20VC: Inside Carnegie Mellon's $4BN Endowment | Why 90% of LPs Shouldn't Invest in VC | The $140BN Problem with Multi-Stage Funds | The Hidden Math Behind DPI, TVPI, and Illiquidity with Miles Dieffenbach
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🎯 Summary
20VC Podcast Summary: Inside Carnegie Mellon’s $4BN Endowment & The Realities of Venture Capital
This 87-minute episode features Harry Stebbings in conversation with Miles Dieffenbach, Managing Director of Investments at Carnegie Mellon University’s (CMU) Endowment, offering a rare look into the endowment’s investment philosophy, portfolio construction, and candid views on the venture capital asset class. The discussion also touches on Dieffenbach’s personal journey, including surviving cancer, which profoundly shaped his perspective on risk and perseverance.
1. Focus Area
The primary focus is Endowment Management and Venture Capital Allocation. Key themes include:
- CMU’s specific portfolio construction ($4B AUM).
- The risk/reward trade-off in private markets, particularly Venture Capital (VC).
- Critique of current VC fund structures, sizing, and performance metrics (DPI, TVPI).
- The competitive dynamics between multi-stage funds and emerging seed-stage managers.
2. Key Technical Insights
- CMU Portfolio Structure: The endowment targets an 85% Equity / 15% Fixed Income split. Within the equity allocation, 50% is dedicated to private markets (VC, PE, Real Estate, Private Credit), making CMU significantly overweight venture (under 25% of total AUM) compared to peers.
- Performance Benchmarking (PME): CMU rigorously uses Public Market Equivalents (PME) for every private asset class (e.g., QQQ for Venture, mid-cap value for Buyout). Dieffenbach asserts that the median IRR for VC since 1998 is only about 8% net, suggesting LPs are generally not being compensated for the risk taken, especially below the top decile of managers.
- The Five Pillars of Venture: Sourcing, Picking, Winning, Helping, and Selling. Dieffenbach emphasizes that “Selling” (distribution strategy) is becoming increasingly critical, noting that managers who distribute cash immediately upon exit are preferred over those distributing stock due to potential pricing discrepancies.
3. Market/Investment Angle
- 90% of LPs Shouldn’t Invest in VC: Dieffenbach argues that unless a new allocator can secure top decile access, they are better served by public market technology exposure, as the median VC performance lags public equivalents.
- Critique of Seed Funds ($50M–$100M): These funds are deemed structurally flawed for modern seed rounds (average $4M–$5M). To achieve proper diversification (30 companies), a $100M fund cannot write the necessary $1.5M+ checks required to compete for consensus deals, forcing them into subscale ownership or non-competitive rounds.
- Multi-Stage Dominance: Large, multi-stage funds are effectively “flagging the seed” stage with larger checks and a lower cost of capital, crowding out smaller seed specialists, unless those specialists focus on truly non-consensus ideas.
4. Notable Companies/People
- Miles Dieffenbach (CMU): The guest, providing institutional LP perspective.
- Carnegie Mellon Endowment: Manages $4B AUM, known for its aggressive private market allocation.
- Sequoia/Accel/Index: Mentioned as examples of premier, established brands whose partner networks drive proprietary sourcing.
- Square (Block): Cited as an example of a company whose management team was permanently excellent at the “Selling” pillar.
5. Regulatory/Policy Discussion
No specific regulatory discussions were highlighted, but the conversation heavily implied the need for greater transparency and realism in manager reporting, particularly concerning the aggressive valuation marks seen in 2021/2022 vintages.
6. Future Implications
The industry is heading toward greater bifurcation:
- Elite Access: Top-tier managers will continue to command access and premium returns (70% access, 30% picking).
- The Squeeze on Mid-Tier/New Funds: Smaller, less established funds will struggle significantly due to competition from scaled multi-stage players and the difficulty of achieving diversification in today’s high-priced seed environment. LPs must be highly selective or stick to public markets.
7. Target Audience
Institutional Investors (LPs), Venture Capital GPs, and Investment Consultants. Professionals managing or allocating significant capital to private markets will find the data-driven critique of VC performance and fund sizing most valuable.
🏢 Companies Mentioned
Circle
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If Wiz
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Your Googles
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ARR SaaS
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Mark Suster
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Do LPs
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General Catalyst
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Should I
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Series A Series Bs
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GC Lightspeed
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Dream Games
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Benjamin Graham
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Because I
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Vision Fund One
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SoftBank I
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💬 Key Insights
"The public markets are now pricing risk very differently than they have over the last three years. You look at Circle, you look at Nebula, you look at CoreWeave, you look at Palantir, you look at Cloudflare, like these are all businesses trading at extremely healthy multiples."
"And we probably would have sold, like who would have guessed that Circle was going to trade at a hundred times EBITDA in the public markets and that stable coins in a year and a half were going to be like the hottest sector in crypto. You could not have predicted that."
"And so they were hitting a 30% discount plus or minus to the last round valuation, which was I think their last price was around $5 billion, you know, $3.5 billion valuation. And you look at Circle and it's a $50 billion company today. This is a 13-year fund that is essentially going to do an extra three turns on the fund in its 13th year. Unbeatable."
"There's not much of a market for a $100 million ARR SaaS company growing 15% with break-even free cash flow when you can buy Microsoft growing top line at 14%, growing earnings at 17% with real gap profits buying back 1% of the company every year with the strongest competitive moat in the world."
"2002 to 2004, you had more dollars raised in the public markets for IPOs than you did from 2022 to 2024 with an asset class 10 times the size."
"What will fee structures be in venture in 10 years time? If you're raising, you know, that early-stage fund, the core $500 million here is a fund, charge us two and twenty. And if you're good enough to two and a half and thirty, we're okay with that, right? But those, those growth funds that are really for scale businesses that are mature assets, like you should be charging long-only public equity fees, which are one and ten."
📊 Topics
#artificialintelligence
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#startup
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#investment
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