20VC: How We Made $800M on Coursera | We Lost Money on Uber and...

Full Title

20VC: How We Made $800M on Coursera | We Lost Money on Uber and Made Money on Lyft | We Did 3x on Postmates in 18 Months | DPI is King, MOIC is BS | We Dodged Theranos and I Still Lost Millions with Larry Aschebrook @ G Squared

Summary

Larry Aschebrook, co-founder of G Squared, shares insights into his venture capital firm's investment approach, highlighting significant successes like Spotify and Coursera, alongside lessons learned from challenging losses in Uber, 23andMe, and Gettier. The episode underscores the firm's strategic pivot to a data-driven, cash-return-focused philosophy (DPI) to navigate market irrationality and build lasting LP trust.

Key Points

• Spotify Investment Success: G Squared achieved a billion-dollar outcome for LPs by aggressively buying Spotify shares at a 50% discount during market turbulence when major artists and Apple Music posed perceived threats, leveraging proprietary knowledge that record labels were also investors and exercised their options. This reflected a contrarian investment approach based on deep market insight.
• Divergent Ride-Sharing Outcomes: The firm gained a 3x return on Lyft by strategically selling most of its shares before its IPO, identifying it as a value play, while simultaneously losing 20 cents on the dollar on Uber due to its challenging public market debut and G Squared's disciplined approach of rarely holding post-IPO. This illustrates the importance of timely exits and avoiding herd mentality.
• 2020-2021 Vintage Overpayment & Market Irrationality: G Squared acknowledged significant errors in its 2020 fund, deploying $900 million into primary and secondary deals at inflated valuations when "all rationality left the room," leading to overpaid assets. This necessitated a strategic shift to structured equity deals and active secondary market participation to lower cost bases.
• Shift to Quantitative Investment Strategy: Following the downturn and valuation corrections in 2021, the firm transitioned from a qualitative, "gut-feel" investment approach to a rigorous, numbers-driven strategy. This change was crucial for their growth-stage investments, where precise valuation entry points are necessary to achieve target net returns (e.g., 2.5x in five years).
• Theranos Avoidance and Personal Cost: Larry personally suffered a multi-million dollar loss by breaching a signed agreement to invest in Theranos due to an "icky gut feeling" and his epidemiologist wife's scientific doubts about the technology. This painful experience reinforced the importance of trusting intuition and thorough due diligence, even at a personal financial cost, to protect the firm's reputation and LPs.
• 23andMe Failure and Layered Selling Strategy: The firm made a significant error by holding onto its 23andMe position too long after its SPAC merger, chasing further multiple expansion, which resulted in selling shares at a substantial loss. This highlighted the critical need for a disciplined, dollar-cost averaging exit strategy for public positions.
• Gettier Loss and Decision to Walk Away: An initial successful investment led to a larger, problematic follow-on investment in Gettier, where the "fighting" mentality prevented walking away from a losing battle, resulting in significant capital loss and fundraising challenges for future funds. This underscored the importance of recognizing when to cut losses.
• Current AI Investment Thesis: G Squared's strategy for the AI sector involves concentrated bets on foundational models like OpenAI and Anthropic, alongside investments in "picks and shovels" companies supporting AI infrastructure. They are cautious of application-layer businesses, noting that AI is becoming integrated into all enterprises, distinguishing between adaptable "vampire" incumbents and stagnant "zombie" companies.
• Emphasis on DPI for LP Trust: The firm's core philosophy centers on Distributed to Paid-In (DPI) as its "North Star" metric, prioritizing the actual cash returned to LPs over unrealized paper gains (MOIC or TVPI). This focus on tangible distributions is critical for building enduring trust and ensuring LP satisfaction and future fundraising.

Conclusion

Achieving sustained success in venture capital requires a commitment to a disciplined, numbers-driven investment process, prioritizing actual cash returns to LPs over inflated paper valuations.

Trusting one's intuition and having the courage to walk away from deals, even when initial capital has been committed, is a critical lesson for protecting fund and LP interests.

True firm-building involves fostering a culture that constantly seeks improvement, admits mistakes, and remains grounded, focusing on value creation for LPs rather than merely chasing status or market momentum.

Discussion Topics

• In a rapidly changing market, how can investors balance aggressive capital deployment for high-growth opportunities with the discipline needed to avoid overpaying for assets?
• What role should a fund manager's personal "gut feeling" play in investment decisions, especially when it conflicts with quantitative data or the herd mentality?
• How can LPs effectively evaluate venture capital firms, and what metrics beyond traditional MOIC or TVPI should they prioritize to ensure alignment with their long-term cash return objectives?

Key Terms

DPI (Distributed to Paid-In)

A financial metric measuring the total cash distributions returned to investors relative to the capital they have invested.

MOIC (Multiple on Invested Capital)

A metric in private equity and venture capital measuring the total value of an investment (realized and unrealized gains) relative to the original capital invested.

SPV (Special Purpose Vehicle)

A legal entity created for a specific purpose, such as holding particular investments for a group of investors.

Structured Equity

An investment with embedded contractual terms, such as minimum Internal Rate of Return (IRR) hurdles or multiple returns, designed to protect or enhance investor returns.

Primaries

Investments made directly into a company, where capital goes to the company itself, typically for growth.

Secondaries

Investments made by purchasing existing shares from current shareholders, rather than directly from the company.

ROFA (Right of First Refusal Agreement)

A contractual right giving a party the option to engage in a transaction before it can be offered to a third party.

LLM (Large Language Model)

A type of artificial intelligence algorithm using deep learning to understand, summarize, generate, and predict new content.

Vampires

Large, profitable private companies that are not AI-native but possess the resources and ability to integrate AI and adapt to market changes.

Zombies

Large private companies that lack AI integration and the ability to adapt, facing severe challenges or obsolescence in an evolving market.

Timeline