E254: How to Build a 100-Year Venture Firm
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this episode, Mark Peter Davis (MPD), Managing Partner of Interplay, shares insights from his 20 years in venture capital and entrepreneurship. Mark discusses how his investment philosophy has evolved from the initial "TechCrunch Punch" optimism to a more balanced approach that pursues power-law outcomes while managing risk across vintages. (00:35) He explains his firm's unique strategy as the "dominant value add institutional non lead partner" for Series A rounds, allowing them to access highly competitive deals without competing directly with lead investors. (15:44)
- Main themes: Balancing venture's power-law dynamics with risk management, building institutional durability, and creating unique competitive advantages in an oversupplied market
Speakers
Mark Peter Davis
Mark Peter Davis is the Managing Partner of Interplay, one of New York's most active early-stage venture capital firms. Over his 20-year career, he has built an impressive portfolio of over 200 companies including nine unicorns, while also co-founding 15 companies with five successful exits. He manages over half a billion dollars across the ecosystem and is the author of "Fundraising Rules," bringing both operational entrepreneurial experience and institutional investing expertise to his role.
Key Takeaways
Master the Balance Between Power-Law Pursuit and Risk Management
Mark emphasizes that while venture capital is driven by outlier outcomes, successful firms need to architect approaches that pursue these massive returns while maintaining consistency across vintages. (03:37) Too many VCs experience huge performance swings between funds - a great Fund I with a unicorn, followed by a poor Fund II without one. The key is not just chasing the top 10% of portfolio companies, but ensuring the top 80% contribute meaningfully to returns through strategic liquidity management and secondary opportunities.
Leverage Secondaries as a Strategic Tool, Not Just Emergency Exits
Davis reveals a counterintuitive approach to secondaries, particularly when mega funds offer to purchase existing shares at current round valuations rather than discounts. (05:50) When large investors like Sequoia or Andreessen want to increase their ownership beyond 20%, they often issue secondary tenders at full valuation. Smart VCs can use these moments to take chips off the table while still maintaining upside exposure, especially when they can't underwrite the current valuation to attractive future IRRs.
Create Unique Market Positioning Through Strategic Constraints
Rather than competing in the crowded lead investor space, Interplay deliberately stays in the non-lead category, becoming "an NBA player in the high school basketball league." (16:36) This positioning allows them to avoid competing with top-tier firms while offering institutional-level operational support that dramatically differentiates them from family offices and smaller VCs competing for the same allocations. The result is access to highly competitive deals with much better win rates.
Build Proprietary Deal Flow Through Genuine Value Creation
Mark describes how giving consistently to the ecosystem - through podcasting, blogging, hosting community dinners, and operational support - creates genuine goodwill that translates into proprietary deal flow. (20:19) When they identify attractive opportunities early, they commit pending lead terms, which provides market validation to entrepreneurs and helps them meet better-suited lead investors. This approach has never resulted in them being cut out of deals they've introduced.
Compound Grit Like Interest for Long-Term Success
Drawing from Warren Buffett's concept of compound decisions, Mark emphasizes that simply having endurance and commitment to continuous learning will dramatically increase success probability in venture and entrepreneurship. (39:50) The key insight is that many people choose shorter paths to financial success, but those who stay passionate and committed to the longer entrepreneurial journey eventually become some of the wisest people still standing in the game, with compounding relationships and knowledge working in their favor.
Statistics & Facts
- Interplay has invested in over 200 portfolio companies, including nine unicorns, demonstrating the scale and success rate of their investment approach. (00:00)
- At their peak, Mark's collective portfolio of service companies was servicing approximately one out of every 10 venture-backed companies in America, providing unique operational insights and deal flow. (32:15)
- Mark notes that venture capital typically takes ten years to see a full investment cycle, meaning investors don't understand the complete picture of exits and liquidity management until they're a decade into the business. (00:35)
