Autumn Manning:

Welcome Venture Fools and everyone who is considering joining us on our journey as we move towards our first close of Motley Fool Ventures fund too. I’m Autumn Manning. I’m actually a new partner with the fund and I’m here with, I like to put you on the spot, Ollen Douglass, the man of the hour, the managing partner of Motley Fool Ventures. How’s it going, Ollen?

Ollen Douglass:

It is going well, autumn. It is good to be here with you. Everyone, this is part of a regular series that we have called ask Ollen. Investors throughout the month through our interactions, give us questions that we think are interesting and we come together and share those results. We were having a conversation with an LP yesterday and Autumn and I got together afterwards. We started talking about it and we decided that this would be a great ask Ollen to share not only with our existing LPs, but to give the ones that are considering investing a little peak behind the curtain of what it’s like to be a venture fool. So Autumn, we are very glad to be here.

Autumn Manning:

I’m so glad. Anytime I get to steal a couple minutes of your time, I’ll take it. So let’s dive right in. We’ve been talking to a lot of investors. You just mentioned that, and we’re talking about, we’re hearing a lot about market volatility and what the heck is happening in the world. And how do you think about investing in a venture capital fund in the middle of such a chaotic global landscape? So I want to hear your perspective on that one.

Ollen Douglass:

Thanks Autumn for the easy question. I appreciate that.

Autumn Manning:

Welcome.

Ollen Douglass:

And for us, I think the way to think of it is obviously we are long term investors speaking more, very broadly. The stock market volatility does happen. And so it’s not unusual. And for long time fools, we’ve gone through this before. That said having a global war following of pandemic, this is a bit much, and I did some research on what happens to our stock market in the wake of these kind of global events and generally speaking, and just largely wars are global conflicts. The stock market on average is down roughly, a few percentage points below that 8% to 10% long term average. And 13 months later, it’s usually a few percentage points above that 8% to 10% long term average.

Ollen Douglass:

So in spite of the intensity that we feel right now, historically at least the markets do react to to these event. You do see them go down, they can go down 10, 20, 30%, but for the most part within a year, there’s been a recovery in the market. And for us with a venture fund that has a 10 year horizon, and really speaking about this in the economic terms, just to be clear about that, they’re probably going to be more opportunities to buy attractive companies without those sky high valuations during this time. So from that respect, we’re a little bit excited about having some cash and having a market that’s not at its peak.

Autumn Manning:

Yeah. It also speaks to our long term philosophy. So thank you for that. I was actually reading the last newsletter that we send out, which is another thing we do regularly for our limited partners. And we always get a chance to hear your perspective. And in that recent newsletter, you mentioned, you talked a lot about this

Ollen Douglass:

Thanks Autumn. And it’s a wonderful way you ask that question, that the question was framed to me a little bit differently from an LP I love, and I hope that they’re listening to this because they will record and ask their question and frame in their response, it was… I guess it was paraphrased. When are you going to start sending me more money than I send you? That was the question.

Autumn Manning:

I like that one better.

Ollen Douglass:

Yes. And we thought about it and it’s like, it’s actually a really good question. For everyone that has heard me talk about the venture front and how to think about it. Use the analogy of a circle, where that first five years we were putting money in and the second five years of putting money out and hopefully we’re done at the end or pretty close, but that question, maybe think a little bit deeper about what’s going on and how venture capital can fit into a longer term investment strategy.

Ollen Douglass:

Our fund, you wouldn’t be surprised to see is a model. And it has expectations about when the money goes out, when the money comes in the 3X return, how that plays out over the years and to keep a long story… To make a long story short, when you run that over three venture funds, you end up in a situation where the answer to that question is right around five years. So for the first five years, whether it’s capital calls fund one or fund two, you wouldn’t be fund three yet you’re sending money to me. But around that time, the money from fund one starts to, in a model, starts to overtake the outflows for front two. And when you step back, what you see is that for the first five years, you’re putting money in and for the next decade and maybe a year or two longer money is coming back to… Your net money is coming back to you.

