How I Invest with David Weisburd
E133: Lessons from Investing in 2200 Startups (in 23 Minutes)
Tue, 28 Jan 2025
In this episode of How I Invest, I connect with Lorenzo Thione, Managing Director at Gaingels, one of the most active and inclusive venture syndicates in the world. Lorenzo discusses his philosophy on diversity, equity, and inclusion (DEI), the democratization of venture capital, and his thoughts on the AI revolution. From his experience building a portfolio of over 100 investments to lessons learned from co-founding PowerSet, Lorenzo provides invaluable insights for investors and entrepreneurs alike.
Chapter 1: What is the main philosophy on diversity, equity, and inclusion (DEI)?
Tell me about your philosophy on DEI.
I tend to be a very moderate person in my views. But I also think that like everything in life, even when there is a really good, solid, moral reason to do something or to stand for something, there is always almost an inevitable kind of risk that people co-opt. these things for their own purposes.
And so you have the good version of DEI, which says, you know, talent is universally distributed and doesn't see races or genders or any other characteristics. But opportunity isn't. And that's the reality of the world in which we live and we have lived in is we can absolutely and I am the first one to stand by saying merit is the most important thing.
It's not just about being an incredible worker, hard worker person. It also matters where you grew up, what kind of networks you had access to, what kind of resources you had access to. And so realizing that talent is uniformly distributed and opportunity isn't is not a bad thing.
What is bad is co-opting this mission in ways that are perverted and that ultimately don't do anything to advance equality, sometimes perpetuate different inequality. So I think there's a lot of absolutely legitimate criticisms that need to be levied at what DEI had become almost as an industry.
At the same time, we at Gangel's believe that there is work that we can do to provide more access and more opportunities to people, entrepreneurs, investors, folks that have traditionally just haven't been able to access the incredible wealth and value and innovation engine that is venture capital. And we exist to do that. What is Gangel's?
Gangel's today is one of the largest, most active venture investment syndicates in the world. We invest in companies that look to us as being partner with them to help them build truly inclusive organizations at the levels of talent, governance, and capital.
We help them with hiring, recruiting, bringing on board members, advisors, and we represent an incredibly diverse group of investors that come from all paths of life, all genders, all ethnicities, really all type of peoples that traditionally have found it hard to get access to the type of opportunities that Gainesville is able to bring them.
And because of them, we've built a really vibrant community of investors that care about our mission and get to invest in some of the best and most highly performing venture backed companies in the world.
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Chapter 2: How does Gaingels promote access to venture capital?
then making it easy for them to do so becomes an important piece of the equation. So accessibility can take many forms. And one of them is to allow people to make investments as little as $1,000 into opportunities. When you take an amount of capital that an angel investor would want to allocate to this asset class, say,
$25,000, $50,000, and you get to split it and diversify across 10, 20, 30 investments across the year, then you're doing a lot of things. You are educating yourself. You're getting in touch with different terms, different type of companies, different sectors. You get to provide these individuals with both that access and an education into what it means to be an investor in a private company.
So let's say you had a friend that was worth $5 million, half of it liquid, half of it not. How much should a friend or high net worth investor invest into venture capital as a category?
This is not financial advice to anybody. And everyone should kind of think in the context of their own risk aversion. I would say probably 10 to 20% of your overall liquid investment
uh net worth should be going into a venture capital type of asset um and so out of that five million probably five hundred thousand dollars is probably i would um say okay i want to put this into venture but then venture is especially now it is such a broad category so i would really look at you know just like you diversify by asset class and by risk exposure you can diversify uh
within the venture asset class by risk exposure and time to liquidity. And so you can invest in different companies, different sectors and at different stages.
Brought up a couple of points. One is, of course, liquidity or illiquidity in venture capital. When you invest in a startup, especially at the seed stage, you should expect a minimum of 10 years before you get your money back, which a lot of people say, yeah, I could handle that. But in reality, they're not set up to do that. So maybe they should be investing a later stage.
