The Loudest Models (with Trace Cohen)

How The Venture Ecosystem Gets Pulled Towards The Loudest Actors

Kyle Harrison

Jan 25, 2025

Transcript

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Welcome to the alpha test of me sharing some of my conversations. I've got a bunch of LPs, GPs, and anonymous Twitter accounts who I vibe with on all things the evolution and dynamics of venture capital.

For this alpha test, I'm talking to Trace Cohen who is starting Six Point Ventures and has angel invested in 30+ companies. We jammed on a couple topics that I summarized below.

Loudest is Proudest

The first bit of our conversation was in response to my piece from last week, Venture Capital Unbundled and Trace's response, The Great Bifurcation: How Venture Capital is Splitting into Two Worlds. The main idea is this one that I've touched on before:

"As venture capital evolves it often tilts not in the direction of what you think it should be, but what the loudest people with the most capital decide they want it to be."

The problem, then, that Trace and I touched on in both our pieces and in our conversation is that the loudest thing in venture capital are the capital agglomerators. But when they're sucking up all the attention of the funders, founders, and LPs, everything starts to look the same. As I said in our conversation today:

"Every business gets built to be the biggest business it possibly can be, to burn as much cash as it possibly can, and to be as multi-faceted, complex, and risky as it can be. For some businesses, that's great. But I don't think that's true of every business. But the loudest model pulls everyone into believing that's the right way to do things."

Capital Destruction in Private vs. Public

The second bucket we touched on is capital destruction. When we talk about the hype cycles that drive massive amounts of capital into fairly immature companies, there is a common other side of the coin -- companies stay private longer. Even Goldman Sachs' David Solomon is saying private companies should "rethink" going public because there is so much capital available in the private markets.

There isn't necessarily anything wrong with that. But one of the biggest benefits of going public is increasing the accountability and scrutiny on a business. Shining light on something can be the best disinfectant. Think about the case of WeWork. They didn't do anything illegal or immoral; they just had an atrocious P&L. When they went public and shone the light of day on their business, it forced them to reckon with a multitude of sins.

If fewer companies go public, then we understand them less. And the less we understand them, the less accountability there is. If, in some cases, there are instances of capital destruction that happen in private. And, in my opinion, its healthier when capital destruction happens in public. No better antidote to hype than a big dose of reality.

Intermittent Outcomes vs. Overall Outcomes

Finally, Trace and I touched on this idea that I've written about before:

"Investors are not measured by ultimate outcomes (e.g. the company from beginning to end), but rather are measured by intermittent outcomes (e.g. hold periods.) And in many instances, that intermittent outcome is completely divorced from that ultimate outcome."

I understand that funds have fixed lifecycles and need to exit. But there is a broader conversation to have about the overall economic focus on shorter outcomes vs. longer outcomes, and it hasn't been the healthiest thing. When investors, and even founders, care more about their "exit value" vs. the overall outcome value, that creates perverse incentives.

I think approaches like Sequoia's evergreen fund have the right philosophy (e.g. enabling them to capture more value in the long-run) though its difficult to execute a wide variety of strategies if you have the same decision making team at different stages of a companies life.

But I love instances where our focus gets pointed at overall outcomes. For example, I've seen people point out that you can feel like you've missed out once a company goes public. But for businesses like Google or Shopify you could have bought at IPO and captured 80-90% of the value as of today.

I love that. I want us to focus more on overall outcomes of the things we build, not just entry and exit price. Certainly harder to do, but valuable in the long-run.

Enjoy my conversation with Trace!