: access is won through partnership, speed, and information-sharing rather than size alone. He argues venture returns are driven by power laws, manager dispersion, and persistence, making access to top managers and disciplined vintage-year diversification essential. He also explains why private markets still offer a real illiquidity premium and why long-duration venture exposure requires patience.
Main Topics: Accessing elite venture managers (Priority: 5/5): Mark recounts how CalPERS broke into Silicon Valley venture access through persistence, trust-building, and even sending Krispy Kreme donuts to signal partnership and discretion. Venture capital power laws and manager dispersion (Priority: 5/5): He explains that venture outcomes are dominated by a few outlier companies and a few elite managers, while median and bottom-quartile managers can underperform public markets. How Common Fund wins as an LP (Priority: 5/5): Common Fund emphasizes being a good partner through weekly investment meetings, fast co-invest decisions, and sharing research and network insights with managers. Emerging managers and network sourcing (Priority: 4/5): The firm reserves capital for up-and-coming managers, sourcing them through references from existing venture partners and looking for honesty, humility, and risk appetite. Portfolio construction: diversification by stage, sector, and vintage (Priority: 5/5): He argues for investing across early, mid, and late-stage venture, as well as across AI, crypto/blockchain, software, and across multiple years because innovation is uncorrelated with the business cycle. Illiquidity premium and long-duration capital (Priority: 5/5): Mark says private equity and venture still earn a measurable premium for lockups, citing Common Fund research that estimates the long-term liquidity premium at 3.5%. Career advice and human capital (Priority: 3/5): He closes with advice to work overseas, earn credentials early, and take prudent career risks to maximize personal human capital.
Key Arguments: Top venture managers are largely known, but access is scarce; LP success depends on being a trusted long-term partner, not just offering money. Venture returns are driven by power-law outcomes, so investors must accept many losers to capture a few extreme winners. The dispersion in venture performance is unusually wide: top quartile managers can far outperform public equities, while median and bottom quartile managers can underperform badly. Performance persistence is strong in venture, so identifying and staying with great managers matters more than constantly searching for novelty. Fast co-investment responses require institutional readiness, regular committee cadence, and a rules-based process. Emerging managers can be found through existing network references; humility and integrity matter as much as ambition. Vintage-year discipline is critical because innovation occurs in both boom and bust cycles and should not be timed away. The illiquidity premium is real, independent, and currently above its long-run average, making private capital attractive for permanent pools of capital. Longer private holding periods reduce DPI timing but can also produce bigger eventual exits; investors must tolerate lower IRRs in exchange for larger terminal value. Career success is shaped by managing one’s own human capital through risk-taking, credentials, and global perspective.
Data Points: CalPERS AUM: over $600 billion - Described as the largest pool of institutional capital in the U.S. Common Fund AUA/AUM: over $40 billion - Current organization Mark leads as CIO. Venture access distance: 80-90 miles - Distance from Sacramento/CalPERS to Sand Hill Road. Top quartile venture manager return (10-year): 18% - Compared with other asset classes over the last 10 years. Top quartile public equity manager return (10-year): 11% - Used as comparison to venture manager performance. Median venture manager return (10-year): 7.5% - Shown to underperform median public equity managers. Median public equity manager return (10-year): 10% - Benchmark for comparison. Bottom quartile venture manager return (10-year): -1% - Illustrates downside dispersion in venture. Venture co-invest response time: 48 hours - Common Fund’s ability to answer short-fuse co-invest opportunities. Venture capital allocation to new managers: 15-20% - Share reserved for emerging managers. Historical fee-break expectation: 20+ years ago - Private equity managers offering fee discounts after tech bubble. CalPERS equity stake in Carlyle: 7.5% - Result of choosing ownership over a fee break. LP-reported long-run liquidity premium: 3.5% - Common Fund research estimate over the last 30 years. Current liquidity premium: a little over 5% - Presented as above long-term average and attractive for private equity. Private capital lockup period: 6 to 10 years - Typical period investors must tolerate. AI/venture valuation example: approximately $900 billion - Estimate for Anthropic/OpenAI-like private valuations mentioned in the discussion. Venture fund structure growth: A, B, C, D, E, F, G rounds - Illustrates how companies stay private much longer than before. SpaceX IPO timing: year 22 or 23 - Example of much longer private-company duration than traditional fund cycles.
Pivotal Quotes: "It took donuts to do it." — Mark: Explaining how a box of Krispy Kreme donuts helped open access to a top Silicon Valley venture firm for CalPERS. "The first thing is, with regard to venture capital, is you have to work with them, you have to be prepared. You have to show up." — Mark: His core lesson on how LPs gain access and credibility with elite venture managers. "The liquidity premium is real. It is legitimate. We have identified it, and we can track it on a quarter-by-quarter basis." — Mark: Summarizing Common Fund’s research on private market compensation for illiquidity.
Implications: For LPs, venture success is about access, discipline, and speed—not just capital. Investors should diversify by vintage and stage, expect long lockups, and build systems to win and keep relationships with elite managers.
About How I Invest
How I Invest with David Weisburd is a podcast that interviews the world's leading institutional investors. Previous guests include The Ford Foundation, Northwestern University Endowment, CalPERS, Stepstone, and other top limited partners.