The second one is, I've never seen any data on this, is What is the actual correlation among different startup sectors? My intuition is that venture as an asset class, whether you invest into nuclear or defense tech or SaaS or consumer goods, should have not that much higher of a correlation from the S&P 500. just much more, much more volatility.
So you have companies that are going up 100x, you have half the portfolio going to zero. It's not clear to me that the diversification should be significantly worse than the S&P 500.
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Chapter 3: What investment strategies can angel investors use?
You certainly see it today with things that are early, mid or late in the adoption curve for how potential growth of those sectors may represent. And, you know, there certainly is some correlation to the S&P 500, but there are technologies in venture that or entire pieces of the venture economy that emerge long before they become a significant part of the public market. A good example.
is quantum technology. Five years ago or 10 years ago, if at all, was pretty much only a purview of private holdings, private companies and venture backed companies. I think there is some correlation and some importance that comes along with looking at the diversification within your portfolio to be not just by ticket and stage, but also by sector.
We've had the DuPont family, Virtus, on the podcast. And one of the things that they figured out is that if you just invest into everything or you get exposure to everything in venture, over many decades, you get a really good return, high teens, low 20s. Venture is one of those asset classes where you don't have to be too smart. You don't have to pick AI over crypto or over AR, VR.
If you just continue and slowly and really in a boring way, continue to invest in the asset class over years, it is an asset class that has rewarded customers. its investors for many decades.
I'm glad that you bring this up. It relies on having a pretty broad funnel of access. Unlike the public market where everyone has the same access to everything, the private market is highly asymmetric. And so if you invest for a long time, but you only have access to a corner of the market, you may be at one or the other end of that spectrum.
Maybe that you have like uniquely qualified access and you do better than everybody else, or you have uniquely adverse access and you do worse than everybody else. So to some extent, if you are a very large family office or a very large investor and you can be an LP in every major VC fund out there, that's a great strategy, right? Over years and years and years, you'll do really, really well.
That's borne out in the data. But what if you aren't? If you are just an angel investor or if you don't have the capital or the connections to be a large LP or an LP in all of those funds, your options are pretty, pretty small. And so you rely on either alpha, you know, alpha because of access or because how smart you are or what kind of career you had and the fact that people seek you out.
Or, and you know, you can look at something like Angels and see like, okay, through the power and the size of that network and the fact that we collaborate and we're non-competitive, we're cooperative with pretty much every large fund out there, you get almost like the ability to kind of invest into a really broad portfolio across the entire venture spectrum.
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Chapter 4: How much should high net worth individuals invest in venture capital?
And so, you know, to some extent, if I had a lot of money, I could be like, OK, I'm going to invest that thousand dollars or five thousand dollars into every company that the network gets to invest in. And then you'd have really broad exposure to the venture asset class as a whole.
you would be getting to the mean. So it doesn't help if you could invest in any fund in the world, but you have $5 million and the minimum is $5 million, you're not gonna invest 100 million of your net worth into just one venture fund. So it's a mix of both having access as well as the minimum investment size.
So going back to this hypothetical, so you have 5 million to invest, let's say you put 10% in venture, How and when would you allocate that $500,000? Thank you for listening to join our community and to make sure you do not miss any future episodes, please click the follow button above to subscribe.
look at what your expected returns and liquidity needs are and just kind of project out, okay, so maybe 30 to 40% of that, I'd like it to be liquid sooner than the mean. And so maybe in the three to five kind of year timeframe, and I could allocate those into Series C or later, those investments will return lower multiples on average.
Chapter 5: What are the risks and timelines when investing in startups?
They've already kind of are higher valuations and if and when they exit and go public or get acquired, those multiples on investments will be lower, but you'll have a larger pool that has been invested into those and you will get it back sooner. you'll have a positive effect on your IRR.
Whereas you could take 10 to 20% of that and invest it into series A and series B. And then again, another 10% invested in seed and pre-seed opportunities. and that will kind of give you some exposure to the go big or go home kind of potential.
Prior to co-founding Gangels, you had this portfolio of 100 investments. How did that affect and instruct how Gangels is run?
