Auren Hoffman: VCs tell founders to go public and take dilution — but never do it themselves

Cheers. Uh, anyway, we have our next guest, Orin Hoffman, in the studio. Welcome to the stream. Welcome back to the Welcome back. Great to talk to you again. Excited to be here. Second time guest. Yes. How you doing? Uh, I had a question for you. Uh, do venture capitalists take their own advice? Apparently not. Yeah.

Break it down. Myself oral hypocrites. Yeah. Why? I I I want to hear your your the examples that you have for situations where VCs uh give advice but then don't take it themselves. And then I want to go into kind of the meta level of like why is this happening? What is driving that dynamic?

But first, kick us off with some concrete examples of VCs giving advice but then not taking it themselves. Yeah, I I think first of all just high levels, venture capitalists are just really not that ambitious. Like they're not imunely as ambitious as like a someone who runs a private equity firm.

Like the level of ambition is probably like 10x higher on private equity than it is in venture capital. And so in private equity, you might be like really building like an amazing company that you're trying to take public that you're really trying to take over the world.

venture capital is like you're just kind of like you're you're just okay with this um you know essentially just a business. Yeah. Is that because of duration? Yeah.

And on the company side you're you're kind of you know there's certain investors that take a more hands-on approach or maybe they're on the board but it's somewhat you it's it's sort of culturally you're sort of leaving it up to the founder and and fate to some degree after you write the show.

It's essentially it's a lifestyle business. Um and so the venture capitalists always deride lifestyle businesses, but they run them one themselves. Um you know, they they often say to founders, hey, you know, you should have one CEO, but most venture capital firms have like four CEOs.

Um and it's like hard to make decisions. They'll say take delution, but they don't take delution. They'll say things like um you know, uh merge with other companies. They never do merge. They almost always say, "Hey, it's a good thing to go public.

" But you never see them trying to take their own company public like Bill Gurley or you know Brad Gersonner are not taking their companies public but they always give advice to take you know and they have big companies they run big you know fairly large companies they could have taken them public um but they don't you know they'll say board governance but they don't have their own board governance so you just there's whole host of things where the venture capital will say one thing and then of course they sell like well you should have a differentiated product um but most venture capital firms you know they're just selling money.

Um, it's a commodity. Uh, and so it's very hard to differentiate. You just have all this competition. You know, if competition is for losers, well, like venture capital firm is like the most competitive place where you have some of the most smartest people competing against you.

Yeah, in some way the the partners are the product and there's only one Orin Hoffman and there's only so so you're differentiated by by the the product that you're providing is in some way yourself plus the money. Yep.

And so that's but what about um what about some of the rumors that uh firms like General Catalyst or Andre Horowitz might actually go public?

And if you look at the way Mark Andre's been building his business, it does feel like he if someone's going to turn a venture capital firm into a Blackstone like, you know, financial institution, it certainly seems like he's trying to do that. I I would agree. I would agree.

And so I would say first of all, if you think of Anderson Hornets, they have they have at least they have two CEOs and not six, right? And they clearly only have two. And they're clearly the CEO and they're clearly running a firm. So I say they are way more ambitious than almost every other venture capital firm.

General Catalyst like they own like a hospital now. So right so I mean they're they're definitely leveling up the level of ambition.

But still just if you just look at venture capital versus private equity just if you just think of like the top venture capital firms versus the top you know private equity firms and just do a comparison for each oneonone like it's it's just it's just a 10x different scale in private equity.

Maybe venture capital will eventually get there and and Horitz could definitely be one of those firms that they get there, but today it's like we're the also ran of the uh and the ambition level is just so much lower. Okay. Ambition level.

Do you think it's because it's kind of a prerequisite if you're going to be a VC that you're already rich? Um, well, the other the other thing is the other thing is I feel like a lot of people go into private equity and they like they're grinders and they grind their way up and so they build that muscle.

Whereas a lot of VCs, they don't kick it off with grinding in VC. They're like grinding as a founder, which is arguably the hardest thing you can do. Eating glass, staring into the abyss. They get some liquidity event. They do a rest and vest for two years.

Then they go into VC and by then they've kind of come down off of the mountain of like grinding misery and then they're like, "Okay, I'm like somewhat retired now. " Well, there's also the different types of ambition. There's I want to I want to have a 10x fund. Yep. But you could be off of a small base.

It could be 2020$ 20 million fund. And then there's I want to have a trillion of AUM, which no VC has done. Black Rockck has 10 trillion of AUM, right? Um so there's levels.

And I do think you there's a bifurcation of certain VCs just want to put up good numbers and have a little lifestyle business and deliver great returns for LPS. Others that have wildly different and bigger in some ways ambitions and that they want to have hundreds of billions of AUM and I think that they will get there.

But I think what you're saying is there's maybe not enough investors that or or too many too many people are just not actually wildly ambitious at all. you know, they're like, I just want to they're running a lifestyle business, which is totally fine. Yeah.

Um, and obviously they're building they're they're they're hopefully doing the these venture companies are doing good in the world. It's not like they're not doing good. Uh they're they're out there doing a good thing and uh but we just we just tend to not follow our own advice. Okay.

Now, let me let if I come to you and I go to the the the the Silicon Valley market and I say I'm I'm going to do it differently. I'm taking high dilution. I'm going to take this company public. I'm starting the a venture capital firm that will scale.

Is that even a viable strategy or is there some sort of like market dynamic that prevents that from even being possible? It it it might be very hard given the constraints that other people want to put on the market and stuff like that and different people have tried.

So obvious obviously we we saw Soft Bank try and maybe kind of pull back. We saw some other folks who did have a different level of ambition. the crossover investors and and some of the powers that be internally have kind of fought against it. It's it's it's tough and the venture capital market itself is very small.

So it's you know the private equity market is just a much much bigger market especially when you talk about things like private lending you know Apollo just has a much bigger sandbox that they can play in than at least Andre Horitz today.

doesn't mean that will change cuz the the venture capital market is getting bigger and of course Andre Hors is going to move into other things. They'll move into wealth management. They're going to move into a lot of other adjacent things over time.

Uh so that's the really the way it's like you you you get this niche in in venture capital that niche really can't be that big and then you'll have to layer on other things to to grow just like any other company. If you're if you're Facebook just for Harvard University, there's only there's only how big you can grow.

Yeah. Um even for all the universities, there's only you you've got to move into other markets if you really want to become a great company. So many VCs or big poker players, one of the major tier one firms should open a casino and just start running cash games and have rules. No crying. Yeah. No crying in the casino.

Open a literal casino. That's the way to do it. Say if you start crying, booted. You're booted. Yes. Uh, this is great. Uh, well, but please we'll we'll have you back on the next time to noodle on this. What are you What are you doing for the fourth? Yeah. What are you doing for?

Uh, I'm in I'm in Wisconsin for the fourth. Oh, there we go. Stay in America. Let's hear it. Let's hear it from Capital Alligator. Yeah, for the fourth. That is That's American dynamism in practice. Yes. Staying in America for the fourth. We salute you. Absolutely. Great to see you, Orin. Yeah. Thanks, guys.

Enjoy the holiday. Cheers. Up next, we have uh Meron Jalali. I hope I'm pronouncing that right. Um I think we got through all of our ads, which is rough. I like doing ads and now we're now we're out of them. Well, we have one more. Graphite. I I don't have an but graphite. dev code review in the age of AI.

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