Investor Michael Dempsey says his firm deployed under 10% of its 2021 fund through March 2023 to avoid overvalued cycles

This is so boring and i'm a boomer but i can't help myself...the amount of people who saw this and said “this is right” signals where we are in venture as an industry which is that VC is the lowest conviction asset class in all of finance and also has some strange existentialism where most GPs are wondering if they have any idea what they are doing.

We raised our last fund in 2021 and invested <10% of it from 2021 until March of 2023 (one could argue this was too late to wait but alas). We did this because we felt the prices were irrational and the companies being started/funded were not durable/interesting to us. We also have the curse of needing companies to raise from follow-on capital and all downstream investors were terrified.

LPs did give us verbal credit in recent talks but i get that it helped that our prior fund partnered with multiple meaningful AI companies that at least gave us credibility that we didn’t miss the Current Thing. Hard to disentangle those but it creates a some sense of “I have confidence compound won’t blow up doing dumb things they don't believe in” which is some hurdle when talking to LPs who are opting to invest in your random fund and who will ideally back you through next 2-3 funds vs. picking one of the mega funds or spin outs that "make sense" and don't get them fired.

Relatedly, yes, many large funds didn't die in 2021+ aftermath. I would argue it mostly is because they were Too Big To Fail and had built up to a scale that allowed them to at a minimum rotate some LP base enough to keep raising because flows into tech have been so strong (shout out to everyone posting awkward pics with their prince of choice on the TL) and/or because once upon a time they made someone money a decade ago and the LP doesn't want to be ex-communicated. That said, a bunch of smaller funds are being/have been buried quietly over the past 5 years, and as generational turn happens, those relationships are less strong and giving institutions excuses to re-evaluate.

The part where this clip breaks down most is the framing of "even if you have deep skepticism about the final outcome".

Investing, and venture in particular, is an incredibly mental game with minimal feedback loops and long time horizons. There is so much noise and false signal along the way and to let LPs (lagging indicators) and other GPs (most of which underperform/have never seen a carry check) dictate your mental state and belief system is laughable when you are telling people they should pay you 2.5% and 20% to manage their money.

We often tell founders that they should make the decision that if their company fails they will still be able to sleep at night. I don't know how one would sleep at night playing other people's game without belief in the end state.

Other Notes:

- People will say "but you need to show marks and you won't have enough to raise your next fund if you don't yeet into momentum". This is true for a fund I or II i guess, but a way to get around this is to have a longer deployment period so your companies can have more time to bake.

- There is nuance in the "if your goal is to remain a venture capitalist" which i think if you are not the leader of the firm, you can yeet all you want and then go to another firm for the next cycle because you have displayed you at least have some ability to play into hot markets. If you are running the firm, again assuming you aren't going to go raise from international pools of capital or some long-tail family offices, you are probably DOA.