20VC with Harry StebbingsCan You Still Win in Venture Without a $1BN Fund? Menlo’s Venky Ganesan on the New Rules of VC
20VC with Harry Stebbings
The Avenex Lesson 1:31
Venky Ganesan tells a story from two decades ago when he was an associate at Globan Capital Partners, which had invested in a company called Avenex. He bought shares at the IPO for about five thousand dollars, and at one point that stake grew to two hundred thousand dollars during the internet bubble. His fiancee suggested selling some to save for a house down payment, but he refused, convinced optical components were central to the internet's future. The stock then dropped ninety percent, and he sold what remained for eight or nine thousand dollars. He draws the lesson that at some point you should take chips off the table, though he admits the advice depends on your personal context and balance sheet, since Menlo today is deliberately swinging for grand slam outcomes given its history of past home runs.
Venture In A Disorienting Era 4:31
Ganesan describes venture as barely recognizable right now, with his own team telling him they cannot find deals priced under one hundred million dollars, a figure that turns out to describe round sizes rather than valuations. AI companies are raising hundreds of millions, and some labs want billions. He argues you cannot draw long-term strategy from a single disorienting snapshot in time, since conditions shift quickly. Drawing on Bill Gurley's idea of playing the game on the field and the Chuck Prince line about dancing while the music plays, he recalls smart firms that stepped out of the market in 1996 and 1997 only to miss 1997 through 1999, then reentered in 2000 at the peak. His answer is not to time the market but to stay in it while being more selective, using portfolio composition and position sizing to manage risk.
Options, Seeds, And Gamed Metrics 8:02
He frames each seed investment as an option bet worth making in enough volume to ensure you catch an outlier, then sizing up once quantitative evidence like revenue appears. Seed investing itself has gotten harder because large funds are willing to overpay at that stage simply to buy a seat at the table for later follow-on. He also warns that any metric investors lean on, such as net revenue retention, tends to get gamed, citing how splitting one large purchase order into smaller sequential ones can inflate retention figures. He references the economic idea of the bezel, where booms hide rising creative accounting, and argues the healthier question is whether founders are chasing terminal value or just chasing markups. On so-called kingmaking, where fast successive rounds from strong investors fuel a company's rise, he calls it Soros-style reflexivity that works until debt defaults or overleveraging cause it to break, and he voices discomfort with founders now stacking tranches of a round at rising prices within the same week.
Ego versus the job of returning money 16:31
You raise money from institutional investors with one real goal, which is to return more than you were given, and everything else is noise. Venture capital gets dominated by personalities because, unlike a public market where anyone can simply buy Nvidia, investors are fighting over a single lead check from a founder like Max Altorf. That scarcity forces investors to project charm and differentiation to win deals, but the core purpose of that charm is still to make money for investors, and when ego gets in the way of that purpose, ego should lose.
Paying up and the cost of passing 20:30
Paying a higher price sometimes just means winning a bidding war, but other times it reflects genuinely seeing a bigger total addressable market than other investors do. Venture is an asymmetric game, since a bad investment only loses the money put in while a right one can return ten times over, which means the costliest mistakes are the deals passed on, not the deals done. The most haunting example given is passing on a seed check into Plaxo around 2004, when Sean Parker, freshly removed from that board, described leaving to work with a college dropout on what became Facebook, and the chance to write a fifty thousand dollar check was never taken.
Reading founders and rethinking ownership 22:31
Understanding what brought founding teams together matters because the founders set a company's culture and DNA, including how they see their own and each other's strengths and weaknesses. A favorite interview question is asking what a person's five best friends would say about them in three words, since that externalizes self-awareness better than asking someone to describe themselves directly. On ownership, ten percent of a company sized to opportunity can beat twenty percent of a small one, as shown by taking under two percent of Anthropic, though the view offered is that investors should hold real ownership early for information and conviction, then size up as evidence of an outlier emerges, since position sizing before the data exists carries far more risk, and a fund built only on home runs without any smaller wins becomes a tough fund.
Betting On Downside Protection 32:31
You often hear investors justify big checks by assuming a strategic acquirer will always provide downside protection, citing deals like AMD buying a company for 8.5 billion, Nvidia buying Hugging Face for 14 billion, and Stripe reportedly buying OpenRouter for 8 billion. Venky Ganesan warns this mindset is dangerous because it echoes the dot-com era, when Nortel bought Cyras for 3.5 billion and Lucent bought Chromatis for 4.5 billion, companies with no product and no revenue, only teams, paid for in stock. He recalls Redpoint's Jeff Yang once saying there was no risk in venture because companies would either succeed or be bought for the pro-rata stack, a claim that did not hold up after March 2000. Ganesan points out that acquirers care about founders, not investors, and in structured deals founders can sometimes get hired on the same package while investors are left out.
Dilution Has Become Severe 35:31
Ganesan says investors now routinely expect around 60 percent dilution from the first check to exit, a mix of dilution from financing rounds and from option pool expansions, meaning an initial 10 percent stake often shrinks to 3.5 to 4 percent by the end. He notes a split between two kinds of companies: slower-growing ones that suffer heavy dilution over a long holding period, and fast-scaling ones, like OpenRouter, that take on far less dilution because they grow so quickly and efficiently. The key variable is time horizon, since a long hold hits both your IRR and your ownership, while a fast exit protects both. Fast valuation growth also lowers the equity cost of hiring, since a 200 million company giving 2 percent to a senior hire might only need to give a fraction of a percent in RSUs once it reaches 2 billion. Ganesan argues that today IRR matters more than it used to, because every venture-backed company effectively pays a tax to Nvidia, a hyperscaler, or a foundation model, all of which are or will be available through low-fee public index funds, so private venture returns need to beat that bar by a wide margin.