I learned a few lessons that I think a lot of other angel investors end up When you're truly an angel investor, meaning you're investing at angel rounds, pre-seed, a pitch, an idea, a founding team, but not a lot more than that. There just isn't much more that you can invest in than the team and the founders. And so your own assessment of their agency, their grit, their
their kind of doggedness, their unique positioning within that market. All of those become like the really important things that you can leverage to invest. And in fact, very early in my angel investment career, the first thing I did was to just kind of
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Chapter 6: How do different startup sectors correlate in venture capital?
reliably go after and invest in whatever companies the people I had worked with or knew really well were going to go in and start and sometimes being their very first investor and that paid out really well especially because we had some amazing people within the team at PowerSet that was the name of the company I founded back in 2003 whose companies you know they went on
The folks from that team went on to start companies like GitHub and Weights and Biases and Turing and Runway Financials. And the ones that didn't go and start companies went to lead very large entrepreneurial organization within a large company. So really a fantastic team. And then you know that great founders just attract other great founders.
You mentioned investing in your friends. Some of the top portfolios in venture capital history were actually the angel portfolios of a David Sachs or Mark Andreessen or Chris Saka because they have such intimate understanding of the execution ability of their friends. One of the hidden things there is that their friends were not pitching to them the full five years that they knew them.
They got this ability to observe their friends in a way that they were not always selling to them.
investing in people that you've worked with, that you've observed up close, maybe your students, if you're a professor, people that you've gotten a chance to really kind of see how they behave under pressure, see what kind of character they have, and What their approach to kind of moving mountains that kind of got put in front of them.
That's probably the single most, you know, best predictor of a first time entrepreneur. But the second time or serial entrepreneur, then you've got those points. Right. And I think that the other aspect, the other side of what you were saying, which is I think is equally true is.
is you've got great portfolio of people who invested in first-time entrepreneurs because they knew who they were and they had worked with them. And then you've got investors who bet again on entrepreneurs that did well the first time and they worked with them before and they wanted to back that horse again. And I think that there is a really high correlation of repeat success for entrepreneurs.
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Chapter 7: What is the importance of diversification in a venture capital portfolio?
So I would say that's the other aspect of it. And I think that it puts us, meaning Gangels,
in a good position again having a such a broad portfolio we can see what the execution ability of founders that uh may make it or even may not make it the first time for a lot of reasons there's so many reasons why a startup doesn't uh you know doesn't go well or doesn't go as well as one would have liked um and you know be able to assess much better the second time around uh whether or not uh you know you would want to invest in that in that entrepreneur again
You've been in the AI market longer than 99% of investors and VCs out there. Tell me about your thoughts on AI today.
As I mentioned, I co-founded a company called PowerSet 20 plus years ago, which was bringing to market a lot of the ideas and visions of that are only becoming reality now. We were one of the pioneers in trying to bring semantic into AI, into web search at scale.
And some of the intuitions we had, we're not very kind of removed from some of the things that we see today in how semantic searches approach, right? So things like RAG,
um ultimately what we were doing at the time is you can you can describe it as a precursor to rag so um you know pre-deep learning cost of computation was 10 000 times maybe more what it is today there just was a universe of approaches that was not open to us we clearly brought um attention to something which was search was not keyword search was not all that there
needed to be in order to advance the market. And we sold to Microsoft, became some of the foundational pieces of the early Bing.com and integrated in there and gave a spawn to a lot of other really cool company in the AI space. Crowdflower, Weights & Biases, Turing, Runway, all of these folks went on to really make big innovations and a big impact on the market today.
And it's exciting from my point of view, just because I see so much of that vision and those thoughts kind of like finally being realizable and being able to be brought to market in a way that is compatible with the cost and the scale of delivering services to the world, to consumers. And so I've been excited about that. on the side of the investor backing a lot of founders in the space.
The way that I've constructed my investment thesis, and I've been investing now in the space for the last three and a half years or four years or so, just as like the GPT kind of LLM revolution really kind of started to take place, is to think about it in buckets that are kind of staggered
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