Ollen Douglass:

So it’s making capital calls later, but you’re getting distributions that it should be high higher than those capital calls. And it’s really exciting to think about that. We all know that investing in a venture fund is not entirely liquid, which can be frustrating. But when you think about investing for the next generation in turning over hundreds of thousands of millions of dollars to your kids, maybe a little bit of illiquidity is not a bad thing. And just to have them locked into something where they can learn and receive distributions of a time, it’s a really interesting way to think about how you frame up venture capital in a way that’s a little bit bigger than just what am I doing with this fund this time, at this time.

Autumn Manning:

I love that. Thank you. Thank you so much for sharing that. And I’m sad to say we’re almost done. Our time flies by, but I do want to close with one final question. And it’s really more about, we have a lot of investors who have already made a commitment amount, but we have others that are just wondering about how to think about what amount to commit in our second venture fund, Fund 2. So can you share some final words of wisdom or advice on how to think about making that decision on their final commitment amount in our second fund?

Ollen Douglass:

Thank for that, Autumn, and this is a really, really important question because, because it is really important for us that you are comfortable with the amount that you’re committing. We count on that money being there. And so we want it to be there when we call it. But by the same token, I think about venture fund is it is a riskier investment and people should be doing this with the money that’s a little bit more discretionary. And in that sense, it’s supposed to be fun. It’s supposed to be interesting. You are supposed to take a little bit more risk for that big reward. We want you to have things to talk about and be excited about. This should be a source of joy, not a source of stress.

Ollen Douglass:

And so when it comes to your commitment, we really want people to select an amount that they’re comfortable. Times have changed. We first started mentioning the fund in September 2021, and it’s been a few months since then. The markets were all tech investors and we won’t go there now, but even if you’re not selling, no one feels as wealthy as they did a few months ago.

Ollen Douglass:

Two things that I’ve heard LPs doing that I’ll share. And again, make it clear. This is not investment advice. I’m just sharing what I’ve heard is, some investors are asking is it possible for me to put some in fund 1, I mean fund 2. Some in fund two in the first close and then up my commitment later in the year when we have a second close and others are investing. Wow. I think maybe I just want to wait. And what we would say to that is we don’t know if we’re going to have a second close. And if we do for, for high work investors, the fees and other terms do go up. Our focus after March is going to be turning to institutional investors. And if their appetite is strong, we may not see a need to kind of open up broadly to the second close. But we are committing that if there are investors that have dollars in the first close, we will go back to them to see if they want to increase their investment in the fund before we do that final close.

Ollen Douglass:

So for folks who are sure they want to be in, are not quite sure of how they want to do it, there’s a mechanism there that kind of gives you the best chance of having that opportunity for those where the time is not right, I think honestly, I think the risk of not getting in is probably okay, given the sensitivity around it, if this is going to be money that’s to make or break for you, then I would rather you wait until you’re fully comfortable.

Ollen Douglass:

I enjoy the conversation with LPs. I enjoy happy LPs. I don’t want 800 unhappy LPs. So when I say, I want you to be happy, I really mean it. So I would say, think about your options. You don’t have to do it all at once and maybe now is the right time. If not the right time, and that’s okay. But we want you to do what’s right for you. With that autumn, I think we’re running a little long, so I want to close it up by turning it back to you to close it up.

Autumn Manning:

Awesome. Well, you’re right. We’re done. This time flies by all the time, every time. Every time we talk, it goes by so fast. And for everyone who watched thank you so much. Just a level set where we are, we’re in the middle of our first close for our second venture capital fund. We’re super excited. We hope this was helpful. If anyone needs us, they want to talk to us about any of these things we talked about, shoot us a line at investatfoolventures.com and we’ll play right away. And then until next time, I’ll say thanks Ollen also for your time.

Ollen Douglass:

Thanks, Autumn. Fool on everyone.