Competing Companies And Committed Capital 40:30
Ganesan explains that Menlo avoids backing multiple competitors in the same space once it takes a board seat, treating a big check as a two-way commitment with the founder, which is why the firm invested in Anthropic but not OpenAI. On deployment speed, he notes the contradiction in LPs wanting smaller funds while also wanting slower deployment, since real growth opportunities in AI require fast capital the way Google, which raised under 50 million privately, never needed. He cites Menlo's own history, including Menlo 8, a fund deployed in just ten months between 2000 and 2001 that failed to return capital, as a reminder that vintage diversification matters, even as Menlo 7 became one of the firm's best funds. Menlo's anchor LP since 1981 has been the Washington State Investment Board, a choice rooted in the founders' humble backgrounds, though the firm's first billion-dollar funds, Menlo 9 in 2001 at 1.5 billion and Menlo 10 in 2004 at 1.2 billion, underperformed and led some LPs to leave. Ganesan says LPs today mainly want DPI, actual cash returned rather than paper gains, and want exposure to the AI economy to hedge their much larger private equity portfolios, which are heavily weighted toward software now directly affected by AI.
When to sell your winning position 48:30
Venky says that whenever a position is up thirty, forty, or fifty times, you should ask whether to take some money off the table. The right moment is often when the founder themselves starts selling some of their shares, and an investor can work alongside them. He does not see this as a size issue, pointing to the overheated 2021 SaaS valuations as a case where even locking in ten to fifteen percent would have helped. Taking some chips off the table also frees you to stay in the position longer, aligning investor and founder for the long run. He rarely sells his entire stake unless a company is actually being acquired, and says he generally rides with founders to the end rather than exiting early on a whim.
Founder mode and recent acquisitions 50:30
Pushed on the idea that a startup is worth writing off once its founder leaves, Venky disagrees, citing operators like Nikesh Arora and Frank Slootman, who stepped into companies such as Data Domain, Snowflake, and ServiceNow and ran them with founder-like intensity despite not founding them. He argues founder mode is a way of working, not a trait tied to the original founder. On the wave of large acquisitions, he points to competitive pressure, since one company's deal forces rivals like Nvidia and AMD to respond, plus a regulatory window that currently allows mergers to go through, plus equity prices high enough that even an 8.5 billion dollar purchase is a small fraction of a company like AMD. He cites Meta's 15 billion dollar bet on Scale AI as looking cheap in hindsight, and credits Zuckerberg as an elite capital allocator, from buying Instagram for a billion dollars to WhatsApp for 400 million.
Money, authenticity, and fund size 55:30
Venky argues money does not change people, it reveals them, so founders and employees who are genuinely driven stay driven regardless of wealth, while those just acting the part opt out once money arrives. Asked about rising Bay Area costs, he blames restricted housing supply and local resistance to new building, not demand. He defends Brian Armstrong's stance of keeping political activism out of Coinbase as an act of authentic leadership, and admits he himself has sometimes said inauthentic things to win deals or please founders, though he now refuses to. He believes he has become a better, less fearful investor as he has gotten wealthier. On fund size, he says thirty to one hundred million dollar funds are currently the toughest place to compete, though exceptions like Sarah Tavel's smaller fund show it can work through sheer hustle. He closes by comparing the trouble in venture backed, overvalued SaaS companies from 2021 to private equity owned firms, saying the SaaS companies are worse off since no one owns enough equity to fix them, whereas PE firms at least hold majority control to act.
Dressing with intention 1:04:31
Venky explains why he dresses up for partner meetings, a habit shaped by advice from his father, who told him that dressing well is not about yourself but about signaling respect to the people you are meeting and the seriousness of what you are doing together.
Favorite firms outside Menlo 1:05:31
Asked which funds he would invest in outside his own, Venky names Bessemer for growth investing, citing his respect for cofounder Byron and for David Cowan, and points to a group called E14, out of MIT, as a seed-stage team he admires for understanding the AI ecosystem.
Toughest competitor 1:06:02
When asked which competitors are hardest to beat, he singles out Benchmark, naming Eric Chaiton, Bill Gurley style partners like Everett and Jack, calling their combination a beast, and says he thinks more about individual people than about firm names.
Advice for LPs 1:06:33
His top advice to limited partners is to look at the windshield, not the rear-view mirror, since past financial results are a lagging indicator stretching five to seven years back; instead, LPs should ask successful entrepreneurs which partners they respect and check whether those names show up at the firm in question.
Staying hungry, not arrogant 1:07:30
He keeps his team from getting complacent by reminding them they are only as good as their last investment, using the image of the lion and the antelope who both have to run each morning just to survive, and by treating the next meeting, investment, and board meeting as the most important ones.
Marriage and partnership 1:08:00
On marriage, he says the key is marrying someone better than you and then convincing them to stay, and that finding a partner who inspires you to be your best self, built on love and real respect, is what sustains a long relationship.
Best advice received 1:08:30
He recalls being told that you are never wrong to do the right thing, though the right thing is often the hard thing, and shares a line from Ronald Reagan passed on by a former CEO, that there is no limit to what you can do if you do not care who gets the credit, a lesson he says freed him early in his career from chasing recognition.
Closing exchange 1:10:01
The conversation ends warmly, with the host praising Venky's humility and calm presence, and Venky joking that he lowers the bar among the show's successful guests, before the host shares that a colleague ranks this podcast alongside her favorite shows.
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