Episode summary
Why Venture Capital is Changing for Good
How I Invest With David Weisburd
· · Hosts: David Weisburd · Guests: Ian Sigalow
Summary
Ian Sigalow argues that venture capital is not a broad asset class but a form of manager selection, where a small number of firms consistently get access to the few companies that drive most returns. He says the median venture fund is poor, diversification usually hurts, and LPs need conviction if they want to outperform the S&P 500 with a portfolio of startup bets.
He separates venture into two businesses: an “access” business focused on later-stage companies with large valuations, and a harder “craft” business centered on seed investing. In seed, he emphasizes QSBS tax advantages, long time horizons, and the need for real founder relationships, customized help, and strong judgment about market timing and company-building. He also says conviction should beat consensus inside a firm.
On the AI era, Sigalow says the best seed founders increasingly look like “masters of two domains”: they can build frontier software and sell it. He thinks information asymmetry is narrowing because founders can research investors more easily, and he believes AI will make both company builders and venture firms more productive, not less. Greycroft is responding with more data and research tooling, including machine-reading arXiv to identify frontier ideas and future founders earlier.
Key takeaways
- Sigalow says venture returns come from a few top managers and a few hundred breakthrough companies, not from broad diversification.
- He argues the seed business remains a craft trade, helped by QSBS tax treatment and long-duration founder support.
- Greycroft competes by pairing partner-level relationships with firm-level brand, recruiting help, design partners, and strategic guidance.
- Sigalow’s new seed thesis favors founders who can both build frontier product and sell, which he calls a “master of two domains.”
- He believes AI will expand, not shrink, the amount of good work startups and VCs can do by making teams more productive.
Notable quotes
“manager selection masquerading as an asset class”
“So diversification makes your returns worse”
“I think conviction trumps consensus”
“I call it the master of two domains”
How the episode opens
Great today is $4.6 billion. You're both managing partner, but you also founded the firm. And last time you told me something interesting. Venture capital is not an asset class. — That's right. — What do you mean by that?
So I I think it's uh manager selection masquerading as an asset class. So let's say you do what everybody tells you to do. You go out, you're an LP.
You go out, you evaluate the universe of of managers out there. You say, "Hey, I've got my emerging managers to my experienced platform managers. I've got my specialist to my generalist.
I go pick firms across those buckets. You are almost certain to underperform because the asset class itself has a mean and median return that not only underperform the NASDAQ, but they're negative in most vintages. So diversification makes your returns worse.
And you that's just a statistic of the asset class. In general, you have to pick not only top quile managers, but really like top desile managers in every vintage in order to outperform. Just to push back on that, the median for venture is horrendous.
It's like 6 to8%. It'd be the worst asset class in the world. So, if you picked the average, the median fund, but the mean is actually quite good.
It's in the high teens.
It's a difficulty because it's so fat tailed, it is very difficult to get the mean. — Let's look at statistics for a minute. So, we all know that this is a power law industry where there's a few companies that drive the vast majority of the entire industry's returns. I think about that as roughly 20 companies a year that really matter. And there's a few firms that have access to those 20 companies in a meaningful way.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- venture capital
- manager selection
- access investing
- craft investing
- ai for startups
Companies and tickers mentioned
- Greycroft
- AlphaSense
- Sequoia Capital
- Andreessen Horowitz
Watch the episode
Watch “Why Venture Capital is Changing for Good” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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How I Invest With David Weisburd, this episode and its artwork belong to David Weisburd. Octagon is not affiliated with the show; this page is an independent summary.
